Integrated Operations: how Statoil is managing the challenge of change

management focus first break volume 25, October 2007 Integrated Operations: how Statoil is managing the challenge of change Adolfo Henriquez,1 Inger...
Author: Josephine Jones
2 downloads 0 Views 185KB Size
management focus

first break volume 25, October 2007

Integrated Operations: how Statoil is managing the challenge of change Adolfo Henriquez,1 Inger Fjærtoft,1 Camilla Johnsen,1 Olav Yttredal,2 and Thomas Gabrielsen3 describe the ongoing efforts by Statoil to institute the concept of Integrated Operations into its business and the management challenges involved in this process. At the beginning of July 2007, EAGE organized a very successful workshop on Integrated Operations (IO) in Stresa, Italy. More than 50 leading practitioners from oil companies, service and technology providers, and research institutions met to share and discuss experiences from the implementation of IO in different companies. A key lesson was that further progress for the industry depends on exchanging experiences and creating a common base on which to compete for new business opportunities. The first phase of implementation in various companies has been relatively easy; the next phase requires a common understanding not only in each company but across companies and across geographical boundaries. In that spirit, we are presenting some of our experiences regarding the management challenges we have tackled, and how this corresponds to the eight-step guide suggested by Kotter (Kotter, 1995). Throughout history, organizations have responded to changes in their business environment. New competitors, new technologies, and changes in resource availability among other factors, require organizations to reappraise how their business is conducted to maintain or increase their competitive advantage. However, empirical evidence shows that only a small percentage of companies benefit from the chances implemented. Several academics and practitioners have tried to identify the factors that contribute to success of change efforts (e.g. Orlikowskia and Hofman, 1997; Huy

and Mintzberg, 2003). One of the best respected authorities on leadership and change is Prof John P. Kotter at Harvard Business School. One of his most interesting contributions to management theory is an eightstep guide to making change efforts in companies and organizations successful. In recent years, the Norwegian oil and gas company Statoil has started executing radical changes in order to implement the concept of IO. For Statoil, IO implies new work processes where real-time data are used to enable better collaboration between disciplines, organizations, and companies regardless of location. This involves moving different types of offshore operations onshore and having a decision-making onshore organization and an executing offshore organization. It also implies improved, real-time collaboration with suppliers, and enables 24-hour drilling and operations support without shift work by including international operation centres.

Integrated operations The Storting (Norwegian Parliament) White Paper No 38 defines IO as ‘Use of information technology to change work processes to achieve improved decisions, remote control of processes and equipment, and to move functions and personnel onshore’. The concept includes, but is not limited to, several related initiatives among suppliers and operators in the oil and gas industry. Some of these related initiatives are Smart Operations (Petoro), Integrated

Operations (Statoil, OLF, and more), eOperations (Hydro), Smart Fields (Shell), Field of the future (BP), Real Time Operations (Halliburton), Smart Wells (Schlumberger), and i-field (Chevron) (OLF, 2006). As the definition states, IO includes the use of ICT and new technology. This is a technological issue, while work processes and changes in roles and responsibilities are mainly organizational and HR related issues. The purpose of IO is to use ICT and real time data as a strategic tool for interacting offshore and onshore locations to improve operations and decision processes in the oil and gas industry (OLF 2006). The drivers for implementing IO concepts are primarily to increase production, extend reserves, and reduce costs (Petoro 2007). In addition, by enabling shared awareness between all involved in operations, the relocation of personnel to onshore sites, and improving proactive maintenance, IO is considered as a tool for HSE improvement (OLF 2007). Being a company highly involved in a wide range of sophisticated technologies, the technical part of an IO implementation is not considered as a major obstacle in Statoil. All the necessary technical solutions are either present or are expected to be developed within an acceptable time horizon. The biggest challenge is to overcome the changes regarding organizational and HR-related issues. During several years of operations, we have developed a special corporate culture and a way of conducting business. Changing these

1

Statoil, N-4035 Stavanger, Norway; E-mail: [email protected], [email protected], [email protected]. StepChange, Dolsvåg, 4639 Kristiansand, Norway; E-mail: [email protected]. 3 PricewaterhouseCoopers, Forus Atrium, Postboks 8017, 4068 Stavanger, Norway; E-mail: [email protected]. 2

© 2007 EAGE

101

management focus fundamental characteristics in our company requires carefully developed strategies and change management. It is this strategy and change management in Statoil that will be evaluated in this article.

first break volume 25, October 2007

istics. A comprehensive introduction to the guidelines cannot be covered in this paper. For more information, Kotter’s work and in particular ‘Leading Change’ (Kotter 1996) are recommended.

Putting steps into practice The eight steps Kotter’s eight-step guidance for successful change management is shown in Table 1. It is based on his empirical study of change efforts of more than 100 companies with different character-

Establishing a sense of urgency To create a sense of urgency for implementing IO, Statoil has used several approaches. First, we refer to the OLF report conducted by ABB and Epsis in 2006 which concluded that the

Step Effort 1

Establishing a sense of urgency N Examining market and competitive realities N Identifying and discussing crises, potential crises, or major opportunities.

2

Forming a powerful guiding coalition N Assembling a group with enough power to lead the change effort. N Encouraging the group to work together as a team.

3

Creating a vision N Creating a vision to help direct the change effort. N Developing strategies for achieving that vision.

4

Communicating the vision N Using every vehicle possible to communicate the new vision and strategies. N Teaching new behaviours by the example of guiding coalition.

5

Empowering others to act on the vision N Getting rid of obstacles to change. N Changing systems or structures that seriously undermine the vision. N Encouraging risk taking and non-traditional ideas, activities, and actions.

6

Planning for and creating short-term wins N Planning for visible performance improvements. N Creating those improvements. N Recognising and rewarding employees involved in the improvements.

7

Consolidating improvements and producing still more change N Using increased credibility to change systems, structures, and policies that do not fit the vision. N Hiring, promoting, and developing employees who can implement the vision. N Reinvigorating the process with new projects, themes, and change agents.

8

Institutionalising new approaches N Articulating the connection between the new behaviours and corporate success. N Developing the means to ensure leadership development and succession.

Table 1 Eight steps to transforming your organization (Kotter 1995).

102

value of implementing IO across the Norwegian Continental Shelf (NCS) has a potential value of approximately $42 billion (OLF 2006). With a share of more than half of the fields on the NCS, this truly represents a large opportunity for the company. Second, a report prepared by Petoro in 2004 ranked our company as fifth out of six operators in terms of IO implementation being a ‘business as usual’ concept in the NCS and being at the forefront in the development of IO technology and concepts (Petoro, 2005). This position was not acceptable if we were to win future licences on the NCS, or to be able to meet the international competition for new acreage. According to Kotter (1995), the first step/phase is more difficult than it sounds, and his empirical study showed that well over 50 % failed in this phase. The reason is often underestimation of the difficulties in driving people out of their comfort zones, overestimation of their success in establishing a sense of urgency, and an aversion to the possible downsides of a major change. To measure the degree of established sense of urgency, Kotter suggests using the urgency rate. His empirical study shows that the urgency rate is high enough when about 75 % of a company’s management is honestly convinced that business as usual is unacceptable. A smaller rate could cause serious problems later in the process. Such measurement has not yet been performed in Statoil, but there is a feeling that the sense of urgency is established well enough across the company. We plan to continue to communicate the urgent need for change to all levels throughout the company so that the change effort is considered ‘must-do action’ among all employees. Forming a powerful guiding coalition Implementing IO was one of several corporate initiatives approved by the top management and can therefore be considered to have a strong basis among the top leaders. The support of the CEO and the E&P senior vice president has been clear and repeated constantly. For example, the executive VP of E&P was crucial in organizing

© 2007 EAGE

management focus

first break volume 25, October 2007

meetings with all E&P managers to discuss the practical implementation of IO. Business area (BA) vice presidents and region management have the formal responsibility for the implementation. An IO core team consisting of IO representatives from several business units (BUs), process owners, HSE, HR, IT, learning solutions (internal training), facility management, R&D, discipline advisors, discipline networks, and BA technology and projects have weekly meetings (including video conferences) to coordinate and promote IO activities in Statoil and develop strategies and action plans for IO implementation. Also included in the core team is an IO central team that, in addition to participating in the tasks above, inspires and supports all involved parties, communicates IO activities, and follows up IO status. The director of the IO core team reports directly to the CEO and VP of E&P, which exemplifies the strong support from the company’s top management. Also important is a group of more than 40 people, directly involved in IO implementation, that are recognized as IO enthusiasts. They include both senior management and other levels of the company hierarchy and are sources of motivation and examples of behaviour throughout the organization. Several people involved in IO in Statoil also participate in cross-organizational IO conferences and workshops through OLF, and other meeting arenas like E-driftforum (integrated operations forum) – a forum initiated by the Norwegian Petroleum Directorate to share IO experiences between oil companies, suppliers, trade-unions, authorities, and research institutes (Edriftforum, web page). In respect to the guidance by Kotter, it seems like our company has managed to create a powerful guiding coalition. The change initiative is strongly rooted in the top management as well as coalitions, both formal and informal, supporting the change effort and having the power to lead it. The coalition has more than 40 participants, a number that is within the range Kotter suggests

© 2007 EAGE

Figure 1 Vision and strategy. in larger corporations. In addition, the coalition operates outside the normal hierarchy by definition, a characteristic recommended by Kotter. He claims that ‘If the existing hierarchy were working well, there would be no need for a major transformation’. Therefore, a reform generally demands actions outside formal boundaries (Kotter 1995). Creating a vision Statoil has given both a vision and strategies for the implementation of IO. The vision ‘Better, faster and safer decisions’ communicates what we will achieve by implementing the concepts of IO. It is developed through extensive work by the Norwegian Oil Industry Association (OLF) and enables our company to measure its progress. The strategies developed include perspectives on people, technology, and organization, and do also give a time perspective for continuously working towards the vision. Figure 1 illustrates the company’s vision and the strategy to complete the change. Since each BU is given the freedom to develop its own IO plan, there are large variations in how much progress the different units have made. Because of the scope of this paper, an evaluation of the appropriateness of the chosen vision for the change effort is not discussed in any depth. Such a

discussion would have emphasized the sense of ownership in the vision and the relationship to the company’s core ideology (as suggested by Collins and Porras, 1996). However, the vision as illustrated here is easily communicated and gives a feel for the reasoning behind the change efforts being carried out in the organization, a prerequisite for success according to Kotter. Communicating the vision Statoil has a wide range of internal communication channels to broadcast the IO message and spread the word about IO activities. Many channels and extensive information are needed in order to reach Statoil’s large workforce, both onshore in normal working hours and offshore working two-weeks–on, four-weeks-off shifts. During 2006 and up to this summer (2007) more than 70 articles have appeared discussing IO. Newsletters, fact sheets, intranet, the corporate news magazine, information posters, a specially developed information DVD, as well as meetings, workshops, and conferences have all played a part in informing the entire organization. These media channels provide information on the IO concept, pilot projects, the sense of urgency and opportunity, how IO is implemented, and visions for the future. In addition, the ‘IO enthusiasts’ mentioned earlier

103

management focus work as examples of employees that live the change vision and in this way can influence others. The use of IO enthusiasts as disciples complies with Kotter as the often most powerful way to communicate a new direction. To communicate by example gives a stronger message to sceptics than using words. This is why it is important that a broad range of managers talk about and follow the principles and vision of IO. Empowering others The strategy for IO implementation in Statoil has been based on three foundations: N A discrete set of pilots performed in selected BUs which are then evaluated for broad implementation in all fields. N To accelerate the process, each area is requested to develop field-specific action plans for IO implementation. N For even greater acceleration, the decision-making process onshore and offshore throughout the company has been strengthened. Each area is asked to develop an action plan that covers its broad implementation efforts, the pilots that influence their field, and suggestions for field specific IO activities. Process owners and discipline leaders conduct internal audits to follow up the implementation process. In this way more people are involved in the IO implementation, increasing their knowledge and ownership of the concept. Such empowering of others to act on the vision is, according to Kotter, important for successful change operations. Major internal transformation requires many people to assist, but this is seldom achievable if people feel relatively powerless. A broad base of people should be involved by removing as many barriers to the implementation as possible. Some common and important obstacles are structures, skills, systems, and supervisors (Kotter, 1995). It seems like we have come a long way in removing such barriers, especially in improving the skills of people to be able to adapt to the

104

first break volume 25, October 2007

changes. However, we recognize that more work needs to be done on this step, for example, aligning performance appraisal and its accompanying reward to the new vision so that more employees prioritize the change efforts and supervisors act in accordance with the vision. Short term wins Some of the BUs have in a short time come a long way in implementing IO concepts, and, although it is difficult, production increase and reductions in costs can be attributed to IO. An analysis performed in 2007 of IO value creation in 2006 estimated approximately $1 billion (oil production) and $0.5 billion USD (gas production) of increased value as a result of IO. Some fields have experienced remarkable results in production increase, up to 9%. Fields with lower increased production are explained by differences in the effect of IO so far, or differences in focus on measuring the effect of IO. The reductions in costs are harder to identify, but there are documented examples of up to 10% reduction in drilling costs due to IO (Henriquez, 2007). Kotter says short-term wins are critical in changing an organization successfully. Usually, major change takes time, and people need convincing evidence that the efforts are paying off to keep motivated for further change. Creating shorttime results are especially important to convince sceptics throughout the organization that the change efforts add value. Statoil has managed to create such short-term wins through pilot projects, and has a good basis for convincing sceptics that IO improves company results. The short-term wins should, and are, continuously advertized through the different information channels to validate the IO process throughout the company. Consolidating improvements, and further change Following the Petoro report in 2005 ranking Stataoil as fifth out of six operators on the NCS in adapting and developing IO principles (Petoro 2005), a number of remedial actions were undertaken. In the follow-up survey in 2007, Statoil had become one of the

leading companies (Petoro, 2007). This top position, however, does not mean that Statoil is slowing down. Change continues by constantly taking new initiatives and supporting the ongoing change efforts. Kotter explains that a typical error in change effort is to declare victory after the first improvement. This is often done by initiators and resistors together: initiators think the good results show that their attention is no longer necessary, while resistors are quick to spot the opportunity to stop the change. The result is that ‘… change comes to a halt, and tradition creeps back in’. The management focus, progress to date, and ongoing IO give little impression that Statoil has declared victory prematurely. Institutionalizing new approaches We have initiated some efforts to anchor the new approaches into the company’s corporate culture. For example, a set of courses that covers both general IO issues and specific IO training has been introduced. Additionally, steering documents have been developed for new work processes, and IO has been included in the corporate performance measurement system. The group of enthusiasts mentioned earlier are also contributing to the new way of working by being examples of ‘living the vision’. People around these enthusiasts should in theory be favourable influenced by them. If the new changes are not rooted in the company’s social norms and shared values, Kotter argues that the change is subject to degradation as soon as the pressure for the change is removed. It is therefore of great importance to take actions to institutionalise the change efforts in corporate culture. Kotter emphasizes two factors. First, people must be shown how their new behaviours, attitudes, and approaches help improve performance. For example, Statoil’s monthly distributed newsletters often cover the profits resulting from IO initiatives. It is also important for management to encourage employees with feedback

© 2007 EAGE

management focus

first break volume 25, October 2007

on how they are contributing to extensive winnings. Second, sufficient time is needed to ensure that next generation top management really does personify the new approach. Kotter states that ‘if the requirements for promotion don’t change, renewal rarely lasts.’ This implies that the company’s performance measurement system and its accompanying reward structure should be aligned with the change.

N

N

Conclusions Some of the conclusions that can be drawn are: N A solid base for establishing a sense of urgency and opportunity is present, but Statoil does not yet have an overview as to what degree the sense of urgency is established among managers and employees in the organization. An urgency rate of about 75 % is, according to Kotter, needed for successful change completion. N Statoil seems to have established a powerful guiding coalition with representatives from top management and a wide participation from line management. Additionally a crosshierarchical group of employees refer to themselves as IO enthusiasts. N We have selected a vision for the change efforts, and its short form can easily be understood by employees. N We emphasize the importance of giving information to employees and using several channels. Especially positive is the large group of enthusiasts that preach the IO cause.

N

N

We have selected a strategy that ensures that several people are involved with the IO implementation. It is important that organizational structures, skills, and supervisors do not counteract people’s involvement in the IO implementation. Challenges for Statoil are to align performance appraisal to the new vision ensuring that supervisors act in accordance with the vision. Our company has managed to create short term wins to illustrate the potential of IO. It is important that this is continuously updated and followed up, and communicated throughout the company to prove that the efforts are paying off. Although we already have experienced success from IO, we are still putting a lot of effort into the change operation, an important criterion for consolidating major changes. We are also continuously evaluating new possibilities revealed during the implementation. Statoil has started some initiatives to anchor the new approaches in corporate culture. This is a difficult task and requires much attention.

References Collins, J.C. and J.I. Porras [1996] Building Your Company’s Vision. In Harvard Business Review on Change 1998, Harvard Business School Press, Boston, MA. E-driftforum, http://www.npd.no/ English/Emner/E-drift/E-driftforum/ coverpage.htm.

Henriquez, A. [2007] Leading Change – The Statoil IO Case. Workshop on Production Optimization, Rio de Janeiro. Huy, O. N. and Mintzberg, H. [2003] The Rhythm of Change, MIT Sloan Management Review, Abstracts, 44, 4, 79-84. Kotter, J. P. [1995] Leading Change – Why Transformation Efforts Fail. In Harvard Business Review on Change 1998. Harvard Business School Press,Boston, MA. Kotter, J. P. [1996] Leading Change, Harvard Business School Press, Boston, MA. Orlikowski, W. J. and Hofman, J. D. [1997] An Improvisational Model for Change Management: The Case of Groupware Technologies, MIT Sloan Management Review, Abstracts, 38, 2, 11-21. OLF [2006] Potential value of Integrated Operations on the Norwegian Shelf. OLF report, http://www.olf.no/english/ news/?32101.pdf. OLF [2007] HMS og Integrerte Operasjoner: Forbedingsmuligheter og nødvendige tiltak. OLF report, http:// www.olf.no/io/aktuelt/?35578.pdf. Petoro [2005] Smart Operations – Operator Readiness Assessment Survey. Survey report conducted by Capgemini for Petoro, presented by Roy Ruså on the Edriftforum in Norwegian Petroleum Directorate 5, Oct. 2005. Petoro [2007] Smart Operations – Operator Readiness Assessment Survey. Follow up survey report conducted by Capgemini for Petoro, presented at the NPF conference, 27-28 Aug. 2007.

      

        

© 2007 EAGE



 

  

105