Oil operators and Oil services firms - time to dissolve 'internal walls'
I recently came across an interesting write-up from consultancy firm, Arthur D Little, on how a few Oil majors have re-structured their E&P ops by combining three divisions - Projects, Technology and Procurement (PTP). Calling for the emergence of a new organizational form, the paper highlights how today's battles' - increasing size and complexity of oil projects with a majority of them going over budget and exceeding schedule targets; skills shortage; and resistance to new technology adoption - can be countered by dissolving a few internal walls. The challenges gripping the industry can be effectively tackled by "...integration of all relevant Projects (including Drilling), Technology (including R&D) and Procurement units into one single, integrated global division which is then tasked with the full burden of delivery".
Strengthening external supply chains no doubt yields high benefits but in the case of high-capex-projects based industries such as Oil and Gas, streamlining internal supply chain often holds the key to achieving on-time and within-budget project delivery. For the energy majors, reducing the time from discovery to delivery and commissioning is critical. And the way the firms are structured often decides the lead times in decisions, the number of hand-overs accompanied by the inevitable 'drop'; and the adverse possibilities of local optimum's resulting in global sub-optima. As the paper sums up "PTP organizations lead to a clearer accountability for on-plan project delivery because of greater ease in aligning relevant stakeholders"
To put things in perspective, we are talking here about the very first stage in the journey to supply chain nirvana i.e. supply chain integration (supply chain optimization and re-configuration are the next evolution phases). But having witnessed critical project implementations at some of these firms getting delayed due to internal misalignments, I have become a firm believer in going to the root i.e. an organization's design and its decision making culture. (see previous posts here & here).
In-fact, the need for dissolving walls is not restricted to just the Oil operators. The Oil services firms too need to introspect to figure out whether they are poised to deliver in the current situation, characterized by a period of increased bidding, mega projects in the reckoning, record backlogs in upwards of double digit billions and an acute shortage of resource skills. Their ability to bid effectively and to follow it up with a neat execution requires several departments/divisions to collaborate. Given that the quarterly margins boil down to effective collaboration, does anyone have a choice?