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The Oil and Gas Crisis is not a Market Problem. It’s a Leadership Problem

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Fall. Doom. Decline. The words used to describe the current situation of the Oil and Gas industry are many. None of them inspire hope.

With this in mind, last week I attended Adipec in Abu Dhabi with no much expectations to hear something different than “we need to sit tight and let the storm pass”.

Although some companies still dangerously think in this way, I was surprised by the fact that a large number of companies have finally realized there is no time to sit and wait. There is a pressing demand and increased commitment to change. 

Such a shift in the way of thinking is new in the industry. It’s not just refreshing, it’s the best possible answer to stop the descent. The challenges are still many, and they don’t have a quick-fix solution. But there is a common factor that can make things happen: better leadership.

In this article, I have identified four key areas to focus on for leaders and executives across the whole O&G value chain.

New Wave of Leaders

The Oil and Gas industry has always valued, more than any other industries, hands-on and long-lasting experience in the field. Without having decades of international experience on the ground, it has been very hard for up and coming managers to land executive roles.

Nothing wrong with that in principle. Until 2013, these leaders and executives have done their part to bring value to the market and their shareholders. 

However, when the oil price dropped, most of the company leaders have failed to adapt, change their thinking, bring innovation and, most importantly, deal with a generational gap. The gap was already a pressing issue before the downturn, and it sounds like it wasn’t treated as a key priority at that time.

In the last five years, all has changed. Most of the seasoned leaders and executives have left their organizations and the new generation of leaders didn’t fully emerge or step up. Besides, new and more attractive industries such as tech have drained the talent pool.

The question is simple. Do we have the right leaders in place to navigate through the worst storm ever? Are they building the new generation of leaders promoting inclusion and diversity? Are they leading cultural changes, thinking strategically about the future, embracing innovation? Are they making actions to rebuild the credibility and reputation of the industry? 

In other words, are they leading change or managing the status quo?

Culture Shift

Culture is the set of norms and behaviors that are accepted and reinforced in organizations by their leaders. Culture plays a very important role to change the status quo.

Changing a company culture isn’t easy, it requires strong push and alignment but in many non-performing organizations is the only way to go. If current leaders haven’t “cracked the code” yet to bring value back to their shareholders, it’s time to think if a different culture could help to improve performance in this market.

If the current behaviors are potentially preventing the organization to thrive again, it sounds obvious to make the call. For example, what’s the level of innovation in the organization? What about creativity and entrepreneurial spirit? What about customer-centricity? 

There are several ways to go and only company leaders know what is the best culture that can have the most positive impact on performance. Time to find the courage to challenge what has been done so far and turn the tables. 

Strategic Focus

When markets collapse along with profitability, one of the first things companies do is to reduce their costs to do business. It’s the first mitigation action to protect the business, but this is not a strategy.

A strategy is how you win. Cost-saving is how you survive. This is necessary by all means, but it can’t be a medium/long-term strategy.

I don’t feel organizations realize they have a big opportunity right now. They can build a stronger edge by improving and strengthening their positioning either on product leadership, customer intimacy or operational excellence. In doing so, they can increase their current market share and lockout competitors that can decide to leave because they can’t compete on the new terms.

Alternatively, they can leverage their experience and move into new adjacent (existing or new) markets. Winning here might require new skills or a different approach. This is when a culture shift comes to play.

There is the third option though. Building a blue ocean strategy with the idea of disrupting the industry. The opportunity is there, never been a better time. However, and by experience, although leaders say they look for disruptive ideas, in reality, they end up building incremental strategies. 

Efficiency vs Digital Transformation

Digital Transformation is one of the most used/abused terms across industries. I agree organizations need to be more digital, simplify their processes, use technology to reduce costs and meet customer requirements and expectations.

However, it goes beyond that. Digitalization is one of the key factors to bring more efficiency, but not the only one. Improving business processes should be a key priority for any organization that is struggling to stay competitive. Same for business models. What if other models can be embraced to reduce time to market, minimize resources or make the customer happier. 

Also, digital transformation isn’t so simple, in particular for an old-style organization. To do it properly, leaders must be involved from the outset. This is a major change initiative for a company, so it’s important to follow the right process, define success, avoid internal resistance, identify risks and challenges that can prevent full implementation. Nothing impossible, but the success rate of change initiatives isn't particularly promising.

 

None of these four key areas are either easy to fix or implement. They require strong leadership. Not management. 

We do have a huge opportunity to make a change. Let’s not waste it.

 

Andrea Petrone's picture

Thank Andrea for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Nov 27, 2019 5:33 pm GMT

Is there an industry out there that you think serves as a good example of how oil/gas should be doing leadership? 

Andrea Petrone's picture
Andrea Petrone on Nov 28, 2019 1:14 pm GMT

Good question Matt. Thanks. I don't believe there are industries that can serve as a good example to follow. However, I do believe in cross-pollination, so I'd like to see successful leaders from other industries take the risk and the challenge to lead change in Oil and Gas. Technology Leaders could be a good fit. A good place to start, as O&G desperately needs to embrace innovation to increase value and efficiency.

Matt Chester's picture
Matt Chester on Nov 29, 2019 1:42 pm GMT

Great insights-- thanks for the reply, Andrea!

Klaus Schollmeyer's picture
Klaus Schollmeyer on Nov 28, 2019 8:28 am GMT

Great article and a lot of truth in regards to leadership in the industry! In all fairness, some companies change already their business approach and strategies. One example is Orsted former DONG, for example, Equinor and Shell are also pushing for change, but for these huge corporations, it is not easy to change course.

Andrea Petrone's picture
Andrea Petrone on Nov 28, 2019 1:23 pm GMT

Good point Klaus. Orsted is a good example of a company that has been able to embrace change quite well. I wonder if one of the reasons is the number of mergers and acquisitions that have impacted their way to do business, in particular in the last 10 years. Besides, DONG/Orsted left the traditional O&G market before (or just at the beginning if I am not mistaken) the downturn so they strategically had other plans and it sounds they have been able to implement them successfully.

Equinor and Shell are embracing energy transition faster than other big organizations, however, as you say, the leadership transition is still a work-in-progress. 

Does it make sense?

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