Process Excellence In Energy Article Compilation

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Process Excellence In Energy Article Compilation

  1. 1. Process Excellence in the Energy Industry: PEX Network Article Compilation Process Excellence in the Energy Industry PEX Network Article Compilation1|Page
  2. 2. Process Excellence in the Energy Industry: PEX Network Article CompilationINTRODUCTIONArguably there has never been a time when ithas been more important for the energyindustry to focus on process excellence.Exploration is becoming more costly ascompanies search for more remote reserves indeeper water, and this is bringing with it morechallenging environmental regulations whichmust be met, with increased time and costpressures.In the past 18 months, tax increases in theNorth Sea have been squeezing margins andunrest in the Middle East and the Fukushimanuclear disaster in Japan caused major upheaval across the sector.With waste and mistakes in the oil and gas industry leading to serious costs, both monetary and sometimeshuman, operational excellence is essential if companies are to continue to grow and meet the new challengesfacing the energy sector.This multimedia compilation has industry perspectives and interviews by process professionals within the oil &gas industry. All articles and materials in this compilation have been published on PEXNetwork.com in the lastfew years.2|Page
  3. 3. Process Excellence in the Energy Industry: PEX Network Article CompilationINDUSTRY PERSPECTIVETAKING REALITY SERIOUSLY: TOWARDS MORESELF REGULATING MANAGEMENT AT STATOILCONTRIBUTOR: BJARTE BOGSNES, 20 JULY 2012Theres often a gap between what leadership says it wants and the types of behaviours that their managementprocesses actually encourage, writes Bjarte Bogsnes. Heres the story of how Statoil started to close that gap.At Statoil, we try to take reality seriously,not just a dynamic and unpredictablebusiness environment, but also all thecompetent and responsible people in thecompany. It sounds obvious, but requiresfundamental changes in how we lead andmanage. In 2005 we started on a journeyof radically changing our managementprocesses, which included abolishingtraditional budgeting. In 2010 we alsodecided to “kick out the calendar”. Thesewere both key steps towards a moredynamic, flexible and self-regulatingmanagement model.CONTEXTStatoil is a Norwegian oil and gas company with activities in 34 countries, 20000 employees and a turnover ofaround USD 90bn. The company is listed in New York and Oslo. On Fortune 500, it ranks #67 on size but #1 onSocial Responsibility and #7 on Innovation.TRIGGERSStatoil has always been a values-based and people-oriented organization. But during years of growth since itsfoundation in 1972, traditional management processes were introduced brick by brick, causing increasingbureaucracy and rigidity. The gap widened between what we said in our leadership principles and what we didin our management processes. This is poison in any organization, making the leadership message hollowbecause the process message is always stronger. What we do always weigh so much more than what we say.“You are all great and the company would be nothing without you, but we still need to control you throughdetailed budgets, rules and regulations”. It does not help to have Theory Y leadership visions if you haveTheory X management processes.We wanted to close such gaps. We also wanted to find our way back to the agility and flexibility we had as asmaller company. The growth journey of companies shares many similarities with theaging process of man. As we grow older, we lose more and more of what we took for3|Page
  4. 4. Process Excellence in the Energy Industry: PEX Network Article Compilationgranted in our younger days; the agility, flexibility and spontaneity of youth. Having passed fifty, I am startingto get some personal experience! As age takes its toll, some also get weary of life and lose their spirit and thattwinkle in the eye. This development in the human body and mind is unavoidable and irreversible, at least thephysical part. It can be delayed through a healthy lifestyle or through other “interventions”, but in the end ittakes us all. We have no choice.Companies, however, have a choice. Companies are not destined to become slow and sad places to workbecause they grow and become older. Most of what causes this are decisions that companies makethemselves, and cannot be blamed on destiny or on any aging process.For man, older normally also means wiser. For companies, this is not necessarily the case, as they struggle tocapitalize on a mountain of collective wisdom and experience acquired during the growth journey. Thesolution is often another new process, “Knowledge Management”. Many employees experience instead a“Dumbing Down” trend, as they observe more and more strange decisions made further and further awayfrom their own reality.Of course, one cannot manage a big company exactly like the small company it used to be. But could there bealternatives? Could there be other ways, ways which better balance the benefits of being big - which of courseare both real and important - with the benefits of being small?The big question for any large organization should be “How can we revitalise the agility of the past withouthaving to go back and start all over again? How can we be small and big at the same time, young and old,brave and wise?”The budget and the whole mind-set behind it might be a good place to start.KEY INNOVATIONS & TIMELINE  2005 - Introducing "Ambition to Action", abolishing traditional budgeting  2010 - Leaving the calendar rhythmCHALLENGES & SOLUTIONSReal and sustainable change requires a solid case for change. While almost everybody complain about thebudgeting process, fewer understand that their problems are only symptoms of a much bigger and moreserious problem, rooted in the entire management model. Some complain about all the work involved, someworry about the gaming and the sub-optimisation, some about the budget being a meaningless yardstick forperformance, and some about how it prevents them from responding fast on value adding opportunities. Butthese and many other problems are all connected. These are all consequences of a traditional managementapproach that ignores reality, both inside and outside our organizations, both what motivates the “knowledgeworker” and what the implications of a dynamic and unpredictable business environment really are.But these are big and hairy issues, and for many hard to grasp or address. So we started out with somethingmore tangible and logical and also less threatening. We simply asked “Why do we budget?”Most companies make budgets for three very different reasons; target setting, forecasting and resourceallocation. Those budget numbers represents a set of targets, a forecast of what the future might look like, andan allocation of resources for next year. But these are all different things. The three purposes can’tmeaningfully be handled in one process resulting in one set of numbers. A target is what we want to happen. A4|Page
  5. 5. Process Excellence in the Energy Industry: PEX Network Article Compilationforecast is what we think will happen, whether we like what we see or not. And resource allocation is abouttrying to use our resources in the most optimal and efficient way.An ambitious sales target can’t at the same time also be an unbiased sales forecast. And you rarely get a goodcost forecast if the organization believes this is their one shot at access to resources for the next year.Our solution to this serious problem was dead simple. We separated the three purposes, which made itpossible to optimise each one in much more tailored processes. This allowed for instance for differentnumbers, updated on different frequencies and time horizons in each of the three processesBut more importantly, the separation was a catalyst for all those bigger issues that we need to address. It leadsus into important discussions, whether we want it or not. How can we find targets that really inspire andstretch without feeling stretched, while avoiding all the gaming and negotiation that adds no value at all? Howcan we make simple and unbiased forecasts, free of all the hidden agendas? How can we make people spendmoney as if it came from their own pocket? How can we move towards a management model which worksmore with and less against human nature? How can we be big and small at the same time? How can we takereality seriously? These are important questions for any large company. We have absolutely not solved themall, but we have definitely started.Where possible, we try to use relative instead of absolute and decimal-loaded targets. Relative targetsredefine performance. They address how we are doing compared to others, internally or externally, instead ofa myopic focus on fixed and decimal oriented numbers.The power of comparison is fascinating. I have yet to hear a team coming out low (given they find thebenchmarking fair and relevant) announce that they have no ambitions about climbing on the ranking. This isa much more self-regulating approach compared to the traditional budget game which stimulates the veryopposite mind-set, the one that drives managers to negotiate for the easiest achievable number. AsMichelangelo put it: “Our problem is not that we aim too high and miss, but that we aim too low and hit”.Benchmarking is of course nothing new, with its purpose of learning from each other. This should still be themain purpose. But we believe we actually get more learning by combining the two, by increasing the focus onthose comparisons through also using them more directly to gently stimulate performance.5|Page
  6. 6. Process Excellence in the Energy Industry: PEX Network Article CompilationStatoil’s main financial targets are set against a peer group of fifteen other oil and gas companies. We aim tobe in the first quartile on Return on Capital Employed, above average on Shareholder Return, and in firstquartile on Unit Production Cost. These are the kind of financial targets our Board approve. They do notapprove a budget. The two first metrics are also key in our common bonus scheme. Everybody in the sameboat; us against the competition.The quality of our forecasting has also improved because we have taken out much of the gaming bias thatcame from target setting or resource allocation. Our forecasting process is now leaner and with much lessdetail, although there is room for even more simplification. Some still believe that their cost forecast is their"budget application" for resources. Some also mix target and forecast, and believe they need to “deliver” ontheir forecast. What we want to deliver on is our targets, and forecasts are there to help us. They might forinstance show that we are heading in the wrong direction, towards places that we absolutely dont want to go.We also introduced a dynamic resource allocation which provides much bigger and more flexible decisionauthorities to local teams, and a much more dynamic rhythm. Imagine a bank informing its customers, “Wehave now changed our hours, so if you want to borrow money, we are now only open in October”. It soundsridiculous - but isn’t this exactly what people in companies experience every year in the budget process?We want the bank to be open 12 months a year. A funding request might still be refused; we should be just asgood in saying no as yes. Cost is of course still very important for us. But why should we make all our costdecisions in the autumn, before we have to? Isn’t it better to make them as late as possible, when we havebetter information - not only about the new project or activity up for decision - but also about our capacity tofund it or staff it?For operational or administrative cost, with less discrete decision points than projects, we offer a menu ofalternative mechanisms for the business to manage its own costs. These include a “burn rate” guidance("operate within this approximate activity level"), unit cost targets (“you can spend more if you producemore”), benchmarked targets (“e.g. unit cost below average of peers”), profit targets (“spend so that youmaximise your bottom line) or simply no target at all (“we’ll monitor cost trends and intervene only ifnecessary").6|Page
  7. 7. Process Excellence in the Energy Industry: PEX Network Article CompilationIn the corporate staff I am based in we have no cost targets at all, but we discuss cost all the time. There is notravel budget, but a colleague of mine just spent days considering if he should send two of his team memberson a business trip from Norway to Houston. With an eye on the teams cost trend, he ended up saying yes,because of a strong plea for help from the Houston office. Next time, it might be a no. Pre-approval of travelcost is by the way only required for intercontinental flights.In short, we try to make decisions at the right time and at the right level. Being a capital intensive and value-chain organized company, every single decision cant be made at each platform or plant. But given thisindustrial setting, we try to make decisions as far out in the organization as possible. In many other businessesdecision authorities can be delegated even further out.Here is our CFO Torgrim Reitan:“We could easily put in place a cost program instructing all business areas to reduce costs by a given number. Ibelieve this would work against our intention of building a cost-conscious culture. If we want to become morefit, a crash diet does not work. It takes a change of lifestyle. I believe Statoil is made up of competent,responsible and commercially oriented people who will make the right cost decisions. This means alwaysworking hard to reduce bad cost, while protecting good cost. You know better than me what these are andwhere they are”.The question we want everybody to ask when making cost decisions is not “Do I have a budget for this?” but  Is this really necessary?  What is good enough?  How is this creating value?  Is this within my execution framework?7|Page
  8. 8. Process Excellence in the Energy Industry: PEX Network Article CompilationIn addition, we must always consider capacity, both financial and human. As things look today, can we affordit, and do we have the people to do it? This information would typically come from our latest forecasts.Last, but not least, we have introduced a more holistic performance evaluation, with hindsight insights as a keycomponent, and with how we have achieved our business results counting 50%. How can we claim to be avalues-based organization (as we do) if our values and people and leadership principles are completely absentin target setting and performance evaluation?We also “pressure-test” measured business result. KPIs are indicators only; they often struggle with telling usthe full truth. As Albert Einstein put it; “Not everything that counts can be counted, and not everything thatcan be counted counts”. We therefore use hindsight insights - the wealth of information unavailable for us attarget setting time. We ask for instance, have we really moved towards our longer term objectives? Was theresignificant tailwind or headwind that should be taken into account? Are results sustainable, will they stand thetest of time?These evaluation principles are examples of how we try to address the entire process, not just the "finance"part. I am based in Finance, but we have worked closely with HR to make it all hang well together. This is notalways the case. Both Finance and HR would claim to work with "performance management", but in manycompanies they dont talk well together. The two are much to blame for gaps between what is said and done.Finance is pushing management while HR is preaching leadership. Both need to climb out of their silos andstart talking with each other and not just about each other.I actually dont like the expression "performance management". Put yourself on the receiving end. How does itfeel if someone wants to "manage" your performance? Most people feel over managed and under led, and forgood reasons. Also, our ability to manage performance in todays business realities is actually quite limited.Fortunately, there is a lot of other great things we can do, but this has more to do with creating conditions forhigh performance to take place. This requires however a very different mind-set, both from managers andfrom their finance and HR people.We do all of what you heard about above in “Ambition to Action”, our management process which runs all theway from strategy to people, ending up in what we call "People@Statoil". Ambition to Action is based on theBalanced Scorecard concept, but combined with the Beyond Budgeting principles it becomes a much moreunique and robust management model, solving many of the problems often seen in more conventionalBalanced Scorecard implementations.Beyond Budgeting is a coherent set of leadership and management principles. The name is actually misleading;it is about so much more than budgets, it is about taking reality seriously. But changing how we think aboutmanagement and leadership also requires a radical overhaul of the budgeting process, because it sits at thecore of traditional management. You have actually been introduced to many of the principles already. Take alook at bbrt.org for more information about this great model, which has inspired and guided so much of theStatoil journey.Ambition to Action has three purposes:  Translate strategic choices into more concrete objectives, KPIs and actions  Secure flexibility and room to act and perform  Activate our values and our people and leadership principlesAlmost all our competitors have management systems which in some form or shape aim to meet the firstpurpose; creating strategic alignment. But so many ignore or forget the other two8|Page
  9. 9. Process Excellence in the Energy Industry: PEX Network Article Compilationpurposes, and lose what is key for success; autonomy and agility, trust and transparency, ownership andcommitment. If your own Ambition to Action becomes nothing but a landing ground for instructions fromabove, both ownership and quality tend to walk out the door.An Ambition to Action starts with an ambition statement, a higher purpose. Call it a vision, call it a mission. Wedon’t care, as long as it ignites and inspires. The Statoil ambition is to be “Globally competitive - an exceptionalplace to perform and develop”. This is translated into different versions across the company. One of ourtechnology teams chose for instance “Execution for today, solutions for the future”. In our team, we"...challenge traditional management thinking".Ambitions and strategies are translated across five perspectives:  People and organization  Health, safety and environment (HSE)  Operations  Market  Finance (or Results)You might recognize these from the Balanced Scorecard concept. We have added HSE because of the businesswe are in. In addition we have switched the order ("Finance" is typically on top), because we know whathappens in business review meetings when the agenda is tight and time is limited. “Let us come back to peopleand organization next time…” Those are not the signals to send if we claim to be a people focusedorganization. So now “People and organization” sits at the top. Another small gap closed between what we sayand what we do.Today, we have around 1200 Ambition to Actions across the company. We try to connect and align all thesethrough translation (each team translating relevant Ambition to Actions, typically the one above) instead ofcascading (corporate instructing). What should our Ambition to Action look like in order to support theAmbition to Action(s) above? What kind of objectives, KPIs and actions do we need? Can we use those above,or do we need something sharper because we are one step closer to the front line?There are of course situations where instructions and cascading from above is necessary. But this should bethe exception and not the rule, which makes it more acceptable when it happens. We are starting to find theright balance between the two, even if some managers still rely too much on cascading. If a translation shouldgo "wrong", which seldom happens, this is of course addressed.Used in the right way, the Balanced Scorecard can be a great tool for supporting performance and help teamsto manage themselves. Unfortunately, many scorecard implementations seem to be about reinforcingcentralized command-and-control. It is both tempting and easy to abuse that much bigger menu ofmanagement levers for Theory X driven micro-management, actually much easier than if you only have afinancially oriented budget available to do that job. Many managers (and finance people) also bring anaccounting mind-set with them into these important issues. Alignment is not about target numbers adding upon the decimal, it is about creating inspiring clarity about which mountain to climb. Never forget the power ofwords in making this happen, even if it is so much easier to only let the numbers do the job.To help the translation, there is full transparency around all 1200 Ambition to Actions. With a few exceptionsof share price sensitive information, everything is open for all. In most ERP systems, transparency seems to bereserved for the top. They boast about fancy drill-down functionality, allowing seniorexecutives to monitor the smallest local detail. But why should these guys spend time9|Page
  10. 10. Process Excellence in the Energy Industry: PEX Network Article Compilationinvestigating travel and entertainment cost in every local team? What we need is much less of such drill-down,and much more of drill-across (what are those guys doing?) and drill-up (what was that strategy again?)In short, we want Ambition to Action to be something that helps local teams to manage themselves andperform to their full potential, while we at the same time secure sufficient alignment. This means using adifferent type of glue, and smaller doses; translation instead of cascading. The main purpose should not becentralized command-and-control.Here is our CEO Helge Lund: “We have a management model which is very well-suited to dealing withturbulence and rapid change. It enables us to act and reprioritise quickly so that we can fend off threats orseize opportunities. This is much more difficult in a traditional «budget world » One of the main principles inAmbition to Action is that Statoil consist of mature, responsible and able people who both can and want toaccept responsibility.”The years following our 2005 decision were a period of experimenting and learning. We have had some simpleimplementation principles:  Design to 80% and jump. Not everything can be planned or fully designed upfront. Get started, experiment, learn and improve.  Make sure the case for change and the problems with the old way is well understood before talking about the new way.  Go for pull, not push. We have no detailed roll-out schedule; we never even used the word. So many are fed up with being on the receiving end of corporate ”roll-outs”, again and again. Instead, we focus on teams that invite us. Not once did we put our foot in the door because “this is decided”. It takes longer, it looks messier, but change becomes real and sustainable.  We are however present in most of Statoil’s leadership programs and also in all introduction programs for new employees.We continuously experiment with and improve Ambition to Action, on content, on process and on the ITsystem behind it. In 2007 we merged with a competitor (Hydro). It was a very successful merger and we areabsolutely a stronger company today, but it meant starting almost over again. Still, the number of Ambition toActions kept increasing, despite not being mandatory. This was a conscious decision, driven by our obsessionwith making Ambition to Action something that primarily helps teams to help themselves. You can’t make thatmandatory.Of course there are sceptics. They come in two groups. The first is the biggest, but also the one that concernsus the least. These are managers who simply are confused. They probably learnt very much the oppositeduring their business studies, and they might have honed these practices over many years. It can be painful tochange old ways and your belief system, and we need to respect this. These guys just need time, and we givethem time. Being confused is part of real change. We are challenging accepted truth and entering unfamiliarterritory, which actually is one of the Statoil values, and my favourite!The second group is smaller, and this is where we find the real sceptics. They are not confused. They fullyunderstand what this is all about, and they don’t like it. This is so much against everything they believe in.Some may also pay lip service to the new principles, so you can’t even engage in a discussion. This group stillexist, but is getting smaller and smaller. Some leave, some retire, and every day that passes makes it moredifficult for those still with us to abort the journey.10 | P a g e
  11. 11. Process Excellence in the Energy Industry: PEX Network Article CompilationOn the contrary, we are moving on. In 2010 we were ready for the next step; escaping the calendarstraightjacket. The purpose was to make Ambition to Action even more useful and relevant for all ourbusiness teams.In April we went to the Executive Committee with our proposal to kick out the calendar. We got a strong andclear green light. On our way out of the meeting, one of the Executive VPs whispered to us: “Closer to astanding ovation you will not come in this room”. It was a good day, but only the start of another mountain toclimb!January-December is an artificial construct from a business point of view. For some it is too short, for otherstoo long. Even when a business has seasonal rhythms, the winter season is cut in two because we pass “year-end”. Imagine a finance guy meeting a fisherman, asking him about the rhythm of his work. “Well,” thefisherman replies, “I am at sea for five months, and then I am home for five months.” “So what do you do thenthe rest of the year?” the finance guy wonders. Something is wrong, right? Absolutely, but maybe more in thehead of the finance guy than in the working rhythm of the fisherman.Our statutory accounting and our communication with external parties and the capital markets will of coursestill need to be calendar oriented, but our internal processes could still have more natural rhythms. We wantto free ourselves from the artificial, annual "stop/start/stop/start". We want to give our teams the opportunityto run their business more continuously, with update frequencies, time horizons and evaluation points drivenby their own business flow.We have however an industry-specific challenge. A licence to explore and produce oil and gas in a certain areais for risk sharing and learning purposes typically awarded to a joint venture of companies. One of them act asthe "Operator", who according to industry standards has to provide the other partners with a traditional,annual budget. We have been able to make this process somewhat less rigid than before, but we envycompanies who dont have to operate in such a set-up. It is a complication, but not a showstopper. Soeverything you read about here is how we try to manage internally, despite such external requirements.The main principles in our new and fully dynamic process are as follows:  No annual versions of Ambition to Action. Strategic objectives, KPIs, KPI targets and forecasts can be changed when deemed necessary by teams themselves.  Event-driven changes, not calendar-driven. Events can be external or internal, and the definition is simple: “Whatever is important for your team”.  Simple change and coordination controls; Big changes should be approved one level above, smaller changes only informed about to. Big or small, always inform other affected units if necessary. Teams sort out between themselves what is big and what is small.  Target and forecast horizons should reflect lead times, urgency, uncertainty and complexity in the different businesses.What has triggered most questions is the possibility to change targets at any point in time, because somethinghappened and they lost their meaning. That could either mean "impossible to achieve" or "a piece of cake", oralso "not relevant anymore". A target should motivate and inspire. It is not a goal in itself, but one way ofachieving the ultimate goal of the best possible performance, given the circumstances. Targets set by teamsthemselves typically do this job much better than those coming as instructions from above.Some have concerns about this freedom being abused. There is just one way to find out, and that is to try itout. We have provided some help and guidance. First, there is full transparency, it wont11 | P a g e
  12. 12. Process Excellence in the Energy Industry: PEX Network Article Compilationhappen in darkness. Second, you still need approval for big changes. And third, we remind people about thefairness of the holistic performance evaluation, where changes in assumptions can be taken into account. Youdont need to change your target every time assumptions change. A relative target is by the way much morerobust and self-regulating in this respect. If conditions change, they typically do so for your peers as well. Wealso ask teams to look at their track-record of changing targets. If it always is about reducing ambition levelsand never the opposite, that is an issue the team should reflect on.It is still early days and we dont yet have enough cases to learn from. What we do know is that there will beincidents which might smell of "abuse". Those should be firmly dealt with, but is no evidence of failurerequiring a return to the old way.The dynamic forecasting we are introducing is different from what is often called rolling forecasting. A rollingforecast is done on a fixed frequency and on a fixed time horizon across the company, often quarterly and fivequarters ahead. We want forecasts to be updated when something happens, and as far ahead as relevant foreach unit. For some that could be short, for others long. If a unit one level up needs a forecast with a longertime horizon, it is their responsibility to “fill the hole” with a “good enough” forecast. Why should all teams beforced to look ten years ahead because aggregated this is a relevant time horizon for an oil company? For ouroil trading people, anything beyond three weeks can be quite foggy, while three years is very much on theshort side for those bringing new oil and gas discoveries into production.Also targets can have shorter or longer time horizons, from months to years, again driven by lead times andcomplexity.Note that "dynamic" doesn’t necessarily mean more often. It means at the right time. For some it couldactually mean less often.Performance against Ambition to Action is reviewed monthly or quarterly in business review meetings. Anindividual performance evaluation will still take place at year-end. Some would then look back on a verydynamic Ambition to Action, others on the opposite. A log in Ambition to Action (which actually is aninternally developed web interface sitting on top of a global SAP solution) keeps an overview of changes made.12 | P a g e
  13. 13. Process Excellence in the Energy Industry: PEX Network Article CompilationSome have however questioned this review frequency. Why is once a year in January always the natural pointfor evaluating performance? Is it only because of the link to pay? Is that a good enough reason? Are therealternatives, again driven by more natural business milestones?We hope our new and more dynamic process also will make the current autumn planning much leaner andone day even obsolete. This planning work, which is not about budgets but about action planning andunderstanding the consequences of actions through unbiased and expected outcome forecasts, is still too timeconsuming. Our goal is a more of a “living” forecast where those needing forecast information can tap into thelatest information available. This can be done both regularly and ad-hoc.We have tried to find other companies who have taken similar steps of radically challenging the calendarrhythm. We are convinced there is someone out there, but we are still searching. Many have introducedrolling forecasting, but we are aiming for a much more fundamental break with the calendar year.BENEFITS & METRICSKick-off on this latest step was in January 2011. It is still early days and we still have many questions. All thosesituations which were so well regulated and understood in the old process, how should they now be handled?How often? How far out? What is “big” and what is not? All this uncertainty has however been well accepted.People are enthusiastic about the learning and adjusting phase we now are in. They would rather be part offinding out than just being told. There was actually more anxiety back in 2005 when we abolished traditionalbudgeting, even if a number of companies already had taken that step before we did.Getting out of the calendar year will undoubtedly take time. Many are still cautious about utilising these newopportunities. The calendar is not just “hard wired” into our brains, it is also still highly present in a number ofother processes in the company, which we now also are addressing. Some of these will need to continue on anannual cycle, with our statutory accounting as the obvious example. But again, this is not a showstopper.There are other exciting things happening. Our IT colleagues actually started out on their own, inspired by thegreat lean and agile thinking which now is transforming how system development projects are run. One suchapproach, “Scrum” was introduced in Statoil several years ago. We stay in close contact because there is somuch common ground, both in what we rebel against and what we are trying to do instead. They also realisethat a company can never be fully successful with agile software development unless agile also becomes theway the whole organization is run.Our new and more dynamic principles are in no way easier than those we are trying to leave. We have spentcountless hours in management teams and on leadership training, helping Statoil managers to reflect on theleadership implications, not just from leaving the calendar year but from all the other steps taken on thisjourney.Here are some of our key messages:  You have more autonomy and flexibility, but also higher accountability for results  Use your autonomy; don’t delegate upwards – and let it pass on to your teams.  Don’t give up when trust is abused, but react firmly to those who doSome managers struggle with their new freedom. If you don’t like to make decisions, then a detailed, annualbudget and tiny decisions authorities is actually a great thing. Decisions are made for you, both what to do andhow much it should cost. While the vast majority of Statoil managers highly appreciate the new and biggerroom to act and perform, some struggle with passing it all on to teams in their own13 | P a g e
  14. 14. Process Excellence in the Energy Industry: PEX Network Article Compilationorganization. “I can of course be trusted, but… “. We can’t instruct them to do so; at least we shouldn’t startthere. They need to find out themselves why passing it on is a good idea. Eventually, most do even if it cantake some time. For some, the excuse for not letting go can be incidents they have experienced which theybelieve prove that “this trust thing doesn’t work”. This is the wrong conclusion. We should deal resolutely withthose who abuse trust, but should not take the tempting and easy option of retreating to the old way. In a freesociety, we are not sending everybody to jail because someone violates the rules of the game.It is still early days for measuring sustainable results, even if we are convinced that there are positiveperformance effects. But it might not be a coincidence that we are Norway’s most popular employer amongtechnology and finance graduates. Or that we did pretty well on Fortune 500. Or that we perform pretty wellagainst the peer group of fifteen other oil and gas companies that we set our targets against. We have actuallyperformed better than the average of them for several years, except when we had our big merger in 2007.Everything you have heard about here is decided and described in our “Statoil Book”, a small booklet given toall employees (on these kind of important issues we believe in the physical paper format, but it is of coursealso available on our intranet). But as you have heard, decided and described does not mean that everythingyet has reached every corner and every head in Statoil. These are major changes. They will and they shall taketime.Our discussions are not about going back, they are about how to make it all work even better. Of course wehave our dark days, when we hear words or observe behaviours echoing the past that we are trying to leave.We have however an effective medicine for those days. We just think back on where we were five or ten yearsago. That always helps. And if we make similar advances over the next five years, then…I am proud to work for a company where we are encouraged to challenge accepted truth and enter unfamiliarterritory. We are on an exciting journey, which is in no way over and where the direction is clearer than thedestination, if there really is one.PS. What you just have read is the short version of the Statoil story. If you are interested in the long version,or another story about how we kicked out the budget in Borealis in the mid-nineties, or more about theproblems with traditional management, you might want to check out my book "Implementing BeyondBudgeting". See links below, also for related books which I highly recommend.CREDITSJeremy Hope & Robin Fraser - Founders of Beyond Budgeting Round Table (BBRT). Authors of "BeyondBudgeting" (2003)Jan Wallander- Former CEO of Handelsbanken, Beyond Budgeting pioneerHELPFUL MATERIALSBjarte Bogsnes book "Implementing Beyond Budgeting - Unlocking the Performance Potential" (Wiley)"Beyond Budgeting" - Jeremy Hope, Robin FraserThe Leaders Dilemma - Jeremy Hope, Peter Bunce, Franz RöösliFuture Ready - Steve Morlidge, Steve Player14 | P a g e
  15. 15. Process Excellence in the Energy Industry: PEX Network Article CompilationArticle first published April 18, 2012 on MIX/Management Innovation eXchange. Reprinted with permission.ABOUT THE CONTRIBUTOR: Bjarte Bogsnes is Vice President of Performance Management Development at Statoil and author of "Implementing Beyond Budgeting: Unlocking the Performance Potential". View the article here: Taking Reality Seriously: Towards More Self Regulating Management at Statoil15 | P a g e
  16. 16. Process Excellence in the Energy Industry: PEX Network Article CompilationTRANSFORMING PROCUREMENT PROCESSES INOIL & GAS: INTERVIEW WITH ERIC BEYLIER, TETRATECHNOLOGIESEric Beylier is Vice President, head of global supply chain and procurement, at TETRA Technologies. Sincetaking over the procurement function at TETRA five years ago, Eric has completely transformed the company’sapproach to procurement and supply chain management. He has automated and re-designed processes, builtup the team’s skills and capabilities and even sparked an organizational re-design so that he was reportingdirect to the company CEO. In this interview, Eric describes what he what he did, why he did it and some of thelessons he has learned along the way.PEX NETWORK: WHAT WERE THE KEY PROCESS CHALLENGES THAT WERE FACING YOU WHEN YOUTOOK OVER THE PROCUREMENT FUNCTION IN 2007?Eric Beylier: There was a long list. The most challenging one actually was silos from very fragmentedacquisitions or family businesses or mid-size businesses. Each one of them had leadership with a very strongego - it was their way or the highway. Do you want to collaborate as a team? Did want to acknowledge therole of the corporate groups and the more, not centralized, but a more balanced type of an organization andbelonging.Instead the leaders were isolating themselves, trying to keep their legacy business and not collaborating withthe other business units. They would not share customer relationships, they would not share suppliercontracts and pricing. In effect, they just would not play together – and I think that was probably the numberone challenge.The second challenge was that we had no visibility. In my area of supply chain procurement, I had no visibilityinto our spending and no visibility into contracts and - to be honest - no visibility into the true nature of therelationships we had with some of our suppliers. And it is very difficult to fly a plane blindfolded! So thatsecond aspect of visibility had to be addressed.The third challenge was that there was no communication of what supply chain and procurement could bringto the organization, what sort of competitive advantage a dynamic and efficient supply chain procurementorganization could bring because there was not really such a function in place. So the function had to becreated and reorganized from scratch. That’s a sales job in itself!PEX NETWORK: CAN YOU TAKE US THROUGH WHAT YOU HAD TO DO TO ADDRESS THOSECHALLENGES?Eric Beylier: The first thing we did was basically removed the position of head of supply chain procurementfrom being buried underneath finance and treasury to report directly to the CEO of the organization. That wasa political battle that was very challenging for me to win. When I was successful that was a corner we turnedthat marked a real a milestone within the organization because everybody sat up and took notice.Restructuring the reporting function was absolutely critical to send a signal to the organization that things arechanging and they are not just changing a little bit, things are changing drastically. Toaddress the visibility aspect of that we designed a custom solution of spend analysis to16 | P a g e
  17. 17. Process Excellence in the Energy Industry: PEX Network Article CompilationTETRA. There are a lot of packages out there that are absolutely excellent and outstanding, but TETRA being abillion dollar company - which is very small in oil and gas terms - we sometimes cannot really afford fancysolutions so we have to be more creative.So that’s what we did, we created a spend analysis tool that was and still is widely used in the organization andthat created 34 very specific spend categories that you can slice and dice at the divisional level. We had fivedivisions at the time and you can go down to the cost center very easily and then you also can slice and dice bysupplier, by spend categories. My CEO, for example, can go by himself and get an updated numbers on spendfor his team and corporate wide for a division or a cost center in a matter of a few seconds. He doesn’t needany help from anybody to do that and it’s perfectly accurate because it matches against the charteredaccountsDeveloping this tool sent another signal which is, we are watching the money, we are following where it goesand now we know where you spend your money. And that is very critical because people can’t argue withthat. They basically could no longer say “I didn’t spend that money” because we had it in black and whitetransactions. And that was actually quite powerful.If you take the number one, the reporting relationship was moved to report directly to the CEO and thensuddenly we found the cash and we get the facts straight about what the cost center is doing in terms ofspending money with suppliers; that’s a pretty signal.To address the third aspect, which was the selling function/communication, I got the input from all the teamsand divisions into what I call the procurement manual. This was a manual that was customized to ourorganization and that clearly laid down the value proposition of supply chain procurement. The target thatwas and are agreed upon every year in terms of earnings per share contribution from better negotiating termsand conditions or managing our suppliers. That actually talks a lot because we are publicly trading on the NewYork stock exchange. We also communicated through quality training programmed. We have six, two hourtraining sessions every quarter with a simultaneous WebEx so that everybody around the world can actuallyparticipate and ask specific questions. That was designed so that every two weeks we allow for a very fluidcommunication between corporate and the divisions and all the folks in supply chain procurement or financeand accounting or operations or the field.To really understand how we expect them to behave and work, what the processes look like so they don’thave the excuse of saying, “I didn’t know we were supposed to do it this way”. Now they have it black andwhite, very clear, detailed but yet simple, so they know exactly what they are supposed to do and so if theydon’t want to do it, then there are consequences to it, which the first one is you explain it, you train and ifeven after training people still refuse to do it, then it’s a different type of an issue and then you start engagingmanagers and say, we really need that person to do it differently – how can we get there?Usually it works. You’ve always got exceptions which don’t have a nice ending, but usually, so far in the pastfive years, it’s been pretty successful. It takes time. That’s the frustration of change management; it takes alot of time. You need to have strong symbolic changes and then be patient and continue, never give upthrough the training and through the business alignment on processes and then occasionally you have toescalate straight to the CEO and say yes.We thought about creating a policy - which is one way of communicating to the organization – but what Idecided to do instead is to unofficially launch what the policy might look like one day through the manual. Itwas a kind of warning call: “you’ve got a couple of years to really start to understand what we expect you todo”. We just issued it a couple of months ago. It’s basically a formal document which is no surprise to anybodyso it’s not been slapped on anybody’s head. It’s something they’ve known about for two years and we saidone day it’ll be an actual policy with disciplinary action documented, HR involvement, all17 | P a g e
  18. 18. Process Excellence in the Energy Industry: PEX Network Article Compilationthat kind of stuff, which is quite brutal and then sometimes can turn off people. But we allow theorganization, for a couple of years, to really understand what we expected them to do so that when the policyis in place, they already meet 80% of the requirement of the policy. I think that was something that was wellperceived as opposed to the corporate dictatorship of this is the policy and you shall follow it.PEX NETWORK: IT’S INTERESTING THAT YOU GAVE PEOPLE TWO YEARS NOTICE BECAUSE THAT,FOR A LOT OF COMPANIES, WOULD SEEM QUITE EXCESSIVE.Eric Beylier: There are different cultures in oil and gas. You have companies that are very well known to bemilitary driven. It’s a very discipline top down organization with no questions asked. If your manager asks youto do something the answer is “yes sir” and you go and do it. Then you’ve got the other extreme of thespectrum which is the full consensus, takes forever to get anything done, it’s milestone after milestone, and alittle project now takes a year and a half to get done! What we tried to do is something somewhere inbetween.We’re a matrix organization; we have division heads and functional heads, all of them reporting directly to theCEO. The idea behind is to give people a chance to change and be better and work better and work smartersometimes, not necessarily harder. I believe in building up the human spirit rather than slamming it down, soit takes a little bit longer but if you’re successful it’s very sustainable. When people are not in "pain", they havea chance to understand it and they have a chance to do it better and actually can eventually take pride.We launched electronic invoicing with our suppliers two and a half, three years ago, and there was a wall ofscepticism, criticism, screaming, and yelling. Now the exact same people are the first ones coming back to meand saying that they wished more suppliers were on electronic invoicing and they were glad we didn’t give upon them. We could have slapped the system down on the organization but then we would have people today -two years later - still resenting it. We would still have folks saying that perhaps it’s a good tool but it was toomuch pain to get there.PEX NETWORK: I LOVE THAT QUOTE, “SCALING UP THE HUMAN SPIRIT RATHER THAN KNOCKINGIT DOWN”. IT SOUNDS LIKE, IN TERMS OF MANY OF THE SOLUTIONS YOU CAME UP WITH, ITREALLY WASN’T JUST ABOUT REDESIGNING PROCESSES, IT WAS REALLY ABOUT NAVIGATINGCOMPANY POLITICS AND CULTURE. IS THAT A FAIR ASSESSMENT?Eric Beylier: Yes and no. I think there was clearly some politics and culture - what I would call the “legacyTETRA” – but the most challenging part is to rewire the businesses processes. At first we had to take care ofthe legacy culture. We had to clearly, in a very symbolic way, send a message that this legacy culture longerhas a place in our organization and is going to change. That there was a new sheriff in town – that’s my boss,he’s our CEO, a very bright man. He became CEO at the same time pretty much I joined TETRA five years ago.And then once that was done I think people understood and heard the message.The battle actually happens at the business process level because they’re going to say, okay, so words arecheap, let’s see what we are going to do and how we are going to do it. This is where the rubber meets theroad. Once you start drilling down into the weeds about the purchase to pay process, for instance, that’swhere you’re going to lose the credibility of change, because if you don’t know what you’re talking about or ifyou play the high level executives I don’t get dirty, that’s my job, you won’t get respect. If you get down withthe guys and roll up your sleeves and work with them to make it better, they’re going to love doing it and yougain respect. You end up changing the organization one business process at a time.That’s what we started doing three or four years ago. We’re still doing it and there’s still a lot of room to goand our board wants us to expand tremendously in our international markets – we do business in five18 | P a g e
  19. 19. Process Excellence in the Energy Industry: PEX Network Article Compilationcontinents but on a small scale. We’re trying to make those business processes super efficient so we can scaleup without piling up a bunch of people and that’s a challenge, but it’s all in the business processes actually.PEX NETWORK: DO YOU THINK THAT YOU WOULD HAVE BEEN ABLE TO ACHIEVE THE RESULTSYOU DID WITHOUT THE BACKING OF THE CEO IN THE WAY THAT YOU HAD IT?Eric Beylier: Our CEO is the kind of senior executive who doesn’t like too much “noise”. He wants things to bedone in harmony in the organization and he doesn’t “bark”. When he gave me the responsibility, the firstthing he told me was that I was not a cop. He didn’t want me to be a dictator and run around slapping mydirect relationship with him in everyone’s faces. That was a challenge at times because that is clearly the shortcut. The easiest way in the short term to make these sorts of changes is to do just that. But then in the longrun, you upset people because they don’t see the value you bring outside of scaring them because you reportto the CEO. We don’t do that.PEX NETWORK: CLEARLY CHANGES TO ANY PROCESSES AND ORGANIZATIONAL STRUCTUREPARTICULARLY ON THIS KIND OF SCALE, REALLY DOESN’T COME EASY IN ANY ORGANIZATION.WHAT WERE THE KEY PERSONAL CHALLENGES THAT YOU HAD ALONG THE WAY?Eric Beylier: There were a lot of new things for me that I had to learn how to do: completely reorganizing anentire function, corporate wide with five divisions and 4,000 employees was challenging. I had read books andlearned HR and organizational design at business school but when suddenly you are in charge and you have todo it – and do it right the first time - that’s another thing. So doing that entire reporting to the CEO andputting the functions and recruiting people and then make sure you get the right DNA at the right place at theright time is something that I was challenged with, there’s no doubt about it.When I was in San Francisco [prior to TETRA], I started two businesses, so I know what it is to grow and scale abusiness. But at TETRA the challenge was to achieve such a large scale transformation with hardly any money.We could not buy e-sourcing. We couldn’t have a bunch of high powered consultants to come in for sixmonths to a year to help us drive change and save a bunch of money. It felt a little like I had to move aHimalayan mountain with a bunch of teaspoons and that was a little bit overwhelming at first. But youcontinue, day by day, and then eventually what seemed so difficult happens.19 | P a g e
  20. 20. Process Excellence in the Energy Industry: PEX Network Article CompilationHALLIBURTON’S APPROACH TO DRIVINGBUSINESS PROCESS MANAGEMENT ANDOPTIMIZATION ACROSS THE BUSINESSManaging processes end to end can be a difficult undertaking as a process flows through differentdepartmental and business unit silos. Whats the best way of overcoming those silos and improving processesend to end in your organization?In this PEX Network video interview Mandeep Sekhon, Global Director Process Assurance and Service Qualityat Halliburton, describes end to end process management for a service provider to the oil & gas industry,discusses the barriers to improving or optimizing process end to end, and explains how Halliburton isapproaching end to end process management. He also comments on how Macondo has changed the oil andgas industry as a whole.Watch the video: Driving Business Process Management & Optimization Across Your Business End to End20 | P a g e
  21. 21. Process Excellence in the Energy Industry: PEX Network Article CompilationINDUSTRY PERSPECTIVEWHY DO MANY BUSINESS EXCELLENCEPROGRAMS FAIL? (HINT: LACK OF STRATEGY)CONTRIBUTOR: MELISSA CONNOLLY, PUBLISHED 26 MARCH 2012Business performance excellenceprograms, like Total QualityManagement and Six Sigma, have beenused by manufacturing firms for decades.But as companies contend withincreasing competition and costpressures arising from a globalizedeconomy, these programs have expandedinto many other industries. However, asignificant percentage of programs fail,says Melissa Connolly. And lack ofstrategy is often to blame.Many think of Toyota as the founder ofperformance excellence. However, the birth of performance excellence actually dates back to the twelfthcentury B.C. During the Zhou Dynasty, the Chinese government organized and established centralizedprograms to ensure quality production of various products. By 1798 the concept of interchangeable parts in manufacturing, and the need to have quality assuranceregulate such practices, materialized as a key facet of the Industrial Revolution. The 1900s brought numerousperformance based methodologies to include scientific management; quality assurance; and statistical qualitycontrol (SQC). Following World War II, prominent US consultants in these methodologies were sent to Japanto expedite rebuilding efforts. By the early 1970s the quality of Japanese products had surpassed that ofWestern products (Evans, 2008).As a result of increasing competition and cost pressures arising from the new global economy, deployment ofperformance excellence programs has expanded into various industries. Today, performance excellenceencompasses many different disciplines to include: TQM, LSS, and Business Process Management (BPM).While each of these includes different tools, all enable firms to meet the growing pressure to deliver more forless. Business performance excellence enables firms to do this by providing a mechanism to identify andeliminate corporate waste; enhance customer experience; and systematically increase profits. Thus,performance excellence has become a key indicator of a firm’s ability to achieve sustained profitability andcompetitiveness. However, while the prevalence of such programs is increasing in today’s market place overtwo thirds of such programs fail to succeed (Cross & Weiss, 2007).I was recently selected to develop and deploy a performance excellence program for a global Fortune 500 firmand had the privilege of undertaking extensive research to look at why many programs fail to deliver expected21 | P a g e
  22. 22. Process Excellence in the Energy Industry: PEX Network Article Compilationresults. After extensive industry interviews and analysis, I found that strategy is one of the keys to success.THE IMPORTANCE OF STRATEGY IN DEPLOYING A NEW PROGRAMThe word strategy translates from the Greek language as, “the general’s view.” This translation paints a vividpicture of a general that understands the environment and sets forth a comprehensive plan to ensure avictory. Within the context of an organization, strategy is the plan and the organizations’ goals and objectivesrepresent the victory. Specifically, Carpenter & Sanders define organizational strategy as the coordinatedmeans by which an organization pursues it goals and objectives (Carpenter & Sanders, 2009).While most academic material on strategy focuses on the business or corporate level, it can also be readilyapplied at the program level. Building upon the preceding definition, one can easily infer how strategy would acritical role in the deployment of a new program. Successful design and deployment of a new programrequires a comprehensive understanding of where the program will be active; how these activities will becompleted; what differentiators will be leveraged; and what staging and pacing will be utilized. These programfacets represent five key elements of strategy, commonly referred to as the Business Strategy Diamond(Carpenter & Sanders, 2009).Without a clear understanding of program strategy, a firm is at risk for not having the required infrastructureto support the new program. Additional risk includes the inability to communicate the program’s mission;prioritize program tasks; and marshal resources appropriately.THE ROLE OF STRATEGY IN A BUSINESS PERFORMANCE EXCELLENCE PROGRAMTo ensure success, the design and deployment of a Business Performance Excellence Program must include asound strategy (Maszle, 2010). This strategy should address each aspect of the Business Strategy Diamond aspreviously outlined. Chevron’s Business Performance Excellence Program, for instance, serves as a goodillustration of how to leverage this model in program design and deployment. The program, named ExecutionExcellence, was deployed within the North America business unit and staffed internally by existing Chevronemployees. The program’s strategy defines Execution Focus Items (EFIs) as the method to defining where theorganization must focus its energy and resources. Furthermore, the program’s mission statement defines LSSand Performance-Based Leadership as the program’s foundational enablers to ensure sustainable performanceexcellence (Williams, 2010).While Chevron’s program serves as a good model, every Business Performance Excellence Program should beindividualized to meet a firm’s needs. In fact, research cites a root cause of many Performance Excellenceprogram failures is from attempting to copy another firm’s strategy. While lessons can be learned fromstudying high performance firms like Toyota, a firm must develop design and deploy a program that is fit forthe firm’s individual purpose (Spears, 2009). Additional research solidifies this point by indicating that no twosuccessful Business Performance Excellence programs will ever look the same (J. Douglas, personalcommunication, December 8, 2010).CONCLUSIONSAs a result of increasing competition and cost pressures arising from the new global economy, successfuldeployment of Business Performance Excellence programs is more critical than ever. However, while theprevalence of such programs is increasing, a significant percentage of programs fail to succeed. Conductedresearch and analysis illustrates strategy as a key element in a successful Business Performance ExcellenceProgram.22 | P a g e
  23. 23. Process Excellence in the Energy Industry: PEX Network Article CompilationBy employing the Business Strategy Diamond a firm can form a solid plan for achieving program goals andobjectives. Furthermore, strategy provides a methodology for defining the program’s infrastructurerequirements; communicating the program’s mission; prioritizing the program’s tasks; and marshalling theprogram’s resources. Additionally, a firm can gain useful insight on program design to include successfulstrategies by benchmarking other high performing firms. However, it is critical that a firm design a programthat is fit for its firm’s corporate strategy and needs.REFERENCESBright Hub Inc. (2010). What is lean six sigma? Retrieved from http://www.brighthub.com/office/project-management/articles/36245.aspx.Carpenter, M. A. & Sanders, Wm. G. (2009). Strategic management: A dynamic perspective concepts andcases. Upper Saddle River, NJ: Pearson Prentice Hall.Cross, S. P. and Weiss, L.M. (2007). The role of new networks in organizational change. Retrieved from http://http://www.mckinseyquarterly.com/home.aspx.Douglas, J. (2010). Driving business process management and optimization across your end-to-end business todrive value, agility and cost effectiveness. Poster session presented at the iSixSigma Energy Forum, Houston,TX.Eckes, G. (2001). The six sigma revolution: How General Electric and others turned process into profits. NewYork, NY: John Wiley & Sons.Evan, J. R. & Lindsay, M. W. (2008). Managing for quality and performance excellence. Mason, Ohio: South-Western Cengage Learning.Maszle, G. (2010). Taking the next step in your process excellence journey. Poster session presented at theiSixSigma Energy Forum, Houston, TX.Spear, S. J. (2009). The high-velocity edge: How market leaders leverage operational excellence to beat thecompetition. New York, NY: McGraw-Hill.Supply Chain Management Review. (2009, November 1). Achieving success with large scale-lean. Retrievedfrom http://goliath.ecnext.com/coms2/gi_0198-630401/Achieving-success-with-large-scale.html.Williams, W. (2010). Enabling execution excellence through lean six sigma and line management collaboration.Poster session presented at the iSixSigma Energy Forum, Houston, TX.ABOUT THE CONTRIBUTOR As a member of the Baker Hughes’ CIO office Melissa is responsibility for the Discovery and Exploration phases of the IT organization’s Approach to Value Delivery process. In this role, Melissa is transforming the existing front end IT processes to the next level of performance by creating a framework for strategic innovation. In addition, Melissa leads a robust Organizational Effectiveness (OE) program that measures and improves the effectivenessof IT’s culture, processes, and systems with Lean Six Sigma (LSS), Business Process Management (BPM), andProgram Management (PM) methodologies. Read the original article here: Why Do Many Business ExcellencePrograms Fail? (Hint: Lack of Strategy)23 | P a g e
  24. 24. Process Excellence in the Energy Industry: PEX Network Article CompilationLEADERSHIP ENGAGEMENT: EMBEDDING ACONTINUOUS PERFORMANCE IMPROVEMENTINFRASTRUCTUREMike Bonine, Vice President for Performance Improvement, Talisman Energy presents a session on leadershipengagement. Recorded LIVE at PEX Networks Energy Process Excellence Europe 2011, watch this livelypresentation for insight on:  Why applying sophisticated tools and technologies to achieve culture change doesn’t work  Understanding the purpose of the organization and developing the right infrastructure to achieve and sustain continuous value  Creating a performance improvement strategy: drafting a statement of principles; setting policies and standards  Stakeholder engagement: How to get those that matter on your side and stay on your side  Tactical strategies for driving through the implications of process improvement and business change24 | P a g e
  25. 25. Process Excellence in the Energy Industry: PEX Network Article CompilationTHE CASE FOR PROCESS EXCELLENCE IN PUBLICUTILITIES: INTERVIEW WITH ROB KRALL,PROGRESS ENERGYRob Krall, Director for Continuous Business Excellence at Progress Energy, joins PEX Network todiscuss developments in Business Process Excellence in the Utilities sector.PEX NETWORK: COULD YOUTELL ME ABOUT YOUR CURRENTROLE?R Krall: I’m the Director for, whatwe call here is Continuous BusinessExcellence at Progress Energy. I’mthe Director for our generationbusiness which is all of nuclear andfossil generation within ProgressEnergy. CBE is our application ofLean and Six Sigma tools to improvethe processes in the generationbusiness.PEX NETWORK: HOW DOES CONTINUOUS BUSINESS EXCELLENCE FIT INTO THE CULTURE ANDOPERATIONS AT PROGRESS?R Krall: It is a corporate-wide initiative and each of our businesses are at different start points, but asfar as my business in generation this is pretty much wrapped into our culture of how we do ourmaintenance and our operations, and a lot of that has to do with training and, really, the other parthas to do with how we incentivize people too, and other change efforts that folks have gone throughin some other companies, we’ve learned that the best way to go out there and touch people is toput it into their performance goals and it seems to stick a little better.PEX NETWORK: WHY IS PROCESS EXCELLENCE SO IMPORTANT TO YOU AT PROGRESS?R Krall: It’s important to us because I think in the past, we’re a regulated utility here in the UnitedStates, and there has been not a lot of pressure for us to be cost competitive like some other folksthat have used these tools, manufacturing, aerospace, but that’s changed. I’m here in Florida and wehave State regulators that are starting to scrutinise fuel spending, operational spending, our capitalprojects, so there is now this influence from outside that our regulators are pushing us to be better.Plus, if you think about the age of our fleet, the condition of our equipment, these25 | P a g e
  26. 26. Process Excellence in the Energy Industry: PEX Network Article Compilationare just good process tools that we’ve seen other people like the United States Air Force and theaerospace companies use and use to a good amount of success.PEX NETWORK: WHAT ARE THE FACTORS THAT MAKE IT SO DIFFICULT TO BUILD A CASE FORPROCESS EXCELLENCE IN A REGULATED UTILITY?R Krall: In the past there wasn’t really a competitive pressure. In many cases people think of it as amonopoly even though it isn’t because we still can lose a community based on the way that theycharter our businesses, but it’s been difficult in that they’ve never really thought of themselves assomebody that has to look at their costs and manage their budgets well. If you look at most of ourleaders they’re extremely technically competent. They know their equipment, they know how tomaintain it, how to operate it, how to get through outages in the least amount of time, but theyhaven’t really been good at managing cost. Cost and time pretty much go together in the lean worldand our set of tools has helped them work with and be able to apply tools to improve themselves.PEX NETWORK: AND WHAT DO YOU THINK ARE THE KEY FACTORS TO GAINING EFFECTIVESPONSORSHIP? R Krall: One, there has to be a good corporate sponsor, someone pretty high up in your executivestaff has to be a sponsor. The CEO for our company is a sponsor but initially we had to win him overand we won him over through results, focusing on quick wins, focusing on the energy that comes outof Kaizen type events and the engagement with the employees and actually showing financial andoperational improvements in a short amount of time.PEX NETWORK: WHAT ARE SOME EXAMPLES OF INITIATIVES THAT HAVE BEEN SUCCESSFUL INEMBEDDING PROCESS EXCELLENCE AT PROGRESS? R Krall: One of the things that this industry does on a regular basis is something called outages andanybody that’s in the utility businesses understands the concept. It’s where we go in and do majorcapital improvements on our equipment on a periodic basis to make sure that they can operate atthe level of continuity that we expect out of it.We’ve used our tools to help analyse and improve these outage processes in specific projects,specific operations, and we’re able to guarantee fidelity through the use of things like standardwork, pointer use tools success, pretty simple Lean tools that have been able to yield a lot ofpayback and really predictability out of being able to hit an outage time, hit it on budget, andthere’re a couple of outages we’ve used these tools in and had great success with in the past year orso.PEX NETWORK: FINALLY, WHAT TOP TIPS CAN OFFER TO UTILITIES TRYING TO AVOID THECOMMON PITFALLS OF PROCESS EXCELLENCE? IF YOU CAN MAYBE BREAK IT DOWN INTO YOURTOP THREE OR TOP FIVE TIPS.R Krall: Top tips in order for us to be successful we really needed that, we already talked about it,that executive sponsorship was critical.The second was probably how we went out and chose our Lean experts. We call them CB Leaders.We went out and tapped people that were already credible leaders in the organisation, so of ourfirst group of about eight CB Leaders in the generation business, three of them26 | P a g e
  27. 27. Process Excellence in the Energy Industry: PEX Network Article Compilationwere plant managers, the balance of them were either operations or maintenance superintendents,so these were folks that were pretty high in the organisation that had instant credibility, and on topof that we had a pretty good, I would call, a pretty comprehensive training programme to get themup to speed with the tools and facilitation requirements. That was, pick the right people and have agood fundamental training programme to get them up to speed.The other part was a lot of good coaching, and the coaching isn’t just for your CB Leaders or yourLean or Six Sigma experts, it’s also coaching for the leadership; how do they use these tools, how dothey support people in these Kaizen Events and what are the things they should say and what shouldthey be looking for? So, the coaching goes both ways up and down the chain of command, with yourleaders, your staff of experts and also with your leadership on how they should use the tools.I think, lastly, is you go for those quick wins, what you had asked earlier. If you can show that there’svalue in this and that you can make an impact everybody gets excited about it.Read the original interview here: The Case for Process Excellence in Public Utilities27 | P a g e
  28. 28. Process Excellence in the Energy Industry: PEX Network Article CompilationLEADERSHIP AND LEAN SIX SIGMA AT CHEVRONEUROPEINTERVIEW BY PEX NETWORK, PUBLISHED 9 DECEMBER 2011Eric Sirgo, general manager of operations at Chevron Europe, joins PEX Network to talk about their SixSigma program and how the company engages with their leadership teams.PEX NETWORK: I UNDERSTAND THAT CHEVRON HAS BEEN USING LEAN SIX SIGMA FOR MANYYEARS IN ITS UPSTREAM DIVISION. WHATS THE HISTORY OF THAT PROGRAMME?E Sirgo: Youre right. It started in about 2000. We started with our Indonesian operations. There wasa group there that took on the Six Sigma practice and trained a number of Indonesian nationals inusing Six Sigma, and they became black belts, and they started some projects locally. Then it pickedup in our California Operations.In Western California we have a business unit, called San Joaquin Valley, and that programmestarted there, and Id say it was like most programmes: it started at grass roots and it started slowly,and it moved, for about four years, doing small projects in that business unit, and then around 2006they were starting to get a lot of attention on the progress they were making with the savings andefficiency gains, and we have a global upstream standards organisation that picked up on thepractice and decided to make it a global standard.That didnt necessarily guarantee that it would go worldwide overnight. It did say that the companyendorsed it as a preferred method for efficiency gains and Leaning out processes, but I think whereit really got going fast was the Vice President from the California Operations went to the Gulf ofMexico. His name is Warner Williams, and he has a lot of passion around this particular topic, and heand the President of North America, Gary Luquette, came to the conclusion it was something thatNorth America needed to do, and so it went from a grass roots build over several years, to more of atop down programme. Since 2008 North America has really blossomed, and has really spread LeanSigma throughout the North America operations.Globally, we continue to have business units make progress in picking up the practices and theapproach, and we probably have another three or four business units that now have pretty activeLean Sigma programmes.28 | P a g e
  29. 29. Process Excellence in the Energy Industry: PEX Network Article CompilationPEX NETWORK: SO IT STARTED AS SOMETHING BUBBLING UP INTERNATIONALLY, AND THENCAME BACK TO NORTH AMERICA?E Sirgo: Yes, exactly. It started at a grass roots level with individuals who had a lot of passion aroundthe subject, and they carried the banner for a while.Steve Turnipseed, in particular, just picked up the flag, and began pushing and pushing. I canremember going to the first training that Steve offered at the global level. He was coming to thestaff, the individuals who would push it out, and trying to sell us on the process, we were allextremely sceptical, and Steve was just so passionate about it. And that passion is pretty infectious.Hes really been a big catalyst in the grass roots movement, but I tell you, it does help when aPresident or a Vice President says, this is something I want to do, and makes the metrics very visible,makes the project successes very visible. That certainly puts an expectation for the organisation topick up and adopt.PEX NETWORK: YOU WORK AT CHEVRON EUROPE, AND LEAN SIX SIGMA IS FAIRLY NEW TO YOURDIVISION, WHATS THE BACKGROUND TO YOUR LEAN SIX SIGMA IMPLEMENTATION?E Sirgo: Ive been in this job, coming up on two years, and the organisation here has been at it aboutsix years. It’s been very much grass roots. I would say that the leadership, prior to me arriving, weresupportive, but were not top down. They saw it as another tool in the toolbox, and said that if aproject seems appropriate, then you apply the tools. If you want to use it or you want to get trained,you’re free to do it and we’ll pay for that, we’ll reimburse you for that.We’ve probably completed 20 plus projects here in all different departments, from IT to supply chainto HR to operations to asset development. But I wouldn’t say it’s been a steam-rolling programme;it’s been pretty slow and methodical. When I got here two years ago, we revamped the steeringteam, we re-chartered the team, we set some goals and we’ve been doing a lot more organisationaldevelopment in the skills. I think that’s beginning to get our queue up and beginning to get ourknowledge up and we’re starting to get more projects through the pipeline.PEX NETWORK: WHEN YOU FIRST STARTED OFF WITH LEAN SIX SIGMA IN CHEVRON EUROPE,HOW DID YOU BUILD THE EXPERTISE UP INTERNALLY?E Sirgo: It’s been a couple of things. I’d say it’s been very typical: it’s training, it’s consultants. We’vebrought in consultants from the typical suppliers, like Accenture or IBM, who have supplied blackbelts and people who are very knowledgeable to help teams move projects along. And then we’vedone a lot of training of our employees.We have a significant number of white belts, green belts, champions that we begin to just keepbuilding organisational capability and keep spreading the tools and the expertise. So it’s acombination of training and consultants.We recently hired our first black belt as a Chevron employee, which is unusual. If you take a stepback, it’s not a career path in the company to be a black belt. We typically have career paths ofdrilling or reservoir engineering or geology, and having a black belt career path is a bit of an oddity inthe company. And so we just recently hired our first individual as an employee, as a black belt, and29 | P a g e
  30. 30. Process Excellence in the Energy Industry: PEX Network Article Compilationwe’re going to be working on what the career path would be for them, and we’re working with thatwith the global group.PEX NETWORK: AS YOU’VE BEEN BUILDING UP THAT COMPETENCY, WHAT KIND OF CHALLENGESHAVE YOU BEEN ENCOUNTERING ALONG THE WAY?E Sirgo: We still have challenges every day. Change is something funny in a big organisation; it doesnot come free and nor does it flow freely. And everything you’d expect. I’m too busy, I don’t havetime for this; this is nothing new, I’ve seen it before. One thing you’ve got to remember is that acompany like Chevron is built on the back of a highly technical and skilled workforce that aremasters of geology, engineers, people who are experts in their field. They’re very technical and savvyand experienced. And when you come to them and say I can do what you’re doing with Lean Sigmaand you could do it a lot better, they’re very, “yes, yes, I’ve seen this before, I’ve done it before”. Soyou’ve got a lot of what we call change management issues to convince people that if you applythese tools, you can make changes stick longer.And that’s been one of our best selling points: we do have a smart workforce and we do a lot ofimprovements, but often they don’t stick and they fade after that person maybe moves on. AndLean Sigma helps control the project; it helps create metrics that keep the improvements in place,but it also educates people on what the change is. And so that’s been a big selling point for thisworkforce: we can make change stick with this set of tools.So, anyway, back to your question, all the very typical things: I’m too busy, nothing new, I’ve seen itbefore type attitudes.PEX NETWORK: ONE OF THE THINGS THAT COMES UP OFTEN WHEN I SPEAK TO PRACTITIONERS ISTHAT THAT TOP DOWN SUPPORT REALLY HELPS, PARTICULARLY WHEN PEOPLE ARE TOO BUSY ORTHEY’VE SEEN IT ALL BEFORE. HOW DOES YOUR LEADERSHIP REALLY TAKE THAT ACTIVE ROLE INYOUR LEAN SIX SIGMA PROGRAMME? WHAT KIND OF ACTIVITIES DO THEY DO TO GIVE YOU THATSUPPORT?E Sirgo: That’s been an area that we’ve been trying to improve since I’ve arrived here: getting moreleadership involvement and uptake. I’d say our support organisations, in particular IT and supplychain, the leaders have been very active in pushing their organisation to apply Lean Sigma to theirprojects. The operational area and the asset development area and maybe some of the othergroups, drilling, have been less top down. My counterpart here, Dan Chudnov and myself, we havetaken a much more active role in asking our teams to generate projects, do brainstorming, assignchampions, get people trained and then setting some goals and some challenges to try to movepeople along this path, and I think that’s going to help.And I think it’s great when it’s grass roots. I think there are a couple of challenges for grass roots.One, the organisations are so large that you can’t really just expect things to catch fire withoutsomebody pushing it along. I do think you need leadership to make these programmes successful,and I’ll give you another example.We operate in 180 countries around the world and we operate in a lot of different cultures. Andmany cultures that we operate in, grass roots is not how it works; top down is how it works. That’show the culture has come up, and so you really need to adjust accordingly to the30 | P a g e
  31. 31. Process Excellence in the Energy Industry: PEX Network Article Compilationculture you’re working in. I think in the US, grass roots entrepreneurship is often rewarded, and sothings do get recognised when people take the initiative. But when you want to institutionalise it, Ithink you do need to put a bit of strong leadership and top down drive on it.PEX NETWORK: HOW DO YOU KEEP DIFFERENT DEPARTMENTS AND BUSINESS UNITS ON THESAME TRACK?E Sirgo: I’d say that’s not quite as sophisticated yet as it could be here in Europe, in our Europeanoperations.But we have a quarterly Lean Sigma steering team meeting that we look at our metrics, we look atour training metrics and make sure we’re making progress on getting bugs trained. We look at ourproject queue and we look at how many projects we have active and are moving through thepipeline. I look at my project queue with my team directly probably at least once a month, maybeonce every two months. We track savings. We have all the very typical metrics for guiding any sort ofprogramme or process through a company.And I think we could probably be a little more systematic in that we have a new managing directorwho has only been here about a month or two, and she and I have been talking about how to makethings a little more systematic in this area. So I think we do have some room for improvement. InNorth America, it is fairly systematic now: there are very clear metrics, very clear expectations onpeople’s individual performance measurements and very clear goals on the score cards of themanagers as well as the business unit. So we’re not quite as mature as they are, but we’re heading inthat direction.PEX NETWORK: I UNDERSTAND THAT YOU USE THE BALANCE SCORECARD. IS THAT CORRECT?E Sirgo: We have more scorecards than we know what to do with! Being a very technical andanalytical business, we measure just about everything. For instance, in my operations, the verytypical high-level things that we measure are environmental and safety performance, our productionperformance and then our cost performance. And then from there, those three topics, you can godown to dozens of metrics, depending on what we’re chasing. In particular, we look a lot atmaintenance and how we’re doing on maintenance backlog and the amount of maintenance we’reliquidating. These things all offer themselves to Lean Sigma tools and processes, so when you saybalanced, I just say we’ve got a lot of metrics and they lend themselves to these processes quitewell.PEX NETWORK: SPEAKING, A LITTLE MORE GENERALLY, ONE OF THE THINGS THAT PROCESSEXCELLENCE PROFESSIONALS ALWAYS TELL ME IS THAT THEY’LL NEVER BE OUT OF A JOB BECAUSEPROCESSES ARE ALWAYS CHANGING AND THERE ARE ALWAYS WAYS TO BE ELIMINATED. IN YOURROLE, WHAT ROLE DOES PROCESS IMPROVEMENT PLAY IN HELPING YOU ADAPT TO CHANGES INTHE BUSINESS OPERATING ENVIRONMENT?E Sirgo: I’d say it’s huge. We do operate in a fairly dynamic business; things do change a lot. PostMacondo, even in the UK we’re dealing with many, many, many changes around permitting, aroundhow we conduct ourselves offshore, contingency plans. So the business changes very rapidly.But I guess to answer the question a little more specifically, some of the issuesaround improving processes or making them more efficient are that, number one,31 | P a g e
  32. 32. Process Excellence in the Energy Industry: PEX Network Article Compilationsometimes our changes just don’t stick. We’ll look at a process, we’ll analyse it, we’ll makerecommendations and then people say, okay, that was interesting, and they go back to how theywere doing things. And they just don’t stick, and we tend to revert back to the more entrenchedmethod, and that would be one flag around process change.I think the other one is that often, either the process is owned by a champion or the effort toimprove the process is owned by a champion. We’re fairly mobile in Chevron; we move around quitea bit. And if that person leaves or moves on to a new assignment, then often the improvement goeswith them and it doesn’t become engrained or entrenched in the organisation.So those are very atypical problems with process change and we see them all the time. I’d say oneother issue, Chevron were very much built on teams and consensus and sometimes process changedoesn’t sit well in a consensus environment, where everyone has got to agree to the change oreveryone needs to support the change. I think managers need to step in and be a little more direct.When you’ve gotten to the prescribed method and you know there’s value in it, sometimes youneed to be a little more prescriptive about what you want to do.So reversion to the norm, champions walking away with the knowledge and the process or problemswith consensus can all stand in the way of changing existing processes.PEX NETWORK: YOU MENTIONED MACONDO. ARE THERE SPECIFIC CHALLENGES THIS YEAR THATARE REALLY DRIVING THOSE CHANGES THAT ARE PLAYING A ROLE IN HELPING YOU PRIORITISEWHAT YOU NEED TO FOCUS ON THIS YEAR?E Sirgo: Absolutely. The post- Macondo world for the industry is very different. This was an eventthat was low probability, but very high impact and when it does occur, it does leave a very largeripple. And it has rippled across the world: just about every major base and every major governmentis asking more questions, requiring more due diligence. And for the most part, I think at Chevronwe’re getting a lot of validation from the scrutiny that’s coming from a lot of the differentgovernments around the world that our processes were good and they were in good shape.So we’re not making a lot of changes to how we do our work; we are making a lot of changes abouthow we communicate what we’re doing to the regulatory bodies. We’ve answered just hundreds ofquestions for permitting here in the UK for our deep-water exploration west of Shetland, and it’s justa much lengthier process.And I think we’re having to come to the conclusion that we need to be working way farther inadvance and we need to be much more open about what we do and what we are good at with theregulators.And I do think you’re seeing much more partnering going on. The regulators here know a lot moreabout what we do than they used to do in the past, and I think that’s a good thing. I think that’sgoing to be a very positive outcome from the post- Macondo world. But in general, I think we’re justplanning for lengthier lead times on getting things done.32 | P a g e
  33. 33. Process Excellence in the Energy Industry: PEX Network Article CompilationPEX NETWORK: WHAT DO YOU SEE AS SOME OF THE KEY PROCESS IMPROVEMENT CHALLENGESFOR THE INDUSTRY AS A WHOLE IN THE COMING YEARS?E Sirgo: It does go back to the three things I talked about, which were safety, production and cost. Ifyou focus on safety, we talked about Macondo and post-Macondo world. It’s a pretty never-endingeffort for us to be focused on safety. And as you enter new countries or you enter new projects,you’ve got to bring that culture with you and you’ve got to be able to get a new organisation movingin the direction. I’ll give you an example: we’ve just leased approximately a million acres of land inPoland, and it’s a new country entry for us here in Europe and for Chevron. But that’s a completelydifferent culture: it’s a language barrier, there’s the different governmental process. One of theareas in safety that we’re really concerned about is driving; Poland is not known for very safe driving.So we’re spending a lot of time just getting the workforce there up to standards on driving anddriving safety. So that’s just an example.I think on production, a lot of the world’s reserves and a lot of the oil that has been discovered, weknow where it is, we know how much is left, but we can’t figure out how to get it all out of theground. And so there’s a huge challenge around improving the recovery of oil out of the fields wealready own. I have a field here I operate in the North Sea, called the Captain Field, and I believewe’re setting around 30% recovery of the original oil in place, which means there’s 70% remainingand we haven’t quite figured out how to get that out. So I think there’s a lot of opportunity in thefields we own to apply technology and process to try to move some more barrels.Cost is another challenge we face. If the price of oil runs up, the cost for us to do our business runsup along with it. A lot of people think we don’t see that increase in cost, but we do. And so we’reconstantly looking at how we do our work to become more efficient, to make a better margin on thebarrels that we do have on these older fields. So the challenges are endless and they’re in all facetsof the business.Read the original interview here: Leadership and Lean Six Sigma at Chevron33 | P a g e
  34. 34. Process Excellence in the Energy Industry: PEX Network Article CompilationOVERCOMING PROCESS IMPROVEMENTPROGRAMME START UP CHALLENGESStarting up a process improvement program but encountering some resistance? Christopher Long, BusinessImprovement Manager, Subsea 7, offers his insight into why people resist changing and offers practical tips onovercoming it. Recorded LIVE at PEX Networks Energy Process Excellence Europe 2011, watch thispresentation for tips on:  Linking your process improvement plan to business needs and changing objectives  Raising awareness around the benefits of PEX planning and the competitive advantage of a PEX culture  Early execution learning: measuring and assessing your successes and failures  Determining a plan for closing the gaps: how to tackle the challenges and issues still to be overcome34 | P a g e
  35. 35. Process Excellence in the Energy Industry: PEX Network Article CompilationFOR FURTHER LEARNINGPEX Network’s 3rd Annual Energy Process Excellence Network offers you the opportunity to deal with thesechallenges and prepare for what lies ahead. Improve productivity and mitigate risk with expert insight from:  Cameron on determining leading indicators of risk so you can rapidly resolve continuing risk issues arising in your business  BP on enhancing Supplier Quality Management to reduce operational risk and the costs associated with poor quality  Centrica on creating an integrated, enterprise-wide process excellence approach to improve business agility and to seize and sustain growth opportunities  Cenovus Energy on securing buy in by identifying and addressing the real barriers to OPEX implementation…and many more. The event takes place 6-8 November 2012 in Houston Texas. To find out more about theevent go to http://www.energypexnetwork.com/Event.aspx?id=78688635 | P a g e
  36. 36. Process Excellence in the Energy Industry: PEX Network Article CompilationWHAT IS THE PROCESS EXCELLENCE NETWORK?PEX Network is an online, free to join, membership portal providing process professionals withexclusive access to a library of multimedia resources from top executives on Lean Six Sigma, BPM,Operational Excellence, Continuous Improvement and other process excellence related topics.The Process Excellence Network has a subscribed membership of 80,000+ with an additional 20,000connected to us via our social networks and a global contact database of over 450,000.In addition to online resources, PEX Network organizes 30+ targeted face-to-face events globally peryear with industry specific focuses on Financial Services, Telecoms & Utilities, and Energy. We alsohold major cross industry summits on process excellence in Orlando, FL (PEX Week) and in London,England (PEX Week Europe) every January and April.Contact UsWebsite: www.pexnetwork.comGeneral Inquiries: enquire@pexnetwork.comTelephone: +44 (0)20 7368 930036 | P a g e

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