Even as the oil price creeps back up, circa $65/bbl at the time of writing, the oil & gas industry still exists in a “lower for longer” environment; prices are unlikely to breach the $100/bbl barrier anytime soon, if ever. In this context, there has been a great deal written about the need for the industry to change how it works to survive and thrive. There has also been much written about the fourth industrial revolution, the coming of the digital age, how it can deliver value, bring safety and revolutionise the industry. Other than a few dissenting voices, most agree the industry must change how it works and technology presents possibly the greatest opportunity to facilitate this change.
Yet, projects are still executed in the same way; assets are still designed the way they were a decade or more ago; and mistakes continue to be repeated. The advantages of technology are not being realised and the oil & gas industry is being left behind while others reap the benefits of the digital world. This begs the question: if the economic climate demands it and the majority of stakeholders agree, why are the oil & gas industry work practices not changing and why is technology not being embraced?
There is no single answer to this question, like many of the challenges facing the oil & gas industry, it is a wicked problem. However, it is possible to start to unpick the barriers to change and start to identify how we can realise the revolution required to sustain the industry. If technology is no longer the barrier to change, and so much has been written about both the need to change and the technology available, then the barrier is a willingness to change.
Wikipedia currently lists more than 150 biases that can impair our judgement and decision making, these have been helpfully arranged into four groups and 20 subcategories by the cognitive bias codex:
It would be possible to expend many thousands of words exploring how these biases manifest in the oil & gas industry, leading to inefficiency and project failures. However, in the context of this article, there are a few which are most relevant: anchoring, conservatism and status quo bias. All of which describe a cognitive preference for repeating similar approaches and can manifest as an unconscious unwillingness to change the approach to oil & gas projects. At io, everything we do is underpinned by Decision Quality (DQ), which is designed to mitigate the effect of cognitive biases such as anchoring, conservatism and status quo. However, they have permeated the industry for such a lengthy period of time that they have become ingrained in the culture.
The reluctance to change in organisational culture can often be boiled down to the phrase, “this is the way we’ve always done it”. This resistance stifles innovation and becomes a barrier to evolution. Whilst it is borne out of cognitive bias, it is fuelled by a fear of the unknown. A different way, a change to the way things have always been done, brings uncertainty and risk. Without the evidence of experience or history there is uncertainty and with uncertainty there is fear. This is not a cause to avoid change, nor is it an argument for a change in risk appetite. Risks must be understood and managed.
In addition to a rigorous management of change, io combine a bespoke approach to uncertainty, drawing on best practice from a diverse range of industries, with systems modelling to ensure the interdependencies and interactions of any change, and the associated impacts, are understood. This is more difficult than persevering with the status quo, but it is necessary to transform and sustain the industry.
In an interview filmed in the 1990s, regarding his relationship with quality guru, Joseph Juran, then president of NeXt Computers, Steve Jobs, states:
“The largest contribution of much of this quality thinking is to approach these ways of doing things, these processes scientifically. Where there is a theory behind why we do them, there is a description of what we do and, most importantly, there is an opportunity to always question what we do; and this is a radically different approach to business processes than the traditional one: because it’s always done this way.”
Implicit in this quote is Jobs’ belief that businesses should always be questioning and testing the way things are done. It is never good enough to do something because that is the way it has always been done. Not only does this prevent progress and improvement, it breeds complacency and the importance of a specific process becomes lost: how many stage gate processes have grown to be toothless, something that is done because we always do it rather than something that is done to filter out weak projects and add value?
Yet how does all of this relate to culture? A culture of fear has developed in the industry. While the industry is inherently dangerous and appropriate fear is healthy, a blame culture driving fear of trying to advance and improve the industry is not healthy. By removing the blame culture, we can approach failure in the spirit of learning and drive the industry to improve. This is best exemplified by the airline industry where black box flight data analysis has dramatically reduced the incidence of airplane crashes, this is fully explored in Matthew Syed’s book Black Box Thinking: The Surprising Truth About Success. io has developed and implemented a single and double loop learning approach that challenges the behaviours that underpin the culture.
In his most recent book, Nassim Nicholas Taleb proposes having “skin in the game”, having something to lose and sharing risk, is the “engine of evolution”. While the oil price was high, the industry could tolerate train wreck projects. Profit margins were high enough that massive cost and schedule overruns could be absorbed, although I’m sure the shareholders didn’t see it that way. Now in the lower for longer economic environment these overruns could break a company; the initial response has been to shelve developments, but this cannot continue indefinitely. The oil & gas industry needs to recognise these developments have to progress and in doing so they have to behave in accordance with the new paradigm, where they have far more skin in the game. This should not drive conservative behaviour, it is a very similar model to a low margin business where innovation has become key to survival; this can be seen everywhere from commodity electronics to the automotive sector. Inherent to these companies are a culture where challenge and innovation are embraced, Elon Musk prescribes the following communication behaviours required at Tesla where “anyone at Tesla can and should email/talk to anyone else according to what they think is the fastest way to solve a problem for the benefit of the whole company” and “managers should work hard to ensure that they are not creating silos within the company that create an us vs. them mentality or impede communication in any way”.
This communication protocol goes beyond behaviours, it challenges another behaviour inherent in the oil & gas industry: the cult of the expert. Too often does the opinion of the expert go unchallenged. Experts have a critical role within the industry, but that does not encompass being unchallenged or unquestioned. The effective expert should welcome constructive challenge and questions, it is in this that new ground is broken and transformation occurs. All too often the expert is placed on a pedestal and goes unquestioned. Inherent in Musk’s communication protocol is an expectation that the expert opinion is challenged to yield the greater good. This will require a change in behaviour not just by those challenging the expert but also in the expert, where they need to park their ego and accept challenge in the spirit of improvement. If there is any doubt of this approach, there are two quotes which resonate: firstly, a quote that has been attributed to everyone from Confucius to Michael Dell, “never be the smartest person in the room”; and secondly, from Shunryu Suzuki’s Zen Mind, Beginner’s Mind, “in the beginner’s mind there are many possibilities, in the expert’s mind there are few.”
At io our DQ framework is designed to mitigate the decision being made in accordance with the HiPPO (highest paid person’s opinion), we further strengthen this by regularly involving our holistic teams in the decision process. It is not unusual for an economist to partake in an engineering decision, or for a geophysicist to partake in an economic decision. This approach fosters a healthy challenge where experts are encouraged to look at their decisions and ensure there is sound reasoning behind them, not just because this is the way we’ve always done it.
Doing something new is not always better, but “the way we’ve always done it” no longer passes muster. The industry needs to embrace change, it needs to approach it in an open minded and structured manner. Hypotheses need to be formed and tested, and where there is real value the new ways of working must be implemented. This approach underpins everything io does: we apply a DQ framework to challenge biases; we have developed a bespoke approach to uncertainty to ensure the risks of new and innovative solutions are understood and managed; we are unique in deploying a holistic, systems thinking methodology in conjunction with value management to model the impact and benefit of change programmes; we have developed risk sharing contract models to ensure better collaboration through “skin in the game”; and we deploy single and double loop learning to continually evolve and adapt to the failings of our industry.
To find out how to breakdown the barriers to change and realise the benefits of the technological revolution to ensure we can sustain the industry, contact us at email@example.com
 Taleb, Nassim Nicholas, Skin in the Game, Allen Lane, 2018.