Tag: Operational Excellence

Operational Excellence – the Organizational Factors

Operational Excellence

I don’t know of one company with the goal of operational poor performance. Every company wants to achieve operational excellence, perform to its maximum capability and increase its profits.

However, in most cases companies are not performing a maximum performance levels.

Achieving operational excellence requires first, creating the environment for performing at a maximum level, then maintaining operational excellence through change as time and events progress.

 

Every company is unique and will see unexpected challenges. How it is organized will set the course for how the company responds to these challenges, and how the company chooses to respond to events can be a large factor to its competitive advantage. Planning is vital, but the ability to adjust to these changes is just as important.

Every aspect of your business contributes to the operational excellence of your company.

Everyone in your organization needs continual motivation and coordination to reach operational excellence.

This is the first in a series of articles covering aspects contributing to operational excellence and will address organizational factors contributing or detracting from obtaining the maximum performance you seek.

An organization is a clear, non-conflicting authority relationship between positions, which have assigned tasks to achieve your corporate objectives. A full understanding of your company’s goals and objectives is necessary to identify the specific responsibilities involved. Typically you will have a mission statement or company goals stating what the purpose and objective of the company are.

These will need to be broken down into functions required to carry out the stated purpose and achieve the desired performance level. Things like finance, accounting, human resources, procurement, facilities, information systems, contracts, legal, sales and marketing, and operations may form some of the basic functions required to meet your goals and objectives.

These in turn should be broken down into lower level functions to ensure comprehensive coverage of the functions (actions) to be performed, tools and processes required, and skills needed. All of this work will feed the development of an organization structure which should represent all of the functions needed to accomplish your objectives, and the positions within your company.

The delegation of authority to these positions and what that authority allows them to do is key to a successful organization. Having the appropriate authority, and accountability, over budget, personnel, and direction at each level will lead to fast and efficient communications and decision implemented close to the problem.

How do you know if you have the appropriate delegation of authority? A proactive assessment of your organization to improve performance or a diagnosis after an issue arises, can provide insight into organizational factors that lead to improved long term performance.

An assessment of your company’s organization can be made to determine what the intended delegation of authority is compared to how the organization functions, and what the people in your organization perceive their authority to be. Analysis will show where there are gaps or significant overlaps in delegated authority, where people misinterpret their level of authority, and where people are not being held accountable.

All of which when corrected can help achieve operational excellence for your organization.

Also, when problems or issues arise from either conflicting decisions or perceived authority, or no decision being made, a diagnosis and assessment may lead to highlighting larger organizational issues.

EXAMPLE: Company J is an engineering company that provides both engineering services and design, development, and manufacture of complex systems. Company J organized itself as a matrix organization where section managers have responsibility for personnel assignments, work quality, training, and promotions.

The company had a few large long term projects to design, develop and deliver hardware. The projects were having trouble meeting schedules, budgets, and maintaining personnel key to the projects. The reason for this, was that, in this organization, the section managers had the authority to remove personnel from the projects based on their individual priorities, which did not align with the project’s priorities. They also had influence over not only how personnel performed their work but what they should be doing to support the projects, which sometimes conflicted with project direction.

The section managers had no accountability for the success or failure of the project. This resulted in key project personnel being removed from the project on short notice and conflicting direction to project personnel. Lack of authority over resources made executing these projects to plan difficult for the project managers. The project managers did not have the authority to complete their job successfully, and the section managers had too much authority over the project execution without accountability for project success.

A restructuring of the organization and re-alignment of the delegated authority provided a solution to improve the performance of this company in executing its projects.

Organizational Change Needed for Operational Excellence

Organizations operate to effectively and efficiently produce the products and services that achieve the organizations goals and meets the key stakeholder’s expectations.

Organizations develop strategic plans to help guide the organization in meeting its objectives and may include integration of new technologies, implementation of tools, development of new processes, modifications to existing processes, or even acquisitions.

Your organization should have, or should develop, stable and predictable work processes to ensure a consistent performance of your organization. Inconsistent processes will usually show themselves in inconsistent and substandard performance within your organization.

It may not be readily apparent what the root cause of the variation is, but with effort focused on solving the issue, and analyses of the processes in work, you can find and resolve inconsistencies in performance. When assessing the work processes that you use in accomplishing your job, it is very helpful to identify core processes which have the largest impact on your performance so your resources will be spent solving the issues that have the largest impact.

As time goes by, your current processes and tools may become less efficient relative to your competition due to changing business environment, technological improvements, or complacency with familiar well used processes and tools. In order to maintain or regain operational excellence, the process and tools used should be assessed regularly so that new processes and innovative ideas and tools can be incorporated when appropriate.

Improving your organization’s performance through continuous incremental steps or through a step change by introducing new technologies, automation, or acquiring another company requires leadership and a staff with a culture for making positive changes.

The people within you organization require leadership and an environment that supports and promotes a culture that leads to meeting company goals in continuous improvement. Once there is a strategy and clear vision for your organization’s goals, communication to all, along with appropriate actions, must support this culture.

How are opportunities for improvement or significant problems or issues dealt with in your company? In my experience, most companies are interested in opportunities for improvement and do a pretty good job of encouraging people, but there are companies who have done things one way for a long time and are really not interested in change. This is a company decision, usually based on a long standing company culture, but it is worth assessing the value of potential opportunities.

When problems occur, how the leadership responds will define either a culture ranging from solving problems to hiding problems. Problems no matter how costly will usually point to a problem in the organization and/or work processes and provide an opportunity to fix the problem and provide a learning experience for individuals in the organization.

As with delegation of authority, problem resolution should also be delegated to the appropriate level to facilitate faster resolution of the problem(s). If problems reoccur, then it may require organizational changes to resolve the problem.

Communication is necessary from leadership to promote an environment and culture of change and improvement, but communication across the organization is important for collaboration, change management, and implementation of lessons learned. Participation by stakeholders within the organization, supporting departments, and external resources early in a process provides an opportunity for buy in and participation in planning activities leading to better estimates of schedule, budgets, and resources required.

It also provides for a smoother integration and higher performance during subsequent execution of the work. Also, when implementing major changes to your operations, working with your organization’s stakeholders early and regularly provides a buy-in and support to the change.

Another area of communication within an organization that is valuable is the collection and dissemination of lessons learned. Documentation of solutions to prior problems encountered provides a database of information that can be used to help reduce the reoccurrence of the same problem. Disseminating the information and using it while planning new work is extremely useful but not always straightforward.

When lessons learned are held with the local expert or held by different people in different places, there is a risk of losing information if the wrong person decides to leave. It takes time and effort to develop, maintain, and develop a process for dissemination of lessons learned, but is a valuable tool in achieving organizational excellence.

The structure and function of your organization has an impact on operational excellence and can and should be assessed to look for improvements.

The allocation of authority should be clear and non-conflicting and lead to quick decisions and solutions close to the problem. Work processes should produce consistent results, and if an organization has created a culture of continuous improvement, they should improve over time.

Organizational leadership should promote an environment of continuous improvement and a culture of timely communication and successful problem resolution. Maintaining and promoting the talent within your organization should support your company’s goals and continuous improvement culture. Collaboration and communication between groups within your organization should be conducted early and often so that major changes have a smoother implementation, and you will achieve better overall performance across your organization.

A high performing organization provides benefits across your company in all of the things that you do. It is worth investing time and effort to assess your organization’s structure and function to improve performance.

 

Guest blogger Paul Royall provides consulting and support services that focus on helping companies improve performance in Operations and Project Execution. He is an experienced manager planning and executing large complex systems for the military and NASA for over 25 years. He is also an entrepreneur with experience with startup ventures and development of business operations.  A graduate of Texas A&M with an Aerospace Engineering degree, he continued his education with graduate studies in business management and training in project management and systems engineering.  Click here to learn more about him and his company RDMC Group.

 

Operational Excellence in Oil and Gas. What is it and How do You Implement

Something is about to become a major business driver and its called Operational Excellence in Oil and Gas. And it’s a real game changer. We do a deep dive plus video.

Why would Operational Excellence in Oil and Gas be important? Ponder this for a second, 69% of Oil and Gas organizations don’t link budget and resource planning to strategy. Can you imagine what would happen if they did?

Well, with an operational excellence program in place, budget, strategy and resources are intrinsically linked – driving world class performance.

Operational Excellence in Oil and Gas

Now operational excellence in Oil and Gas is not new, but it is somewhat new to the industry. Operational excellence first came to light in a book authored by Michael Treacy and Fred Weirsema. It was a research book based on what sets market leaders apart from the pack, titled “The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market. And what their research showed is that market leaders in the business world could excel if they concentrate their efforts on one of three buckets.

The first bucket is product leadership

So companies that excel in product leadership will lead the pack and the company that comes to my mind first is of course Apple, they dominate their niche by being the product leaders. Regardless if you an Apple fan or not, pick up one of their devices, walk into one of their stores or simply look at all the copycats they have spawned and you realize that they are the product leader in their market.

The next is customer intimacy

That’s another bucket that their research determined could help companies come out on top. When I think of customer intimacy, I think of companies like Neiman Marcus or Brooks Brothers. Not only do their front line staff know you by name, but their back office systems are set up to know YOU. Sizes, favorite colors, cuts and styles all tracked so that you are given concierge treatment every time you set foot in one of their locations, anywhere in the world.

And finally, there is operational excellence

FedEx best exemplifies operational excellence. Think about what they’re able to accomplish, over 11 million packages a day delivered to over 220 countries and they do it without a hitch, achieving and on time delivery of 99.45%. Every piece of FedEx’s business has to function together as one cohesive unit to make this possible, from HR to accounts payable, from fleet maintenance to IT, and from supply chain to marketing. All on top of a culture of continuous improvement.

Operational excellence in Oil and Gas was a popular discussion in the 90’s and then it kind of disappeared, because quite frankly profits went up based upon the global price of crude. Well those high crude prices are gone, and are not coming back anytime soon.

 

We’re in the perfect point in history for operational excellence in Oil and Gas to be a major business driver. (Click to Tweet)

 

And it will be for 5 main reasons:

(Click here if you don’t know the differences between upstream, midstream downstream & service. This 3 minutes of quick education will help before you read further)

Number 1 Upstream

We’re in a long term low crude price market which means the upstream companies have to wring costs out of their processes. And in some cases a lot of costs. Also they’re doing stuff they’ve never done before, think of unconventionals, deep water, arctic drilling, high pressure high temperature, all which are much costlier and higher risk. The perfect solution? Operational excellence in Oil and Gas.

Number 2 Midstream

Midstream companies have to rethink capacity, routes and opposition. The routes used to be easy to figure out, build pipelines to bring all the oil and gas from the Gulf Coast that was delivered by supertankers, to all of the refineries scattered around the country. Well, that’s almost reversed itself. Now we need to bring oil and gas from the rest of the county due to the shale plays, down to the Gulf Coast for refining. And most of those other refineries scattered around the country are now gone. So not only is the old way of doing business disappearing, but in that process pipeline companies are now blending in the pipe, which is driving the need for storage. On top of all that new and dynamic business (new & dynamic is usually not associated with midstream), the pipeline companies are facing the worse opposition to new construction projects in their history. All a driver for operational excellence.

Number 3 Downstream

Downstream is in a unique position. They’ve being spurred by growth because the cost of their raw feed stock has been cut by 40%. And they are entering new markets like LNG and exports of refined goods. But right smack in the middle of all this growth potential, they’re fighting state and federal policy which has become increasingly more complex and requires much greater attention to detail to implement. Operational excellence in Oil and Gas is the perfect solution.

Number 4 Service

The poor service companies are being hammered. They quite frankly are getting beat up by all of their customers to lower their prices, to do more for less, and get things done quicker. Once again, operational excellence is the key for them to accomplish all of that and still maintain profitability.

Number 5 Talent

And then the entire industry is fighting this thing we call “The Great Crew Change”. This means that a high percentage of senior people with experience are going to retire and at the same time. And it’s going to happen in the next 10 years. And when I say a lot of people, it’s huge. 57% of all mid-level managers and above will be retiring from the oil and gas industry in the next decade. Combine that with an overall shortage of talent in the oil and gas industry, and a severe shortage of craft labor and you get the perfect storm that I think only operational excellence in oil and gas can address.

 

Now when I say operational excellence in Oil and Gas, a lot of people don’t understand what I mean.

And unfortunately because the oil and gas industry has a ton of engineers, when I say operational excellence most people think process excellence. Two totally different things. You need process excellence to successfully implement an operational excellence program, but you don’t need operational excellence to implement a process excellence program.

Process excellence is a way to wring out inefficiencies in a process. Think Six Sigma, Lean, Agile, Kaizen and Business Process Management. They all address improving the process in some fashion, but they do not look at the entire organization from top to bottom. Nor do they address culture, change management, leadership or continuous improvement.

Operational excellence is exponentially more impactful to an organization. Wikipedia best describes operational excellence as “a philosophy of leadership, teamwork, and problem solving resulting in a continuous improvement throughout the organization by focusing on the needs of the customers, empowering employees, and optimizing existing activities in the process”.

operational excellence processNow operational excellence in oil and gas is in its infancy, but a couple of companies have embraced operational excellence and are on their voyage. If you’re a Chevron fan or if you work at Chevron, you have heard of The Chevron Way. The Chevron Way is “we’ll complete every task, the right way, every time”. That folks is operational excellence.

And big old ship ExxonMobil is out there implementing operational excellence, which is allowing them a return on their operations three or four points higher than their competitors. This means Exxon can go places and either make more money than anybody else, or in places where other companies can’t make money, they can. All because of operational excellence.

Dow, DuPont, LyondellBasell and ConocoPhillips all have started down this path. And companies like McKinsey, Accentur and Bain & Company all have consulting practices around operational excellence in Oil and Gas.

When you think of deploying operational excellence in Oil and Gas, it’s really a simple thing to figure out. It’s really just two main parts:

1. Where do you want to take your business?

2. Building and implementing the road map to actually get there.

 

The first thing I rattled off is where do you want to take your business? That sounds simple, but the answer is actually more strategic than you would think. You need to look at your entire organization, at all the opportunities in the market, your competitors, your company’s strengths and weaknesses, your existing talent pool, leadership and constraints, and then figure out with this identified sets of assets – where do you want to go? What makes the most logical sense as a destination when looking into the future? As Stephen Covey said, begin with the end in mind.

The next part is that once you know where you want to go, how do you build and implement a roadmap to get there? Now this is where it gets much more complex, and coincidently where most companies fail.

The first question you have to answer is, can you picture your mission critical operating processes, like accounts receivable? Can you literally visualize the moment that you send one of your clients a bill, what actually happens on their side? What paper trails, what systems does it have to be key punched in, what processes does that bill go through until you actually get your money? And then once you receive it, what keypunching and paper trails have to take place on your side for you to actually recognize that revenue? What is that process? And that’s one process in a company. Imagine if you take a large enterprise organization in oil and gas, somebody has multiple business units. You can see the complexity of just that one process multiplied by 1,000. But until you can map out and picture your critical operating processes, it will be impossible to look at efficiencies and improvement synergistically.

Once you have that done, then you have to figure out functionally how do you operate? What parts of your business are key and most important which ones are less important so you have an order of progression.

Once you can picture your mission critical operating process and you have an order of progression, the next question you need to answer is, what tasks or workflows need to be tweaked or changed to improve those operating processes? And then once you have that done, you need to implement a system to track and measure the progress (or lack thereof).

And then (and this is part of the process excellence that a lot of people miss out on), you have to drive continuous improvement. So Operational Excellence Continuous Improvementthis whole thing that we’re building doesn’t have an end game. It’s continuously being improved and it has to be improved by the people that have their feet on the street, the people that run your day to day business. Which means your leadership team has to build and then support your employees adopting this culture of continuous improvement.

This is not an easy thing to pull off. You’ll hear it a lot in HS&E in oil and gas where people say, well, anybody in the line can pull the trigger. Stop whatever is going on because of a safety risk. The reality is that’s not 100% accurate. What happens is if you’re that guy in the line and you pull that stop lever, you better have a damn good reason why you did or you get your chops busted. That’s not the right way to think about continuous improvement. You need to have the key people in organization being able to stop and reassess the process to see if it can be improved. Now I’m not saying that everybody in the organization can pull the stop lever for any reason. You don’t want a first year engineer right out of school to pull the trigger and stop $85 billion deep-water project. But he may have found something that your senior engineers didn’t see. So what you need is a change matrix in place, so that if something needs to be changed, the right people can verify it’s valid and then you can go ahead and improve the process. Once again, that needs to be an evolution of continuous improvement in the entire organization.

So, once you build and you’re able to deploy that roadmap, now you come to the hard part especially in oil and gas.

How do you change the business culture to ensure success with operational excellence in Oil and Gas? That’s a tough one, but it starts with leadership.

Senior leadership has to buy into this lock, stock, and barrel. If they don’t, this will never be successful. And trust me, it will not happen if it’s an “order from the ivory tower”. It has to be authentic with 100% buy in by the executive team, and eventually every single person in the organization. Situational Leadership fits in perfectly right here.

Once senior leadership has total buy in, corporate communications strategies can be developed to speed up the process for the rest of the organization. FedEx pulled it off, so I see no reason that the Oil & Gas companies cannot do the same.

Finally change management. You’ve got to figure out a change management process that works for your business, your culture, and your company. Sometimes its often needed for an organizations survival.

And then you can start thinking about things like high performance work teams, how do you get your people to do more and be happy to do so? Do more accurate work with less mistakes. That’s performance management and it’s a vital piece that comes in towards the end of your operational excellence journey.

In the very beginning I gave 5 reasons operational excellence in Oil and Gas is going to be a major business driver for the industry. But it’s also the perfect time in history for this to happen. The oil and gas industry is starting to embrace new technologies faster than I’ve ever seen it before. Our industry is facing global competition like its never have, because of the NOCs, the nationalized oil companies, big companies like Shell and Exxon and Chevron are running out of places to drill.

Geopolitics are also playing a major part in this. One of the things I’m most proud of our industry, if you look at the efficiencies as being driven in the frac fields because of low crude prices, they figured it out. The good guys have figured out that they can actually make money at $50 a barrel. Two years ago they were barely making any profits unless oil was above $90 a barrel. Think about how far they had to come in 24 months in terms of operational excellence. We need operational excellence in Oil and Gas to be spread throughout the entire industry. And I think now is the time it’s going to happen.

 

So what do you think about operational excellence in oil and gas? Leave your comments below.

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