The concept of operational excellence (OE) has been around rather longer than one might realise – the oil price slump of 2014 might have concentrated the minds of COOs and CEOs across the global industry as they sought remedies for balancing the books in the face of vanishing profit-margins, but the hydrocarbon sector can claim to be something of a pioneer when it comes to fashioning company-wide efficiency and reliability strategies.
Indeed, ExxonMobil incorporated its long-established 11-point Operations Integrity Management System framework in the wake of the Exxon Valdez environmental disaster in 1989 when up to 750,000 barrels of crude oil were needlessly spilled into the Gulf of Alaska.
But now OE has never been so popular and any oil and gas operator with genuine aspirations to deliver a safe, lean and effective business strategy needs to embrace it.
Neil Enright, regional sales director, Middle East, Rockwell Automation recognises that oil price fluctuations have played a notable role in driving forwards the need to adopt OE.
“In a dynamic global industry like this, costs need to be managed, to allow the operators to extract the most value possible from current assets, maximise up-time and maintain production at the most optimised level.
“Operational excellence allows the operators to do this leading to improved productivity and lower costs, in turn increasing margins in an industry that has seen low prices for a prolonged period of time.”
Enright points to technological developments such as cloud, mobility and data analytics as means by which operators can gain “contextualised and actionable views into real-time production data” and thus enhance their day-to-day operations.
But the vacillations of the oil price are not, and should not, be the principal motivations behind adopting OE strategies. David Allan, principal cathodic protection specialist at Sharjah based Asset Integrity Engineering (AIE) points to the fact that “no accidents, no incidents and no harm to people or the environment” are central goals for OE strategies, in industries such as oil and gas, while, simultaneously improving reliability and efficiency.
Allan suggests operators need to look beyond mere economics when deciding to undertake OE initiatives.
“The adoption of OE and associated management strategies is a sensible philosophy for management to optimise workplace efficiencies under any economic conditions, since the benefits are wide-ranging and not necessarily limited to financial. Obviously, the objectives of OE receive more visibility during an oil price downturn.”
Björn Ewers, partner and managing director, Boston Consulting Group (BCG), Middle East, has observed that the bottom line is, nevertheless, a key focus.
“We have seen that some operators are launching a new wave of cost reduction programmes; some are transforming the way assets are operated; completely revisiting their operational excellence approach to identify additional levers of optimisation and others reviewing their operational excellence model to leverage more and more digital solutions.”
Different companies across multiple industrial sectors might deploy and ultimately fine-tune a variety of strategies or models to take them closer to their OE goals but those very targets remain fairly uniform regardless of the business sector. Ewers says that from the BCG’s work with leading international oil and gas operators, making reductions of up to 50% from operational expenditure and optimising capital expenditure by a similar margin is a common ambition.
But while OE might offer the utopian prospect of achieving greater efficiencies, lowering costs and improving health and safety practices, adopting a new company-wide business model, ethos and even culture is potentially quite disruptive. Rockwell Automation’s Enright believes the way senior management approaches the implementation is crucial.
“With the onset of the end of the so called ‘era of easy oil’ large scale change is unavoidable. The manner in which a company’s culture is evolving and how the change is communicated is critical to the success of a change management process.
“It needs to be demonstrated that the change is required and that the implementation of that change will sustain the operations hence ensuring its long term success. Leadership and clear direction are critical in this process. Companies that are successful in this are the ones that can clearly articulate the need for change and the effect that it has on the different areas of the organisation.”
AIE’s Allan says that some firms react to external factors such as oil price dips by shrinking the size of the organisation and then begin thinking about ‘how to do more with less’. He adds, “In this context, implementing an OE initiative requires senior management to communicate a road-map for implementation, while maintaining employee engagement and motivation.”
Jean-Christophe Bernardini, principal at BCG, Middle East, highlights a number of areas where OE strategies can actually break down. He points to the “unclear demarcation of roles between relevant parties in executing programmes and initiatives” and the “misalignment of expectations on the targets and achievements of cross-functional initiatives and processes” among an assortment of possible failures of OE systems. A lack of trust among internal stakeholders is another critical challenge, as is the failure to exploit the value of digitalisation solutions now available.
This last observation is particularly interesting. New technologies have played a vital role in recent years right across the energy value chain, helping to make previously economically prohibitive processes much more affordable, while bolstering reliability and performance in the field.
Digitalisation is widely seen as being one of the fundamental ingredients to creating a successful OE strategy, but while it is undoubtedly significant, its role and impact is slightly more nuanced.
Enright is clear digitalisation is a “key element of the equation”. He states, “Across industry sectors, smart production processes are seeing devices and process units beginning to control and regulate themselves. This starts right at the well head and continues all the way through the production process to the consumer connecting the complete supply chain.”
Bernardini feels digitalisation is crucial in helping to “facilitate, accelerate and enhance the delivery of companies’ operational and financial objectives.” He cites its role in driving cost improvements for drilling and unmanned platforms and the ability of big data analytics to enhance oil recovery via more effective reservoir characterisation.
Allan too recognises how digitalisation is a highly beneficial advancement and facilitator to OE yet it is one part of the story, “We recognise that OE is not only challenging and complex, it is multi-faceted, and requires the use of numerous systems, processes and tools for its attainment, the most important of which are management commitment and leadership, with positive employee participation.
“Digitalisation is an effective tool which can lead to greater levels of transparency, efficiency and performance, but it can only enhance, and not replace, human decision making.”
