Could Companies Use The Uber model?
The oil and gas industry jobs model has always been volatile and particularly affected by boom and bust cycles. Traditional oil and gas (O&G) organisations were built during a period of perceived resource scarcity. They’re large and complex, with expensive centralised functions. The smaller independents – such as EOG Resources or Devon Energy – have largely copied these bureaucratic operating models.
In an era of big data and automation, where innovative business models allow the largest accommodation provider to own no hotels (Airbnb) and the largest taxi service to own no cars (Uber), we take a look at the future business models in O&G. This article will discuss five key themes for the O&G organisations of the future.
1) The Speed Of Change
The old rigid hierarchies will need to give way to new looser structures. There will be a focus on how fast a company can adapt (organisational agility), resulting in fluid teams, which may rearrange on a daily or weekly basis depending on project goals. A team may not have a formal leader, with leadership falling to those individuals with the greatest expertise.
Another development will be rapid iterative prototyping with instant feedback, rather than the slower review cycles which are typical in O&G. An example is employee development. Rather than an annual review with one manager, employee performance could be monitored in real-time through submissions by colleagues and partners.
Still, even as these companies change, they will need to aggressively standardise – to create a stable, more efficient industry with a smaller number of mandatory processes. This would allow access to reliable data to enhance safety and productivity. For example, Schlumberger standardised its processes to relocate employees, reducing the deployment period from 2-3 months to 2-3 weeks
2) The Power Of Digital
The new digital revolution is only just getting started – including Artificial Intelligence (AI), machine learning and the Internet of Things (IoT). The data gathered will result in a step change in productivity. Automation will remove most routine manual tasks – reducing human error and improving safety. It also drives agility. Imagine decision makers on the front line having instant access to predictive algorithms, allowing real-time deployment of maintenance teams – the Uber model refitted for oil field services.
Engineers will have more time to focus on complex problems, while new technical job classes such as data scientists will result in more PhD hires and tech-driven partnerships.
3) A Millennial Driven World
Millennials can no longer be thought of as graduates. They are starting to gain managerial roles in O&G companies and will rise further to executive levels. As they do, this group will bring new ideas and perspectives on accountability, technology and collaboration. The workplace will shift to meet these expectations, resulting in:
- More flexible employment structures and working hours, including remote working (enabled by technology).
- Greater support for personal development – including education, leisure and personal time.
- Alternative career paths, or job switching with rapid progress cycles and a flexible progress (e.g. step-downs).
- A new working culture, including the office environment.
- An understanding of social media in the workplace – perhaps even replacing traditional tools e.g. intranet.
- A focus on the social impact of a company.
4)A Decentralised Business Model
Creating a strong corporate centre, incorporating functions like IT and HR, has enabled O&G businesses to manage risk, share talent (which has sometimes been scarce) and improve economies of scale. However, the collapse in crude oil prices means that companies must reassess these large overhead costs.
Success in unconventional and late-life O&G operations requires coordination at the local level, and the ability to make decisions quickly. The layers of corporate review stifle business opportunities. Slow decision making has become a serious threat to the long-term viability of the supermajors.
While risk management (operational, commercial, etc) is likely to remain a corporate function for complex O&G plays (e.g. LNG, frontier, deepwater), the simpler operations will need more autonomy. Decision-making power will be pushed to the operations arms, reducing the size of corporate headquarters
In the future, we are likely to see a split between companies with low-risk assets, e.g. wind farms, which will use a decentralised model and companies with high-risk assets, which will maintain a strong corporate centre to handle operational complexity. The fast-paced operators will be able to take risks which slower ones cannot. We may even see asset and business spin-offs (M&A), mimicking the long-term separation of upstream and downstream O&G.
An example of this is the way that IOCs are setting up independent units to operate assets, copying a business model which was pioneered by US independents for unconventional resources.
5) A Network Of Partners
The industry has always relied on a patchwork of contractors and sub-contractors. Every O&G company specialises in one of more core in-house activities and manages the rest of their obligations via partnerships.
However, in the past, these contracts have been tactical and short-term in nature. As the industry shifts, we’re likely to see more longer-term structures between co-dependent companies. An example is BG Group, which has signed a long-term strategic agreement with KBR, an EPC company, for front-end project engineering services.
There are also indications that supermajors may start to rely on specialised E&P players for reserve replacement, allowing them to cut down in-house teams. After all, access to resources will no longer be the key differentiator it once was.
These shifts will open up the industry across the value chain – creating entry points for OEMs and oil field services companies to introduce further breakthrough digital technologies and disruptive business models.
These new business model ideas each have powerful implications for the O&G industry, but they could also be self-reinforcing. For example, more agile companies will likely attract top millennial talent, which will increase the speed of digitalisation in a company. This, in turn, could lead to decentralisation, and reduce costs.
The face of the O&G industry is changing, and while we can’t predict the future, it looks like the winners will be those companies which innovate faster than their competition.