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What are your capabilities?

Thursday, November 17, 2011

Most oil and gas industry companies define what they do by their products. But they would be better off defining what they do by their capabilities (ie what they can do which people will pay a premium for), and their relationships. Most importantly, understand that the most important capabilities in an industry can change, says Professor Venkat Venkatraman of Boston University School of Management

In 2002, the most important capabilities in the mainstream IT industry were consulting, applications, tools, operating systems, networking, peripherals, computers and processors.

In 2002, Microsoft had a dominant position in many of these sectors, and close relationships with companies in other sectors, such as with Intel, Dell and Accenture.

Today, the most important capabilities in the mainstream IT industry are social, mobile, search, browser, applications, operating systems and hardware.

You probably have an opinion about whether Microsoft has a dominant position in these sectors, or if it is playing catch-up.

The purpose of this example is to demonstrate that the most important capabilities in an industry can change, and nobody should feel comfortable that just because their capabilities are in demand today, they will be in demand tomorrow, said Professor Venkat Venkatraman of Boston University School of Management.

He was speaking at the Trondheim 'Integrated Operations' conference on Sept 13-14, organised by the Trondheim Integrated Operations Center, Norway.

The most important capability in the oil and gas industry's past was probably scale (size). But already today things are less clear-cut.

In future, we could see a different stack of important capabilities in the industry. It could include access to capital (or relationships with banks); economies of expertise (being large enough to offer many different opportunities to learn); being able to analyse data; managing a supply chain; and providing a range of staff support services.

'As I look at your industry, I see a huge potential for many capabilities,' Professor Venkatraman said. 'We can look at the digital oilfield companies of the future as a set of capabilities driven by digitization and connectivity to create and capture new value.'

Many companies still define what they do by their products and processes not their capabilities, he said. 'Products are easy to see, capability and relationships are invisible. But they make tomorrow's organisation. Companies have to think, what do they really do which is so critical that they are needed in the ecosystem,' he said.

Many people in the oil industry might think that digital technology won't change the central essence of how their business works. Just like people in the music, publishing, retailing, media, telecom industries once did.

Companies should also be wary of categorizing themselves as either suppliers or operators, because this can change too. 'Historically we had supply and demand companies. But is Amazon on the supply or demand side? If IBM says, we'll work with companies to deliver a smarter planet solution are they on the supply side or demand side?'

A 'capability' could be defined as the way a company deploys people, process and technology tools as well as how these are governed together, he said, so they end up with something people are willing to pay extra for.

'To me, capabilities are only interesting if the company doing it is at a sufficient level to earn a premium,' Mr Venkat said. 'Capabilities are not products or functions. It is the combination of ability (what we can do) and capacity (how much we can do it).'

Shell and Statoil

Professor Venkatraman is helping companies participating in the Trondheim Integrated Operations Centre, Norway, to work out what their most important capabilities are, today and tomorrow. Participant companies include Statoil, ConocoPhillips, Petrobras, Total, Shell, GDF Suez, ENI, SKF, Aker Solutions, Kongsberg, IBM, DNV and FMC Technologies.

Shell is working together with the Integrated Operations centre to develop the 'capability' approach and will pilot this approach in the Ormen Lange field for one of the capabilities.

Leo de Best, Smart Fields Global Programme Manager at Shell, said that Shell's Smart Fields roll-out is 'capability'-centred.

Shell wants to upgrade the entire way the asset operations work, so that people can manage the fields by exception-based surveillance, only looking at the data when the monitoring systems tell them that something new is happening.

'Often the implementation of technology is the easier path, but to make a lasting change requires a lot of work, [including] to make people aware of a need for the data. It requires local champions. We call this capability development, not just a technology,' he says.

'Smart fields is good business and we expect the pace (of implementation) to continue if not increase. All new fields will be smarter than today in ways we cannot currently imagine. Integration of people and technology will continue further.'

'It will provide attractive opportunities to new staff. It will help boost the energy supply and help to attract high quality new staff. It is not people-process-technology, we say people-process-technology and organisation.'

Ronald Knoppe, Shell Exploration & Production Smart Fields Global Capability Leader for Collaborative Work Environment (CWE) says that Shell has defined its capabilities as 'sustainability, operate-ability, repeat ability, adopt ability, implement ability, continuous improvement ability.'

'We think we try to manage our assets by a set of capabilities,' he said. 'We've identified the capabilities we think are required.'

'A capability is not a technology or a work process. Capabilities are a combination of tools / technology, people, organisation.'

Trond Lilleng, senior advisor integrated operations with Statoil, said he sees standardisation as an important capability of Statoil. 'Statoil has worked intensively to try to develop a standardised operation model for the North Sea,' he said.

When it comes to capabilities, 'Often I hear people tell me what the perfect solution is,' he said. 'But they don't understand where we are.'

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