Sometimes, the idea that money answers all organizational problems is “seductive.” But the seduction is about as real as the beautiful/handsome person across the room winking at us, only to discover it was a stray eyelash causing the winking. Many companies throw money at systemic problems and rush to automate processes that have not been streamlined – They perpetuate their dysfunctional processes. There are many others drowning in a sea of well-meant initiatives which end up being another waste of time and money. If you walked into many offices, you would find exciting posters and purported valuable doohickeys which seek to depict excellence as their schtick. Many are gussied up for the stage while they struggle behind the scenes to make a headway. I’ll tell you what is NOT a secret and not intended to be foisted on your good selves, as anything ‘ex cathedra’. It is that, to adequately rake in returns you would need to improve your People, optimize the use of Technology, and streamline your Processes.
The Oil & Gas industry is one capital intensive bunch. A few years back, spending a-million-dollars a day on a deepwater oil well was normal. Oil prices used to be at a comfortable high. Those were the days where many flew business class to attend training courses half way round the globe. Those were ‘the good old days’. For eight of the world’s largest oil companies including, ExxonMobil, Chevron, BP and Royal Dutch Shell, combined free cash flow, a measure that tracks the money going in and out of company coffers, was round about $3.8 billion recorded in 2014 according to Bernstein Research. My goodness! Those were the days when, as someone put it, “pretty much as long as you had a pulse, they were willing to try you out for a position”. Then came the downturn. Like a roller coaster ride, the ‘up’ part feels great – It is the down part that gets everyone cringing. Prices dropped from $100 plus, to less than $60 by December 2014, hitting a record low in 2016. Once again, an industry “which has always relied heavily on a contingent workforce, is tightening its belt in part by shedding a lot of those people.” It has been a roller coaster ride for many, many years. I know a couple of people who have survived quite a number of these downturns over their oil and gas careers. It is no wonder the industry prides itself in terms like Operational excellence.
Indeed, price volatility, WTI v Brent differential, government policies and increased global competitiveness make it a no-brainer for industry players to consider ways of cutting costs. But, wait…cost cutting is not synonymous to ‘operational excellence’.
Operational excellence is much more than cutting cost. It is not simply an “add water and stir” affair. No! It is also far more than just an episode of improvements. Organisations that benefit most from operational excellence are those who institutionalize process improvement into the organisations DNA. In other words, it is about a holistic organisational transformation, which involves getting buy-in at all levels of the organisation.
Many companies have already established one form of performance improvement strategy or another, combining methodologies such as Lean, Six Sigma, JIT and Kaizen among others. I’ll attempt to explain a few of the interesting ones.
Kaizen is a Japanese word which means “change for the better”. The Kaizen revolution started after the second world when American experts were brought in to help rebuild Japanese industries. Kaizen is a way of life.
Lean is a meticulous process of eliminating waste that constrains an individual or organisation from reaching their potential. The concept helps identify time spent on performing activities disguised as productivity which in fact add no value and harnessing that time for other productive functions. The continuous improvement of kaizen helps Lean organizations achieve these goals.
Lean has quite a few cousins: Total Quality Management (TQM), Six Sigma, Theory of Constraints, Total Productive Maintenance (TPM), ISO-9000, and Business Process Management (BPM). These are all compatible with Lean.
Lean is about creating value and eliminating waste to reduce cost and improve efficiency, productivity and quality. It is a way of looking at how we do things and removing waste so the end customer gets the most value. As processes become more efficient we free up resources that can be used elsewhere. Lean is about getting rid of wasteful steps in our processes. It is not about eliminating jobs. It frees people up to use their time and talent on other, more creative stuff.
Lean is seeing through the process as it develops to satisfy the customer, identifying non-value-added tasks within the process and eliminating waste. Three key terms are important: Waste, Customer and Value. Customer is the person who gets the service we are providing. Value is determined from the customer. Waste is what does not add value for the customer. So, for instance, an employee going through the process of requesting leave is the customer in the leave request process.
Something adds value for a customer if all the following are true:
- the customer cares about it so much as to pay for it;
- the step changes/affects the product;
- the step is not a rework and is done right the first time. If not, then that step is waste.
Waste can be categorized in the following way; steps that definitely add value; those that create no value but are necessary for the service; those that create no value and are not necessary.
So now, we have a few terms Lean, Kaizen, customer, value and waste. We also looked at how waste can be categorized. In the next write-up, we can spend time looking at what types of waste exist and how we could identify and mitigate those wastes in our drive toward operational excellence.
Do remember, it’s not about the showmanship or sloganeering or even automation…It is a whole value chain that needs to be looked at in an integrated manner.
Emmanuel Haizel
