Process Excellence In Energy Article Compilation

Process Excellence in the Energy Industry: PEX Network Article Compilation

Process Excellence in
the Energy Industry
PEX Network Article Compilation

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INTRODUCTION
Arguably there has never been a time when it
has been more important for the energy
industry to focus on process excellence.

Exploration is becoming more costly as
companies search for more remote reserves in
deeper water, and this is bringing with it more
challenging environmental regulations which
must be met, with increased time and cost
pressures.

In the past 18 months, tax increases in the
North Sea have been squeezing margins and
unrest in the Middle East and the Fukushima
nuclear disaster in Japan caused major upheaval across the sector.

With waste and mistakes in the oil and gas industry leading to serious costs, both monetary and sometimes
human, operational excellence is essential if companies are to continue to grow and meet the new challenges
facing the energy sector.

This multimedia compilation has industry perspectives and interviews by process professionals within the oil &
gas industry. All articles and materials in this compilation have been published on PEXNetwork.com in the last
few years.

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INDUSTRY PERSPECTIVE
TAKING REALITY SERIOUSLY: TOWARDS MORE
SELF REGULATING MANAGEMENT AT STATOIL
CONTRIBUTOR: BJARTE BOGSNES, 20 JULY 2012

There's often a gap between what leadership says it wants and the types of behaviours that their management
processes actually encourage, writes Bjarte Bogsnes. Here's the story of how Statoil started to close that gap.

At Statoil, we try to take reality seriously,
not just a dynamic and unpredictable
business environment, but also all the
competent and responsible people in the
company. It sounds obvious, but requires
fundamental changes in how we lead and
manage. In 2005 we started on a journey
of radically changing our management
processes, which included abolishing
traditional budgeting. In 2010 we also
decided to “kick out the calendar”. These
were both key steps towards a more
dynamic, flexible and self-regulating
management model.

CONTEXT
Statoil is a Norwegian oil and gas company with activities in 34 countries, 20000 employees and a turnover of
around USD 90bn. The company is listed in New York and Oslo. On Fortune 500, it ranks #67 on size but #1 on
Social Responsibility and #7 on Innovation.

TRIGGERS
Statoil has always been a values-based and people-oriented organization. But during years of growth since its
foundation in 1972, traditional management processes were introduced brick by brick, causing increasing
bureaucracy and rigidity. The gap widened between what we said in our leadership principles and what we did
in our management processes. This is poison in any organization, making the leadership message hollow
because the process message is always stronger. What we do always weigh so much more than what we say.
“You are all great and the company would be nothing without you, but we still need to control you through
detailed budgets, rules and regulations”. It does not help to have Theory Y leadership visions if you have
Theory X management processes.

We wanted to close such gaps. We also wanted to find our way back to the agility and flexibility we had as a
smaller company. The growth journey of companies shares many similarities with the
aging process of man. As we grow older, we lose more and more of what we took for

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granted in our younger days; the agility, flexibility and spontaneity of youth. Having passed fifty, I am starting
to get some personal experience! As age takes its toll, some also get weary of life and lose their spirit and that
twinkle in the eye. This development in the human body and mind is unavoidable and irreversible, at least the
physical part. It can be delayed through a healthy lifestyle or through other “interventions”, but in the end it
takes us all. We have no choice.

Companies, however, have a choice. Companies are not destined to become slow and sad places to work
because they grow and become older. Most of what causes this are decisions that companies make
themselves, and cannot be blamed on destiny or on any aging process.

For man, older normally also means wiser. For companies, this is not necessarily the case, as they struggle to
capitalize on a mountain of collective wisdom and experience acquired during the growth journey. The
solution is often another new process, “Knowledge Management”. Many employees experience instead a
“Dumbing Down” trend, as they observe more and more strange decisions made further and further away
from their own reality.

Of course, one cannot manage a big company exactly like the small company it used to be. But could there be
alternatives? Could there be other ways, ways which better balance the benefits of being big - which of course
are both real and important - with the benefits of being small?

The big question for any large organization should be “How can we revitalise the agility of the past without
having to go back and start all over again? How can we be small and big at the same time, young and old,
brave and wise?”

The budget and the whole mind-set behind it might be a good place to start.

KEY INNOVATIONS & TIMELINE

 2005 - Introducing "Ambition to Action", abolishing traditional budgeting

 2010 - Leaving the calendar rhythm

CHALLENGES & SOLUTIONS

Real and sustainable change requires a solid case for change. While almost everybody complain about the
budgeting process, fewer understand that their problems are only symptoms of a much bigger and more
serious problem, rooted in the entire management model. Some complain about all the work involved, some
worry about the gaming and the sub-optimisation, some about the budget being a meaningless yardstick for
performance, and some about how it prevents them from responding fast on value adding opportunities. But
these and many other problems are all connected. These are all consequences of a traditional management
approach that ignores reality, both inside and outside our organizations, both what motivates the “knowledge
worker” and what the implications of a dynamic and unpredictable business environment really are.

But these are big and hairy issues, and for many hard to grasp or address. So we started out with something
more tangible and logical and also less threatening. We simply asked “Why do we budget?”

Most companies make budgets for three very different reasons; target setting, forecasting and resource
allocation. Those budget numbers represents a set of targets, a forecast of what the future might look like, and
an allocation of resources for next year. But these are all different things. The three purposes can’t
meaningfully be handled in one process resulting in one set of numbers. A target is what we want to happen. A

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forecast is what we think will happen, whether we like what we see or not. And resource allocation is about
trying to use our resources in the most optimal and efficient way.

An ambitious sales target can’t at the same time also be an unbiased sales forecast. And you rarely get a good
cost forecast if the organization believes this is their one shot at access to resources for the next year.

Our solution to this serious problem was dead simple. We separated the three purposes, which made it
possible to optimise each one in much more tailored processes. This allowed for instance for different
numbers, updated on different frequencies and time horizons in each of the three processes

But more importantly, the separation was a catalyst for all those bigger issues that we need to address. It leads
us into important discussions, whether we want it or not. How can we find targets that really inspire and
stretch without feeling stretched, while avoiding all the gaming and negotiation that adds no value at all? How
can we make simple and unbiased forecasts, free of all the hidden agendas? How can we make people spend
money as if it came from their own pocket? How can we move towards a management model which works
more with and less against human nature? How can we be big and small at the same time? How can we take
reality seriously? These are important questions for any large company. We have absolutely not solved them
all, but we have definitely started.

Where possible, we try to use relative instead of absolute and decimal-loaded targets. Relative targets
redefine performance. They address how we are doing compared to others, internally or externally, instead of
a myopic focus on fixed and decimal oriented numbers.

The power of comparison is fascinating. I have yet to hear a team coming out low (given they find the
benchmarking fair and relevant) announce that they have no ambitions about climbing on the ranking. This is
a much more self-regulating approach compared to the traditional budget game which stimulates the very
opposite mind-set, the one that drives managers to negotiate for the easiest achievable number. As
Michelangelo put it: “Our problem is not that we aim too high and miss, but that we aim too low and hit”.

Benchmarking is of course nothing new, with its purpose of learning from each other. This should still be the
main purpose. But we believe we actually get more learning by combining the two, by increasing the focus on
those comparisons through also using them more directly to gently stimulate performance.

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Statoil’s main financial targets are set against a peer group of fifteen other oil and gas companies. We aim to
be in the first quartile on Return on Capital Employed, above average on Shareholder Return, and in first
quartile on Unit Production Cost. These are the kind of financial targets our Board approve. They do not
approve a budget. The two first metrics are also key in our common bonus scheme. Everybody in the same
boat; us against the competition.

The quality of our forecasting has also improved because we have taken out much of the gaming bias that
came from target setting or resource allocation. Our forecasting process is now leaner and with much less
detail, although there is room for even more simplification. Some still believe that their cost forecast is their
"budget application" for resources. Some also mix target and forecast, and believe they need to “deliver” on
their forecast. What we want to deliver on is our targets, and forecasts are there to help us. They might for
instance show that we are heading in the wrong direction, towards places that we absolutely don't want to go.

We also introduced a dynamic resource allocation which provides much bigger and more flexible decision
authorities to local teams, and a much more dynamic rhythm. Imagine a bank informing its customers, “We
have now changed our hours, so if you want to borrow money, we are now only open in October”. It sounds
ridiculous - but isn’t this exactly what people in companies experience every year in the budget process?

We want the bank to be open 12 months a year. A funding request might still be refused; we should be just as
good in saying no as yes. Cost is of course still very important for us. But why should we make all our cost
decisions in the autumn, before we have to? Isn’t it better to make them as late as possible, when we have
better information - not only about the new project or activity up for decision - but also about our capacity to
fund it or staff it?

For operational or administrative cost, with less discrete decision points than projects, we offer a menu of
alternative mechanisms for the business to manage its own costs. These include a “burn rate” guidance
("operate within this approximate activity level"), unit cost targets (“you can spend more if you produce
more”), benchmarked targets (“e.g. unit cost below average of peers”), profit targets (“spend so that you
maximise your bottom line) or simply no target at all (“we’ll monitor cost trends and intervene only if
necessary").

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In the corporate staff I am based in we have no cost targets at all, but we discuss cost all the time. There is no
travel budget, but a colleague of mine just spent days considering if he should send two of his team members
on a business trip from Norway to Houston. With an eye on the team's cost trend, he ended up saying yes,
because of a strong plea for help from the Houston office. Next time, it might be a no. Pre-approval of travel
cost is by the way only required for intercontinental flights.

In short, we try to make decisions at the right time and at the right level. Being a capital intensive and value-
chain organized company, every single decision can't be made at each platform or plant. But given this
industrial setting, we try to make decisions as far out in the organization as possible. In many other businesses
decision authorities can be delegated even further out.

Here is our CFO Torgrim Reitan:

“We could easily put in place a cost program instructing all business areas to reduce costs by a given number. I
believe this would work against our intention of building a cost-conscious culture. If we want to become more
fit, a crash diet does not work. It takes a change of lifestyle. I believe Statoil is made up of competent,
responsible and commercially oriented people who will make the right cost decisions. This means always
working hard to reduce bad cost, while protecting good cost. You know better than me what these are and
where they are”.

The question we want everybody to ask when making cost decisions is not “Do I have a budget for this?” but

 Is this really necessary?

 What is good enough?

 How is this creating value?

 Is this within my execution framework?

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In addition, we must always consider capacity, both financial and human. As things look today, can we afford
it, and do we have the people to do it? This information would typically come from our latest forecasts.

Last, but not least, we have introduced a more holistic performance evaluation, with hindsight insights as a key
component, and with how we have achieved our business results counting 50%. How can we claim to be a
values-based organization (as we do) if our values and people and leadership principles are completely absent
in target setting and performance evaluation?

We also “pressure-test” measured business result. KPIs are indicators only; they often struggle with telling us
the full truth. As Albert Einstein put it; “Not everything that counts can be counted, and not everything that
can be counted counts”. We therefore use hindsight insights - the wealth of information unavailable for us at
target setting time. We ask for instance, have we really moved towards our longer term objectives? Was there
significant tailwind or headwind that should be taken into account? Are results sustainable, will they stand the
test of time?

These evaluation principles are examples of how we try to address the entire process, not just the "finance"
part. I am based in Finance, but we have worked closely with HR to make it all hang well together. This is not
always the case. Both Finance and HR would claim to work with "performance management", but in many
companies they don't talk well together. The two are much to blame for gaps between what is said and done.
Finance is pushing management while HR is preaching leadership. Both need to climb out of their silos and
start talking with each other and not just about each other.

I actually don't like the expression "performance management". Put yourself on the receiving end. How does it
feel if someone wants to "manage" your performance? Most people feel over managed and under led, and for
good reasons. Also, our ability to manage performance in today's business realities is actually quite limited.
Fortunately, there is a lot of other great things we can do, but this has more to do with creating conditions for
high performance to take place. This requires however a very different mind-set, both from managers and
from their finance and HR people.

We do all of what you heard about above in “Ambition to Action”, our management process which runs all the
way from strategy to people, ending up in what we call "People@Statoil". Ambition to Action is based on the
Balanced Scorecard concept, but combined with the Beyond Budgeting principles it becomes a much more
unique and robust management model, solving many of the problems often seen in more conventional
Balanced Scorecard implementations.

Beyond Budgeting is a coherent set of leadership and management principles. The name is actually misleading;
it is about so much more than budgets, it is about taking reality seriously. But changing how we think about
management and leadership also requires a radical overhaul of the budgeting process, because it sits at the
core of traditional management. You have actually been introduced to many of the principles already. Take a
look at bbrt.org for more information about this great model, which has inspired and guided so much of the
Statoil journey.

Ambition to Action has three purposes:

 Translate strategic choices into more concrete objectives, KPIs and actions

 Secure flexibility and room to act and perform

 Activate our values and our people and leadership principles

Almost all our competitors have management systems which in some form or shape aim to meet the first
purpose; creating strategic alignment. But so many ignore or forget the other two

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purposes, and lose what is key for success; autonomy and agility, trust and transparency, ownership and
commitment. If your own Ambition to Action becomes nothing but a landing ground for instructions from
above, both ownership and quality tend to walk out the door.

An Ambition to Action starts with an ambition statement, a higher purpose. Call it a vision, call it a mission. We
don’t care, as long as it ignites and inspires. The Statoil ambition is to be “Globally competitive - an exceptional
place to perform and develop”. This is translated into different versions across the company. One of our
technology teams chose for instance “Execution for today, solutions for the future”. In our team, we
"...challenge traditional management thinking".

Ambitions and strategies are translated across five perspectives:

 People and organization

 Health, safety and environment (HSE)

 Operations

 Market

 Finance (or Results)

You might recognize these from the Balanced Scorecard concept. We have added HSE because of the business
we are in. In addition we have switched the order ("Finance" is typically on top), because we know what
happens in business review meetings when the agenda is tight and time is limited. “Let us come back to people
and organization next time…” Those are not the signals to send if we claim to be a people focused
organization. So now “People and organization” sits at the top. Another small gap closed between what we say
and what we do.

Today, we have around 1200 Ambition to Actions across the company. We try to connect and align all these
through translation (each team translating relevant Ambition to Actions, typically the one above) instead of
cascading (corporate instructing). What should our Ambition to Action look like in order to support the
Ambition to Action(s) above? What kind of objectives, KPIs and actions do we need? Can we use those above,
or do we need something sharper because we are one step closer to the front line?

There are of course situations where instructions and cascading from above is necessary. But this should be
the exception and not the rule, which makes it more acceptable when it happens. We are starting to find the
right balance between the two, even if some managers still rely too much on cascading. If a translation should
go "wrong", which seldom happens, this is of course addressed.

Used in the right way, the Balanced Scorecard can be a great tool for supporting performance and help teams
to manage themselves. Unfortunately, many scorecard implementations seem to be about reinforcing
centralized command-and-control. It is both tempting and easy to abuse that much bigger menu of
management levers for Theory X driven micro-management, actually much easier than if you only have a
financially oriented budget available to do that job. Many managers (and finance people) also bring an
accounting mind-set with them into these important issues. Alignment is not about target numbers adding up
on the decimal, it is about creating inspiring clarity about which mountain to climb. Never forget the power of
words in making this happen, even if it is so much easier to only let the numbers do the job.

To help the translation, there is full transparency around all 1200 Ambition to Actions. With a few exceptions
of share price sensitive information, everything is open for all. In most ERP systems, transparency seems to be
reserved for the top. They boast about fancy drill-down functionality, allowing senior
executives to monitor the smallest local detail. But why should these guys spend time

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investigating travel and entertainment cost in every local team? What we need is much less of such drill-down,
and much more of drill-across (what are those guys doing?) and drill-up (what was that strategy again?)

In short, we want Ambition to Action to be something that helps local teams to manage themselves and
perform to their full potential, while we at the same time secure sufficient alignment. This means using a
different type of glue, and smaller doses; translation instead of cascading. The main purpose should not be
centralized command-and-control.

Here is our CEO Helge Lund: “We have a management model which is very well-suited to dealing with
turbulence and rapid change. It enables us to act and reprioritise quickly so that we can fend off threats or
seize opportunities. This is much more difficult in a traditional «budget world » One of the main principles in
Ambition to Action is that Statoil consist of mature, responsible and able people who both can and want to
accept responsibility.”

The years following our 2005 decision were a period of experimenting and learning. We have had some simple
implementation principles:

 Design to 80% and jump. Not everything can be planned or fully designed upfront. Get started,
experiment, learn and improve.

 Make sure the case for change and the problems with the old way is well understood before talking
about the new way.

 Go for pull, not push. We have no detailed roll-out schedule; we never even used the word. So many
are fed up with being on the receiving end of corporate ”roll-outs”, again and again. Instead, we focus
on teams that invite us. Not once did we put our foot in the door because “this is decided”. It takes
longer, it looks messier, but change becomes real and sustainable.

 We are however present in most of Statoil’s leadership programs and also in all introduction
programs for new employees.

We continuously experiment with and improve Ambition to Action, on content, on process and on the IT
system behind it. In 2007 we merged with a competitor (Hydro). It was a very successful merger and we are
absolutely a stronger company today, but it meant starting almost over again. Still, the number of Ambition to
Actions kept increasing, despite not being mandatory. This was a conscious decision, driven by our obsession
with making Ambition to Action something that primarily helps teams to help themselves. You can’t make that
mandatory.

Of course there are sceptics. They come in two groups. The first is the biggest, but also the one that concerns
us the least. These are managers who simply are confused. They probably learnt very much the opposite
during their business studies, and they might have honed these practices over many years. It can be painful to
change old ways and your belief system, and we need to respect this. These guys just need time, and we give
them time. Being confused is part of real change. We are challenging accepted truth and entering unfamiliar
territory, which actually is one of the Statoil values, and my favourite!

The second group is smaller, and this is where we find the real sceptics. They are not confused. They fully
understand what this is all about, and they don’t like it. This is so much against everything they believe in.
Some may also pay lip service to the new principles, so you can’t even engage in a discussion. This group still
exist, but is getting smaller and smaller. Some leave, some retire, and every day that passes makes it more
difficult for those still with us to abort the journey.

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On the contrary, we are moving on. In 2010 we were ready for the next step; escaping the calendar
straightjacket. The purpose was to make Ambition to Action even more useful and relevant for all our
business teams.

In April we went to the Executive Committee with our proposal to kick out the calendar. We got a strong and
clear green light. On our way out of the meeting, one of the Executive VPs whispered to us: “Closer to a
standing ovation you will not come in this room”. It was a good day, but only the start of another mountain to
climb!

January-December is an artificial construct from a business point of view. For some it is too short, for others
too long. Even when a business has seasonal rhythms, the winter season is cut in two because we pass “year-
end”. Imagine a finance guy meeting a fisherman, asking him about the rhythm of his work. “Well,” the
fisherman replies, “I am at sea for five months, and then I am home for five months.” “So what do you do then
the rest of the year?” the finance guy wonders. Something is wrong, right? Absolutely, but maybe more in the
head of the finance guy than in the working rhythm of the fisherman.

Our statutory accounting and our communication with external parties and the capital markets will of course
still need to be calendar oriented, but our internal processes could still have more natural rhythms. We want
to free ourselves from the artificial, annual "stop/start/stop/start". We want to give our teams the opportunity
to run their business more continuously, with update frequencies, time horizons and evaluation points driven
by their own business flow.

We have however an industry-specific challenge. A licence to explore and produce oil and gas in a certain area
is for risk sharing and learning purposes typically awarded to a joint venture of companies. One of them act as
the "Operator", who according to industry standards has to provide the other partners with a traditional,
annual budget. We have been able to make this process somewhat less rigid than before, but we envy
companies who don't have to operate in such a set-up. It is a complication, but not a showstopper. So
everything you read about here is how we try to manage internally, despite such external requirements.

The main principles in our new and fully dynamic process are as follows:

 No annual versions of Ambition to Action. Strategic objectives, KPIs, KPI targets and forecasts can be
changed when deemed necessary by teams themselves.

 Event-driven changes, not calendar-driven. Events can be external or internal, and the definition is
simple: “Whatever is important for your team”.

 Simple change and coordination controls; Big changes should be approved one level above, smaller
changes only informed about to. Big or small, always inform other affected units if necessary. Teams
sort out between themselves what is big and what is small.

 Target and forecast horizons should reflect lead times, urgency, uncertainty and complexity in the
different businesses.

What has triggered most questions is the possibility to change targets at any point in time, because something
happened and they lost their meaning. That could either mean "impossible to achieve" or "a piece of cake", or
also "not relevant anymore". A target should motivate and inspire. It is not a goal in itself, but one way of
achieving the ultimate goal of the best possible performance, given the circumstances. Targets set by teams
themselves typically do this job much better than those coming as instructions from above.

Some have concerns about this freedom being abused. There is just one way to find out, and that is to try it
out. We have provided some help and guidance. First, there is full transparency, it won't

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happen in darkness. Second, you still need approval for big changes. And third, we remind people about the
fairness of the holistic performance evaluation, where changes in assumptions can be taken into account. You
don't need to change your target every time assumptions change. A relative target is by the way much more
robust and self-regulating in this respect. If conditions change, they typically do so for your peers as well. We
also ask teams to look at their track-record of changing targets. If it always is about reducing ambition levels
and never the opposite, that is an issue the team should reflect on.

It is still early days and we don't yet have enough cases to learn from. What we do know is that there will be
incidents which might smell of "abuse". Those should be firmly dealt with, but is no evidence of failure
requiring a return to the old way.

The dynamic forecasting we are introducing is different from what is often called rolling forecasting. A rolling
forecast is done on a fixed frequency and on a fixed time horizon across the company, often quarterly and five
quarters ahead. We want forecasts to be updated when something happens, and as far ahead as relevant for
each unit. For some that could be short, for others long. If a unit one level up needs a forecast with a longer
time horizon, it is their responsibility to “fill the hole” with a “good enough” forecast. Why should all teams be
forced to look ten years ahead because aggregated this is a relevant time horizon for an oil company? For our
oil trading people, anything beyond three weeks can be quite foggy, while three years is very much on the
short side for those bringing new oil and gas discoveries into production.

Also targets can have shorter or longer time horizons, from months to years, again driven by lead times and
complexity.

Note that "dynamic" doesn’t necessarily mean more often. It means at the right time. For some it could
actually mean less often.

Performance against Ambition to Action is reviewed monthly or quarterly in business review meetings. An
individual performance evaluation will still take place at year-end. Some would then look back on a very
dynamic Ambition to Action, others on the opposite. A log in Ambition to Action (which actually is an
internally developed web interface sitting on top of a global SAP solution) keeps an overview of changes made.

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Some have however questioned this review frequency. Why is once a year in January always the natural point
for evaluating performance? Is it only because of the link to pay? Is that a good enough reason? Are there
alternatives, again driven by more natural business milestones?

We hope our new and more dynamic process also will make the current autumn planning much leaner and
one day even obsolete. This planning work, which is not about budgets but about action planning and
understanding the consequences of actions through unbiased and expected outcome forecasts, is still too time
consuming. Our goal is a more of a “living” forecast where those needing forecast information can tap into the
latest information available. This can be done both regularly and ad-hoc.

We have tried to find other companies who have taken similar steps of radically challenging the calendar
rhythm. We are convinced there is someone out there, but we are still searching. Many have introduced
rolling forecasting, but we are aiming for a much more fundamental break with the calendar year.

BENEFITS & METRICS

Kick-off on this latest step was in January 2011. It is still early days and we still have many questions. All those
situations which were so well regulated and understood in the old process, how should they now be handled?
How often? How far out? What is “big” and what is not? All this uncertainty has however been well accepted.
People are enthusiastic about the learning and adjusting phase we now are in. They would rather be part of
finding out than just being told. There was actually more anxiety back in 2005 when we abolished traditional
budgeting, even if a number of companies already had taken that step before we did.

Getting out of the calendar year will undoubtedly take time. Many are still cautious about utilising these new
opportunities. The calendar is not just “hard wired” into our brains, it is also still highly present in a number of
other processes in the company, which we now also are addressing. Some of these will need to continue on an
annual cycle, with our statutory accounting as the obvious example. But again, this is not a showstopper.

There are other exciting things happening. Our IT colleagues actually started out on their own, inspired by the
great lean and agile thinking which now is transforming how system development projects are run. One such
approach, “Scrum” was introduced in Statoil several years ago. We stay in close contact because there is so
much common ground, both in what we rebel against and what we are trying to do instead. They also realise
that a company can never be fully successful with agile software development unless agile also becomes the
way the whole organization is run.

Our new and more dynamic principles are in no way easier than those we are trying to leave. We have spent
countless hours in management teams and on leadership training, helping Statoil managers to reflect on the
leadership implications, not just from leaving the calendar year but from all the other steps taken on this
journey.

Here are some of our key messages:

 You have more autonomy and flexibility, but also higher accountability for results

 Use your autonomy; don’t delegate upwards – and let it pass on to your teams.

 Don’t give up when trust is abused, but react firmly to those who do

Some managers struggle with their new freedom. If you don’t like to make decisions, then a detailed, annual
budget and tiny decisions authorities is actually a great thing. Decisions are made for you, both what to do and
how much it should cost. While the vast majority of Statoil managers highly appreciate the new and bigger
room to act and perform, some struggle with passing it all on to teams in their own

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organization. “I can of course be trusted, but… “. We can’t instruct them to do so; at least we shouldn’t start
there. They need to find out themselves why passing it on is a good idea. Eventually, most do even if it can
take some time. For some, the excuse for not letting go can be incidents they have experienced which they
believe prove that “this trust thing doesn’t work”. This is the wrong conclusion. We should deal resolutely with
those who abuse trust, but should not take the tempting and easy option of retreating to the old way. In a free
society, we are not sending everybody to jail because someone violates the rules of the game.

It is still early days for measuring sustainable results, even if we are convinced that there are positive
performance effects. But it might not be a coincidence that we are Norway’s most popular employer among
technology and finance graduates. Or that we did pretty well on Fortune 500. Or that we perform pretty well
against the peer group of fifteen other oil and gas companies that we set our targets against. We have actually
performed better than the average of them for several years, except when we had our big merger in 2007.

Everything you have heard about here is decided and described in our “Statoil Book”, a small booklet given to
all employees (on these kind of important issues we believe in the physical paper format, but it is of course
also available on our intranet). But as you have heard, decided and described does not mean that everything
yet has reached every corner and every head in Statoil. These are major changes. They will and they shall take
time.

Our discussions are not about going back, they are about how to make it all work even better. Of course we
have our dark days, when we hear words or observe behaviours echoing the past that we are trying to leave.
We have however an effective medicine for those days. We just think back on where we were five or ten years
ago. That always helps. And if we make similar advances over the next five years, then…

I am proud to work for a company where we are encouraged to challenge accepted truth and enter unfamiliar
territory. We are on an exciting journey, which is in no way over and where the direction is clearer than the
destination, if there really is one.

PS. What you just have read is the short version of the Statoil story. If you are interested in the long version,
or another story about how we kicked out the budget in Borealis in the mid-nineties, or more about the
problems with traditional management, you might want to check out my book "Implementing Beyond
Budgeting". See links below, also for related books which I highly recommend.

CREDITS

Jeremy Hope & Robin Fraser - Founders of Beyond Budgeting Round Table (BBRT). Authors of "Beyond
Budgeting" (2003)

Jan Wallander- Former CEO of Handelsbanken, Beyond Budgeting pioneer

HELPFUL MATERIALS

Bjarte Bogsnes' book "Implementing Beyond Budgeting - Unlocking the Performance Potential" (Wiley)

"Beyond Budgeting" - Jeremy Hope, Robin Fraser

The Leader's Dilemma - Jeremy Hope, Peter Bunce, Franz Röösli

Future Ready - Steve Morlidge, Steve Player

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Article first published April 18, 2012 on MIX/Management Innovation eXchange. Reprinted with permission.

ABOUT THE CONTRIBUTOR:

Bjarte Bogsnes is Vice President of Performance Management Development at Statoil and
author of "Implementing Beyond Budgeting: Unlocking the Performance Potential". View
the article here: Taking Reality Seriously: Towards More Self Regulating Management at
Statoil

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TRANSFORMING PROCUREMENT PROCESSES IN
OIL & GAS: INTERVIEW WITH ERIC BEYLIER, TETRA
TECHNOLOGIES
Eric Beylier is Vice President, head of global supply chain and procurement, at TETRA Technologies. Since
taking over the procurement function at TETRA five years ago, Eric has completely transformed the company’s
approach to procurement and supply chain management. He has automated and re-designed processes, built
up the team’s skills and capabilities and even sparked an organizational re-design so that he was reporting
direct to the company CEO. In this interview, Eric describes what he what he did, why he did it and some of the
lessons he has learned along the way.

PEX NETWORK: WHAT WERE THE KEY PROCESS CHALLENGES THAT WERE FACING YOU WHEN YOU
TOOK OVER THE PROCUREMENT FUNCTION IN 2007?

Eric Beylier: There was a long list. The most challenging one actually was silos from very fragmented
acquisitions or family businesses or mid-size businesses. Each one of them had leadership with a very strong
ego - it was their way or the highway. Do you want to collaborate as a team? Did want to acknowledge the
role of the corporate groups and the more, not centralized, but a more balanced type of an organization and
belonging.

Instead the leaders were isolating themselves, trying to keep their legacy business and not collaborating with
the other business units. They would not share customer relationships, they would not share supplier
contracts and pricing. In effect, they just would not play together – and I think that was probably the number
one challenge.

The second challenge was that we had no visibility. In my area of supply chain procurement, I had no visibility
into our spending and no visibility into contracts and - to be honest - no visibility into the true nature of the
relationships we had with some of our suppliers. And it is very difficult to fly a plane blindfolded! So that
second aspect of visibility had to be addressed.

The third challenge was that there was no communication of what supply chain and procurement could bring
to the organization, what sort of competitive advantage a dynamic and efficient supply chain procurement
organization could bring because there was not really such a function in place. So the function had to be
created and reorganized from scratch. That’s a sales job in itself!

PEX NETWORK: CAN YOU TAKE US THROUGH WHAT YOU HAD TO DO TO ADDRESS THOSE
CHALLENGES?

Eric Beylier: The first thing we did was basically removed the position of head of supply chain procurement
from being buried underneath finance and treasury to report directly to the CEO of the organization. That was
a political battle that was very challenging for me to win. When I was successful that was a corner we turned
that marked a real a milestone within the organization because everybody sat up and took notice.

Restructuring the reporting function was absolutely critical to send a signal to the organization that things are
changing and they are not just changing a little bit, things are changing drastically. To
address the visibility aspect of that we designed a custom solution of spend analysis to

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TETRA. There are a lot of packages out there that are absolutely excellent and outstanding, but TETRA being a
billion dollar company - which is very small in oil and gas terms - we sometimes cannot really afford fancy
solutions so we have to be more creative.

So that’s what we did, we created a spend analysis tool that was and still is widely used in the organization and
that created 34 very specific spend categories that you can slice and dice at the divisional level. We had five
divisions at the time and you can go down to the cost center very easily and then you also can slice and dice by
supplier, by spend categories. My CEO, for example, can go by himself and get an updated numbers on spend
for his team and corporate wide for a division or a cost center in a matter of a few seconds. He doesn’t need
any help from anybody to do that and it’s perfectly accurate because it matches against the chartered
accounts

Developing this tool sent another signal which is, we are watching the money, we are following where it goes
and now we know where you spend your money. And that is very critical because people can’t argue with
that. They basically could no longer say “I didn’t spend that money” because we had it in black and white
transactions. And that was actually quite powerful.

If you take the number one, the reporting relationship was moved to report directly to the CEO and then
suddenly we found the cash and we get the facts straight about what the cost center is doing in terms of
spending money with suppliers; that’s a pretty signal.

To address the third aspect, which was the selling function/communication, I got the input from all the teams
and divisions into what I call the procurement manual. This was a manual that was customized to our
organization and that clearly laid down the value proposition of supply chain procurement. The target that
was and are agreed upon every year in terms of earnings per share contribution from better negotiating terms
and conditions or managing our suppliers. That actually talks a lot because we are publicly trading on the New
York stock exchange. We also communicated through quality training programmed. We have six, two hour
training sessions every quarter with a simultaneous WebEx so that everybody around the world can actually
participate and ask specific questions. That was designed so that every two weeks we allow for a very fluid
communication between corporate and the divisions and all the folks in supply chain procurement or finance
and accounting or operations or the field.

To really understand how we expect them to behave and work, what the processes look like so they don’t
have the excuse of saying, “I didn’t know we were supposed to do it this way”. Now they have it black and
white, very clear, detailed but yet simple, so they know exactly what they are supposed to do and so if they
don’t want to do it, then there are consequences to it, which the first one is you explain it, you train and if
even after training people still refuse to do it, then it’s a different type of an issue and then you start engaging
managers and say, we really need that person to do it differently – how can we get there?

Usually it works. You’ve always got exceptions which don’t have a nice ending, but usually, so far in the past
five years, it’s been pretty successful. It takes time. That’s the frustration of change management; it takes a
lot of time. You need to have strong symbolic changes and then be patient and continue, never give up
through the training and through the business alignment on processes and then occasionally you have to
escalate straight to the CEO and say yes.

We thought about creating a policy - which is one way of communicating to the organization – but what I
decided to do instead is to unofficially launch what the policy might look like one day through the manual. It
was a kind of warning call: “you’ve got a couple of years to really start to understand what we expect you to
do”. We just issued it a couple of months ago. It’s basically a formal document which is no surprise to anybody
so it’s not been slapped on anybody’s head. It’s something they’ve known about for two years and we said
one day it’ll be an actual policy with disciplinary action documented, HR involvement, all

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that kind of stuff, which is quite brutal and then sometimes can turn off people. But we allow the
organization, for a couple of years, to really understand what we expected them to do so that when the policy
is in place, they already meet 80% of the requirement of the policy. I think that was something that was well
perceived as opposed to the corporate dictatorship of this is the policy and you shall follow it.

PEX NETWORK: IT’S INTERESTING THAT YOU GAVE PEOPLE TWO YEARS NOTICE BECAUSE THAT,
FOR A LOT OF COMPANIES, WOULD SEEM QUITE EXCESSIVE.

Eric Beylier: There are different cultures in oil and gas. You have companies that are very well known to be
military driven. It’s a very discipline top down organization with no questions asked. If your manager asks you
to do something the answer is “yes sir” and you go and do it. Then you’ve got the other extreme of the
spectrum which is the full consensus, takes forever to get anything done, it’s milestone after milestone, and a
little project now takes a year and a half to get done! What we tried to do is something somewhere in
between.

We’re a matrix organization; we have division heads and functional heads, all of them reporting directly to the
CEO. The idea behind is to give people a chance to change and be better and work better and work smarter
sometimes, not necessarily harder. I believe in building up the human spirit rather than slamming it down, so
it takes a little bit longer but if you’re successful it’s very sustainable. When people are not in "pain", they have
a chance to understand it and they have a chance to do it better and actually can eventually take pride.

We launched electronic invoicing with our suppliers two and a half, three years ago, and there was a wall of
scepticism, criticism, screaming, and yelling. Now the exact same people are the first ones coming back to me
and saying that they wished more suppliers were on electronic invoicing and they were glad we didn’t give up
on them. We could have slapped the system down on the organization but then we would have people today -
two years later - still resenting it. We would still have folks saying that perhaps it’s a good tool but it was too
much pain to get there.

PEX NETWORK: I LOVE THAT QUOTE, “SCALING UP THE HUMAN SPIRIT RATHER THAN KNOCKING
IT DOWN”. IT SOUNDS LIKE, IN TERMS OF MANY OF THE SOLUTIONS YOU CAME UP WITH, IT
REALLY WASN’T JUST ABOUT REDESIGNING PROCESSES, IT WAS REALLY ABOUT NAVIGATING
COMPANY POLITICS AND CULTURE. IS THAT A FAIR ASSESSMENT?

Eric Beylier: Yes and no. I think there was clearly some politics and culture - what I would call the “legacy
TETRA” – but the most challenging part is to rewire the businesses processes. At first we had to take care of
the legacy culture. We had to clearly, in a very symbolic way, send a message that this legacy culture longer
has a place in our organization and is going to change. That there was a new sheriff in town – that’s my boss,
he’s our CEO, a very bright man. He became CEO at the same time pretty much I joined TETRA five years ago.
And then once that was done I think people understood and heard the message.

The battle actually happens at the business process level because they’re going to say, okay, so words are
cheap, let’s see what we are going to do and how we are going to do it. This is where the rubber meets the
road. Once you start drilling down into the weeds about the purchase to pay process, for instance, that’s
where you’re going to lose the credibility of change, because if you don’t know what you’re talking about or if
you play the high level executives I don’t get dirty, that’s my job, you won’t get respect. If you get down with
the guys and roll up your sleeves and work with them to make it better, they’re going to love doing it and you
gain respect. You end up changing the organization one business process at a time.

That’s what we started doing three or four years ago. We’re still doing it and there’s still a lot of room to go
and our board wants us to expand tremendously in our international markets – we do business in five

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continents but on a small scale. We’re trying to make those business processes super efficient so we can scale
up without piling up a bunch of people and that’s a challenge, but it’s all in the business processes actually.

PEX NETWORK: DO YOU THINK THAT YOU WOULD HAVE BEEN ABLE TO ACHIEVE THE RESULTS
YOU DID WITHOUT THE BACKING OF THE CEO IN THE WAY THAT YOU HAD IT?

Eric Beylier: Our CEO is the kind of senior executive who doesn’t like too much “noise”. He wants things to be
done in harmony in the organization and he doesn’t “bark”. When he gave me the responsibility, the first
thing he told me was that I was not a cop. He didn’t want me to be a dictator and run around slapping my
direct relationship with him in everyone’s faces. That was a challenge at times because that is clearly the short
cut. The easiest way in the short term to make these sorts of changes is to do just that. But then in the long
run, you upset people because they don’t see the value you bring outside of scaring them because you report
to the CEO. We don’t do that.

PEX NETWORK: CLEARLY CHANGES TO ANY PROCESSES AND ORGANIZATIONAL STRUCTURE
PARTICULARLY ON THIS KIND OF SCALE, REALLY DOESN’T COME EASY IN ANY ORGANIZATION.
WHAT WERE THE KEY PERSONAL CHALLENGES THAT YOU HAD ALONG THE WAY?

Eric Beylier: There were a lot of new things for me that I had to learn how to do: completely reorganizing an
entire function, corporate wide with five divisions and 4,000 employees was challenging. I had read books and
learned HR and organizational design at business school but when suddenly you are in charge and you have to
do it – and do it right the first time - that’s another thing. So doing that entire reporting to the CEO and
putting the functions and recruiting people and then make sure you get the right DNA at the right place at the
right time is something that I was challenged with, there’s no doubt about it.

When I was in San Francisco [prior to TETRA], I started two businesses, so I know what it is to grow and scale a
business. But at TETRA the challenge was to achieve such a large scale transformation with hardly any money.
We could not buy e-sourcing. We couldn’t have a bunch of high powered consultants to come in for six
months to a year to help us drive change and save a bunch of money. It felt a little like I had to move a
Himalayan mountain with a bunch of teaspoons and that was a little bit overwhelming at first. But you
continue, day by day, and then eventually what seemed so difficult happens.

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HALLIBURTON’S APPROACH TO DRIVING
BUSINESS PROCESS MANAGEMENT AND
OPTIMIZATION ACROSS THE BUSINESS

Managing processes end to end can be a difficult undertaking as a process flows through different
departmental and business unit silos. What's the best way of overcoming those silos and improving processes
end to end in your organization?

In this PEX Network video interview Mandeep Sekhon, Global Director Process Assurance and Service Quality
at Halliburton, describes end to end process management for a service provider to the oil & gas industry,
discusses the barriers to improving or optimizing process end to end, and explains how Halliburton is
approaching end to end process management. He also comments on how Macondo has changed the oil and
gas industry as a whole.

Watch the video: Driving Business Process Management & Optimization Across Your Business End to End

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INDUSTRY PERSPECTIVE
WHY DO MANY BUSINESS EXCELLENCE
PROGRAMS FAIL? (HINT: LACK OF STRATEGY)
CONTRIBUTOR: MELISSA CONNOLLY, PUBLISHED 26 MARCH 2012

Business performance excellence
programs, like Total Quality
Management and Six Sigma, have been
used by manufacturing firms for decades.
But as companies contend with
increasing competition and cost
pressures arising from a globalized
economy, these programs have expanded
into many other industries. However, a
significant percentage of programs fail,
says Melissa Connolly. And lack of
strategy is often to blame.

Many think of Toyota as the founder of
performance excellence. However, the birth of performance excellence actually dates back to the twelfth
century B.C. During the Zhou Dynasty, the Chinese government organized and established centralized
programs to ensure quality production of various products.

By 1798 the concept of interchangeable parts in manufacturing, and the need to have quality assurance
regulate such practices, materialized as a key facet of the Industrial Revolution. The 1900s brought numerous
performance based methodologies to include scientific management; quality assurance; and statistical quality
control (SQC). Following World War II, prominent US consultants in these methodologies were sent to Japan
to expedite rebuilding efforts. By the early 1970s the quality of Japanese products had surpassed that of
Western products (Evans, 2008).

As a result of increasing competition and cost pressures arising from the new global economy, deployment of
performance excellence programs has expanded into various industries. Today, performance excellence
encompasses many different disciplines to include: TQM, LSS, and Business Process Management (BPM).
While each of these includes different tools, all enable firms to meet the growing pressure to deliver more for
less. Business performance excellence enables firms to do this by providing a mechanism to identify and
eliminate corporate waste; enhance customer experience; and systematically increase profits. Thus,
performance excellence has become a key indicator of a firm’s ability to achieve sustained profitability and
competitiveness. However, while the prevalence of such programs is increasing in today’s market place over
two thirds of such programs fail to succeed (Cross & Weiss, 2007).

I was recently selected to develop and deploy a performance excellence program for a global Fortune 500 firm
and had the privilege of undertaking extensive research to look at why many programs fail to deliver expected

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results. After extensive industry interviews and analysis, I found that strategy is one of the keys to success.

THE IMPORTANCE OF STRATEGY IN DEPLOYING A NEW PROGRAM

The word strategy translates from the Greek language as, “the general’s view.” This translation paints a vivid
picture of a general that understands the environment and sets forth a comprehensive plan to ensure a
victory. Within the context of an organization, strategy is the plan and the organizations’ goals and objectives
represent the victory. Specifically, Carpenter & Sanders define organizational strategy as the coordinated
means by which an organization pursues it goals and objectives (Carpenter & Sanders, 2009).

While most academic material on strategy focuses on the business or corporate level, it can also be readily
applied at the program level. Building upon the preceding definition, one can easily infer how strategy would a
critical role in the deployment of a new program. Successful design and deployment of a new program
requires a comprehensive understanding of where the program will be active; how these activities will be
completed; what differentiators will be leveraged; and what staging and pacing will be utilized. These program
facets represent five key elements of strategy, commonly referred to as the Business Strategy Diamond
(Carpenter & Sanders, 2009).

Without a clear understanding of program strategy, a firm is at risk for not having the required infrastructure
to support the new program. Additional risk includes the inability to communicate the program’s mission;
prioritize program tasks; and marshal resources appropriately.

THE ROLE OF STRATEGY IN A BUSINESS PERFORMANCE EXCELLENCE PROGRAM

To ensure success, the design and deployment of a Business Performance Excellence Program must include a
sound strategy (Maszle, 2010). This strategy should address each aspect of the Business Strategy Diamond as
previously outlined. Chevron’s Business Performance Excellence Program, for instance, serves as a good
illustration of how to leverage this model in program design and deployment. The program, named Execution
Excellence, was deployed within the North America business unit and staffed internally by existing Chevron
employees. The program’s strategy defines Execution Focus Items (EFIs) as the method to defining where the
organization must focus its energy and resources. Furthermore, the program’s mission statement defines LSS
and Performance-Based Leadership as the program’s foundational enablers to ensure sustainable performance
excellence (Williams, 2010).

While Chevron’s program serves as a good model, every Business Performance Excellence Program should be
individualized to meet a firm’s needs. In fact, research cites a root cause of many Performance Excellence
program failures is from attempting to copy another firm’s strategy. While lessons can be learned from
studying high performance firms like Toyota, a firm must develop design and deploy a program that is fit for
the firm’s individual purpose (Spears, 2009). Additional research solidifies this point by indicating that no two
successful Business Performance Excellence programs will ever look the same (J. Douglas, personal
communication, December 8, 2010).

CONCLUSIONS

As a result of increasing competition and cost pressures arising from the new global economy, successful
deployment of Business Performance Excellence programs is more critical than ever. However, while the
prevalence of such programs is increasing, a significant percentage of programs fail to succeed. Conducted
research and analysis illustrates strategy as a key element in a successful Business Performance Excellence
Program.

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By employing the Business Strategy Diamond a firm can form a solid plan for achieving program goals and
objectives. Furthermore, strategy provides a methodology for defining the program’s infrastructure
requirements; communicating the program’s mission; prioritizing the program’s tasks; and marshalling the
program’s resources. Additionally, a firm can gain useful insight on program design to include successful
strategies by benchmarking other high performing firms. However, it is critical that a firm design a program
that is fit for its firm’s corporate strategy and needs.

REFERENCES

Bright Hub Inc. (2010). What is lean six sigma? Retrieved from http://www.brighthub.com/office/project-
management/articles/36245.aspx.

Carpenter, M. A. & Sanders, Wm. G. (2009). Strategic management: A dynamic perspective concepts and
cases. Upper Saddle River, NJ: Pearson Prentice Hall.

Cross, S. P. and Weiss, L.M. (2007). The role of new networks in organizational change. Retrieved from http://
http://www.mckinseyquarterly.com/home.aspx.

Douglas, J. (2010). Driving business process management and optimization across your end-to-end business to
drive value, agility and cost effectiveness. Poster session presented at the iSixSigma Energy Forum, Houston,
TX.

Eckes, G. (2001). The six sigma revolution: How General Electric and others turned process into profits. New
York, NY: John Wiley & Sons.

Evan, J. R. & Lindsay, M. W. (2008). Managing for quality and performance excellence. Mason, Ohio: South-
Western Cengage Learning.

Maszle, G. (2010). Taking the next step in your process excellence journey. Poster session presented at the
iSixSigma Energy Forum, Houston, TX.

Spear, S. J. (2009). The high-velocity edge: How market leaders leverage operational excellence to beat the
competition. New York, NY: McGraw-Hill.

Supply Chain Management Review. (2009, November 1). Achieving success with large scale-lean. Retrieved
from http://goliath.ecnext.com/coms2/gi_0198-630401/Achieving-success-with-large-scale.html.

Williams, W. (2010). Enabling execution excellence through lean six sigma and line management collaboration.
Poster session presented at the iSixSigma Energy Forum, Houston, TX.

ABOUT THE CONTRIBUTOR

As a member of the Baker Hughes’ CIO office Melissa is responsibility for the Discovery and
Exploration phases of the IT organization’s Approach to Value Delivery process. In this role,
Melissa is transforming the existing front end IT processes to the next level of performance
by creating a framework for strategic innovation. In addition, Melissa leads a robust
Organizational Effectiveness (OE) program that measures and improves the effectiveness
of IT’s culture, processes, and systems with Lean Six Sigma (LSS), Business Process Management (BPM), and
Program Management (PM) methodologies. Read the original article here: Why Do Many Business Excellence
Programs Fail? (Hint: Lack of Strategy)

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LEADERSHIP ENGAGEMENT: EMBEDDING A
CONTINUOUS PERFORMANCE IMPROVEMENT
INFRASTRUCTURE

Mike Bonine, Vice President for Performance Improvement, Talisman Energy presents a session on leadership
engagement. Recorded LIVE at PEX Network's Energy Process Excellence Europe 2011, watch this lively
presentation for insight on:

 Why applying sophisticated tools and technologies to achieve culture change doesn’t work

 Understanding the purpose of the organization and developing the right infrastructure to achieve and
sustain continuous value

 Creating a performance improvement strategy: drafting a statement of principles; setting policies and
standards

 Stakeholder engagement: How to get those that matter on your side and stay on your side

 Tactical strategies for driving through the implications of process improvement and business change

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THE CASE FOR PROCESS EXCELLENCE IN PUBLIC
UTILITIES: INTERVIEW WITH ROB KRALL,
PROGRESS ENERGY
Rob Krall, Director for Continuous Business Excellence at Progress Energy, joins PEX Network to
discuss developments in Business Process Excellence in the Utilities sector.

PEX NETWORK: COULD YOU
TELL ME ABOUT YOUR CURRENT
ROLE?

R Krall: I’m the Director for, what
we call here is Continuous Business
Excellence at Progress Energy. I’m
the Director for our generation
business which is all of nuclear and
fossil generation within Progress
Energy. CBE is our application of
Lean and Six Sigma tools to improve
the processes in the generation
business.

PEX NETWORK: HOW DOES CONTINUOUS BUSINESS EXCELLENCE FIT INTO THE CULTURE AND
OPERATIONS AT PROGRESS?

R Krall: It is a corporate-wide initiative and each of our businesses are at different start points, but as
far as my business in generation this is pretty much wrapped into our culture of how we do our
maintenance and our operations, and a lot of that has to do with training and, really, the other part
has to do with how we incentivize people too, and other change efforts that folks have gone through
in some other companies, we’ve learned that the best way to go out there and touch people is to
put it into their performance goals and it seems to stick a little better.

PEX NETWORK: WHY IS PROCESS EXCELLENCE SO IMPORTANT TO YOU AT PROGRESS?

R Krall: It’s important to us because I think in the past, we’re a regulated utility here in the United
States, and there has been not a lot of pressure for us to be cost competitive like some other folks
that have used these tools, manufacturing, aerospace, but that’s changed. I’m here in Florida and we
have State regulators that are starting to scrutinise fuel spending, operational spending, our capital
projects, so there is now this influence from outside that our regulators are pushing us to be better.
Plus, if you think about the age of our fleet, the condition of our equipment, these

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are just good process tools that we’ve seen other people like the United States Air Force and the
aerospace companies use and use to a good amount of success.

PEX NETWORK: WHAT ARE THE FACTORS THAT MAKE IT SO DIFFICULT TO BUILD A CASE FOR
PROCESS EXCELLENCE IN A REGULATED UTILITY?

R Krall: In the past there wasn’t really a competitive pressure. In many cases people think of it as a
monopoly even though it isn’t because we still can lose a community based on the way that they
charter our businesses, but it’s been difficult in that they’ve never really thought of themselves as
somebody that has to look at their costs and manage their budgets well. If you look at most of our
leaders they’re extremely technically competent. They know their equipment, they know how to
maintain it, how to operate it, how to get through outages in the least amount of time, but they
haven’t really been good at managing cost. Cost and time pretty much go together in the lean world
and our set of tools has helped them work with and be able to apply tools to improve themselves.

PEX NETWORK: AND WHAT DO YOU THINK ARE THE KEY FACTORS TO GAINING EFFECTIVE
SPONSORSHIP?

R Krall: One, there has to be a good corporate sponsor, someone pretty high up in your executive
staff has to be a sponsor. The CEO for our company is a sponsor but initially we had to win him over
and we won him over through results, focusing on quick wins, focusing on the energy that comes out
of Kaizen type events and the engagement with the employees and actually showing financial and
operational improvements in a short amount of time.

PEX NETWORK: WHAT ARE SOME EXAMPLES OF INITIATIVES THAT HAVE BEEN SUCCESSFUL IN
EMBEDDING PROCESS EXCELLENCE AT PROGRESS?

R Krall: One of the things that this industry does on a regular basis is something called outages and
anybody that’s in the utility businesses understands the concept. It’s where we go in and do major
capital improvements on our equipment on a periodic basis to make sure that they can operate at
the level of continuity that we expect out of it.

We’ve used our tools to help analyse and improve these outage processes in specific projects,
specific operations, and we’re able to guarantee fidelity through the use of things like standard
work, pointer use tools success, pretty simple Lean tools that have been able to yield a lot of
payback and really predictability out of being able to hit an outage time, hit it on budget, and
there’re a couple of outages we’ve used these tools in and had great success with in the past year or
so.

PEX NETWORK: FINALLY, WHAT TOP TIPS CAN OFFER TO UTILITIES TRYING TO AVOID THE
COMMON PITFALLS OF PROCESS EXCELLENCE? IF YOU CAN MAYBE BREAK IT DOWN INTO YOUR
TOP THREE OR TOP FIVE TIPS.

R Krall: Top tips in order for us to be successful we really needed that, we already talked about it,
that executive sponsorship was critical.

The second was probably how we went out and chose our Lean experts. We call them CB Leaders.
We went out and tapped people that were already credible leaders in the organisation, so of our
first group of about eight CB Leaders in the generation business, three of them

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were plant managers, the balance of them were either operations or maintenance superintendents,
so these were folks that were pretty high in the organisation that had instant credibility, and on top
of that we had a pretty good, I would call, a pretty comprehensive training programme to get them
up to speed with the tools and facilitation requirements. That was, pick the right people and have a
good fundamental training programme to get them up to speed.

The other part was a lot of good coaching, and the coaching isn’t just for your CB Leaders or your
Lean or Six Sigma experts, it’s also coaching for the leadership; how do they use these tools, how do
they support people in these Kaizen Events and what are the things they should say and what should
they be looking for? So, the coaching goes both ways up and down the chain of command, with your
leaders, your staff of experts and also with your leadership on how they should use the tools.

I think, lastly, is you go for those quick wins, what you had asked earlier. If you can show that there’s
value in this and that you can make an impact everybody gets excited about it.

Read the original interview here: The Case for Process Excellence in Public Utilities

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LEADERSHIP AND LEAN SIX SIGMA AT CHEVRON
EUROPE

INTERVIEW BY PEX NETWORK, PUBLISHED 9 DECEMBER 2011

Eric Sirgo, general manager of operations at Chevron Europe, joins PEX Network to talk about their Six
Sigma program and how the company engages with their leadership teams.

PEX NETWORK: I UNDERSTAND THAT CHEVRON HAS BEEN USING LEAN SIX SIGMA FOR MANY
YEARS IN ITS UPSTREAM DIVISION. WHAT'S THE HISTORY OF THAT PROGRAMME?

E Sirgo: You're right. It started in about 2000. We started with our Indonesian operations. There was
a group there that took on the Six Sigma practice and trained a number of Indonesian nationals in
using Six Sigma, and they became black belts, and they started some projects locally. Then it picked
up in our California Operations.

In Western California we have a business unit, called San Joaquin Valley, and that programme
started there, and I'd say it was like most programmes: it started at grass roots and it started slowly,
and it moved, for about four years, doing small projects in that business unit, and then around 2006
they were starting to get a lot of attention on the progress they were making with the savings and
efficiency gains, and we have a global upstream standards organisation that picked up on the
practice and decided to make it a global standard.

That didn't necessarily guarantee that it would go worldwide overnight. It did say that the company
endorsed it as a preferred method for efficiency gains and Leaning out processes, but I think where
it really got going fast was the Vice President from the California Operations went to the Gulf of
Mexico. His name is Warner Williams, and he has a lot of passion around this particular topic, and he
and the President of North America, Gary Luquette, came to the conclusion it was something that
North America needed to do, and so it went from a grass roots build over several years, to more of a
top down programme. Since 2008 North America has really blossomed, and has really spread Lean
Sigma throughout the North America operations.

Globally, we continue to have business units make progress in picking up the practices and the
approach, and we probably have another three or four business units that now have pretty active
Lean Sigma programmes.

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PEX NETWORK: SO IT STARTED AS SOMETHING BUBBLING UP INTERNATIONALLY, AND THEN
CAME BACK TO NORTH AMERICA?

E Sirgo: Yes, exactly. It started at a grass roots level with individuals who had a lot of passion around
the subject, and they carried the banner for a while.

Steve Turnipseed, in particular, just picked up the flag, and began pushing and pushing. I can
remember going to the first training that Steve offered at the global level. He was coming to the
staff, the individuals who would push it out, and trying to sell us on the process, we were all
extremely sceptical, and Steve was just so passionate about it. And that passion is pretty infectious.
He's really been a big catalyst in the grass roots movement, but I tell you, it does help when a
President or a Vice President says, this is something I want to do, and makes the metrics very visible,
makes the project successes very visible. That certainly puts an expectation for the organisation to
pick up and adopt.

PEX NETWORK: YOU WORK AT CHEVRON EUROPE, AND LEAN SIX SIGMA IS FAIRLY NEW TO YOUR
DIVISION, WHAT'S THE BACKGROUND TO YOUR LEAN SIX SIGMA IMPLEMENTATION?

E Sirgo: I've been in this job, coming up on two years, and the organisation here has been at it about
six years. It’s been very much grass roots. I would say that the leadership, prior to me arriving, were
supportive, but were not top down. They saw it as another tool in the toolbox, and said that if a
project seems appropriate, then you apply the tools. If you want to use it or you want to get trained,
you’re free to do it and we’ll pay for that, we’ll reimburse you for that.

We’ve probably completed 20 plus projects here in all different departments, from IT to supply chain
to HR to operations to asset development. But I wouldn’t say it’s been a steam-rolling programme;
it’s been pretty slow and methodical. When I got here two years ago, we revamped the steering
team, we re-chartered the team, we set some goals and we’ve been doing a lot more organisational
development in the skills. I think that’s beginning to get our queue up and beginning to get our
knowledge up and we’re starting to get more projects through the pipeline.

PEX NETWORK: WHEN YOU FIRST STARTED OFF WITH LEAN SIX SIGMA IN CHEVRON EUROPE,
HOW DID YOU BUILD THE EXPERTISE UP INTERNALLY?

E Sirgo: It’s been a couple of things. I’d say it’s been very typical: it’s training, it’s consultants. We’ve
brought in consultants from the typical suppliers, like Accenture or IBM, who have supplied black
belts and people who are very knowledgeable to help teams move projects along. And then we’ve
done a lot of training of our employees.

We have a significant number of white belts, green belts, champions that we begin to just keep
building organisational capability and keep spreading the tools and the expertise. So it’s a
combination of training and consultants.

We recently hired our first black belt as a Chevron employee, which is unusual. If you take a step
back, it’s not a career path in the company to be a black belt. We typically have career paths of
drilling or reservoir engineering or geology, and having a black belt career path is a bit of an oddity in
the company. And so we just recently hired our first individual as an employee, as a black belt, and

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we’re going to be working on what the career path would be for them, and we’re working with that
with the global group.

PEX NETWORK: AS YOU’VE BEEN BUILDING UP THAT COMPETENCY, WHAT KIND OF CHALLENGES
HAVE YOU BEEN ENCOUNTERING ALONG THE WAY?

E Sirgo: We still have challenges every day. Change is something funny in a big organisation; it does
not come free and nor does it flow freely. And everything you’d expect. I’m too busy, I don’t have
time for this; this is nothing new, I’ve seen it before. One thing you’ve got to remember is that a
company like Chevron is built on the back of a highly technical and skilled workforce that are
masters of geology, engineers, people who are experts in their field. They’re very technical and savvy
and experienced. And when you come to them and say I can do what you’re doing with Lean Sigma
and you could do it a lot better, they’re very, “yes, yes, I’ve seen this before, I’ve done it before”. So
you’ve got a lot of what we call change management issues to convince people that if you apply
these tools, you can make changes stick longer.

And that’s been one of our best selling points: we do have a smart workforce and we do a lot of
improvements, but often they don’t stick and they fade after that person maybe moves on. And
Lean Sigma helps control the project; it helps create metrics that keep the improvements in place,
but it also educates people on what the change is. And so that’s been a big selling point for this
workforce: we can make change stick with this set of tools.

So, anyway, back to your question, all the very typical things: I’m too busy, nothing new, I’ve seen it
before type attitudes.

PEX NETWORK: ONE OF THE THINGS THAT COMES UP OFTEN WHEN I SPEAK TO PRACTITIONERS IS
THAT THAT TOP DOWN SUPPORT REALLY HELPS, PARTICULARLY WHEN PEOPLE ARE TOO BUSY OR
THEY’VE SEEN IT ALL BEFORE. HOW DOES YOUR LEADERSHIP REALLY TAKE THAT ACTIVE ROLE IN
YOUR LEAN SIX SIGMA PROGRAMME? WHAT KIND OF ACTIVITIES DO THEY DO TO GIVE YOU THAT
SUPPORT?

E Sirgo: That’s been an area that we’ve been trying to improve since I’ve arrived here: getting more
leadership involvement and uptake. I’d say our support organisations, in particular IT and supply
chain, the leaders have been very active in pushing their organisation to apply Lean Sigma to their
projects. The operational area and the asset development area and maybe some of the other
groups, drilling, have been less top down. My counterpart here, Dan Chudnov and myself, we have
taken a much more active role in asking our teams to generate projects, do brainstorming, assign
champions, get people trained and then setting some goals and some challenges to try to move
people along this path, and I think that’s going to help.

And I think it’s great when it’s grass roots. I think there are a couple of challenges for grass roots.
One, the organisations are so large that you can’t really just expect things to catch fire without
somebody pushing it along. I do think you need leadership to make these programmes successful,
and I’ll give you another example.

We operate in 180 countries around the world and we operate in a lot of different cultures. And
many cultures that we operate in, grass roots is not how it works; top down is how it works. That’s
how the culture has come up, and so you really need to adjust accordingly to the

30 | P a g e


culture you’re working in. I think in the US, grass roots entrepreneurship is often rewarded, and so
things do get recognised when people take the initiative. But when you want to institutionalise it, I
think you do need to put a bit of strong leadership and top down drive on it.

PEX NETWORK: HOW DO YOU KEEP DIFFERENT DEPARTMENTS AND BUSINESS UNITS ON THE
SAME TRACK?

E Sirgo: I’d say that’s not quite as sophisticated yet as it could be here in Europe, in our European
operations.

But we have a quarterly Lean Sigma steering team meeting that we look at our metrics, we look at
our training metrics and make sure we’re making progress on getting bugs trained. We look at our
project queue and we look at how many projects we have active and are moving through the
pipeline. I look at my project queue with my team directly probably at least once a month, maybe
once every two months. We track savings. We have all the very typical metrics for guiding any sort of
programme or process through a company.

And I think we could probably be a little more systematic in that we have a new managing director
who has only been here about a month or two, and she and I have been talking about how to make
things a little more systematic in this area. So I think we do have some room for improvement. In
North America, it is fairly systematic now: there are very clear metrics, very clear expectations on
people’s individual performance measurements and very clear goals on the score cards of the
managers as well as the business unit. So we’re not quite as mature as they are, but we’re heading in
that direction.

PEX NETWORK: I UNDERSTAND THAT YOU USE THE BALANCE SCORECARD. IS THAT CORRECT?

E Sirgo: We have more scorecards than we know what to do with! Being a very technical and
analytical business, we measure just about everything. For instance, in my operations, the very
typical high-level things that we measure are environmental and safety performance, our production
performance and then our cost performance. And then from there, those three topics, you can go
down to dozens of metrics, depending on what we’re chasing. In particular, we look a lot at
maintenance and how we’re doing on maintenance backlog and the amount of maintenance we’re
liquidating. These things all offer themselves to Lean Sigma tools and processes, so when you say
balanced, I just say we’ve got a lot of metrics and they lend themselves to these processes quite
well.

PEX NETWORK: SPEAKING, A LITTLE MORE GENERALLY, ONE OF THE THINGS THAT PROCESS
EXCELLENCE PROFESSIONALS ALWAYS TELL ME IS THAT THEY’LL NEVER BE OUT OF A JOB BECAUSE
PROCESSES ARE ALWAYS CHANGING AND THERE ARE ALWAYS WAYS TO BE ELIMINATED. IN YOUR
ROLE, WHAT ROLE DOES PROCESS IMPROVEMENT PLAY IN HELPING YOU ADAPT TO CHANGES IN
THE BUSINESS OPERATING ENVIRONMENT?

E Sirgo: I’d say it’s huge. We do operate in a fairly dynamic business; things do change a lot. Post
Macondo, even in the UK we’re dealing with many, many, many changes around permitting, around
how we conduct ourselves offshore, contingency plans. So the business changes very rapidly.

But I guess to answer the question a little more specifically, some of the issues
around improving processes or making them more efficient are that, number one,

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sometimes our changes just don’t stick. We’ll look at a process, we’ll analyse it, we’ll make
recommendations and then people say, okay, that was interesting, and they go back to how they
were doing things. And they just don’t stick, and we tend to revert back to the more entrenched
method, and that would be one flag around process change.

I think the other one is that often, either the process is owned by a champion or the effort to
improve the process is owned by a champion. We’re fairly mobile in Chevron; we move around quite
a bit. And if that person leaves or moves on to a new assignment, then often the improvement goes
with them and it doesn’t become engrained or entrenched in the organisation.

So those are very atypical problems with process change and we see them all the time. I’d say one
other issue, Chevron were very much built on teams and consensus and sometimes process change
doesn’t sit well in a consensus environment, where everyone has got to agree to the change or
everyone needs to support the change. I think managers need to step in and be a little more direct.
When you’ve gotten to the prescribed method and you know there’s value in it, sometimes you
need to be a little more prescriptive about what you want to do.

So reversion to the norm, champions walking away with the knowledge and the process or problems
with consensus can all stand in the way of changing existing processes.

PEX NETWORK: YOU MENTIONED MACONDO. ARE THERE SPECIFIC CHALLENGES THIS YEAR THAT
ARE REALLY DRIVING THOSE CHANGES THAT ARE PLAYING A ROLE IN HELPING YOU PRIORITISE
WHAT YOU NEED TO FOCUS ON THIS YEAR?

E Sirgo: Absolutely. The post- Macondo world for the industry is very different. This was an event
that was low probability, but very high impact and when it does occur, it does leave a very large
ripple. And it has rippled across the world: just about every major base and every major government
is asking more questions, requiring more due diligence. And for the most part, I think at Chevron
we’re getting a lot of validation from the scrutiny that’s coming from a lot of the different
governments around the world that our processes were good and they were in good shape.

So we’re not making a lot of changes to how we do our work; we are making a lot of changes about
how we communicate what we’re doing to the regulatory bodies. We’ve answered just hundreds of
questions for permitting here in the UK for our deep-water exploration west of Shetland, and it’s just
a much lengthier process.

And I think we’re having to come to the conclusion that we need to be working way farther in
advance and we need to be much more open about what we do and what we are good at with the
regulators.

And I do think you’re seeing much more partnering going on. The regulators here know a lot more
about what we do than they used to do in the past, and I think that’s a good thing. I think that’s
going to be a very positive outcome from the post- Macondo world. But in general, I think we’re just
planning for lengthier lead times on getting things done.

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PEX NETWORK: WHAT DO YOU SEE AS SOME OF THE KEY PROCESS IMPROVEMENT CHALLENGES
FOR THE INDUSTRY AS A WHOLE IN THE COMING YEARS?

E Sirgo: It does go back to the three things I talked about, which were safety, production and cost. If
you focus on safety, we talked about Macondo and post-Macondo world. It’s a pretty never-ending
effort for us to be focused on safety. And as you enter new countries or you enter new projects,
you’ve got to bring that culture with you and you’ve got to be able to get a new organisation moving
in the direction. I’ll give you an example: we’ve just leased approximately a million acres of land in
Poland, and it’s a new country entry for us here in Europe and for Chevron. But that’s a completely
different culture: it’s a language barrier, there’s the different governmental process. One of the
areas in safety that we’re really concerned about is driving; Poland is not known for very safe driving.
So we’re spending a lot of time just getting the workforce there up to standards on driving and
driving safety. So that’s just an example.

I think on production, a lot of the world’s reserves and a lot of the oil that has been discovered, we
know where it is, we know how much is left, but we can’t figure out how to get it all out of the
ground. And so there’s a huge challenge around improving the recovery of oil out of the fields we
already own. I have a field here I operate in the North Sea, called the Captain Field, and I believe
we’re setting around 30% recovery of the original oil in place, which means there’s 70% remaining
and we haven’t quite figured out how to get that out. So I think there’s a lot of opportunity in the
fields we own to apply technology and process to try to move some more barrels.

Cost is another challenge we face. If the price of oil runs up, the cost for us to do our business runs
up along with it. A lot of people think we don’t see that increase in cost, but we do. And so we’re
constantly looking at how we do our work to become more efficient, to make a better margin on the
barrels that we do have on these older fields. So the challenges are endless and they’re in all facets
of the business.

Read the original interview here: Leadership and Lean Six Sigma at Chevron

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OVERCOMING PROCESS IMPROVEMENT
PROGRAMME START UP CHALLENGES

Starting up a process improvement program but encountering some resistance? Christopher Long, Business
Improvement Manager, Subsea 7, offers his insight into why people resist changing and offers practical tips on
overcoming it. Recorded LIVE at PEX Network's Energy Process Excellence Europe 2011, watch this
presentation for tips on:

 Linking your process improvement plan to business needs and changing objectives

 Raising awareness around the benefits of PEX planning and the competitive advantage of a PEX
culture

 Early execution learning: measuring and assessing your successes and failures

 Determining a plan for closing the gaps: how to tackle the challenges and issues still to be overcome

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FOR FURTHER LEARNING
PEX Network’s 3rd Annual Energy Process Excellence Network offers you the opportunity to deal with these
challenges and prepare for what lies ahead. Improve productivity and mitigate risk with expert insight from:

 Cameron on determining leading indicators of risk so you can rapidly resolve continuing risk issues
arising in your business

 BP on enhancing Supplier Quality Management to reduce operational risk and the costs associated
with poor quality

 Centrica on creating an integrated, enterprise-wide process excellence approach to improve business
agility and to seize and sustain growth opportunities

 Cenovus Energy on securing buy in by identifying and addressing the real barriers to OPEX
implementation

…and many more. The event takes place 6-8 November 2012 in Houston Texas. To find out more about the
event go to http://www.energypexnetwork.com/Event.aspx?id=786886

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WHAT IS THE PROCESS EXCELLENCE NETWORK?
PEX Network is an online, free to join, membership portal providing process professionals with
exclusive access to a library of multimedia resources from top executives on Lean Six Sigma, BPM,
Operational Excellence, Continuous Improvement and other process excellence related topics.

The Process Excellence Network has a subscribed membership of 80,000+ with an additional 20,000
connected to us via our social networks and a global contact database of over 450,000.

In addition to online resources, PEX Network organizes 30+ targeted face-to-face events globally per
year with industry specific focuses on Financial Services, Telecoms & Utilities, and Energy. We also
hold major cross industry summits on process excellence in Orlando, FL (PEX Week) and in London,
England (PEX Week Europe) every January and April.

Contact Us

Website: www.pexnetwork.com

General Inquiries: enquire@pexnetwork.com

Telephone: +44 (0)20 7368 9300

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