How do you improve upon a 10,000-year old success story? Organization structure in use in most of the oil and gas industry mirrors the compelling logic that has been gradually honed in well over 10 millennia of human history. So, what could possibly be wrong with following such a venerable success model?
Actually, a lot is wrong with the way this industry structures organizations. But, before we get into the reasons why this is true, let's give the appropriate tip of the hat to this highly successful approach.
It is true that the principles that define the most favored structure of oil and gas organizations have their roots in over 10,000 years of military and civil organization experience - perhaps best typified by the Roman Army. Complex military activities under the Roman regime were designed into specialties, each of which was then scrupulously designed for creating the surest measure of success - victory on the battlefield and the ultimate subjugation of the enemies of Rome.

During the 19th century, as industrialization became the pervasive driver of large-scale business activity, this old workhorse became the standard for structuring an organization. Management theory and practice blossomed around these principles to further refine, codify and inculcate this way of doing things into the very fabric of society. The power of this movement was so pervasive that this type of organization is now referred to as the Industrial-Era Organization. This approach enabled the massive explosion in performance, productivity and growth in the total economic value of the nations that embraced the Industrial-Era organization.

So what's the complaint?

Fragments are too slow for an Internet-enabled fiber and wide bandwidth world. We now have the capability for visioning technologies, dynamic pattern recognition, advanced imaging, expert software systems, and a host of networking technologies that can effectively deal with the problems that once required specialized human-intensive functions to address. With all of these advances, the need for highly fragmented organization units is declining, along with the troublesome interface issues that literally can cause the machine organization to grind to a stand-still.

An upstream organization is a complex undertaking that requires the smooth functioning of many different moving parts. In an upstream organization we find an exploration unit, a production unit, a finance and administration unit, an HSE unit, a legal unit, and business units.

One problem is that the business isn't actually the sum of each of these parts. It's a whole thing. In practice the sum of the parts is often less valuable than the whole.

The reason that some of the very small upstream organizations seem to create such extraordinary value is that they tend to function more dynamically and vibrantly as a whole business than as the inner-focused and merely semi-autonomous pieces of the whole. The former upstream company Zhilka was a good example. The entire company conducted business in a single room in Houston. Business was carried out face-to-face and decisions were made immediately during discussions among the exploration, drilling, and production managers along with other key personnel. There weren't any handoffs between functions. There weren't many meetings. They just sat down in one room and worked hard everyday to create a good business.

Huge companies like Shell and ConocoPhillips, of course, can't put everyone in one room and get on with doing business. Apart from being very loud and cramped, it just wouldn't work. It would be the equivalent of the Tower of Babel.

It seems logical to break down the whole of the business into smaller pieces. But, when this is done, the upstream organization creates interfaces between and among the pieces. Each of these pieces tends to become mini-cultures within the broader culture of the organization. Each develops standing staffs to carry out the designated work. And work tends to expand to fit the structure. Each tends to protect its turf, each has its unique ways of doing things, and each becomes a potential drag (inefficiencies due to emotional, political, or rational differences among people) on the flow of work activities in the enterprise (for you engineers: Think of drag as adding resistors into an electrical circuit). It's a machine-like model. Each component of the machine does its part. Each part is milled to the spec of the machine's function. But, since the parts are populated by people, the interface between the parts must be carried out by ambassadors to the other parts. Time, energy and treasure are spent negotiating innumerable transactions between and among the pieces. Sometimes negotiation just doesn't work and war breaks out. The machine is damaged and slows down or stops entirely.

The more interfaces, the more complex the drag impact and the more severe it becomes. In an age that now allows us to access and use information on a scale with a speed unparalleled in human history, when the operations of the upstream organization now spans a truly global scope, and when the challenges of the oil and gas industry are elevated to unprecedented levels of risk and cost, it makes sense to take another look at structure. The hypothesis is that there must be a better way to capture opportunities in an era that is clearly post-Industrial.

What's the alternative? Expert teams.

At least one part of an alternative is the use of an expert team. Expert teams consist of a handful of the most experienced, smartest employees that can be mustered to improve the quality of the key decisions that must be made in the organization. In an oil and gas company this equates to the major projects that must be funded, the wells that must be drilled and completed, and the fields that must be managed to extract the most value possible.

An expert team would make sense for larger organizations. The idea would be to elevate performance across projects and key business processes. The expert team concept would also address the quality of decision-making on major capital expenditures by empowering the expert team to intervene in key projects, make decisions, direct the activities of others, and, in general to oversee the planning, design, and execution phases of major projects.

An expert team is not to be confused with the run of the mill team that has become de rigueur in every company in this industry. Nor is it just another standing staff unit.

More broadly, the classic oil and gas organization structure must endure a transformation that alters our traditional sense for what an organization chart should look like to more creatively embody a more pragmatic, faster, far more nimble, and much more value-focused design. The company that solves this Gordian Knot will likely emerge as a clear market winner.

To make this happen, the metaphors must change.

Humans aren't machine-like. They are inherently emotional. They exhibit political behavior. And, of course, they are uniquely capable of rational thought and analysis. Equipped with today's tools, the bet is that smart, experienced people can be better leveraged to create extraordinary value than the much loved machine organization.

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