Integrated solutions are an adaptive change

The last few years have indicated a trend within the oil industry to provide integrated/digital solutions to the customer, with the value proposition that functional silos work together for the common goal.

Organizations can, at times, lack the necessary framework to execute an integrated solutions strategy. A strategic bridge is necessary to execute the strategy and perform integrated operations. This bridge supports strategic decisions through the structure and culture of an organization. Customer needs are addressed through the project and program approach, which is a collaborative effort that brings together people of various levels of expertise and perspective.

A strategic bridge executes the strategy and performs integrated operations. (Figures courtesy of Halliburton)

Statistics show that 66% of the companies in the US fail to execute their strategy. This failure is due largely to the fact that those strategic decisions do not coincide with the structure and culture of the organization, which results in poor execution and strategic failures. Even when technical challenges are solved through collaboration, the most important question is whether this collaboration is worth it.

Integrated solutions: a strategy
Traditionally, service companies have had a weak matrix for solving a particular problem related to a specific area of expertise. Operators leverage the industry’s specific knowledge in their operations. Service companies that offer differentiated products and solutions need to understand the customer’s needs and provide cutting-edge technology with less response time. Their focus is to offer unique value for the customer by creating products with higher value.

Strategic alignment for execution
An important factor in executing the integrated solution strategy is the environment of the service company. The correct strategic alignment measures the proper fit between the two elements of a domain (i.e., between the strategy and culture, between the strategy and structure, or between the structure and culture).

The four archetypal organizational cultures include competence, control, collaboration, and cultivation, often referred to collectively as a “cultural egg.” Integrated solutions fall under the collaborative-type culture, which emphasizes teamwork and people by deploying cutting-edge technology. The distinctive competence of an organization can be determined with such a cultural egg. For integrated operations, for instance, customer intimacy is required, which in turn means a collaborative culture. Operational excellence, on the other hand, is a control culture.

It is very important to recognize clear, distinctive competencies. Companies unable to recognize their competence have a real challenge. For example, an organization is trying to reduce cost to increase the business efficiency of its several business segments in distressed economic times. The solution can be focused toward those business segments that are not generating considerable profits. But those business segments can represent distinctive organizational competence, such as innovation. A company might think that the problem can be fixed by reducing operating cost, resulting in business optimization. But, in fact, this random cost reduction only helps in the short term. The long-term damage will be significant because the organization has compromised its distinctive competence to respond to market changes.

Traditionally, service companies have had skill areas and have delivered services/products from their functional silos. Focusing on competence enables service companies to accumulate and share technical expertise. On the other hand, a strong matrix structure is needed for collaborative-based strategies. This structure responds to rapidly changing customer needs. The strong matrix requires project managers and a project management office structure be in place and in control. The benefits of a strong matrix structure include:

-Coordination efficiencies that are highly responsive to changing customer or market needs while also bringing faster resolution of interdisciplinary issues; and

-Incentives tied to customer value, meaning that project outputs are clearly related to customer goals, thus providing a common performance matrix for differential functional silos.

Therefore, service organizations employing the strategy of an integrated solution also must change the structure from a weak to a strong matrix for collaborative efforts to take place.

When to say ‘no’ to collaboration
Should the answer to integrated solutions always be “yes,” or is there a case where an integrated solution is not the

A collaborative culture is required for customer intimacy, but operational excellence is a control culture.

best option? The rule for deciding whether or not to implement an integrated solution is based on two factors: opportunity costs and collaborative costs.

Collaboration should occur only if the net value of the collaboration is greater than the return minus both the opportunity costs and collaborative costs. This is referred to as the collaboration premium: collaboration premium = return on the project – opportunity costs – collaborative costs.

Opportunity cost is the cost associated with anything extra that could have been done with the time, effort, and resources going into a collaborative project. It is the net cash flow that organizations forego, choosing collaboration over other options. Collaboration costs refer to the extra hassles of working across units and their consequences.

In 2006, a bacterium outbreak in spinach sickened 200 and killed a two-year-old boy in the US. Assisting food companies presented a big opportunity for DNV, a company with expertise in safety. A joint venture was formed between certification and consulting. A risk-consultingcompany helped food companies reduce risk. The initial estimation revealed that revenue could be increased by 200% with the help of collaboration. The consulting company did not realize that it could potentially increase its profit margin by finding alternative ways to use available resources. The best resource was risk-management consulting for IT. Hence, opportunity cost was greater than collaborative cost.

The second problem was that collaboration costs were high as well; the organizational structure was not set up for collaboration. Rough estimates for this project include a return on the project of US $40 million minus $25 million on opportunity costs and $20 million on collaboration costs, resulting in a loss of $5 million on the collaboration premium.

Given that the collaboration premium was negative, DNV should not have gone ahead with this project. This exercise should be carried out with an integrated solution/collaborative project to get a sense of what to improve.

An integrated solution is the combination of people, processes, and technology, and is the right combination for solving the collaborative business model, which addresses the technical change of strategy. A strong matrix-based structure is needed to execute the collaborative efforts. Solving a structural problem is not simply dealing with one piece of the puzzle. It also is necessary for service companies to determine the appropriate cultures and efforts required for collaboration, thus dealing with an adaptive change.

References available.