For years I have been involved with different organizations and experienced various organizational behaviors, which many would generalize as corporate culture.

But what if some of these behaviors followed some of the basic laws of physics, like maybe organizations operate at a certain frequency that makes up a big part what an organization is. It might also explain why some organizations fail, merge, or struggle with change, and others seem to manage change and grow successfully. It also might help explain why it is so difficult to affect major strategic change, and what happens when two companies merge with different organizational frequencies. On a smaller scale it might provide answers why doing projects outside the normal frequency of the organization can cause major cost or time problems. All of this relates to managing the organizational frequency.

There are high-frequency companies, medium-frequency companies, and low-frequency companies, and they all have a natural frequency that defines their organizational behavior and how they evolve. Since we are in the exploration and production (E&P) business I will discuss the idea as it relates to our industry. However, the concept of organizational-frequency management should be valid for any organizational structure.

High-frequency companies

Let's start with a high-frequency E&P company in our business. Figure 1a shows a high-frequency company. The cycles have short periods and small amplitudes. In other words the projects that the company does are very short termed, i.e. many projects per month, with small amplitudes, typifying both smaller investments and revenues. It's easy to visualize small private and traded E&P companies as high-frequency organizations. By their very nature these types of companies thrive on low-cost projects that are low risk and short duration projects. Generally, high-frequency companies do projects on shore, and rely on workovers, small water floods, and similar type projects.

As long as there are enough high-frequency projects to satisfy the high-frequency companies need for investment and revenues and it is satisfied with limited growth, it stays high frequency. But what happens if it runs out of short duration, low-cost projects? The company starts looking at deeper wells, bigger water floods, and maybe even venturing offshore. For one reason or another it wants to grow, in some cases just to survive. Thus, the organization has its first challenge to change frequency to a lower-frequency company. What are the ramifications of slowing the frequency? We will address that later.

Transition

Let's assume the company transitions into a high/medium-frequency company and successfully integrates more medium size projects. Again, it could continue operating this way replacing the lack of low cost, short-duration projects with more and more medium-frequency projects that cost more, require longer cycle times, and maybe are even more technically challenging. As the organization does fewer and fewer high-frequency projects and adds medium-frequency projects, it evolves in to a medium/high-frequency organization. This might constitute doing more offshore wells, drilling deeper prospects, maybe taking on an international project or two.

Medium-frequency companies

Again, a company could stay at the high/medium-frequency or medium/high-frequency level until there is a need or desire to add more medium-frequency-level projects, forcing a continued reduction in the high-frequency projects. Sometimes this means not investing in workovers, or other operations that before would have been done as a high-frequency project. The change in slowing the frequency causes a shift in the workforce to emphasize doing more medium size projects. This could be doing more offshore ventures, deeper drilling, higher risk exploration, increased international projects, etc. The medium-frequency-type company probably is the bigger independent.

As long as there are enough medium-size projects the company's medium-frequency behavior more than likely remains the same. However, if the quantity of medium-frequency projects start to diminish, or the pressure to grow increases, the medium-frequency company (see Figure 1b) starts considering doing lower-frequency, higher cost - and reward, and longer-duration projects. This could be moving more international, deepwater exploration, ultradeep exploration plays, etc. Again, the slowing of the frequency to the next level put enormous stress on all parts of the organization. And what is interesting is once an organization commits to this frequency change, there seems to be no going back. In other words, companies do not try to increase the frequency again.

It stands to reason that as companies slow down the frequency there are less and less low-frequency projects available, so it is much harder for a medium-frequency company to migrate successfully to a medium/low-frequency organization. Also, all the management, processes and personnel are geared to the medium-frequency behavior. Shifting everything to a lower frequency is much harder than it was to shift from higher frequencies to medium frequencies.

It is also during the frequency changes to go to lower frequencies that many of the major mergers and acquisitions take place, as a means to adjust the frequency lower.

Lower-frequency companies

Over the years a few companies have managed to keep reducing their frequency until they have reached mega-major status, only keeping a small percentage of medium-frequency projects and no high-frequency ventures in their portfolio. Other companies, which aspired to reach the lower-frequency, for one reason or another, couldn't manage the transition period and failed, and usually are taken over by a company that had achieved some success in lowering the frequency. Other companies eventually fail. They seemed to go to the lower frequency for a while, but later couldn't find enough large projects fast enough, or change the internal frequency of its management and staff to maintain the lower frequency. The often over used buzz phrase, "to change the corporate culture," in my opinion means, mainly: "how do you manage or tune your company's frequency?"

These low frequency behemoths have projects with very long duration periods, maybe 3 to 10 years, with large amplitudes of investment and revenues. For a low-frequency company to reach success and maintain it means having enough large projects coming onstream each year to maintain the long-term investment cycle for new low-frequency projects, covering overhead, and taking care of its investors. These companies do massive projects like liquefied natural gas, major deepwater and land development projects which the reserves are in the hundreds of millions to billions of barrels with the production rates going over a 100,000 b/d. Also, all of these low-frequency E&P companies are focused internationally to have access to the remaining low-frequency projects.

National oil companies

This brings up another interesting question: what frequencies do the national oil companies (NOCs) operate? Depending on the country in question, like some in the Middle East could be classified as low frequency, whereas, countries in Eastern Europe, South America and other similar areas are more high/medium- to high-frequency.

In general the lower-frequency projects are always developed first. Once that occurs the NOC is faced with increasing the frequency in these more mature areas. On one side you have the NOC wanting to increase the overall frequency as the materiality is reduced, and on the other side the very companies that go overseas want to do medium/low-frequency to low-frequency projects to lower their overall frequency. This is both an opportunity and a challenge for the oil companies and the NOCs.

What makes this all so interesting is the concept of managing a given frequency or managing frequency change, successfully. A good example of this is the private E&P company that understands how to secure enough high-frequency projects to maintain its high-frequency behavior. As long as there are no compelling reasons for the company to grow it will enjoy an almost limitless supply of high-frequency projects, either as cast offs or by-passed high-frequency projects.

I would like to continue to go deeper into the next topic of the challenges of changing frequencies - mergers, project frequency mis-match and a host of other topics -but alas, space is limited, and it will have to be for another time. But hopefully, I've given you another way to look at organizations with the premise that maybe there is another way to look at company behavior and what drives it. It also emphasizes how important good leadership is for a company in transition.

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