E&P companies need an overarching plan to take advantage of emerging technologies.

An increasing body of research is being devoted to the issue of innovation as a business driver, and the conclusions vary little. Incremental innovation and cost reductions may be required to compete effectively with your peers at the same level, but to achieve significant business performance gains over them, only radical innovation will suffice. There is no reason to believe that this is not as true in the upstream industry as any other.

The primary driver behind the future value of an upstream company is its perceived ability to identify, access and exploit economically recoverable reserves. For example, reserve replacement volume and cost figures are scrutinized by analysts as carefully as the annual profit numbers and have a significant effect on determining share prices. Consequently, the strategy of any oil company will include two key elements:
• how to locate and access new reserves; and
• how to develop an economic solution for delivery of these reserves into the market.

The application of new technology has always been a key strategic lever to achieve these two objectives. Value creation in the upstream oil industry frequently comes from technology-based innovation, either through development of new technologies or innovative applications of existing ones. However, using technology as a basis for distinctive corporate advantage seems to be much more difficult; few modern upstream operating companies show clear technology-based performance wins over their peers, and many of their "new" technologies and associated technology implementation knowledge comes from supplier companies.

Based on our initial research across industries, we believe that technology-based value creation can be linked to achieving a significant strategic advantage over competitors through the development and implementation of a "turbulent technologies" management model.

"Turbulent technology" is new and/or rapidly emerging technology, or new and innovative applications of existing technology (including technology-based process or business model innovation), which allows a company to achieve a strategic advantage over competitors for a long enough period to deliver significant benefits (measurable through corporate profitability, growth and/or share price).

Turbulent technology is not:
• incremental developments of existing technologies to give operational benefits if these do not lead to significant competitive advantage;
• development and/or application of new technologies that do not have the potential to deliver materially significant strategic advantage over competitors;
• routine application of existing technology to new areas/geographies (i.e. no significant competitive advantage gained); or
• just about information technology/ computing/software - it includes all relevant technology advances such as materials technology advances, biotechnology, gas-to-liquids technology, etc.

Development of the MTT model

Turbulent technology development is not serendipity. Companies such as 3M or IBM that innovate at many levels, year in and year out, do so with a clear focus on the management of break-through innovation as a distinct competence.

During 2001, we analyzed dozens of examples of turbulent technology, examined their impact and success, and focused on how they were managed within the companies developing them. The conclusion of the research was that the management of technology-based innovation is an important component of success in any industry. We developed the integrated MTT model, which contains methodologies for management of crucial elements and acts as a framework to integrate those elements into a cohesive whole.

The MTT model building blocks

The MTT model is a simple framework; however, each of the parts must be carefully designed, managed and, above all, integrated to deliver value. It is the combination of all these elements that is the strength of the model. Each component on its own is able to create value, but top-tier performance depends on dynamically integrating all of these to generate sustainable strategic value creation.

Develop scanning and ideation expertise. Searching for new technologies, new combinations of technologies or innovative applications of technologies requires more than casual attention in order to develop strategic advantage. It requires companies to deal effectively with conflicting priorities. To be effective, a focus on key strategic business areas is essential, but to make sure emerging opportunities are not missed, a much wider view is required. To ensure a company leverages its existing company expertise, said company needs an internal view. To avoid "corporate tunnel vision," frequent injections of external opinions and data are critical.

Re-define your R&D effort. The future R&D agenda for upstream should be driven by a strict focus on determining what is, and what is not, strategic. That agenda should have tight alignment with key business goals, allow frequent and wide experimentation, and effectively protect what has clear potential while ruthlessly pruning, spinning out or disposing of technology developments that offer no clear competitive advantage if pursued internally. Future R&D should also include the development of technology-enabled process and business model innovation. The inclusion of a technology transition capability is also vitally important.

Actively manage the upstream ecosystem. Our research identifies ecosystems as being aggregations that in combination foster the success of a product or strategic initiative. In the upstream environment, the ecosystem might include: infrastructure providers, contractors, consultants, competitors, governments, NGOs, investors, professional associations, universities, industry journals and standards-setting bodies.
The importance of the ecosystem may vary; however, managing it effectively is particularly critical when trying to commercialize internal technology that has more value in the marketplace than it does being held internally. It can also be used to frustrate the efforts of potential competitors.

Develop an intellectual property management capability. Intellectual property (IP) covers areas such as trade secrets, copyrights, patents, trademarks and process knowledge. In contrast to industries such as products and pharmaceuticals, where the issue of secrecy and protection are high on the corporate agenda and are actively managed throughout the corporation, oil companies often seem to issue large numbers of patents that can frequently lie unused for years, and also openly publish information that gives away competitive advantage.

Develop a consistent technology portfolio management process. Development of the technology portfolio management process involves first, selection of the appropriate tools and measures, and second, a standard procedure that is applied across the whole company. A company should base procedure on how much risk the company wishes to take, the level of expected return and the length of time over which returns are expected. Note that innovative companies such as Sharp and Microsoft work on 10- to 20-year time horizons when considering emerging strategic technology investment, even though their product cycles are much, much shorter.

Develop an appropriate technology strategy and governance model. Clarity on the strategic business imperatives for your company, and how these might relate to technology strategy, is a fundamental starting point. The alignment needs to be actively developed between business and technology teams at both corporate and operational levels.

Moving forward with MTT

The framework above clearly demonstrates how leading companies actively manage turbulent technologies to gain business advantage. We believe that very often, however, companies either manage turbulent technology poorly, or only excel in one or two of the six elements, or fail to effectively align, link and integrate the six elements.

As a starting point in moving forward, we strongly recommend that companies develop an overall "technology agenda," which is different from the incremental R&D agenda. Develop a technology radar that will allow you to focus on a core set of current and emerging technologies that have the potential to create (or, deployed by others, destroy) value for your company and your industry. Technologies should not be considered in isolation; it is often their interaction that has an amplifying effect. For example, the combination of home computing, global telecommunications infrastructure and the Internet gave rise to a self-reinforcing wave of change that none of the technologies could have achieved by themselves.

In parallel with defining a "technology agenda," we recommend the development of a framework for management of turbulent technologies by moving through the four steps below:

1. Review, at all levels, your current configuration and performance against leading innovators.
2. Develop a technology strategy and governance model that is right for your company and context, at this point in time. Even apparently similar companies may have different capabilities and business priorities that may lead them to radically different models. One of the most dangerous strategies is to attempt to copy other leading companies without understanding why their model is successful for them. There is a strong case for having someone at the corporate executive level acting as a full-time focal point for turbulent technology innovation.

3. Develop the MTT elements and, even more importantly, develop the mechanisms (formal and informal) that effectively coordinate between them. These could include regular workshops, competitions, visits by a corporate level sponsor to business units or an online "innovation hub" that gives staff access to tools, training, funding and information and through which management can review technology portfolios and project performance. The primary aim must be to develop and support an effective "innovation culture," so inclusion of proper performance management and adequate reward mechanisms are crucial.

4. Experiment with your innovation model itself. Try different methods and measure outcomes; offer different types of funding and alternative development routes; try different ways of rewarding individuals, teams and business units; and set up competing groups.

To properly identify and manage emerging technologies in a way that significantly enhances business performance takes time, effort, experience and focus as well as a willingness to accept that failure, as well as success, will be the outcome of many ventures into unexplored territory.
By combining the industry's core capabilities with the direction and business alignment given by the MTT framework, we anticipate upstream companies being able realize significant potential from harnessing "turbulent technology" in the pursuit and production of oil and gas.

Acknowledgement

This work was supported by analysis carried out by Accenture's Energy Strategic Research team based in London.

Editor's note: This article is an abridgement of SPE paper 77702, presented at the SPE Annual Technical Conference and Exhibition in San Antonio, Texas, Sept. 29-Oct. 2, 2002, and is reprinted with the author's permission.

Comments