A large E&P company once was dissatisfied with its financial performance compared with a group of peer companies.
The company's finding and development costs and profitability were unsatisfactory, the board of directors was examining ways to improve their profit and management consultants were invited to discuss ways to improve.
I was invited to talk to the board to answer questions on why I thought Canadian Hunter Exploration, a new, small company that I worked with was so financially successful.
I asserted it was because the company was organized into mulitdisciplinary teams with very few middle managers -- lots of financial authority was at the working level.
A very interesting "experiment" evolved out of my discussions with the board, which focused on a question: "How can you really prove that MDTs are more effective and profitable?"
I suggested that if they really wanted to know what organization was best for their company, then perform a "pilot test," much like they would to determine if a new recovery process was economically viable.
The "pilot test": form a small E&P company with MDTs that would compete against one of the company's E&P divisions on an equal basis.
The board of directors agreed to a three- to five-year test and hired a president (a former company VP) to form the new company organized in integrated, multidisciplinary teams. This small company of about 35 professionals and support staff competed in the Gulf Coast basin with the larger traditional exploration and production division, which had about 175 professionals and support staff.
The age distribution and experience of the staffs, the budgets, technical databases and economic/risk criteria for projects of the small and large groups were essentially identical. The organizational structure was like that shown in figure 2, and the approach of the two groups was different:
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The small group was organized into MDTs by plays or projects and had a very flat organization. Most of the staff were members of two or more teams/projects.
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The large group was a traditional organization.
The land, administrative and operations staffs are not illustrated in figure 2, although they are included in the personnel totals for the large company division and the small company. Both groups used many contract field personnel, which are not counted in the totals.
In the small company, project/play supervisors reported directly to the president -- the individual team leaders have a great deal of technical and monetary authority. In contrast, the larger organization was structured as a traditional exploration and production group, with four levels of management and review before project/play approval.
Note that at the beginning of the "experiment," the large division had four levels of supervision compared with two in the small synergistic company.
The two groups had similar budgets each of the first five years of the "experiment," which ranged from more than $35 million to $60 million per year. The economic criteria and minimum field-size targets for the two groups were identical.
The two groups did not know that they were competing with each other.
The experiment continued for a second five years. The small group grew to over 80 but maintained the same MDT organization structure. Two senior technical advisors and a business manager were added to assist the teams.
Impressive Results
The results of the first five years of competition are impressive: The small company found about 2.8 times the reserves at about half the finding costs, and the development costs for the smaller group were lower.
Based on the findings of the first three years of the "experiment," the large company division reorganized the group along the lines of the small company:
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One level of management was eliminated and the monetary authority for each level was increased and pushed decision-making to lower management levels.
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After year five, the management of the larger organization eliminated another level of management and technical supervision in order to approach a more streamlined organization.
The board of directors was convinced that fewer management levels and an increase of authority to lower levels in the larger organization resulted in improved efficiency and profit. Some of the keys to the increased efficiency and profitability of the small company and the "streamlined" division are:
- Fewer meetings and thus, more time for work.
- The delegation of financial responsibility downward.
- Excellent communication of objectives and results between management and staff.
- The generation and application of new ideas and technology that lowered costs, streamlined data and decisions, and increased reserves and profitability.
Unsuccessful Teams
Companies and managers do not like to talk about their technology and economics. One major company has allowed me to talk to some extent about their failed venture using teams.
Here is my impression of why they failed.
The company's E&P vice president was convinced of the benefits of MDTs, and he decided to use the integrated, multidisciplinary approach in one of their operating E&P divisions. The division had over 200 managers and staff in the beginning of this organizational change. With his managers, he put together and published internally a mission statement, what the organizational was to accomplish and a conceptual organization chart.
Meetings were held with the division management, technical and operations staffs to explain the purpose and goals of the new division team organization of geoscientists, engineers and operations personnel. The managers were organized into the management advisory team to act as advisors and final decision-makers.
Certainly, the start was commendable.
The E&P vice president then invited me to look at the organization after about four months of operations.
The "new" organization was functioning much like the old one.
There was a lot more time spent in meetings trying to make the "new" organization function. Everyone knew the goals, objectives and visions, but I believe that a major reason for lack of progress was the middle managers and supervisors really had not bought into the organizational structure and processes.
In the "old" division organization, the geophysicists and their support staff were on one floor; the geologists and support staff were on another floor and the engineers and computer support on two different floors. Now there were "team rooms" with the total project data and space for people to work together and allow synergy to take place.
Also, there was a lot of time spent in meetings aimed at accomplishing coordination and integration, and at allowing synergy to occur.
There were too many meetings that added little value.
Managers expressed privately their concerns about giving up their best performers to work for another manager. Individually, both the managers and technical staff expressed concern that their advancement and compensation might not be as good as their colleagues in the other divisions. These were serious concerns because no new reward system was ever communicated.
Although managers were assigned responsibility for the different teams, the people still passed their work by their old manager for approval. One reservoir engineer manager, in fact, insisted that all engineering calculations had to be approved by him before they were shared with the team.
After a total of six months, the team organization was abandoned.
Next month: A look at the key steps needed to build and maintain successful MDTs.