BUSINESS SIDE OF GEOLOGY
By Peter R. Rose
Have E&P Cake -- And Eat It, Too
Peter R. Rose is managing partner of Rose & Associates, Austin, Texas.
What's the most effective way to organize an E&P outfit?
Is it better to run everything through headquarters, benefiting from the efficiencies of central control (even though response time is sacrificed, and local representatives often feel like "map-caddies" or "errand-boys")?
Or is it better to delegate all or most of the decision-authority to empowered, motivated local managers and teams (even though this encourages counter-productive competitive bias among different offices and neutralizes the selective power of large inventories)?
Or is some hybrid "matrix" organization preferable (even though multiple accountabilities and confusing reporting patterns may result)?
Pete Carragher, of BP, posed this question at a 1995 Hedberg Conference on risk analysis. He recognized that centralization and decentralization each had different strengths and weaknesses, but that as either organizational system "took root," the weaknesses would tend, over time, to outweigh the benefits.
Carragher suggested that management's particular task should be to encourage periodic oscillations between these two polarities, but always to accomplish such shifts before the weaknesses began to dominate.
Interesting idea, but it sounds like frequent reorganizations!
Even though most E&P professionals prefer to "run their own show" (and many well-known companies are committed to "business-unit autonomy"), four recent AAPG and SPE papers all make a strong case for central E&P coordination and portfolio management, based on observed company performance patterns. And there's no doubt that most companies today are either actively conducting their E&P business using portfolio analysis, or seriously evaluating doing so. Portfolio management leads to improved E&P performance.
Maybe there's a form of organization that allows E&P outfits to "have their cake and eat it, too."
First, recognize that any organizational system should accommodate these fundamentals:
These fundamentals suggest an effective, permanent solution to the centralization/decentralization argument:
Such an organizational system allows maximum business unit freedom (with full accountability), and also utilizes proven effective methods of centrally coordinated portfolio management with geotechnical calibration. But it demands clear, achievable corporate goals, business unit accountability, a valid and objective evaluation process with monitoring and feedback, and incentives that encourage all of them.