The oil and gas industry is notorious for riding the boom and bust cycles inefficiently. When oil is over $80 a barrel, the profits are large enough companies choose to ignore innovation and spend on growth instead. The problems compound the faster you grow until you can’t survive below $70 per barrel.
When prices are low, there is a slash and burn reaction because the company was never set up to be efficient. Now, the money and resources are not there to support creating efficiencies. So buyers pass the burden onto their vendors by squeezing them.
This tactic might make sense if the cycles are short. Taking the longer view, when the cycles get longer or there is an industry disruption, this is a failing strategy.
Creating efficiencies and striving for innovation are beneficial in all markets but especially so in protracted downturns. However, not every business will benefit from implementing a productivity initiative to the same degree.
The 3 Characters of Readiness
In The Princess Bride, Miracle Max is the person they take Wesley to when they think he is dead and want him brought back. It turns out that Wesley is “mostly dead”, which differs from dead by a very slight margin. So Miracle Max creates a big magic pill to bring Wesley back.
Waiting for oil prices to climb won’t save you. You have to do something to buy yourself time and resources to reinvent the business or find a buyer who can.
If your company needs a quick miracle, you won’t survive long enough to benefit from incremental improvements.
Live and “Die another Day”
Courtesy of Q, James Bond usually gets to have some pretty nifty toys when he goes out to save civilization. Often, those clever gadgets help him out of a hopeless situation somewhere near the end of the story.
If times are tight, chances are you are already squeezing your suppliers on price. I’ve heard stories of vendors being told to cut 20% off their already chopped prices just to get the business. This method only works as a short-term tactic.
As an ongoing strategy, the problem with this approach is you create a chain of weakened suppliers. Those companies are essential to your business’s profitability. To stay operational, the vendors must cut somewhere. Once profit is gone, they start to chip away at their own long-term viability. Your business also suffers as they fail to meet needs on quality, consistency, or timeliness. Once they fold, you are left filling the void with another squeezed company, if one is available, that you have not worked with, and have no track record of.
Eventually, there is nothing left to cut.
You need to innovate, or you slowly die. Your supply chain needs to be part of that process and not considered the expendable Bond villain.
Mark Watney (Matt Damon) gets left behind on Mars and presumed dead. He spends a lot of time trying to contact Earth and arrange rescue while growing potatoes. Much of this involves incremental improvements, repurposing resources, and repairs. Mark had nothing but time and a lot of motivation.
The thing about incremental improvements is they compound over time. At some point in time, they become significant and reach critical mass. You get to eat.
The improvements put you over the edge from losing money into profitability. They also form the foundation both culturally and financially to allow you to pursue innovation, which is the big prize.
The key is not to only focus on avoiding loss. This mentality will seldom position you for growth or innovation. You also need to optimize and improve around getting better at what you do and efficiently producing more.
Optimization and innovation prepare you for taking advantage of new opportunities and growth. You can take-off with less risk of burning up before you reach escape velocity.
4 Implementation Secrets For Innovation and Efficiency
Most people like to believe that implementing software or buying a new “thing” will dramatically improve business results. However, what we often see is a less optimal result. If you are doing the wrong thing, doing it faster does not help much.
It all comes down to how you deal with change as a company. If you want to get the most of any initiative, it is best if you address all four of these aspects.
“Culture eats strategy for breakfast.” ~ Peter Drucker
People implement the strategy. If they do not believe in it and support it, they can sabotage the noblest of corporate initiatives. Just like the Titanic, a corporate culture won’t change overnight.
A solid strategy realistically incorporates the company culture.
Solid systems free people up to make better use of their time. People don’t have to spend time thinking about how 80% of their work needs to happen. You are then free to devote your full attention and all of your mental energy to the non-standard 20% of the work that requires it.
Optimize your processes and systems to both support your people and your customers. Make sure you build innovation and continuous improvement into your systems, or you will drive those out of your organization.
Your processes should reinforce what you value most in your company’s culture. As the team changes, the reflection of culture into your brand will stay the same. Don’t mistake systems and culture for bureaucracy and rigidness. Those are poor substitutes for what you need.
Adequate tools will support your systems. Great tools will help you improve your systems by incorporating best practices into them and automating your systems and processes.
Most businesses don’t have the insight, skills, or resources to design and implement their internal change management. To get the maximum benefits, it is usually good to bring on someone who has that experience and can help you get the process going successfully.
Eventually, you need to own it but don’t be afraid to get the assistance you need. Tens of thousands is a much less expensive investment than losing millions over the long-term. Those small improvements compound over time.
This article was originally published in the Oilfield Pulse. Sunwapta Solutions is a proud Benefactor in the Oilfield Hub.