Positively Negative

    February 20, 2015 1:23 PM by Dr. Scott M. Shemwell

    Volume 4 Number 4

    All of us are probably aware the people can become complacent in routine situations, no matter how fraught with risk it might be.  For instance, driving at higher than posted speeds on the Houston freeway system is routine—during the non-peak hours.  Indeed, driving significantly below “traffic” speed can have its own consequences.

    So we become complacent and commute in a relatively dangerous situation on a daily basis.  Usually, nothing happens and we arrive at our destination.

    Perhaps there is another perspective on this routine behavior.  In his book, Drift into Failure: From Hunting Broken Components to Understanding Complex Systems, the author Sidney Dekker refers to a construct, The Normalization of Deviance.”[i]

    Put forth by Diane Vaughan who argued that risk is continuously constructed and renegotiated.  In other words, potential dangers are acknowledged, rationalized and then accepted as the new normal.  Under apparently similar circumstances the behavior continues.[ii]  Each time the conduct is successful, the gap between the actual risk and the individual decision maker’s (or team) perspective of the risk growths.

    As this reinforcing behavior continues it is easy to see why the traffic speed ‘seems to’ continuously increase.  Accidents only happen to the other guy!

    One can posit that we are not simply complacent but are active participants in the often dramatic changes in the “apparent” risk profile of a given activity.  As the Type A individual is rewarded with each iteration; Atta Boy, bonus, promotion, etc. others may mimic this behavior.

    Moreover, the details that may cast doubt of the process viability often go unreported and perhaps unmeasured or even unknown.  Thus the organization’s culture becomes inherently, even latently less risk averse.

    Readers may note that this blog has refers to latent variables previously.  A Latent Variable is one that is not directly measureable but is inferred.  Its behavior can only be measure through the observation of linked variable(s).  The Structural Dynamics construct directly addresses how management can confront this quandary.[iii]

    Oil and gas operations are under tremendous cost and production pressure as of this writing.  The specter of lower, sustained crude pricing is real.  Natural gas commodity prices have been soft for years.

    The temptation of The Normalization of Deviance’s immediate rewards may induce organizations and even the industry to accommodate a level of risk that it does not believe it is accepting.  In this game of musical chairs, the music may stop on your watch.

    This New Normal may undo a lot of hard fought stakeholder value gains.  Guard against too much of a ‘can do’ attitude doing more with less.

     

    How does your organization assure individual and team behaviors are not changing your acceptable risk profile?

     

    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] Dekker, Sidney. (2011). Drift into Failure: From Hunting Broken Components to Understanding Complex Systems. Ashgate.
    [ii] Ibid.
    [iii] Shemwell, Scott M. (2012, June). Structural Dynamics: The Foundation of Next Generation Management Science—βeta Version of the Construct. Version 1.0. Author.

     

     

    Towards Zero

    February 4, 2015 1:33 PM by Dr. Scott M. Shemwell

    Volume 4 Number 3

    Mathematicians tell us that, “The distance between the curve and the asymptote tends to zero as they head to infinity.”[i]  From the ancient Greek, Zeno we learn the ‘dichotomy’ paradox—the repeated division into two leads to an infinite number of steps to cover a finite distance to which one can never arrive.[ii]

    In 1997, this author introduced the construct of the Expected Value of Marginal Information (EVMI), which was defined as the (Expected value of the best decision with new information obtained at no cost), minus the (Expected value of the best decision without new information).  Economist will know that this model has its roots in economic utility theory.[iii]

    Moreover, the late Nobel laureate R. H. Coase posited the hypothesis that the existence of the firm is justified when its internal set of transactions costs are less than the cost of using external resources.[iv]  In this model, costs are not just monetary but the total cost of doing business—those economic costs including opportunity cost.

    What do these axioms have in common?  In a word—zero!

    In our Fahrenheit world, we define zero degrees as the freezing point of water or 32 degrees.  Even on the Kelvin scale, absolute zero is defined as the degree where there is minimal particle movement—approximately minus 459.69 degrees Fahrenheit.[v]  True zero remains elusive.

    Therefore, we can expect that zero is an unobtainable value.  However, the above examples suggest:

    • In the physical and mathematical worlds systems tend towards a very small value
    • The expected value of new information has real value even when it is very small
    • Business models may drive transaction costs very low

    We raise these points, particularly the last two bullets to posit that in our physical and behavioral world the construct of zero is foundational.  Another example, in the era of the Internet and mobility devices we have grown used to free data and information.

    Organizations that continually focus on lowering costs are well positioned to assure sustained operations and profit in an era where transaction costs are trending toward zero.  By extension, this suggests that in our new economy, pricing power is limited and when strong it will not be sustainable.

    For most firms, a strategy to become and remain the economic low cost producer may be the best strategy.  We use the term economic to reflect the sum total of all costs, monetary and other including human costs.

    Low cost producers historically have focused on the small details of the business.  Much like High Reliability Organizations must focus on operational details.[vi]

    Today’s firms in the energy value chain are required to do both.  Successful ones will return shareholder value.  Others may face a more uncertain future.
     

    How well is your organization positioned to be the low cost producer?

     

    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://www.mathsisfun.com/algebra/asymptote.html
    [ii] http://plato.stanford.edu/entries/paradox-zeno/
    [iii] Shemwell, Scott M. (1997, September). The Economic Value of Timely Information and Knowledge, Key to Business Process Integration Across Boundaries in the Oil & Gas Extended Value Chain. Proceedings of the Gulf Publishing 3rd International Conference and Exhibition on Exploration & Production Information Management. Houston.  Reprinted with permission
    [iv] Shemwell, Scott M. (2002, February). Economic Theory Supports E-Business Model. Executive Briefing: Business Value from Technology.  Reprinted in Essays on Business and Information II: Maximizing Business Performance. New York: Xlibris.
    [v] http://dictionary.reference.com/browse/absolute+zero
    [vi] Shemwell, Scott M. (2014). Governing Energy: Organizational Governance—Issues of the 21st Century) 2012-2013 Edition. Houston: RRI Publications. pp. 34-35. http://www.amazon.com/dp/B00NB8C91Q

     

     

    Is it Different This Time?

    January 22, 2015 9:08 AM by Dr. Scott M. Shemwell

    Volume 4 Number 2

    There is a saying in Texas that goes something like, “This is not my first rodeo” meaning that we have been down this path before.  For those who have made their careers in the upstream oil and gas sector, riding a bull may be tamer than adjusting to the ups and now downs of the crude commodity price points.

    Industry response includes organizational restructuring, reduction in force, divestitures and acquisitions, office consolidation and so on.  Of course, these and other actions are currently underway.[i]

    Another refrain often heard in times of market chaos, “This time is different.”  Not surprisingly, this statement is routine overstated or even false.[ii]

    However, there is an argument emerging that perhaps this time, the crude oil market drivers may be different.  Pundits are positing that the North American shale oil revolution and its global potential are fundamentally new (different) economic drivers.[iii]  A corollary position is that major historic suppliers of crude oil have launched a price war in an attempt to defend market positions.[iv]

    If one assumes that these two premises are correct (over supply driven), sustainability and/or attaining the position of low cost producer will determine success.  Roughly, this argument goes that shale finding and production costs are higher.  If that is the case shale and perhaps other unconventional sources may fade in the face of determined market actors.

    The counter position emerging is that shale and even production of heavy Canadian crude are actually the low cost producers.  While still in flux, it is becoming increasingly apparent that shale oil production cost may be significant lower than previously believed.[v]

    Perhaps even less understood is the position Canadian heavy oil producers have that they can operate profitably at much lower prices.  At a high level, this extraction process has a high capital cost (CAPEX) similar to building a downstream refinery (new ones have not been built in years but they are constantly upgraded) which is a process manufacturing facility.

    Existing heavy oil process manufacturing capital investments are already sunk cost—new ones on hold.  Moreover, these facilities can have decade’s long production life with current cost around $35 per barrel or even less.[vi]  This mirrors downstream production where cost management is a Key Performance Indicator.

    Additionally, engineering and service contract prices are falling in response to market realities.  Finally, technology is credited with playing a significant role in the low breakeven price.[vii]

    Previous oil bust cycles are usually followed by market recovery.  However, if the true industry production cost for unconventional crude is below $35 per barrel on a sustainable basis, then it may be different this time.

    There is a contrarian perspective to these hypotheses—this is just another cycle driven by over production and “this too will pass.”[viii]  Time is the only variable that will determine whether there is a fundamental change in global crude markets or if this is simply one more boom—bust cycle.

    However, successful economic actors will not depend on the old oilman’s prayer, “Lord, give me one more boom and I promise not to screw it up this time.’’  Those that help themselves will take charge and position their organizations accordingly.

    There has been a discussion for at least a decade or two that the great promise of Integrated Operations, aka Digital Oilfield was the evolution of the oilfield from one of a historic mineral extraction, high-risk set of activities to one of the field as a factory.[ix]  In other words, process manufacturing.

    Global oil and gas markets are susceptible to more diverse, complex and integrated variables including geopolitical risks than addressed herein.  However, if unconventional operators are the low cost producers, then the market game has fundamentally changed.

    How is your company positioned if it really is different this time?

    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://www.ogfj.com/articles/2014/12/bp-to-spend-1b-on-restructuring-and-job-layoffs.html
    [ii] http://www.nber.org/papers/w13882
    [iii] http://www.voxeu.org/article/shale-oil-and-gasoline-prices
    [iv] http://www.marketwatch.com/story/can-saudis-beat-north-dakota-in-an-oil-price-war-2014-10-08
    [v] http://en.wikipedia.org/wiki/Oil_shale_economics
    [vi] http://www.wsj.com/articles/as-oil-slips-below-50-canada-digs-in-for-long-haul-1421114641
    [vii] http://www.cnbc.com/id/102234051
    [viii] http://oilprice.com/Interviews/The-Real-Cause-Of-Low-Oil-Prices-Interview-With-Arthur-Berman.html
    [ix] http://www.energistics.org/Assets/nov04ammsshemwell.pdf

    Reaffirmation

    January 2, 2015 10:57 AM by Dr. Scott M. Shemwell

    Volume 4 Number 1

    At the start of every new year many make so called New Year’s Resolutions.  Losing weight, exercise more, stop smoking, be a better person are some of the more common and oft repeated declarations.

    Over the next few weeks, we will all be bombarded with weight loss and gym/exercise advertisements.  This process begins every January and since advertisers are not in the habit of spending significant dollars year after year on pitches that do not work, one would surmise they are effective.  This implies that a large number of consumers desire such products and services.

    Behavioral economics suggests that the rational economic actor may not be as lucid in his or her decision making process as once accepted.[i]  Societal pressures, organizational culture and other more emotional factors often cloud human decisions.[ii]  Could this be a root cause driving a high rate of resolution failure?[iii]

    How many of you work for organizations that issue New Year’s resolutions?  One suspects the number is low.  Why wouldn’t a collection of humans make the same pledges individuals typically aspire to?

    Perhaps it is good many firms do not acknowledge such goals since the resolution success rate less than 10 percent.[iv]  However, one can argue that the Chairman’s annual Letter to the Shareholders is such an affirmation of the firm’s values and goals for the new fiscal year.

    The challenge of behavioral change is well documented.[v]  Not surprising, without ongoing stimulus our good intentions of January fall by the wayside.  Whether driven by an individual’s wish to improve their life or an organization’s desire to pursue a new direction, a continuous energy source is necessary to sustain behavioral change.[vi]

    Reflection on our past efforts coupled with renewed energy to attain new or even previous goals is a worthy effort.  January 1 marks the annual milestone in continuing journeys.  A periodic review and course correction, if necessary is not only appropriate but is required by the fiduciary responsibility to ourselves as well as our organization.
     

    How does your management energize the reaffirmation process?
     

    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://financial-dictionary.thefreedictionary.com/Rational+economic+man
    [ii] http://en.wikipedia.org/wiki/Behavioral_economics
    [iii] http://www.statisticbrain.com/new-years-resolution-statistics/
    [iv] Ibid.
    [v] http://www.goodreads.com/author/show/476541.Dutch_Holland
    [vi] Shemwell, Scott M. (2012, June). Structural Dynamics: The Foundation of Next Generation Management Science—βeta Version of the Construct. Version 1.0. Author.

     

     

    2008—Redux

    December 18, 2014 1:52 PM by Dr. Scott M. Shemwell

    Volume 3 Number 24

    World petroleum markets have undergone commodity price shocks since these goods were first brought to market in quantity over one hundred and fifty years ago.[i]  As part of the global recession of 2008, the price of oil fell from approximately $145 per barrel to about $40 before the end of that market-rattling year.[ii]  A similar process is unfolding during the last quarter of 2014.

    In the summer of 2014, West Texas Intermediate (WTI) crude oil traded at over $105 per barrel.  As late as October it was above $90.  By December, it hovered in the high $50’s per barrel.[iii]

    To some observers, this is a manipulated market and to others it is supply and demand driven.  Regardless of the drivers, those economic actors in the market must deal with high volatility from time to time.

    A rapidly falling market presents operations with significant challenges.  The common mantra, “do more with less” can become gospel.  How this message is delivered and subsequently implemented can be the difference between possibly a bad year and a terrible, career and/or company ending year.

    Nothing changes in a down market except the commodity price point.  Safety, the environment, performance requirements, regulations, etc. remain the same.  However, managerial actions must change and decisions taken reflect the market realities.

    Originally published in 2004, the decline curve graphic suggests that to remain profitable as a field ages, the costs of operations must decrease faster than the rate of production decline.[iv]  A dramatic, quick reduction in commodity price points essentially has the same economic effect of the field.

    The focus on that study was the emerging (at the time) digital oilfield.  However, modern producers use a basket of technologies to drive their business models.

    Technology does make a difference.  The perceived market glut is partly due to the use of technologies of all kinds including information technology.  Enabling process change improved efficiencies and safer operations are well documented and have offered those organizations using them with a “healthy buffer against failing prices.”[v]

    Organizational Agility, Resilience and Sustainability are the hallmark of well-managed oil and gas operators and their energy services and manufacturing supply chain partners.  Rapidly responding to changing environments, whether market driven or in retort to an incident are the normal response of High Reliability Organizations.  The protection of shareholder value demands no less.

    As with any market downturn there will be winners and losers.  Mergers and bankruptcies, a level of unemployment and local recessions are likely.  Agile and resilient firms are best positioned for survival when the bust part of the business cycle is deep and fast.

    Finally, as the saying goes, “we’ll be back.”  ExxonMobil recently forecasts 35% higher global demand by 2040.  The demographics of an expanding global population and desire for increased standards of living throughout all economies are substantial economic drivers.[vi]

    Yet one wonders, how many more boom-bust cycles will there be before then?  Expect them and plan accordingly.
     

    What is your organization’s Rapid Response Management plan?


    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://en.wikipedia.org/wiki/History_of_the_petroleum_industry_in_the_United_States
    [ii] http://www.rff.org/Publications/WPC/Pages/The-2008-Oil-Price-Shock-Markets-or-Mayhem.aspx
    [iii] http://www.businessinsider.com/oil-prices-drop-december-10-2014-12
    [iv] Shemwell, Scott M. & Murphy, D. Paul. (2004, September). Roadmap to Enterprise Optimization: A Guide to the Impact of Information Driven Field Operations on the Petroleum Corporation. Strategic Decision Sciences. Authors. P. 110.
    [v] http://www.houstonchronicle.com/business/energy/article/As-oil-prices-fall-companies-produce-more-for-5923956.php#/0
    [vi] http://www.ogj.com/articles/2014/12/exxonmobil-forecasts-35-higher-world-energy-demand-by-2040.html?cmpid=EnlDailyDecember102014

     

     

    Requisite Variety

    December 11, 2014 12:27 PM by Dr. Scott M. Shemwell

    Volume 3 Number 23

    Readers of this blog may recall that we have put forth the Relationships, Behavior and Conditions model as a construct to enable the energy industry to achieve a Culture of Safety.  This is a dynamic systems model of complex interactions.  In this edition, we will extend this discussion further.

    Collective human experience has shown over millennia that the more complex the system, the more difficult it is to understand the relationships and their behaviors.  Therefore, as system density increases, it acquires greater variety, that is systemic behavior becomes more uncertain.[i]

    In 1952, W. Ross Ashby first described requisite variety.  This axiom states that, “R’s capacity as a regulator cannot exceed R’s capacity as a channel of communication.”  In other words, ex(T)ernal (D)isturbances to the system that go unregulated may drive system (E)ssential variables outside appropriate limits.  Communications between these variables are represented in the arrows (→) in the graphic. [ii]

    In non-technical terms, “the variety in the control system must be equal to or larger than the variety of the perturbations in order to achieve control.”[iii]  Similar to Game Theory, a table of possible outcomes or payoff matrix can be either Good or Bad.[iv]

    It is not our intention to drift too far into Behavior Economics or Cybernetics (control and communications).  The point is that the complex human and machine systems that govern high tech field operations cannot be properly controlled if we do not understand them and have the appropriate level of control systems in place—“it is necessary to have such a number of actions that is equal to the number of system’s states.”[v]

    Operations Management Systems (OMS) should consider this established principle to assure appropriate system controls are in place and functioning properly.  This is the essence of Strong Bond Governance model put forth for managing critical infrastructure such as energy operations.[vi]

    Does your organization’s system regulation have requisite variety?

    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://stpk.cs.rtu.lv/sites/all/files/stpk/lecture6_2010.pdf
    [ii] http://www.panarchy.org/ashby/variety.1956.html
    [iii] http://www.wyrdology.com/mind/creativity/variety.html
    [iv] http://pcp.vub.ac.be/Books/AshbyReqVar.pdf
    [v] http://stpk.cs.rtu.lv/sites/all/files/stpk/lecture6_2010.pdf
    [vi] Holland, Winford “Dutch” E. and Shemwell, Scott M. (2014). Implementing a Culture of Safety: A Roadmap to Performance-Based Compliance. New York: Xlibris.

     

     

    Becoming a Part of Speech—Pluses & Minus

    November 25, 2014 10:12 AM by Dr. Scott M. Shemwell

    Volume 3 Number 22

    Conventional marketing wisdom suggests that becoming a verb can be a very good thing.  “Google it,” is an oft repeated statement when searching for information on almost any subject.  Becoming a household name is generally viewed as a good thing.  However, becoming a generic term may “mean losing the legal power of a trademark.”[i]

    It can be argued that the power of the verb is greater than the marketing power of a trademark.  The market dominance of a genericised trademark such as Xerox as the decade’s long term for photo copying probably sold more copy machines than strict trademark legal defense ever would.[ii]

    As a general rule, this author believes that when the company or a product becomes part of the vernacular the benefits outweigh the drawbacks.  Aggressive trademark defense may actually detract from the brand in this case.

    However, there is a dark side.  The World War II Norwegian politician who collaborated with the Nazis, Vidkum Quisling became a part of speech.  Quisling, the noun is now often used to describe someone as a traitor or collaborator.  The verb form of the word is to quisle.[iii]

    Most recently, an American economist has joined the club or rogues.[iv]  Following the release of several videos, it did not take long for the slang to begin.  More than just an attempt at humor, his revelations cast serious doubt on major political figures and their motives.  Like all political red meat, expect more to come.

    According to the news, he is losing major contacts and it is likely that his reputation and ability to obtain future consulting are probably compromised.  Moreover, as with the positive power of “Google it,” “Grubered” will probably stick with less desire effects for this professor.[v]

    The genericisation of a product or brand can have sustained benefits even when society in general grammatically tramples intellectual property.  The opposite sustains and often ridicules individuals and brands.  Mr. Quisling has been dead since 1945, and many using the term in contemporary times may not even know that the word quisling is an individual’s family name.

    How does your company protect its Brand?


    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://www.fastcompany.com/3004901/google-what-it-means-when-brand-becomes-verb
    [ii] http://en.wikipedia.org/wiki/Generic_trademark
    [iii] http://en.wikipedia.org/wiki/Quisling
    [iv] http://www.politico.com/story/2014/11/obamacare-jonathan-gruber-architect-112886.html
    [v] Ibid.

     

     

    Agile, Resilient, Sustainable Ecosystem

    November 7, 2014 9:53 AM by Dr. Scott M. Shemwell

    Volume 3 Number 21

    High Reliability Management (HRM) places a premium on resiliency, the ability to recover in times of adversity.  This can be a challenge for any individual organization; however, the upstream petroleum sector requires an extensive supply chain.  Resilience is by definition is exogenous in this and other critical sectors.

    Industry executives and regulatory agencies have understood this exposure.  They are explicitly demanding that contractors of all sizes meet new safety, environmental and performance metrics.  Moreover, both parties recognize that the Tier 2 and their contractors and suppliers may be the weakest link in the supply chain.

    The concept of a supply chain visualizes a linear and hierarchy model of the industrial age of the 19th century and earlier.  Raw materials are transported to factories and finished goods such as an automobile are the output into the marketing and sales cycle.

    Linear models such as Just-in-Time (JIT) manufacturing are still prevalent and have their strengths and weaknesses.[i]  In 2011, the Great Tohoku Earthquake and Tsunami severely affected the global automobile manufacturing sector.[ii]  The agility and resilience of that industry was tested on a global scale.

    All supplier Tiers were negatively impacted for weeks, especially for Japanese automobile manufacturers and their suppliers from the affected areas.  US based automakers were less affected initially, due to long logistics tail of products in route to the United States.  As after any major incident, that industry needed to make adjustments including expanding geographical diversity of key components.[iii]

    One could argue that this wake-up call extended JIT into a global ecosystem for the industry or more correctly, a set of ecosystems as each automobile manufacturer establish their own.  In this model, Tier 1, 2, and 3 suppliers may find themselves part of several ecosystems.  Moreover, governments are ecosystem partners with strong concerns about employment as well as tax revenue.

    The current upstream offshore wake-up call rang in 2010.[iv]  The response over the last four plus years has been expansive and global; however, there is still much to accomplish to create a Culture of Safety across the sector.

    This author has put forth the Relationships, Behaviors, and Conditions (RBC) model as one approach towards managing this change.  We have argued that this multi-dimensional methodology mitigates systemic risk, including from the supply chain.[v]

    Agility and resilience are behaviors.  One can also view sustainability as a situation or condition.  The resulting set of relationships is not just aligned with a Culture of Safety, it is engrained as the foundation of a high reliable and safe sector.

    Supply chains are no long linked sets of organizations and activities.  More properly, they have the traits of complex interrelated organisms confined by industry cosmos—an ecosystem.[vi]

    Multi-cultural, global, complex and interrelated, one organization cannot truly operate at a high level of reliability if one or more key members of their ecosystem are found wanting.  Operators now have a greater dependency on their ecosystems than ever before.  In other words, the focus on Tier 1 partners is no longer enough.  Unseen risks may lurk in Tier 2 and beyond.[vii]

    Be Afraid

    The oil industry is entering another part of its ongoing cycle as West Texas Intermediate (WTI) dips below $80/bbl.[viii]  As margins shrink pressure on operators as well as their supply chain increase—cost cutting has been the traditional industry response.

    CEOs throughout the ecosystem have a fiduciary responsibility to their shareholders.  They are charged with growing shareholder value and protecting that value during downturns by reducing the direct costs of operations.

    A reduction-in-force, deferred maintenance, consolidation and facility/fleet mothballing are common actions.  However, safety, environmental stewardship and performance are just as important and perhaps more so during economic downtimes.

    Fewer people with more to do places additional stress on personnel and their equipment.  By extension, facilities may suffer as well.  Such a scenario can make incidents more likely.
     

    How strong is your firm’s ecosystem?


    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of four books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/just-in-time.html
    [ii] http://fas.org/sgp/crs/misc/R41831.pdf
    [iii] Ibid.
    [iv] Shemwell, Scott M. and Dowlearn, Robert T. (2010, October). A Date Which Will Live… Oilfield Technology Magazine. pp. 16-20.
    [v] Ibid.
    [vi] http://www.merriam-webster.com/dictionary/ecosystem
    [vii] http://www.corporate-value.com/our-expertise/Transportation,-Defense,-%26-Security/risk-management-upstream-businesses
    [viii] http://www.bloomberg.com/energy/

     

     

    Veterans Administration

    October 20, 2014 10:29 AM by Dr. Scott M. Shemwell

    Volume 3 Number 20

    Recently, this author was in two taxicabs.  A young single mom, a recent US Army veteran who took me to the airport in the very early morning hours, drove the first one.  Raising a young boy and going to school, she was driving the taxi to help the owner due the volume of traffic from the Regatta of that weekend, according to her.  One surmises that the extra cash from the job may have been an economic driver as well.

    Upon arrival back in Houston, the cab back to the marina where my automobile was located was also driven by a veteran of a slightly earlier era.  This mid-career individual was very articulate and appeared very knowledgeable and even wise.  Extremely talkative, he raised and took defendable positions on several sensitive issues from society’s current dialogue—not the normal conversation one would expect to have with a cabbie.

    These two conversations early one Sunday morning were enlightening in many ways.  Both of these individuals were very personable, highly intelligent and by my brief observation hard working.  I can honestly say, I enjoyed their company and talking with them shortened my journey.

    However, several thoughts raced through my head as I exited the last taxi, paid the man and he shook my hand.  It appeared that he might be under-employed.  If that is the case, I asked myself why is it still so hard for veterans to find jobs.

    This point is not a new one and others have expresses similar concerns over the past few years.  Moreover, as a veteran myself it was initially difficult for me to navigate the corporate jungle.  To say that in my early twenties, just out of the Army with no corporate experience, I was clueless might be an understatement.  Fortunately, I managed to land an entry-level position with one of the two energy service companies where my direct military experience fit well.

    The energy sector is a logical next step in their careers for discharged military personnel of all ranks and Military Occupation Specialties (MOS).[i]  The first taxi cab driver had worked in military communications and the second in logistics.  These are two skills the industry desperately needs.

    The industry has an outreach program and many recent veterans are employed throughout it, both in the operator and services sectors.  Can we do more?  Always!

    Readers may draw the logical conclusion that the subject of this piece is to hire vets!  Evidence suggests that vets are highly prized talent and most add value to their employers and enjoy successful careers.

    However, there is another question.  Many vets, perhaps these two living in Texas and documented by my personal experience at the beginning of my career do not know how to find a civilian job.  They may not even understand the functions of an oil company, an energy services company or an engineering firm.  Nor what kinds of people they employ.

    Much has been written about the so-called Big Crew Change, labor shortages in certain states such as North Dakota as well as the apparently shrinking labor pool et al. and it will not be further addressed herein.  However, perhaps the industry can look in its own backyard and reach out to those vets who may not understand how corporations can use their service skill set.  This effort would be an extension to the current initiatives that are successful helping vets making the transition.

    Veterans whose “separation from active military service” may be a decade or more ago still can offer valuable knowledge and skills the industry needs.[ii]  Both kinds of resources are out there, I know I just met two in one morning.

    “Thank you for your service,” either begins or ends many conversations with veterans, especially on television shows.  Yet for many of these young (and even not so young) people, their service to their families and society is really just beginning.

    This blog and other written material and speeches by this author have addressed the continuous improvement of processes as well as use of good or even so-called “best practices” the industry undertakes in operations.  One of the key components of the recent SEMS regulations is personnel competency and proficiency.

    Perhaps Veteran’s hiring processes could be extended to those vets who may not have the luxury of understanding that their MOS has a direct linkage to the Knowledge, Skills, Abilities (KSA) needed now.  Not in the sense of direct mapping of skills from one job to another but as a function of technical knowledge, problem-solving skills, ability to learn, work ethic and maturity that vets bring.
     

    How does your organization administer its veteran’s affairs to take full advantage of these available resources?
     

    About the Author

    Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector.  He is the author of three books and has written extensively about the field of operations management.  Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling operations excellence and regulatory compliance management.  He has studied cultural interactions for more than 30 years--his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of social relationships.

    End Notes

    [i] http://usmilitary.about.com/od/enlistedjobs/tp/armyenlistedjobs.htm

    [ii] http://www.vetsfirst.org/military-separation-guide/

     

     

    Workflow Alignment

    October 6, 2014 10:41 AM by Dr. Scott M. Shemwell

    Volume 3 Number 19

    Dateline September 25, 2014, Dallas, Texas.  According to a recent media report, the information regarding the Ebola virus infected individual’s travel history to Liberia was initially disclosed to the nurse per the proper emergency room protocol.  Subsequently it appears that the attending physician was unaware of this key piece of information.[i]  In other words, the set of tasks required to properly diagnose and treat the patient was not properly completed.

    Apparently, this voluntarily provided information was not communicated to the physicians due to “a flaw in the hospital’s electronic health record (EHR) workflows.”[ii]  In other words, while it appears both nursing and physician protocols were followed by the individuals involved; the data integration between these knowledge workers had a gap.  Subsequently, the software was updated and this gap was closed.[iii]

    While we will never know how events in Dallas would have unfolded if the knowledge of the patient’s travel were available to the entire medical decision making process.  However, the trials that have transpired (to-date) are having broad and complex impacts globally.  The medical profession is widely acclaimed to have a strong Culture of Safety; however, the lapse in Dallas exposed system vulnerabilities.[iv]

    This problem was not the health care information technology (IT); its probable cause was a failure in the design of the patient care management system.  As such, it is a failure of high reliability management processes.  Or is it?

    High Reliability Management (HRM) has been discussed in these pages a number of times as well as our recent book, Implementing a Culture of Safety: A Roadmap to Performance-Based Compliance.[v]  HRM seeks to create a culture that is mindfulness that failures can take place, complex processes should not be simplified, operations is the focal point, resiliency or the ability to respond and recover is critical and organizations are flexible enough that individuals can take initiative.[vi]

    One of the most overused terms, A Crisis in Confidence is unfolding in Dallas as of this writing.  This concern is broader than simply a failure of one hospital.  How the population perceives the result of the Public Health Care System response to this system failure will have a major impact on its credibility.[vii]

    While we do not know the end game of this problem, one suspects that the health care sector will exhibit the traits of HRM and cure the problem.  This is not to say that political pundits on both sides will not attempt to parley these fears for their benefit.  However, Public Health practitioners and management will most likely prevail over the current challenge.

    Does this seem similar to the deepwater offshore drilling industry, the nuclear industry, the space shuttle program and others?  Good practices and other organizational learning from one sector may have applicability in others.  Good systems management is the fundamental backbone of HRM regardless of the industry sector or life threatening event.

    Much has been written and discussed regarding the plentiful benefits of Big Data to organizations of all sizes.  Of