Turning a Challenge into an Opportunity
– An Example from the Oil & Gas sector
by Vera Adam, Senior Consultant, Kaizen Institute North America
The global COVID-19 pandemic certainly was one of the biggest challenges to the world economy in our generation, and most organizations worked on contingency plans and emergency responses. However, some industries have been facing difficult times even before this most recent crisis. For them, this pandemic could be a tipping point, for example the petroleum industry. Over the past years, the oil and gas sector has been under extreme pressure due to increased global competition, alternative energy solutions, and tumbling oil prices.
While this pandemic forced many organizations to do a great deal of firefighting in the short-term, for some organizations this has been a long-awaited chance to address problems and to fix processes that needed improvement before COVID-19 impacted the world. For these entities it has been a time of thinking and acting differently.
The starting point is to recognize the need
Masaaki Imai, the founder of Kaizen Institute, says “The starting point for improvement is to recognize the need.” In other words, the need to identify problems is a prerequisite for accepting change and making improvements. But seeing or finding problems requires the ability to observe. Imai’s advice to leaders is, therefore, “Be present with your co-workers and staff.” Being at Gemba (KAIZEN™ terminology for the frontline), as it provides opportunities to see, listen and learn about the struggles and bottlenecks in the process. These are symptoms of broken processes and are revealing the need for improvement.
Using the example of a large oil and gas company, this article deals with two results of broken processes that Kaizen Institute has seen in many organizations: (i) poor Lead Times, and (ii) silo mentality. Both have become more acute with increasing pressure on time and cost and have to be dealt with independently from the challenges the pandemic was posing.
Unpredictable, changing, and long Lead Times
Lead Time in the oil and gas sector (usually defined as the upstream process comprising of the time between development and first oil), is one of the critical factors for investment, cash flow, revenue and competitive advantage, especially when combined with the introduction of new technologies. By implementing integrated schedules through software solutions, the industry aims to reduce time losses between the activities of various departments. Nonetheless, schedules are still characterized by multiple changes and adjustments due to various factors that lead to long, unpredictable, and non-repeatable delivery times.
Roadblock silo mentality
The complexity of oil extraction processes necessitates the optimal coordination of internal and external suppliers, groups and departments, to achieve excellent results (including decreased time-to-market). Integrated scheduling is a common tool to ensure alignment. However, departments are traditionally only interested in achieving their departmental indicators, often not aligned with the overall objectives of the project. This “silo mentality” is a main cause of rework, over-processing and overproduction, contributing greatly to unacceptable overall Lead Time and cost escalation.
Value Stream Analysis as a revealing tool
The Kaizen Institute approach to organizations with the above-mentioned symptoms, usually starts by evaluating the overall Lead Time, identifying waste in the process, and defining the critical path through Value Stream Design (VSD). Defining the customer of the process helps to clearly distinguish value-added from non-value-added activities. Examining the entire value stream helps to identify duplicated steps, bottlenecks, loops, redundancies and contingencies. During the final stage of a full VSD, a future state design leads to a customer-oriented, waste-free and integrated value stream, resulting in an average of 40-60% Lead Time reduction linked to 25-40% cost savings.
At this point silo thinking starts to disappear since departments understand their role and contribution to the next department and the outcome of the overall process. With this new process-oriented mindset it is merely logical to establish integrated teams that are fully focused on the value stream, eliminating departmental fences and solidifying outcomes. Increased transparency through visual management and installing KPIs that align the success of the project to the company goals, is key to sustain the new way of thinking.
Dealing with the challenge
There are many ways to deal with problems and pressure. The shortest way could be to just give up.
Conventional, convenient habits might lead us to lay low, wait until the storm is over, minimize damage, and cross fingers that we will outlast the competitors. This strategy does not embrace an improvement mindset but poses numerous risks; especially when competitors turn the challenge into an opportunity!
Instead of hiding from the storm, a Continuous Improvement strategy uses strong winds to take-off, just like an airplane. After all, it is no secret that mankind has always grown most when being confronted with challenges and being forced to think creatively. Accepting the responsibility to deal with one’s own problems develops tenacious teams and capable individuals, even if the winds are still blowing strong.