Two global oil companies created a joint venture to manage $3 billion of mature oil fields that were declining in production. While each owner had a lot of pride and history, there were significant differences in strategy, culture, technology, and operating philosophies. To remain profitable and to meet their aggressive performance targets, the new organization had to get up and running quickly and be more efficient than either parent organization.
The joint venture was expected to deliver benefits calculated to exceed $300 million over twenty years. This included expected savings achieved by optimizing infrastructures, reducing overhead, and greater economies of scale. More than a third (35% or more than $100 million) of the savings were predicted to come from “creating a different, more independent company” with no specifics about how this would be achieved.
The leadership team concluded that a whole systems approach starting from a “clean sheet of paper” was the only way they could achieve these aggressive targets. The entire design process was one of high involvement, seeking the input and wisdom of those who do the work, and included:
- significant work by a leadership team with executives of each of the parent companies to determine strategic positioning and differentiation of the new company;
- key design decisions made by hundreds of employees on various teams working the design and start-up;
- testing these decisions with open forum focus groups to improve the design and create ownership;
- design sessions where two large groups (~500 person) of employees established company values and agreed to desired behaviors.
By focusing everyone on a newly defined strategic direction and common goal, the design process galvanized and energized employees as they looked forward to being part of something new. Clearly defined common goals, the new teams avoided turf wars that often accompany joint venture situations and can lead to sub-optimized designs.
Another unique aspect of the design process was an inclusive view towards external service providers. Agreements were made where service providers would share in the success of the company. A co-location of external and internal teams was established to make it easy to collaborate to create value together.
The design led to a company that outperformed against these aggressive targets:
- In the first three years, benefits exceeded projections by over $70 million.
- Output improved as the mature assets experienced lower than historical and projected declines based upon the focus on differentiation and core work. This was done with significantly reduced capital reinvestment rates.
- While some skill areas required additional staffing, others required less after the work process and seven-percent greater than required work force efficiencies were identified.
- Three to five levels of supervision between employees and the president were eliminated, and in many instances, spans of control more than doubled. This substantially increased levels of responsibility and delegations of authority for most employees.
- Based on external benchmarking data with other industry companies, the company achieved “best-in-class” unit cost in over 80% of its producing assets.
In terms of more intangible benefits, subsequent improvement opportunities were viewed through the lens of the focus on core work and optimized value-creating activities. The process used to get to the final design contributed to a unique culture that enhanced employee engagement and the skills and confidence of employees.
Even following the initial design work, cross-functional teams continued to be formed on a regular basis to address critical work issues.