“Changes” the theme from ONS2014 was loud and clear,
But “Changes”, how and excactly what?
ONS 2014 is a few weeks away. This years’ theme, “Changes” was clear across speakers, conference tracks and all media fronts. Everyone, it seemed, agreed on the need for change.
But now, a few weeks later, where does the industry begin?
Finding growth or cutting costs?
“The cure for Apple is not cost-cutting.
The cure for Apple is to innovate its way out of its current predicament”
– Steve Jobs, 1999
The big question for any organization in the oil and gas industry; what’s our strategy moving forward? Should we be cutting costs; streamlining operations, making ourselves more efficient and show a stronger financial return in the short-term? Or should we be developing a more innovative organization, developing the people, culture, strategy and processes to truly stand out as a leading, innovative company?
The problem is, most executives in large companies today have the tools and training (and incentives) to cut costs. Yet, as Josh Linkner states; “I also realized how creatively bankrupt most companies are today. With a constant focus on cost cutting, efficiency gains, and top-down control, too many organizations have lost their mojo.”
Innovation: only getting harder
At ONS, “Innovation” was on everyone’s lips. Some of it marketing, much of it genuine. But what most people really talked about was usually “Technology innovation” or “Process innovation” – and then, even incremental in nature.
On our earlier work with Statoil, Aker Solutions, GDF Suez, Halliburton and other key industry players, we’ve identified an industry with a driving energy (!) around these two elements of innovation, “Tech” and “Processes”. While both are crucially important, these two areas are only two of the nine levels of innovation.
Using the Innovation Pyramid to understand innovation
The Nine levels of innovation
- Design & marketing innovation
The external facing design, marketing and communications. This is where most marketing, ad and design-studios have their expertise. While creative in nature, innovation at this first level rarely induce significant change on the organization as a whole.
- Product innovation
New or improved products. Much innovation here centers on incremental product extension.
- Service innovation
Developing new services is for many the “next big field of innovation”. Much research is currently going into service innovation development.
- Markets, customers and channels innovation
The go-to-market strategy offers chance for innovative thinking across markets, segments, customer profiling and of course channels. Today we’re seeing a significant growth in digital channels across established industries. Any retailer today needs to understand and innovate for a local-global, omnichannel world.
- Technology innovation
Developing and putting new technologies to use. The Norwegian oil & gas industry recently ranked #40 globally in putting new technology innovation to actual use, yet tech innovation still receives the largest focus of innovation.
- Process innovation
Changing how we work requires process innovation. Much of Statoil’s STEP program is focused on “simplifying the way we work”
7. Management innovation
Changing the way we build and lead organizations and networks requires management innovation. It is a little known and understood area of innovation, but rapidly gaining acceptance, through excellent work by Gary Hamel, Julian Birkinshaw and many others.
For the industry, Management innovation is a requirement for significant change, and something also Statoil addresses in its’s STEP presentation.
Business model innovation
Business model innovation allows us to change the revenue models, change the cost structure and eventually take a system-level perspective on all the aspects of your business model. Industries facing significant disruptions today, like media, newspapers, education and A multitude of business model perspectives exists, with Innosight, Girotra Business Models Inc and Strategyzer offering the most common ones. Today, most firms also understand the need for a portfolio of business models and the tools, like Three Levels of Business Models, to make this happen.
9. Industry innovation
Industry innovation is probably the least understood and by far the most challenging aspect of innovation. How do you get started on creating a new industry? On radically upsetting and changing the norms, mental models and dynamics of an established industry? Disruptive cases like Nokia and Kodak shows us how strong established industry norms can be, as most significant innovations come from outside the established industry.
Much of the talk at ONS, while only implicit in nature, implied significant innovation required at both a business model, management and industry level. As we know from working with the Innovation Pyramid across organizations and industries, these three levels of innovations are significantly more difficult to succeed in.
For the oil & gas industry, the key players are really leading a move to Management innovation, Business model innovation and significantly, industry innovation. The talk at ONS 2014, was mostly “Tech” and “Processes”. But from our point of view, the story emerging is much more on the more challenging levels of innovation. This is crucial, for the ability to succeed, requires far more work and far stronger innovation efforts to succeed at the lower three levels of the Innovation Pyramid.
To succeed, new tools, new thinking and new collaboration models, revenue models, cost-sharing models, industry incentives and industry dynamics will be required.
Recommended thinking ahead
For the industry, moving forward, a significant level of change is to be expected. This is also the core of our Executive education program, ‘’Strategic Innovation in the Global Oil & Gas industry”, run at BI – Norwegian Business School. In this program, we recommend the following four management books to best understand the forces of change, innovation and leadership.
The End of Competitive Advantage
Our #1 recommendation for strategy executives today.
Strategic Transformation: Changing While Winning
A fantastic piece of research on how to lead transformation while still running your old core business.
What Matters Now
On the challenges of leading in highly innovative and disrupted environments
Accelerate: Building Strategic Agility for a Faster-Moving World
Leading change – faster. The latest work by Change management expert John Kotter.
We feel strongly, the combined ideas in these four books, can help lay the foundation for change and build a roadmap for more innovation, faster change and better handling of multiple levels of the Innovation Pyramid going forward.
Because one thing is sure, looking back at ONS 2014, the industry will surely need it.
Early next month I will be speaking at a strategy and leadership session at Statoil. I’ll be sharing the stage with top Statoil executives presenting the next steps of the STEP program. I’ll be looking forward to learning more how Statoil will handle multiple levels of innovation here.