Wednesday, September 26, 2012

Global Leadership-Safety

 Usually one deals with safety, security and the environment together.  However,  I think all three deserve separate treatment, especially in the blog format.  I'll start with safety.  Coll spends a lot of time in his book focusing on the CEO's and high profile public positions on the environment and the lingering effect of the Exxon Valdez disaster in Alaska.  By his focus on the CEO's and those high profile public positions, I think Coll really understates what it takes to operate safely every day.

Coll does accurately describe how central ExxonMobil's Operations Integrity Management System(OIMS) is to its effectiveness.  I've again attached a link to it.  Element 6-Operations and Maintenance, of this system gives you some idea of their approach.  Every day in an integrated oil company, there are thousands of people, often in remote places,  doing dangerous things.  It's a challenge to ensure "nobody gets hurt".   Every day there are staff operating huge, constantly moving equipment in Canadian oil sands, drilling wells in 5,000 feet of water in the Gulf of Mexico, people  operating in countries with hostile insurgents, those in refineries working with combustible chemicals under great heat and pressure, and thousands who move people to work by air and ground and products to terminals by sea.  Another set of complications are organizational structures that include joint ventures and multiple contractors from different companies working together.....many of whom may not share the same safety emphasis.  It takes incredible leadership emphasis to make sure "everyone comes home" at the end of the work day.  That emphasis has to be every day, by every leader at every level.  In the company I worked in that included every meeting, even in office environments starting with a safety hazards, evacuation routes, alarms.  Since slips,trips and falls are among the most common lost-time injuries, holding on to the handrail while ascending or descending steps is another emphasis...even in urban office environment.  It's leaders who make a difference in ensuring all staff understand there is no trade-off between delivering results and trumps everything else.  There's more to it than just emphasis on safety but there is a fair amount of research that shows a high correlation between well led organizations and safety.

For the leader of a global enterprise, activity or practice there must be absolute clarity... no ambiguity or mixed messages... about safety.  Since by their nature global leaders are separated by time and distance, that clarity helps guide the actions of staff and first line leaders who must take decisions in the moment.

Friday, September 21, 2012

Global Leadership- Anticipation and the Time Horizon

One of my top leadership insights has been that the leader's time horizon extends as they go up the organization.  I also mentioned in yesterday's blog that the ExxonMobil CEOS(Lee Raymond and Rex Tillerson) mentioned in Coll's book were required to have a time horizon measured in decades.  I want to spend a little more time with this subject today.

The best, data driven work I know of in this area was done by Dr Elliott Jaques.  I'll not try to summarize his entire impressive body of work but focus on the different levels in an organization and the time horizons required to effectively function at each level.  He defines several organizational levels he calls "Stratum" and the time horizon associated with each.  A high level overview looks something like this:

Stratum I- Operators, salesclerks; introduction of new tasks requires supervision
Time Horizon: One day to three months

Stratum II-First line supervisors; small business owners
Time Horizon:  Three months to one year

Stratum III-Department heads; workshop managers, multi-site franchise operators
Time Horizon: One to two years

Stratum IV-Leaders of leaders
Time Horizon: Two to five years

Stratum V: VP of large company
Time Horizon-Five to ten years

Stratum VI- CEO of 20,000 employees or EV of a larger company
Time horizon- Ten to Twenty years

Stratum VII- CEO of > 20,000 person company
Time Horizon- Twenty to fifty years

If this subject interests you, I suggest Jacques books The Requisite Organization and Executive Leadership.  There is much more detail there about organizational structure and leadership requirements than I can share in this blog.

I want to make two final points on this time horizon subject.  I know there are a number of younger leaders who read this blog....Stratum I-III in Jacques model.  My message to you all should be reassuring....if you are a first line supervisor it is just fine to have a time horizon of three months to one year; or as a department head or multi-site leader of one to two years...that's the way a well designed organization works.  You don't need to think about issues twenty to fifty years out like Lee Raymond and Rex Tillerson. Conversely, if you are a leader at level IV or above and your time horizon is less than two to five years you may be putting your organization at risk.  I've seen far too many leaders at Stratum IV and above whose time horizon has never extended past the one to two year mark. Sometimes they can't...Jaques describes this as a "cognitive complexity" problem.  There are other times when longer term planning gets either "pushed" up(the tyranny of the urgent) or "pulled up"(micro managed) the organizational structure.  No matter what the cause, the "failure to anticipate" leadership failure can often be attributed to a too-short leadership time horizon.


Thursday, September 20, 2012

Global Leadership-Growth and Strategic Choices II

To be clear, I never intended this blog or series of entries to be about creating business strategy. The McKinseys and other large consultancies of the world are far better at analyzing markets, benchmarking, competitive position, one's portfolio of products and services, cost structures for services and general administration(SG&A), economies of scale opportunities and so forth.  I'll leave that to them.

I did intend to highlight how the growth imperative drives and in some ways defines the range of strategic options for a leader.  In the oil and gas business, it takes you to places(Nigeria, Equatorial Guinea, Chad, Iraq, Venezuela, Indonesia) that present challenges...serious challenges... to leaders.

Another dynamic in the oil and gas business that is a particular challenge is the life cycle of investments.  Exploration and production investments often involve billions of dollars and the returns are measured by the decade, not by the quarter or the year.  This requires the leaders in this business to anticipate....peer into the future.... very far in advance...10, 20, 30 years.

Two very interesting things emerge from Coll's book about anticipation.  One is that when Lee Raymond asked for a review of how well their strategic planners had been at predicting the future, two things emerged. One is that they were very good....a variance of < 1% predicting long term demand. Conversely they were not good at all at predicting price...just too may variables in global politics to make this work....Hence their strategy hinges on demand forecasts with a range of plausible price points.  The second really interesting thing is how thoughtful and deliberate ExxonMobil has been at anticipating disruptive technologies.  They looked at solar, wind, biofuels and hydrogen.  They ultimately concluded that biofuels and hydrogen posed the greatest plausible disruption to the liquids side of the oil and gas business. When I think about one of the things I consider to be one of the top three leadership "failures"...failure to is clear they have processes and the intellectual curiosity to challenge their own mental models and "anticipate" well into the future.

Wednesday, September 19, 2012

Global Leadership-Growth and Strategic Choices

Today I want to touch on the growth imperative and strategic choices a leader has to take.  I think the most important of those choices is what is in the portfolio of products and services?  A large integrated oil and gas company like Exxon, Shell, BP, Chevron or Total has choices to make on what kind of portfolio mix they want among liquids(oil), gas, unconventionals like oil sands, and renewables(wind, solar,hydrogen, biofuels).  The term integrated refers to control of the entire value chain from finding oil and getting it out of the ground,, transporting it(pipelines, shipping), refining it, and marketing/selling it at retail outlets.  Transportation fuel is the second largest segment of the worldwide energy market(power generation is #1) and it is the fastest growing.  Since it is almost exclusively an oil product this drives the big oil companies to those places where oil is found....deepwater Gulf of Mexico, the Arctic, and to countries like Nigeria, Equatorial Guinea, Chad, Indonesia, Venezuela, Iraq and others.   As I mentioned yesterday, the portfolio you choose is a more important driver in the oil and gas business than in other business.  Other businesses like a Wal-Mart or Coca Cola would likely be more driven by expanding markets for existing products and services or developing new products and services.  The point is a leader must understand what the growth driver is for their business and what choices those drivers may dictate.

Another strategic choice that is driven by growth is the make/buy decision.  In Coll's Exxon book he outlines two different choices Exxon made in different circumstances.  Although there were clearly efficiencies to be gained in common functions and economies of scale, the driver of the merger with Mobil was access to Mobil's reserve bookings.   When it came to the XTO acquisition, they were buying two things really.  One was access to gas leases.  Referring back to portfolio choices ExxonMobil  chose to shift to a more gas heavy portfolio. Why did Exxon make this portfolio shift? Because power generation is the largest part of the world energy market and environmental concerns are driving increasing preference for the cleaner burning gas than coal.  There was also an issue of expertise.  Fracking shale to get 'tight gas" involves different skill sets and approach to drilling.  ExxonMobil decided it was faster and better to acquire a company with the expertise than to try to develop that expertise organically in-house.  A note of caution.  The buying of expertise can be tricky.  Small companies and start-ups often operate on a low salary, high equity compensation scheme.  It's sometimes hard to retain staff who you've just made rich by buying their company.  Coll explains exactly how Rex Tillerson insured retaining expertise in the XTO acquisition.

My last point on growth and strategic choices has to do with when to say no.  ExxonMobil ultimately landed on using the Voluntary principles on security and Human Rights regime, compliance with the US Foreign corrupt practices act and technology transfer prohibitions.  They also categorized different countries as democracies, autocracies or "transitional" governments as a way of guiding choices.  The fact that most growth opportunities in oil lie in "transitional" countries makes those choices more difficult.  Nevertheless, leaders have to sometime say "no" to business opportunities on the basis or more than pure commercial interests. 

Tuesday, September 18, 2012

Global Leadership-Sustaining Growth

In any public company there is an imperative to grow the business.  Shareholders expect a return on their investment and the path to return on the investment is through growth. In a traditional commercial enterprise there are really three paths to grow a business...expand sales of current products and services, mergers and acquisitions(buy growth) or develop new products or services.  In the oil and gas business growth has a slightly different twist to it.

Sustainability of the business isn't really driven by expanded sales or development of new products and services in oil and gas.  Sustainability is determined by a term called reserves replacement ratio.  Simply this is a measure of the amount of proven reserves added to an company's reserve base compared to the amount of oil and gas produced in that same year.  If a company ratio is less than 100%....if they consistently produce more than they discover or acquire....they will eventually be out of business.

Coll does a good job of describing how important the reserves replacement ratio is to ExxonMobil and the other oil and gas companies.  Adding to the reserve base has been an important driver of  mergers and acquisitions in oil and gas...Exxon's  merger with Mobil...BP's acquisition of Amoco...Total/Fina....Chevron/Texaco.  Coll also outlines how much of a driver it was in Exxon's acquisition of XTO's gas assets.  Why all the M&A activity?  Because organic growth...finding new more difficult technically and more difficult in terms of those who own the resource.  The technical challenge has to do with the geology of where the prospects are for new discoveries.....the deep waters of the Gulf of Mexico and elsewhere...wells in over 5,000 feet of water and then another 25,000 feet or more below the seabed...or the arctic with the challenges of ice, a short drilling season and contingency preparations...or in the oil sands of Alberta.  Another dimension has to do with the governments who are the "major resource holders".  Coll does a good job of outlining the challenges ExxonMobil faces in places like Chad, Equatorial Guinea, Nigeria, Venezuela, Indonesia and Iraq.  Its not that the major oil companies like to go to dangerous places and deal with non-democratic governments who don't treat their people well or have high levels of's where they have to go for new growth prospects and if already there, it's where they have to stay to keep the reserves on the books .

What are the leadership lessons here?  One is that leaders at the enterprise level have to understand  both short and long term growth drivers in their business and industry.  Not only does the enterprise level leader have to understand those drivers, he also needs to build a strategy that is sustainable ten to twenty years into the future.   Last, it's important to recognize the role that the growth strategy has in framing other strategic choices.  My blogs of 19/20 Sept show how that framing played out for ExxonMobil.

Monday, September 17, 2012

Global Leadership-Operational Excellence and Project Execution

As I mentioned last Friday, I intend to use Steve Coll's book on ExxonMobil as a vehicle to explore some dimensions of leadership.  Coll's book isn't about leadership per se, but does tell the story of ExxonMobil and in so doing I think some important leadership issues emerge.

Although one can tell from my bio that I worked for a competitor to ExxonMobil, I don't come to this subject with any real bias one way or the other.  I really don't know the company well...just know them as tough competitors. In the industry they had a reputation for excellence in project execution and an insular, not-very-transparent, somewhat rigid culture....points Coll makes very well.

At the very heart of what makes ExxonMobil work is their Operational Integrity Management System or OIMS.   You can read it in full at the attached link.

There are eleven elements to the OIMS.
1.  Management, Leadership and Accountability
2.  Risk assessment and management
3.  Facilities design and construction
4.  Information/documentation
5.  Personnel and Training
6.  Operations and Maintenance
7.  Management of change
8.  Third party services
9.  Incident investigation and analysis
10.  Community Awareness and Emergency preparedness
11.  Operations integrity Assessment and Improvement.

Each element has an underlying principle and a set of expectations.  In addition to the eleven elements there is a requirement for each operating unit to establish a management system(the required elements of the management system are also enumerated) to ensure all expectations are assessed and measured.

The entire OIMS is subject to periodic internal and external evaluation to include a scoring system.

As I mentioned in my 24 July blog entry a system like Exxon's OIMS is an important systemic barrier to errors and misjudgments.  It's also key to consistent execution and delivery of results.  Those who operate a global enterprise...particularly one with the technical challenges and inherent risks in the oil and gas business...  have to have something like the OIMS. There are a couple of comments to make from a leadership perspective.

First, creating such a framework in a company with over 100,000 employees and several hundred thousand other contract workers is no small task.  I don't know the history of OIMS in ExxonMobil.  I do know how hard it is to create a single, global standard that works in every business unit and every country.  Varying regulatory regimes and standards in different countries is one challenge to standardization. Increasingly global companies find themselves in joint ventures with multiple partners with divergent views on a standard.  Last but not least, it takes strong, confident leaders to overcome the "we're different... it's different here...those-in-Headquarters-don't-know-what-it's-like-down-here" resistance to change.  Creating a standard that is specific enough to be meaningful and flexible enough to work in all circumstances isn't's tough to find that balance and the difficulty cannot be overemphasized.

Second, you may wonder if such a system is so valuable, why a company like ExxonMobil, with their well earned reputation for secrecy,  would publish it in a public domain?  The answer is the value isn't in the's in the disciplined execution of the system the document describes.  I suspect they'd say, "We're happy to share it because we know we can execute it better than anyone else".  The competitive advantage is in disciplined execution and disciplined execution is a function of leadership.  Making sure the system is implemented and leaders at every level are held accountable is key to its effectiveness.

The bottom line is you have to be really good at whatever it is that you do, and you have to have a systemic approach to ensure you can do it every time, in every country, in every circumstance.

Friday, September 14, 2012

Leadership and the Global Enterprise

I recently finished reading Steve Coll's book Private Empire: ExxonMobil and American Power.  Although it's long(624 pages on my Kindle) and by its nature is focused on the oil and gas business(and a specific company)  it's loaded with some great leadership insights that are generalizable to a global business.  Although the book isn't a "leadership book" per se, I intend to take the next few blogs and explore the leadership issues it illuminates.

The leadership subjects I intent to tackle include:

Operational Excellence and Project Execution-The importance of being really good at what you do
Sustainability of the Business-The growth imperative
Strategic Choices- Make vs Buy; Balancing the Portfolio; When to say "no" to an opportunity; Anticipating Game-changers
Safety and the Environment-
Ability to Influence-Regulatory environment, Sanctity of Contracts, Defining those issues exclusively in the domain of sovereign governments and those shared with a corporation.

I don't intend to review the book, but use the content to explore the some of the challenges facing leaders of global enterprises.

Tuesday, September 4, 2012

Developing Leaders-The Importance of Practice

In this blog I want to discuss the role of practice in developing leadership skills.  Quoting from the Random House dictionary by "practice" I mean the "repeated performance or systematic exercise for the purpose of acaquiring skill or proficiency."

In the practice of leadership, leaders learn how to develop trust, build teams, set priorities, inspire confidence, engage with key stakeholders and allocate scarce resources. If you want to be good at leading, you have to lead and you have to lead often at increasing levels of responsibility and complexity to grow as a leader. Leaders learn by doing, getting feedback and improving their performance

In Malcolm Gladwell's book Outliers, he explores the idea that "excellence at a complex task requires a critical minimum level of practice." Studies over and again in a variety of fields pegs 10,000 hours of practice as the minimum level required for excellence.

Whether or not 10,000 hours is the right number or not is really not important to me.  What is important is the role of practice in developing skill.  I believe that applies to leadership as well.  For many years, in both the military and large civilian organizations the role of practice in developing leaders was well understood.  Young staff with potential were placed in leadership roles early and often.  Talent development systems and processes integrated progressively challenging leadership experiences with formal development programs.  In some ways these opportunities were "automatic".  By automatic I mean the talent development systems in organization steered individuals or cohorts of individuals through the system providing thsoe development opportunities at the right time.

A number of factors over the last 15 years have eroded both organizational ability to develop leaders through practice and an individual's  ability to develop their own skillThese opportunities aren't "automatic" anymore.  Organizational structures have flattened, been de-layered and spans of control have increased.    This means fewer opportunities for progressive development.  Increasing specialization and the requirement to develop deep technical expertise leaves less time to develop generalist skills.  Global organizational structures and virtual teams make it difficult to mentor and observe the leadership practices of others.  As a result many people might be individual contributors for their first 10 or 15 years in a company.  They only get that first formal leadership opportunity at that point.  I've seen a lot of leaders make "rookie mistakes" in significant roles simply because of the lack of practice.

So what's to be done? How do young leaders get the opportunities to practice?  Quite simply both organizations and individuals have to work harder to provide those opportunities...they aren't automatic anywhere, anymore. One strategy is to put them in charge of projects addressing key business challenges.  These projects need to have resources allocated, deliverables and deadlines.  Another is to assign them roles on standing committees.  At an individual level, someone seeking to develop as a leader might need to get those opportunities outside work; as volunteers in their community, helping local schools or other forms of community service.  I also think business leaders and senior HR staff need to challenge their own thinking on who is deemed "ready" for leadership roles.  If you ask any senior leader in any company what their most meaningful leadership experience was, they will almost always point to a time when they were figuratively "thrown into the deep end of the pool"...when they didn't already know everything they needed to know to get the job done...when they had to learn really fast and the possibility of failure was very real.  I'm not suggesting that its smart to routinely throw people in jobs for which they are totally unprepared.  I do propose that senior leaders could take more risk with young leadership talent.