Energy Strategy Reviews 3 (2014) 14e20

Contents lists available at ScienceDirect

Energy Strategy Reviews

CASE STUDY

Case study, dynamic capabilities and upstream strategy:

A R T I C L E I N F O A B S T R A C T

Article history: This case study explicates the dynamic capabilities framework and shows its relevance for the
Received 26 January 2014 Global Exploration Division of a major IOC, Supermajor EXP. Three characteristics of dynamic
Received in revised form
2 May 2014
capabilities are described: (1) how they differ from ordinary capabilities; (2) how they are
Accepted 22 May 2014 identified, built and strengthened through managerial processes; and (3) how they function
Available online 7 August 2014 throughout the strategy development and execution process (sensing, seizing and trans-
forming). Over a one-year period, EXP implemented key organizational and business model
Keywords: innovations to identify and begin to manage 10 dynamic capabilities. The case demonstrates
Dynamic capabilities how EXP identified and prioritized their dynamic capabilities through a strategic assessment,
Strategy process built, strengthened and evolved them through dialogical, collaborative and iterative pro-
Upstream strategy
Oil and gas exploration
cesses that were informed by learning, sustained them by establishing new organizational
Fracking structures, and reinforced them through cultural initiatives. Three of EXP’s dynamic capa-
Shale bilities are described in detail: (1) accuracy in volume and risk predictions in investment
Portfolio investment decisions proposals (the degree to which the subsurface reality is exposed when the well is drilled); (2)
Multinational Oil and gas companies strategic deployment of talent into the ventures and projects with the highest economic value
Centralizededecentralized
(right people, in the right seats, doing the right thing, with the right people, at the right time),
Transformational change
and (3) effective management of the centralizededecentralized polarity.
Ó 2014 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND li-
cense (http://creativecommons.org/licenses/by-nc-nd/3.0/).

1. Introduction advantage in rapidly changing and highly which requires a new approach to strategy
complex environments. management.
As defined by Teece et al. [1e4], a dynamic In Dynamic Capabilities in the Upstream Most treatments of dynamic capabilities in
capability is a meta-process that orchestrates Oil and Gas Sector [4], Shuen, Feiler and the strategy literature discuss dynamic capa-
a number of processes, best practices or Teece argue that dynamic capabilities are bilities in general terms, only a few are specific
competencies to manage comprehensively particularly important for the upstream oil about the role of dynamic capabilities in oil and
and systemically, something that is strategi- and gas business environment. Here, opera- gas, and none to our knowledge provide insight
cally imperative, including the strategy tional and general managers with key into how dynamic capabilities are actually
development and execution process itself. strategic decision-making responsibilities selected and developed by firms. This case
“Dynamic capability” is important concept in confront significant challenges that accel- study seeks to fill this gap by describing the
the strategy literature [3e7], as it describes erate velocity (particularly in Un- process by which Supermajor EXP identified
how leading firms integrate, build and recon- conventionals) and increase complexity. and developed the dynamic capabilities it
figure internal and external competencies These factors include the growing demand for considered essential for strategy execution.1
into “learned patterns of collective activity” energy resources, new technologies that have
[6] to gain and maintain competitive opened unconventional plays, increased 1
Supermajor EXP is in reality the Exploration Disci-
competition, shrinking global geoscience and pline within a large, vertically integrated international
engineering talent pools, and the reality and oil and gas company (IOC). In this case study, the iden-
* Corresponding author. Haas School, University of perception of environmental risks. Together tity of the company is disguised; however, the infor-
California at Berkeley, Berkeley, USA. these factors create an inflection point, mation provided here was reviewed by the company and
E-mail address: [email protected] (D. Teece). permission was granted for its use (January 3, 2014).

http://dx.doi.org/10.1016/j.esr.2014.05.003
2211-467X/Ó 2014 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/).
 P. Feiler, D. Teece / Energy Strategy Reviews 3 (2014) 14e20 15

2. Elements of the dynamic capabilities capabilities were identified and prioritized develop organizational and ecosystem readi-
framework through a strategic assessment, were built ness to capture the opportunity. Seizing de-
through dialogical, collaborative and itera- ploys a set of capabilities focused on
2.1. Dynamic capabilities differ from tive processes that were informed by capturing opportunity and mitigating risk. As
ordinary capabilities/best practices learning, were sustained through the estab- just mentioned, gap filling (strengthening
lishment of organizational structures and ordinary capabilities and establishing best
As a meta-process, a dynamic capability leadership that provided systematic oversight practices) can strengthen readiness. Capa-
differs from an ordinary capability. An ordi- and training, and were reinforced by execu- bilities around eliminating irrelevant pro-
nary capability, best practice or competence tive communications and culture. cesses or selling off non-strategic assets are
usually focuses on the performance of a spe- important. In oil and gas this means getting
cific delineated task [3,8,9]. A firm might 2.3. Dynamic capabilities support all control over organizational capabilities that
develop, for example, a best practice in phases of strategy development and are or might become bottlenecks [11]. Core
recruiting, to excel at hiring top talent. That execution seizing activities include developing the
ordinary capability alone will not usually business case, communicating it, aligning
create value; its power to contribute to value The Dynamic Capabilities Framework can stakeholders, raising capital, planning to
creation resides in the role it plays among a be used to organize strategic oversight execute the strategy and the implementation
managed cluster of activities (e.g., recruit- around three clusters of activity: sensing, of organizational or business model in-
ment, on-boarding learning, deployment, seizing and transforming [3]. These proceed novations, which provide structures for
management, leadership, culture). The in a sequential manner and are relevant for action.
effective orchestration of this cluster of ac- corporate strategy (portfolio strategy, M&A
tivities by managers with strategic and/or strategy, ecosystem combining/partnering 2.3.3. Transforming
operational oversight does create value when strategy), business strategy (whole or single Transformational capabilities are the
it results in getting the best people moti- business unit), functional or department routines designed to sustain strategic rele-
vated, putting them into the right seats, and strategy, or project strategy. vance in changing markets through contin-
ensuring that they are doing the right things, uous alignment and realignment of tangible
at the right time. This dynamic capability in- 2.3.1. Sensing and intangible assets. Teece [3] uses the term
volves a well-managed cluster of activities e Sensing involves gaining knowledge about “reconfiguration” to refer to adaptation and
what some call a “people strategy.” the external and internal environment and repurposing capabilities (sometimes achieved
In Oil and Gas Exploration, for another making decisions about strategic direction. through recombining existing resources) as
example, accurately predicting volume and Sensing’s scan is comprehensive e outside external or organizational realities change.
risk (the degree to which the subsurface re- and inside the organization [3]. Outside the Also essential in the transformation process
ality is exposed when the well is drilled) in organization, Sensing is an inherently entre- are the “words and deeds” of leaders that
investment proposals could be a dynamic preneurial set of dynamic capabilities that mobilize, motivate and inspire people to
capability built upon effective management involves gaining knowledge about competi- change [12].
that coordinates a cluster of ordinary com- tors, exploring technological opportunities, To summarize, “Dynamic Capabilities” are
petences and supportive skills, such as volu- probing markets, listening to customers or the orchestrated and managed clusters of
metrics and uncertainty analysis, seismic suppliers, distilling new product and service activity that empower and help guide de-
interpretation, sequence stratigraphy, build- opportunities (“ideation”), along with scan- cisions about direction (sensing), that pre-
ing structural depth models or property ning and exploring other elements of the pare, plan and align stakeholders,
models from well correlation data, managing business ecosystem (partners, joint ventures, engendering organizational readiness for
and processing subsurface data, and evalu- government regulators, etc.). It requires change (seizing), and that actually change
ating data to generate maps. Skills alone do management to build models and test sce- the organization so that it can capture op-
not usually create value; what does is a dy- narios, and in certain markets to ascertain portunities and create value through efforts
namic capability that involves the effective latent demand. Sensing benefits from the to mitigate risks (transformation). Given this
orchestration of a cluster of activities application of data analytics and from understanding, dynamic capabilities can be
directed toward achieving something that is experimentation. There is also a need for in- understood to empower strategy execution,2
strategically imperative. dividual insight, as Jack Welch observed, helping inform and make precise decisions
“leaders must develop a sixth sense, an abil- about what to do (direction and vision) and
2.2. Dynamic capabilities are identified, ity to see around corners” [10]. Sensing ca- increasing the organization’s readiness and
built and strengthened by managers who pabilities involve activities that create a ability to achieve it.
focus intentionally on strategic routines culture of open communication, and knowl-
that create value edge about the organization’s readiness to 3. Dynamic capabilities and upstream
capture value. This is particularly relevant for strategy: supermajor EXP
Dynamic capabilities do not just emerge oil and gas companies who, when making in-
and are more than something that firms do vestment decisions, must assess not only Though a dialogical and iterative process
well. Zollo and Winter [6] raise and answer which opportunities create the highest po- focused on building routines that create
the relevant question: “How do dynamic ca- tential value, but which ones are “doable” value, EXP managers identified 10 dynamic
pabilities come into existence and evolve given the resources at hand or easily pro- capabilities, which support both strategy
over time?” They argue that “dynamic capa- cured. In this sense, “gap filling” may not just development and execution. In this section
bilities have to be developed ‘in-house’ strengthen ordinary capabilities; the act of we describe EXP’s purpose for focusing on
through a set of activities and cognitive pro- doing it can be seen as a dynamic capability. dynamic capabilities, the dialogical and
cesses focused on the organization’s own
routines” (p. 11). Building on that idea, this 2.3.2. Seizing
case study demonstrates that for one organi- Seizing involves mobilizing and inspiring 2
Etymologically, the meaning of the word “dynamic”
zation, Supermajor EXP, relevant dynamic the organization and its complementors to includes both the concepts of change and power.
16 P. Feiler, D. Teece / Energy Strategy Reviews 3 (2014) 14e20

iterative process they used to identify and select area managers and team leaders were decisions are made, the Chief Global Geosci-
develop them, how they organized institu- conducted to deepen the analysis, to begin to entist presents the Capability Report that
tionally to manage and sustain/evolve them, identify strengths and remedial actions to represents the joint conclusions of the
and how leaders established “capability” as close ordinary capability gaps relevant for Capability Team about the “doability” of the
an ongoing cultural imperative. dynamic capabilities, and to begin to identify proposals.
After EXP developed its energy demand the clusters of activities that needed to be Over the course of a year, through a
scenarios out to 2050, it was quick to realize coordinated to improve performance and structured series of workshops and ongoing
that to meet its growth objectives, a strategic create value. leadership dialogue described above, the
focus on developing and managing both ordi- To develop and sustain their dynamic ca- following 10 dynamic capabilities evolved and
nary and dynamic capabilities was required. pabilities, EXP executives established a per- were prioritized by the Global Capability
EXP was careful about resource allocation: manent Global Capability Team led by the team; action plans were written and carried
each year regional managers submitted Chief Global Geoscientist. The team included out to strengthen these capabilities.
detailed proposals to the Global Exploration the leaders of nine global regions, the VP of
Leadership Team (GXLT) with respect to Global Exploration Strategy, the Global Man- 1. The provision of relevant and timely in-
which ventures to fund. Historically, the ager of Technological Innovation, the leaders formation about the current state of
criteria used by top management to select of functions that provide Capability (HR, organizational capability to leaders as
and prioritize ventures were purely eco- Learning and Development, Recruitment, they make strategic portfolio decisions.
nomic: that is, projects with the highest Managed Open Resources), technical subject 2. Accurate volume and risk predictions
economic value or highest potential economic matter experts, and ecosystem partners. (the degree to which the subsurface re-
value were the ones funded. This organizational innovation ensures ality is exposed when the well is drilled)
Recognizing a new upstream reality, and that an annual cycle of capability identifica- in investment proposals.
aware of the costs and risks associated with tion and strengthening is conducted and that 3. Strategic orchestration of human re-
some high-priority ventures (e.g., frontier strategic routines are reinforced. The cycle sources: to recruit, train and deploy
ventures, Unconventionals), EXP leaders includes four face-to-face workshops per year talent in a timely and efficient manner,
decided to include in the investment decision where the global team meets to assess the into the ventures and projects with the
process an analysis of all current and pro- current state of capability and discuss and highest economic value (right people, in
posed projects that focused on project define optimal ways to orchestrate or evolve the right seats, doing the right thing,
“doability,” that is, the strength and avail- capabilities. Both ordinary and dynamic ca- with the right people, at the right time).
ability of capability for venture execution. To pabilities are discussed, as gaps in ordinary 4. Effective management of non-technical
deliver venture objectives, leaders required a capabilities undermine the effectiveness of risks across the business ecosystem:
sufficient number of Geoscientists (capacity), dynamic capabilities. In addition, each year including the safe deployment of re-
with strong technical skills. These experts the Capability Team authors the annual sources into energy-rich geographies that
needed to be deployed strategically, to be Global Capability Improvement Strategic Plan are that politically unstable or environ-
armed with the latest technology and to be and develops action plans and teams to better mentally fragile.
managed and led in ways that increase manage dynamic capabilities, to close gaps 5. Rapid deployment of technical and pro-
morale and inspire a commitment to tech- and to focus management attention on major cess innovations into ventures with high
nical careers. dynamic capabilities that require ongoing economic value.
In the language of the Dynamic Capabil- oversight. Teams responsible for executing 6. Effective management of the central-
ities Framework, this decision established a action plans that support global and regional izededecentralized polarity; to entrust
sensing capability e a coordinated cluster of capability improvement meet on a bi-weekly managers in the ventures with manage-
activities that led to more complete execu- basis to review progress. Representatives of rial and operational decisions related to
tive knowledge about project “doability” the regions (Regional Chiefs) also write the specificities of the venture, while
(capacity to seize). This intelligence was then capability improvement plans that focus also protecting the need at the center of
included in the investment decision process. regional and area managers on capability the organization for communication,
The process used to identify and develop oversight. The Chiefs also participate in their cross-venture collaboration, HSSE, qual-
EXP’s dynamic capabilities began with a own weekly conference call, led by the Chief ity, efficiency and effectiveness.
strategic assessment. Led by the Chief Global Global Geoscientist, to share best practices 7. Restructuring of Global Exploration,
Geoscientist, a global capability assessment and collaborate on resolving capability issues. which created a separate division
(The Global Capability Health Check) was The establishment of the Capability Team focused on Unconventional ventures,
conducted in over 55 global ventures (the and its sub-groups represents a seizing capa- including new leadership and manage-
Gulf of Mexico is one venture). The capability bility, establishing an organizational entity, ment structures, with dedicated finan-
analysis evaluated 8 core technical capabil- roles and responsibilities to manage capa- cial, human and technological resources
ities (which joined over 50 ordinary compe- bility on an ongoing basis. The team make-up, and synergistic linkages back to Global
tences or skills), capacity (key positions inclusive of members at the center of the Exploration.
filled), deployment related to the priority of organization and in the regions, also estab- 8. Timely learning throughout the organi-
projects, leadership and managerial effec- lishes an organizational entity able to better zation, but particularly in Un-
tiveness, HSSE, the provision and manage- manage the centralizededecentralized conventionals; the development of cross-
ment of resources from the ecosystem, rapid polarity. border, cross-organizational and cross-
technology deployment, knowledge networks On a quarterly basis, the Chief Global generational knowledge networks.
and learning, partnerships (internal and Geoscientist develops and presents to the EVP 9. The orchestration of external and inter-
external) and other capabilities related to the of Global Exploration a capability scorecard nal partnerships required to complete
specific geology of the projects. consisting of 10 key capability measures. the work and create value.
After the “paper” assessment was Then at the summer meeting of the Global 10. The establishment of Capability as a
completed and analyzed, individual in- Exploration Leadership Team, when invest- strategic and cultural imperative
terviews with the leaders of 10 global regions, ment proposals are evaluated and portfolio throughout Exploration.
 P. Feiler, D. Teece / Energy Strategy Reviews 3 (2014) 14e20 17

Several factors sustained this effort An exploration well is a high-risk invest- strategic meta-process: a large cluster of
(transformation): the commitment of leaders ment. Poor predictions about well perfor- activities, technical competences, opera-
who supported the capability initiative mance can be costly. In 1982 BP spent about tional processes and best practices that
through regular communications and atten- $1.5 billion on its Mukluk well in the Beaufort combine to improve the accuracy of pre-
dance at capability meetings and events; Sea and came up empty. Costs for dry holes in dictions. EXP’s Global Capability Team
managers who reinforced with staff the other geographies are less, but still high. developed, introduced, implemented and
importance of developing capability and Typically, a shallow well in the North Sea reconfigured organizational and process in-
personally worked to improve the capability costs $10e30M (US); a deep water well, novations to manage the dynamic capability
of younger staff through cross-generational $100M; conventional onshore well, $1e3M. that serves this strategic imperative. Activ-
mentoring; an internal marketing campaign According to the US EIA [14], in 2010, within ities encompassed by this dynamic capability
that featured capability as one of the pillars the United States, 36,611 Exploration and include the following.
of EXP’s strategy, on EXPs website and Development Wells were drilled; 4162 wells
through posters placed in every work area; were dry holes. E&P companies pay a high
The development, implementation and
and accountability systems that included (1) price for poor science. institutionalization of information and
measures and reporting structures that iden- Shale gas has its own risks. Shale is one of knowledge-gathering processes and
tified priorities and ensured that deliverables several unconventional sources of natural assessment tools (Sensing) that regularly
were completed well and on time, and (2) gas; others include coal bed methane, tight inform leaders and strategic managers on
individual development plans (IDPs) that sandstones, and methane hydrates. Because the current state of technical capability,
raised awareness about the importance of usual exploration techniques do not apply to and increase the depth of knowledge
capability development and provided in- shale formations, shale gas areas are often used to inform decision-making. Knowl-
centives for improvement. referred to as resource plays [15], rather than edge gathered include: (1) the best
exploration plays. The geological risk of not practices of competitors and firms in
finding gas is low in resource plays, but the other industries (the external scan), and
4. Supermajor EXP’s dynamic capabilities
potential profits per successful well are usu- (2) levels of capability in every region,
ally uncertain. every venture, and every team, down to
While progress was made in strengthening
Unconventional predictions are compli- the individual (the internal scan).
all 10 dynamic capabilities listed above, in
cated by a number of factors. While the
The implementation of an organizational
year one, EXP prioritized three that were
geologist might be able to pinpoint the innovation: the global capability “team”
considered vital, given current gaps and
amount of gas in a shale formation, esti- (Seizing). Overall leadership re-
strategic imperatives. In this section, we
mating how much of it is recoverable is sponsibility for technical capability
describe the efforts of EXP leaders and man-
problematic. Current estimates are based on improvement was given to a global leader
agers to orchestrate and build these three
relatively small sample of actual wells. (EVP), with a direct-line reporting rela-
dynamic capabilities.
Moreover, while a “technically recoverable tionship to the CEO.
resource” is able to be recovered given cur-
A taxonomy of technical capabilities was
4.1. Dynamic capability: accurate volume rent technology, an “economically recover- developed (seizing) and orchestrated to
and risk predictions (the degree to which able resource” is what can be recovered provide more granular managerial over-
the subsurface reality is exposed when the given the economics of producing it (costs of sight, coordination and technical
well is drilled) in investment proposals production vs. price of gas). Therefore, very learning. Over 50 technical competences
often, a lot less of what is actually there can were organized under eight major cate-
The goal of exploration activities is to be recovered given technological and eco- gories. Subject matter experts were
accurately predict the presence of hydrocar- nomic limitations. In 2005, the EIA calculated assigned to manage them.
bons within a subsurface geological forma- that for the Marcellus Shale, more than
An annual capability improvement plan-
tion, the extent of these deposits (volume), 90,000 wells would have to be drilled to fully ning process was launched, which iden-
the amount of hydrocarbons recoverable tap this resource; but between 2005 and tified gaps in technical capabilities at
(probability), and the subsurface reality 2012, fewer than 4886 wells were drilled, global (across all regions) and local
(risk). Explorers conduct geological and due to a combination of technical and eco- (within regions) levels. Executives
seismic investigations; their findings are pre- nomic concerns [16]. Based on experience developed and implemented the global
sented in proposals that Exploration leaders with these wells, the estimates of the plan; regional leaders and their man-
use to make investment decisions about what “technically recoverable resources” at Mar- agers developed and implemented
wells to drill.3 Once exploration wells are cellus dropped from 410 tcf to 141 tcf regional plans. Major objectives of these
drilled and the size of the field is confirmed, (EIA) [16]. plans focused attention on people pro-
the project is sanctioned and the field can be As the complexity of making accurate cesses (recruitment and deployment),
developed. predictions related to volume and risks learning (aligning coaching, knowledge
deepens, so does the importance, given the networks and training opportunities with
need for increased production and the rising the strategic priorities of the ventures,
3
Going forward, the dynamic capability that brings costs of discovering oil and gas. For EXP’s e.g., Unconventionals), organizational
intelligence to improve the effectiveness of investment leadership team to create sustainable value, and process innovations that could
decisions will be improved through reference to the
crucial inputs into strategic decisions relied improve technical accuracy, HSSE, and
recent UN Framework Classification for Fossil Energy and
Mineral Reserves and Resources [13]. The UNFC’s unique
on the accuracy of the science and technical culture.
and very powerful property is that it distinguishes skills of the Explorer as reflected in the in-
Several structures and actions kept
project contingencies that are in the technical/geolog- vestment proposal, combined with costs of technical capability improvement high in
ical domain (finding the resourceand developing it) and production and the price of oil and gas. the conscience of all employees, thereby
the contingencies in the social and economic domain
Increasing the accuracy of volume and risk establishing technical capability
(finding market, getting satisfactory legal, regulatory,
fiscal and contractual frameworks, solving social and predictions and production forecasts requires improvement as a cultural imperative
non-asset HSSE issues. etc.) managers to orchestrate and manage a (transforming). Technical capability
18 P. Feiler, D. Teece / Energy Strategy Reviews 3 (2014) 14e20

wasregularly identified and discussed by and uninformed by data. We worked with one Supermajor EXP’s leadership team recog-
leaders as a strategic priority.4 E&P Company, where, once a key technical nized that as the need for increased produc-
position became vacant, it took on average tion rises, as the geology becomes more
over a year to fill it, either by transfer or by complex, as strong technical competencies
experienced hire. The recruitment of an are stretched, as competition for top talent
4.2. Dynamic capability: the ability to
orchestrate human resources: to recruit, experienced hire could not even begin until increases and as the autonomy of decentral-
internal prospects were identified and had a ized managers becomes crucial, the process
train and deploy talent, in a timely and
efficient manner, into the ventures and chance to apply, which often delayed the of deploying highly competent people into
start of the recruitment of experience hires the ventures with the highest economic value
projects with the highest economic value
(right people, in the right seats, doing the by 6e8 months. At any one time, over half the becomes a strategic imperative. They now
ventures in that company had vacancies in manage a dynamic capability to deploy the
right thing, with the right people, at the
right time) key technical positions, including the most strongest teams into the ventures where the
important ones, increasing their reliance on economic stakes are highest.
EXP’s leaders wanted their best talent contractors. Sometimes regional leaders are
understandably possessive of their top talent
Executive processes regularly assess the
working on the most difficult, time-sensitive
and valuable projects. Research confirms and strongly resist pressure to move them economic value or potential economic
into more profitable regions. value of the portfolio of ventures to
that the quantity and quality of work done by
top performers outpaces by a high percentage Other more systemic factors can prevent determine priority. Answers to the
that of average performers working on the the company’s top talent from moving into question, “What counts as evidence in
same job. In a recent study, which cuts across high potential ventures/projects. the calculation of economic value?”
industries and involved over 600,000 em- extend beyond pure financial analysis to
ployees, O’Boyle and Aguinis [17] found that
Sometimes at the top, leadership either matters related to the technical and
the top 5% of the workforce produced 26% of fails to prioritize the portfolio or fails to organizational capability of operations to
the firm’s total output, about 400% more than set up and manage processes that deliver the venture.
one would expect. Another study [18] found communicate the strategic priority of
Communication linkages and protocols
that not only do top performers excel at particular ventures/projects down the that align executive decisions about
technical mastery and analytical skills, but line to regional managers and those portfolio priorities and those responsible
they also possess a much higher percentage of responsible for deployment. Regional for staffing (recruiting and deployment)
other competencies that managers would managers do not know where their pro- were established and are managed to
want on their most important projects, jects stand in relation to others. ensure that clear instructions related to
including strategic and business acumen,
High-priority ventures are sometimes deployment of talent are received and
passion, commitment and loyalty, continuous understaffed because the best people executed in a timely manner.
learning, adaptability and flexibility [18]. are already busy on other high-priority
A process to develop capacity forecasts is
Moving people around in the Oil and Gas projects. There are not enough highly updated on a quarterly basis. The process
Industry, however, is not as easy as it used to competent experts to go around. is managed by the Global Capability
be.5 Today, strategic deployment of top
An increasing challenge for corporations Team to anticipate vacancies well in
talent is inhibited by several factors, located who require mobile talents surfaces with advance and is coordinated with succes-
both inside and outside the E&P companies. employees who are married or in part- sion planning and efficient deployment
As for internal barriers, in some E&P nerships and must manage dual careers. management.
companies, despite the disproportionate
Poor global IT infrastructure prevents
EXP managers continuously scan the
impact of high performers, some in HR are talented people from working or collab- business ecosystem for technical capa-
locked into practices that “treat people orating on high potential projects. With a bilities. At the core of managing this
equally.” Some of this is driven by “equal globally integrated IT infrastructure and (human resource based) dynamic capa-
opportunity regulations,” by organizational databases shared across borders, it is not bility is organizational agility in identi-
or cultural values, or, in some countries, by always necessary to deploy a talented fying, on-boarding and managing
strict privacy laws, which forbid unassured HR expert to a new location; rather that contractors, delegating through
databases and hide performance evaluations person can work on projects around the contractual relationships projects or
from managers. To ensure fairness, other world from her/his desktop (or from parts of projects to services companies,
considerations take precedence in recruit- home). In some global companies, how- and entering into joint ventures.
ment and deployment processes and make ever, cultures that emphasize decen-
The strategy, structure and operating
these processes complicated, cumbersome tralization have allowed each region to priorities of the Capability Providers
have its own infrastructure, software and (Recruitment, Contracting, Learning &
databases, militating against technical Development, and Deployment) are
4
Supermajor EXP also scheduled a global capability
collaboration across borders. focused on meeting the requirements of
day, where for four hours the entire global organization the ventures. Organizational structures
(regional groups linked by teleconference and blogs) External barriers to deployment of top that create dialogue and contexts for
joined in an exercise that identified gaps, focused talent into high-priority ventures or projects negotiation are vital. Compromises that
improvement efforts and elevated technical capability
include: (1) foreign government regulations make HR processes more efficient and
to the level of a strategic and cultural imperative. Data
gathered at that event informed managerial oversight of that prohibit or make difficult the employ- data-informed are being implemented
capability improvement initiatives for months. ment within their borders of experts from and managed.
5
Twenty-five years ago, the actual conversation be- particular countries or ethnic-religious back-
A Global IT infrastructure that reaches
tween a team leader and his (and it usually was “his”) grounds; and (2) political instability or with acceptable speed to the most
direct report is today a standard joke throughout the
geographic inaccessibility, which make remote locations in the world, and com-
industry, “Mark, we need you up in Alaska for a couple
of years. You can pick up your check in Fairbanks on certain assignments undesirable for experts mon software across regions enables
Friday.”. and their families. cross-border collaboration on technical
 P. Feiler, D. Teece / Energy Strategy Reviews 3 (2014) 14e20 19

innovations, the contributions of teams related to quality, profitability, safety, allows decentralized entities to respond and
worldwide to particularly important compliance, etc.) often seem to conflict with adapt to conditions as they arise.
projects, centralized quality control of the interests of the regions, where leaders The dynamic capability that effectively
top experts on well designs and increased and managers require flexibility and adapt- manages centralizededecentralized polarity
dialogue between the center of the or- ability to achieve efficiencies given the spe- depends on four enabling factors [21]: (1)
ganization and its parts. cific geological, economic, legal and political dedicated resources must be allocated and

EXP regional leaders developed and exigencies they confront on a daily basis. roles and responsibilities assigned to manage
implemented “informal markets,” Bringing the knowledge that resides in the the polarity; (2) the culture of the organiza-
where, in regularly scheduled meetings, regions, where the work is done, to the center tion must be adaptable; (3) decentralized
regional leaders or their delegates pro- of the organization, is crucial for making input into all strategic technological, organi-
pose trades, in a manner similar to the strong strategic decisions. Alternatively, zational, structural or business model in-
general managers of baseball teams. If a some strategic decision-making must be novations is essential; and (4) all innovations
particular region has an excess of volu- decentralized. Many organizations experi- originating at the central the organization,
metric experts, for example, but needs a ence these centralizededecentralized dif- must be open-ended (i.e., locally adaptable
stratigrapher, exchanges of talent can be ferences as “problems to solve.” We think by “end-users,” with features that can be
arranged. Such negotiations are con- that centralizededecentralized issues repre- customized for relevance and efficiency).
ducted with the knowledge and partici- sent a polarity that must be managed Essential here is the ability to link and
pation of HR. Like baseball players with dynamically, through strategic orchestration leverage local knowledge, strategic decisions
“no-trade” clauses in their contracts, of a number of activities. Johnson [20] de- and managerial processes that encourage and
experts are encouraged and incentivized scribes the polarity as a tension that is constrain the ability to adapt to relevance
to make the move, but are free to refuse. necessary for corporate systems to work processes that are standardized at the center
Rules for derogations from established efficiently. The conflicts between poles can [24].
processes when triage is required to never be solved, but must be well-managed This improvisational dynamic capability
address a crisis, or to address a priority, to keep the organization from experiencing was managed effectively by Supermajor EXP
can be established and managed by the downside of both: burdensome bureau- related to several projects that involved the
regional and national leaders and their cracy at the center and lack of accountability centralizededecentralized polarity. Early in
designees. away from the center. the process, the Global Capability Team

This dynamic capability also provides At MIT, Orlikowski and Hofman [21] conducted a workshop which determined the
oversight of the company’s legal and fi- developed a method for managing the cen- initiatives to be centralized and those that
duciary responsibility to provide for the tralizededecentralized polarity when orga- could be developed by the regions. For the
safety, security and health of all em- nizations implement major IT decentralized initiatives, primary objectives
ployees deployed into other countries transformations. The model has been tested were communicated and a set of guidelines
(expatriates), and particularly expatri- and shown to be effective in a wide range of and best practices shared, but the regions
ates working in hostile environments or industries [22], including oil and gas. The were free to develop and modify their pro-
politically unstable countries [19]. Add- model is based on jazz. Listen to a jazz combo cesses on an ongoing basis.
ing to managerial complexity are (1) the and you hear a lot of improvising. The clar-
long list of possible negative events to inet, trumpet, trombone, string bass and pi-
Supermajor EXP employed the improvi-
manage, including terrorism, lawless- ano players each take turns displaying their sational dynamic capability to achieve
ness, crime, political instability, natural virtuosity with improvisations that they often regional alignment with the basic explo-
disasters, infectious diseases, travel- create on the spot, based on their expertise ration process (ORP), an audited series of
related sickness, travel accidents, as professional musicians. It all sounds very steps that had to be completed by ex-
kidnapping and common travel problems decentralized. However, while the individual plorers from the beginning to the end of
(Claus [19] lists over 40 concerns); and soloists do not decide beforehand what notes the exploration process. In the past the
(2) the fact that multinational companies to play, they do operate as a unit based on process had been rigidly enforced,
must adhere to a myriad of laws, both common agreement. At the center of the creating inefficiencies since some of the
supranational and country-specific, group, they make prior agreements on what steps were irrelevant for some ventures.
related to the care of employees [19]. musical composition will form the basis for Application of the improvisational dy-
their performance, a common rhythmic namic capability created a derogation
structure, a common tempo, and a shared procedure, which allowed each regional
4.3. The ability of leaders to manage the understanding of the genre. Once the per- leader to bypass certain steps under
centralizededecentralized polarity; to formance begins, each player is free to certain conditions agreed upon at the
entrust managers in the ventures with explore and innovate, within the agreed upon center.
managerial and operational decisions “rules” previously established. This “man-
The improvisational approach was also
related to the specificities of the venture, agement” of centralized and decentralized used to manage central-
while also protecting the need at the interests creates great music! This concept is izededecentralized issues related to
center of the organization for not unrelated to the concept of “Virtuoso Team Leader (TL) development. The
communication, cross-venture Teams” [23]. process for developing the TLs is now left
collaboration, HSSE, quality, efficiency and Managing the polarity requires establish- up to regional leaders; due to the variety
effectiveness ing ground rules at the center, but anticipates of settings in which TLs work (deep wa-
a series of changes, unpredictable at the ter; onshore, Unconventional, etc.),
Management of the central- start, that evolve from practical experience different proficiencies are required. The
izededecentralized polarity is essential for with “local” realities. This model encourages center’s objective however is clear e all
effective strategic management of upstream leaders of multinational companies to start TLs must have a specific development
multinational E&P companies. Interests at with an objective at the center, not neces- plan that tracks progress, and ongoing
headquarters (policies and procedures sarily a plan, and based on that objective, mentoring must be provided. In addition,
20 P. Feiler, D. Teece / Energy Strategy Reviews 3 (2014) 14e20

the center sponsors and coordinates structures and leadership that provided sys- [8] N. Bloom, C. Genakos, R. Sadun, J. Van Reenen,
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