​Embarking on change in a heavy asset organization

Image: Joey Podlubny/JWN

Much has been said and written about improving the efficiency and return on capital for heavy asset industries, particularly oil, gas, chemicals, refining and utilities.

We continue to believe that most organizations can realize strategically significant improvements in margins and return on capital by changing how they work in key processes, including capital planning and execution, asset management, sales & operational planning and manufacturing.

Beyond these improvements, however, we believe there is yet another frontier—another dimension—that will allow organizations to be even more competitive and fully realize their potential.

In the book Reinventing Organizations (2016) Frederic Laloux provides a good survey of the evolution of organizations, culminating in the “Teal” organization which he posits is the next stage of organizational evolution.

According to Laloux, most major companies today are “Orange” organizations, in that they are based on principles of innovation, accountability and meritocracy.

The guiding metaphor for these Orange organizations is the organization as a machine. While this may be a highly productive organizational paradigm, in contrast the guiding metaphor for a Teal organization is a living organism. The three key principles for a Teal organization are:

  1. Self-management. There is no hierarchy but a series of self-managed teams with overlapping membership and integration of functions into the teams.
  2. Wholeness. Being authentic and vulnerable and open to constant learning; dealing with the whole person and getting the best of what people have to offer.
  3. Evolutionary purpose. A mindset of “sense and respond” rather than “plan and control”—constantly adapting.

Laloux provides specific examples of existing Teal organizations and how they are able to achieve better performance than companies with more traditional hierarchical or functional structures. The Teal concept is closely related to a concept of “Holacrasy” (book of the same name by Brian Robertson, 2015), which advocates self-management is the basis for the Zappos organizational design.

One only needs to Google “self-managed teams,” “Teal organizations” and “Holacracy” to find many detractors of these approaches and examples where organizations have struggled to implement them or manage their consequences.

In fact, what experience we do have with self-managed teams in a manufacturing environment has had some real challenges with lack of accountability and creative tension related to existing versus potential performance. Laloux himself cautions for a graduated approach to introducing Teal to an existing organization.

Nevertheless, we suggest that heavy asset companies are now at an inflection point where a new approach to organizing how they work is both a possibility and a necessity. The forces at play include:

  • Changing workforces with new, younger workers both more open to new ways of working (less of a mental model of “how we do things around here”) and different demands and expectations for work
  • Intensifying global competitiveness and need to improve or maintain margins while demonstrating a world-beating return on capital
  • Increasing complexity, in terms of products, supply chain and regulatory requirements

We suggest that these trends present an opportunity for companies to take a bolder and more revolutionary view of how they can transform their organizations to be more productive, competitive and provide enriching experiences for their people. This may not require wholesale adaptation of the Teal concept, but such a concept can provide a reference point to challenge existing paradigms of how companies organize themselves for success.

We believe that, if organizations are to become more like living organisms that are able to work collaboratively, connecting people with the purpose of the organization, and getting them to find satisfaction and meaning in the work that they do, is critical to enabling cultural change to unlock organizational potential.

In Primed to Perform (2016), Neel Doshi and Lindsay McGregor state simply, “To build a high-performing culture, you must first understand what drives peak performance in individuals. The answer sounds deceptively simple: why you work affects how well you work.”

If you are going to ask people to work in a very different way to achieve performance that today seems impossible, you need to get people to connect deeply to their motivations. Doshi and McGregor describe three crucial direct motives: Play (“the work itself is its own reward”), Purpose (“you value the outcome of the activity…you value its impact”) and Potential (“a second order outcome…aligns with your values or beliefs”).

These can be contrasted with indirect motives, emotional pressure, economic pressure and inertia, which are often the intended basis for motivation, but may actually detract from the three direct motives.

As speaker and author Thomas Crumb has said, “you don’t wash the rental car,” meaning that you take care of things that you have ownership of. So how do you create that sense of ownership and connection to the work?

People have to go through an experience where they choose that ownership for themselves and they need to be empowered to try new things and contribute to enterprise success. Enabling people to experiment and take joy from continuous improvement establishes a learning environment—which is very much a part of the “Wholeness” element of Teal organizations. As author Peter Senge said in his seminal work on systems thinking, The Fifth Discipline, “The only sustainable competitive advantage is an organization’s ability to learn faster than the competition.”

For example, if you are a chemical company with long-term global growth plans facing a near-term margin challenge due to slow global economic growth, new market capacity coming on line and ongoing competitive developments, you need to engage people in the story of safe, efficient operations that enables near-term competitiveness and long-term growth.

That’s a complex ask, so then how do you first engage people in why they should care about that—how can they connect to the firm’s objectives at a personal, emotional level, and then how do they contribute to optimizing performance across those three often seemingly conflicting goals?

There are some clear risks to embarking on these changes in a heavy asset industry and there are many specific regulatory requirements and process and personal safety risks that must be managed. This is not an idle undertaking. However, greater ownership can potentially lead to better safety outcomes.

There is also a real risk that companies will attempt to incorporate these concepts simply as a reorganization exercise. In our view, that most likely will not yield the best outcomes and in fact has the greatest chance of doing damage. From what we can tell in reviewing case histories of companies that have struggled with self-management, they failed to first get the basics right. There will be a tipping point when some bold organizational changes will be warranted—functional organizations will not necessarily dissolve themselves, but we would argue that comes at the end. We would instead suggest that companies start by setting a goal of a more open, self-managed, responsive organization, but then work on the things that will enable that, which are:

Vision and purpose: Connect people with the purpose of your organization so that they can find personal meaning in that purpose, and they lay out a vision of what you want to be known for 5 to 10 years from now and the story of getting there.

Process: Although it might appear to be a contrarian view, we believe that a more organic organizational approach actually requires clarification and simplification of work processes—how work gets done and who does what.

For example, if you are going to have self-managed production teams that take accountability for plant performance and integrate or cut across traditional functional roles of operations and maintenance, you actually need a very strong predictive maintenance and work execution process.

Process work can enable a new approach if it’s driven by business outcomes. Let’s not focus on functional improvement, but about improvement of business outcomes. Not better maintenance, but world-class reliability and unit cost.

Systems: Similarly, there is also a need for a robust management system—clarity of data to measure performance and how people review those data on what intervals. If you can be clear about what needs to be reviewed on what time horizon and how decisions fit together, you can start to be more fluid about how various roles fit in with that.

Leadership behaviours: There are likely to be some specific behaviours that enable a more self-managed organization, and behaviours that hinder it.

Explicitly identifying behaviours to reinforce and those to stop, and then agreeing formal and informal mechanisms to promote and provide feedback on desired behaviours can go a long way to enable the organization to become more sensing and self-managed.

Create meaning in the work: The work itself can be more meaningful if you can remove sources of frustration and create a sense of ownership and continuous improvement to enable people to find joy in doing what they do and improving upon it.

Ultimately the biggest challenge that companies face in thinking about how they evolve the heavy asset organization is learning the process for implementation—learning how to engage people in a vision and support them through a process of building new skills, working differently and shaping a new culture. It is this change aspect that is so often overlooked or taken for granted, but is ultimately the key to success.

The technology in heavy asset organizations may have evolved, but how we run them really hasn’t. Evolving the way we run heavy asset organizations is the next great opportunity.