Operational Excellence in Oil and Gas Organizations
The recent study by McKinsey & Company highlights the importance of operating models in enhancing resilience and performance in the upstream oil and gas sector amidst the uncertainties of the energy transition. This report analyzes over 45 upstream business units operating over 180 distinct assets, comparing asset-centric and function-centric models.
Key Findings:
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Performance Comparison: Asset-centric models typically yield superior operational outcomes, characterized by higher production efficiency and lower operating costs. However, these models exhibit a wider range of outcomes compared to function-centric models.
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Trade-offs: While asset-centric models offer better average performance, function-centric models provide more consistent results, albeit with lower operational performance.
Features of Operational Excellence:
- Simplicity: High-performing assets often feature streamlined processes and reduced reporting lines, enhancing operational efficiency.
- Control: There is a strategic control over functional and technical support, with integrated teams embedded in the asset, empowering the frontline.
- Expertise: Staffing is tailored to meet the specific needs of each asset, ensuring the required expertise is embedded within the asset team.
- Efficiency: Workforces are optimized with clear visibility into corporate function costs, promoting efficiency.
- Accountability: Asset-centric leadership bears significant responsibility for performance outcomes, fostering transparency and direct accountability.
Function-Centric Models:
While potentially less variable, function-centric models can offer advantages such as a deep talent pool for tackling complex challenges and achieving consistent performance, which is beneficial for strategic objectives and investor confidence.
Strategic Recommendations:
To optimize performance, the report suggests adopting key principles from successful asset-centric models. This includes enhancing transparency, challenging costs and support levels, and streamlining organizational structures. By doing so, function-centric operators can leverage the benefits of both models, leading to improved performance and cost efficiency.
In conclusion, selecting the appropriate operating model is a critical factor in driving performance and cost efficiency in the oil and gas industry. The study suggests that asset-centric models may represent a promising path forward for many organizations seeking to enhance their operational resilience and effectiveness.
