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 reservoirs.....is 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 corruption....it'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.

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 easy....it'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 document....it'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.
 

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.
 

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 skill.  These 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.

Errors, Misjudgments, and Dishonesty-A Summary

I've stayed with this subject for almost two months.  Before moving on, I want to summarize the ground we've covered in these eleven entries.

Subject                                      Blog date

"Impact on those left behind"-  7/6
"Picking up the pieces"          -  7/10; 7/30
"Distinguishing among blameless error, blameful error, and dishonesty"-  7/17
"Human Frailty"                     - 7/19
"Creating a High Reliability Environment"- 7/23; 7/24; 7/26; 7/27
"Dishonesty:  Lessons from Locksmiths"- 8/7
"Black Swans-High Impact, Low Probability Events" - 8/27 

Errors, Misjudgments and Dishonesty- "We are all prisoners of our own experiences"

There is one more kind of error and misjudgment I want to cover before closing out this extended discussion of an important topic.  This last topic is what I'll refer to as "the Black Swan".  I take this type of misjudgment from Nassim Nicholas Taleb.  In his books "Fooled By Randomness" and "The Black Swan" Taleb deals with our overestimation of causality in general and specifically in our tendency to ignore the possibility of events for which there is no data to support that possibility.

In Taleb's words

 "What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable."

The metaphor is simple.  Up until the late 1600's all swans in the Western world were known to be white.  For hundreds of years, observations of generation after generation revealed no evidence of anything but white swans.  the conclusion then was that all swans are white and there can be no such thing as a black swan..  Then in 1697 Dutch explorer Willem de Vlamingh discovered Black Swans in Western Australia.

Another example comes from the book Isaac's Storm.  In this book author Eric Larson tells the story of the 1900 Galveston hurricane from the point of view of the National Weather Service forecaster Isaac Cline who was based in Galveston.(as an aside I find it highly ironic that the hurricane currently threatening the US Gulf coast is named "Isaac").  An important contributing factor to the lack of preparation for the 1900 storm was a belief among US weather forecasters that hurricanes could not enter the Gulf of Mexico.  Why did they believe this?  Because no hurricanes in the 19th century had entered the gulf; as they approached Florida they inevitably turned north up the US East Coast.  Although they didn't know exactly why this was so, all their available data suggested no hurricane could cross Florida or Cuba and enter the gulf .  The Cubans knew otherwise based on their own long history and tried to warn US authorities of the path of this storm.  A combination of arrogance and racism caused the US authorities to ignore their warnings.  Somewhere between 6,000 and 12,000 people(most likely 8,000) died as a result.

So what's a leader to do?  The top 10 leader behaviors I listed in the 27 July blog still hold.  To those ten I would add be especially cautious when you are most certain....slow down.  Challenge your own assumptions.  Ask the question, "What if we're wrong...then what?"

Last, recognize randomness rules our lives and we are often not in as much control as we think we are.  How you react to those unexpected events will often be the final measure of success.

 

Errors, Midjudgments and Dishonesty- "Lessons from Locksmiths"

"Locks don't protect you from thieves.  A professional thief can get in your house if they want to.  Locks only protect you from mostly honest people who might be tempted to try your door if it had no lock."  The locksmith Dan Ariely quotes in "The Honest Truth About Dishonesty" goes on to assert that "1% of people are always honest, 1% are always dishonest, and the rest are honest as long as the conditions are right".

This dark assessment is at the heart of Ariely's book about dishonesty.  His core theory, backed up by multiple experiments, is  that our behavior is driven by two opposing motivations. First we want to be viewed as honest , honorable people.  Second we  want to get as much as possible out of any situation, which often leads to cheating.  Along the way he addresses the Simple Model of Rational Crime(SMORC) which is simple weighing the benefit of the offense against the likelihood of getting caught and the penalty for getting caught.  All of his research and experiments lead to the conclusion that "cost benefit forces often do not drive dishonest behavior.  Longer prison sentences and more police don't necessarily lead to less crime."

He explores such varied settings as hourly billing by lawyers, writing time to projects in consultancies, golf, university honor codes, filing taxes, fishing, story-telling, creativity, and the effect of wearing counterfeit designer merchandise.   I found his section his section on conflicts of interest..."Blinded by Our Own Motivations"  particularly important and relevant in the business setting.

One important conclusion on the positive side is that when we are reminded of ethical standards we behave more honestly.  Those reminders are especially important when they are provided "close to the moment of temptation."

It is easy enough to say that a company's values...honesty, integrity and respect for people...it's business principles... and its code of conduct are important. The consequences for violations should be severe. It's also important to note that there are shades of grey below the level of egregious misconduct.  People need to make the right choices over and over in the face of ambiguity and mixed messages.  It reinforces the idea that ethics training needs to be frequent, customized to the circumstance and embedded in all formal leadership curricula.  Great leaders create an environment....and structure to provide "reminders" close to the moment of temptation where those right choices can be made.  Most importantly, great leaders model ethical behavior in all their decision making....they lead by example.