Tuesday, 24 June 2014

KM in the Oil Sector

According to the Knoco 2014 Knowledge Management survey, the oil companies are second only to the legal firms in their KM experience, the average oil company having been doing KM for 8.7 years, compared to 9.5 for the average legal firm.

KM, in some shape or form, is pretty much ubiquitous in the oil sector, and is well embedded. SO what is it about this industry that suits KM so well? We will answer this question by looking at three factors;
  • What is the nature of the oil business that makes knowledge management (KM) so valuable?
  • How are the oil companies implementing KM in their business? 
  • What does KM do for the oil companies? 

What is it about the oil business that makes KM so valuable? 

Firstly the oil business is a global business, and the elements of the business tend to be the same wherever you go. So an oil platform on the Northwest shelf of Australia is not that different from an oil platform in the North Sea, and a refinery in Singapore is not that different from a refinery in Texas. The challenges that the businesses face are common challenges, and solutions (and knowledge) need to be shared and applied around the globe.

Secondly the oil business is a highly competitive business, and there is no true differentiation in product. The tank of petrol that you buy from Texaco is essentially no different from the tank of petrol that you buy from Esso; the companies are not competing on product quality. And they are not really competing on technology either. Drilling rigs are leased from contractors, refineries are much the same the world over, and so are gas stations. Instead the competition is all about the application of technology, and the use of knowledge.

Then there are the external factors. Compared to the glory days of the early 1980s, the oil price has been consistently low for the past 15 years, present price spike included. Oil companies are prisoners of the oil price, the price of their product is completely out of their control, and low prices have put a relentless pressure on costs and efficiency. The companies have had to adapt to survive. Waves of downsizing, development of flat organisations, and now the recent spate of mergers, have all combined to make knowledge management not just desirable, but essential for survival.

The relentless pressure will not go away, even with higher oil prices; it will just change its nature, and the nature of the pressure in future is likely to be environmental, i.e. less polluting, and more emphasis on renewable energy.  As people become more aware of issues like global warming, the oil companies are going to come under a lot of scrutiny. They may well find in ten years time that they have the same sort of undesirable public image that the tobacco industry has now. The world is changing, and the oil companies will need to keep learning faster than this speed of change.

Investment in the oil sector is massive -- a single exploration well could cost $2100 million to drill, a large oil platform or pipeline could cost billions of dollars. Oil exploration and development costs a lot of money, which cannot be paid back until the time the oil starts to flow ashore. Money and time are measured carefully, and the impact of knowledge - either the lack of knowledge or the access to knowledge - is obvious and easily quantifiable.

Knowledge therefore is a key resource in Oil and Gas, and they are very well aware of this.

How are the oil companies implementing KM in their business? 

The Knoco survey shows that the Oil and gas companies have four mainstays to their Knowledge Management programs - Communities of Practice, Lesson Learning, Best Practices, and access to data and Information.

Communities of Practice are set up to share knowledge between practitioners around the globe. These are very popular and very effective in the exploration end of the business, in knowledge-intensive areas such as drilling, geology and geophysics. The success of CoPs in ConocoPhillips, Shell, Schlumberger, Halliburton and other organisations are well documented.

The Oil companies are well advanced in lesson-learning as well, with Learning from Experience embedded into the process of most major projects. Lessons are routinely identified, documented, routed to people who need to deal with them, and embedded into process and practice. Lessons management is often coordinated through an effective Lessons Management System.

Best practice-sharing systems are in place in many, if not most, oil companies. Chevron is widely recognised for its knowledge management achievements in the area of best practice sharing. As Ken Derr, the chairman and CEO of Chevron said, "every day that a better idea goes unused is a lost opportunity. We have to share more, and we have to share faster".  Shell Oil purchased Ford Motor Company's Best Practice Replications System (BPRE) and are adapting it for processes aligned with the development of new oil and gas finds. Their system, called Pearls, allows teams to identify and track best practices through select groups in the company.

The Connection approach to KM (connecting people through communities, aided by a Yellow Pages knowledge index) is paralleled by the Collection approach, where knowledge is collected and shared. Intranet portals can be valuable tools here. Schlumberger has implemented a portal strategy embodied in their InTouch service on the company Intranet. They use this system both as a virtual workspace for participating teams, as well as a discussion and document forum for their communities of practice. All Oil and Gas companies deal with huge volumes of data and information, and effective management and retrieval of Information is the fourth component for KM programs.

 What does KM do for the oil companies? 

 The major benefit that knowledge management has given oil companies is "protecting the base", which is oil company jargon for maintaining and improving the core business; increasing both process efficiency and operational effectiveness. The benefit comes through reducing capital and operating costs, increasing utilisation and up time, and conducting projects more efficiently. Knowledge is captured and shared about topics such as increasing success in finding oil fields, reducing maintenance down-time in oil refineries, and increasing the speed of build of gas stations.

There is also a massive focus on safety and environmental issues in the oil companies. Fiding and producing Oil and Gas is not only expensive, it is very difficult and extremely hazardous. Serious accidents are rare, but as the BP Macondo well showed, they can be highly visible, highly political, and extremely damaging.  No oil company wants to have accidents like this, and Knowledge Management plays its part in keeping these to a minimum.

Finally as environmental concerns deepen and global warming is becoming accepted as an emerging imperative not just for energy, but also for our planet, many oil and gas companies recognise that they will need to migrate to new offerings such as solar power, alternative fuels, or carbon sequestration.New knowledge will be needed, and the companies will have to learn not just how to protect the base, but how to ensure the future.

Knowledge management is a key lever for today's oil companies, it will be a vital component of their survival in the future.

What does this mean for you?

The oil business was the perfect learning-ground for knowledge management, and industries such as yours are now in an ideal situation to re-use this learning. The oil and gas companies were pioneers in the field, and have blazed a trail that others can follow. If you can learn from them -- if you can access some of the successful practices in their knowledge management programs -- then you can "hit the ground running" in delivering the value that lies in the knowledge of your company and your employees.


Vince Polley said...

Interesting post, and I agree that energy-sector companies are very good at KM. But, your lead-off about how long "legal firms" have been practicing KM doesn't tell the full story. In my experience, law firms are good at practicing DM, but not KM, and very, very few of them have any kind of appreciable, successful experience in true KM. Thoughts?

Nick Milton said...

Hi Vince

Legal firms claim they have been doing KM for a long time, according to the results of the Knoco KM survey.

However one of the founding decisions of the survey was not to impose an definition of KM - if people said they are doing KM, that was good enough for the survey.

However it was clear from the survey results (and already clear to experienced KM professionals) that Legal KM and Oil-firm KM are very different animals. The former is focused on documents, the latter on shared and captured experience.

Whether one of these is "True" KM or not is an arguable point, but comes down to semantics.

I think there is massive potential, and massive value, for legal firms to introduce the experiential learning side of KM. I also think that the Oil sector has got the document side pretty well covered in a fit for purpose way - they just don't refer to it under the KM umbrella.

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