The oil and gas company plans to become integrated, faster, flexible, and more responsive to face the transformation challenges. An agility-based organizational transformation would entail a fundamental cultural and business operations shift. However, the transformation could incur risk and instability in delivering safe, reliable, and compliant operations. This risk should be managed for the organization to continue performing while transforming.
The past and current agility transformation framework development were explored, and it was found that no specific research on the critical success factors of agile transformation adaptation in high hazardous industries mainly in oil and gas industry operations. Most of the agile transformation framework studies have been done in IT, software development, digital transformation, software design, and the internet of things. The methodology in the previous literature review showed that no research was using a system thinking approach to develop a transformation framework. This study aims to build a conceptual framework for agile transformation in the oil and gas industry operation using a system thinking approach supported by Mckinsey 7S framework. This conceptual framework will be applied in action research in oil and gas industry operations. The study objectives included:
- Exploring the literature review and previous studies on the agile transformation framework.
- Proposing pre-identification of critical success factors on agile characteristic adaptation in oil and gas company operation.
- Developing a conceptual framework for agile transformation in oil and gas industry operations.
- Developing critical considerations in the performance measurement framework in an agile oil and gas operation.
- Exploring the utilization of a system thinking approach using Soft System Dynamic Methodology (SSDM) supported with Mckinsey 7S model to develop the framework.
1.1 Agile organization
Over the last decade, agile has gained popularity as a new management approach to performance delivery. The term was coined in response to the observation that the business change rate quickly outpaced traditional manufacturing organizations' ability to adapt. Today's competition is defined by high-intensity rivalry in a volatile and uncertain environment. Successful organizations must respond to these changes quickly and effectively [1]. Organizations that fail to utilize opportunities and adapt to changing conditions may collapse [2].
Power et al. in reference [3], stated that the interest in agility is driven by the need for organizations to be more responsive to customer needs, changing competitive conditions, and rising environmental turbulence. Agile organizations thrive in unpredictably evolving environments due to their speed and adaptability. The paradigm primarily concerns enterprises' ability to adapt to unexpected changes, withstand unprecedented business threats, and seize arising opportunities [4]. Agility is defined by two components [5], [6] as follows:
- An ability to respond appropriately and timely to anticipated or unexpected changes.
- Capitalizing on and seizing opportunities presented by change.
Zhang and Shari [7] offered several core capabilities required of an agile company as follows:
1. Responsiveness is the ability to recognize and respond to change quickly, reactively, or proactively and recover from it. This ability is demonstrated by:
- Detecting, perceiving, and anticipating changes.
- Prompt reaction to changes.
- Adjusting to new circumstances.
2. Competency comprises abilities that provide productivity, efficiency, and effectiveness in achieving the company’s aims and goals.
3. Flexibility is the ability to carry out various work and achieve different objectives with the same facilities.
4. Speed is the ability to carry out tasks and operations in the shortest possible time.
Agile transformation is a cultural change of an organization to be more networked and flexible, delivering faster and highly responsive to change. The transformation entails aligning an organization's fundamentals [8]. The organization capability in agility will be used as an outcome of the model in the conceptual framework.
1.2 Transforming Functional Organization into Agile Organizational model
The oil and gas company has operated as a functional-based organizational structure in the past to ensure that employees and operating culture deliver value. However, the existing functional paradigm is insufficient to serve an agile organization model. Organization using the functional model is more inflexible, thinks in silos, makes slower decisions, and is less efficient [9].
The functional organization model has had several benefits when servicing a corporation to create a safe, reliable, and compliant organization in the last several decades. According to Usmani [10], the benefits of a functional organization model include:
- Employees are grouped based on their knowledge and talents, enhancing high performance.
- Their tasks and responsibilities are set in stone, making it simple to hold them accountable for their job.
- The hierarchy is well-defined and visible, reducing the number of communication channels.
- Work is not duplicated because each department has its responsibilities.
- Employees are on a clear route to advancement.
The functional organization model has been phased out, necessitating a new culture to match its unique goals and ambitions. The company desires a leaner, flatter, faster, more adaptable to change, efficient collaboration to serve customers better, and higher employee engagement. This implies the corporation needs an agile-based organizational culture to operate a new ambition and purpose [10], [11].
Aghina et al. [12] described several characteristics of an agile organization, as follows:
- The organization understands customers' needs and develops personalized solutions. This profitability is achieved by providing value to customers.
- Organized as a system of autonomous networked teams working toward a common goal.
- The team is driven by a mission, connecting employees to a company's vision and purpose.
- The team communicates openly and is not a structure defined by comprehensive policies and protocols for every contingency.
- Agile organization has short learning, product development, and decision cycles. They make small, targeted changes over time that provide incremental value.
- Agile organization strives to incorporate new technology into their operational processes and practices and introduce a new way of collaborating and managing projects.
The transformation should address the cultural gaps, the company's roots of strength, and aspirations to achieve its goals and ambitions.
1.3 Opportunities and challenges of agile transformation in oil and gas company operation
The oil and gas industry operation are high hazardous process; therefore, the governance system is very process. The empirical research showed many opportunities to transform the oil and gas operation from a function into an agile organization model. The opportunities include:
- The cross-discipline working in an agile environment accelerates decision and fluid governance process,
- The flexibility adds value to handling multiple upfront time horizon planning,
- The agile organization value customers satisfaction, diminishing silo mentality,
- Safety is paramount in the highly hazardous industry. The agile organization emphasizes transparency, ownership, and reduced handovers,
- Agile ways of working empower people to make decisions and be flexible on personal movement, enabling broader talent development.
With the above opportunities, however there are several risks and challenges in transforming the operation into agile. They include:
- Oil and gas are a hazardous industry that might increase risk due to high flexibility and faster decisions.
- The company follows procedures, plans, robust processes, and governance. Agility encourages response to change, creating instability and confusion on the front line.
- The company culture relies on processes and tools, while the agility organization values more individual interaction.
- The Minimum Viable Product (MVP) concept releases unready products, leading to confusion in implementation,
- A company operating in a hazardous industry emphasizes contract negotiation. This involves agreeing upfront rather than only deciding on the principle and collaborating during implementation.
The opportunities and challenges shall be addressed for the transformation to be successful. The framework should identify the critical success factors to be adapted in the transformation.
1.4 Performance measurement
Neely et al. [13] defined performance measurement as quantifying an action’s effectiveness and efficiency. The measurement should be designed to fulfil customer expectations. Efficiency also measures how business assets are used to provide customer satisfaction.
The Performance Measuring System (PMS) quantifies the effectiveness and efficiency of operations [14]. Wibisono [15] defined PMS as a collection of related measures described by rules and procedures for the group, compilation, presentation, and communication of data. When the measures are combined, they reflect a selected process's critical performance and characteristics, allowing for intelligent analysis and action.
Lockamy et al. in reference [16], stated that company must have comprehensive measures to track progress toward achieving objectives, improving core business processes, and aligning the company with market needs. Irfani [17] referred to Myer et al. (2000), stating that performance metrics represent the current state of affairs and help organizations establish performance goals. Furthermore, Gunasekaran [18] showed that measures and metrics are required to evaluate and reveal the viability of strategies to help establish a clear direction for improvement and achieve goals.
A sound performance management system enables businesses to create value through effective resource use [19]. The corporate could prioritize activities that drive value and identify issues that need further improvement [20].
Performance measurement is a critical reference to drive performance in agile transformation while delivering operational performance in the oil & gas industry. The performance measurement will use the balanced scorecard framework enriched with a system linkage model to enhance the visibility of variable intercorrelation.
1.5 System thinking to manage organizational change
Jay Forrester [21] stated that there is no universally accepted definition or application of systems thinking. Table 1 compares the definitions of systems thinking from various sources.
Table 1
System thinking definition.
Author
|
Whole rather than part
|
Dynamic behavior
|
System as the cause of behavior
|
Interconnection / interrelationship
|
Stock and flow relationship
|
Delays
|
Nonlinear relationship
|
Feedback loop
|
System structure generate behavior
|
Richmond (1994)
|
X
|
X
|
X
|
|
|
|
|
X
|
X
|
Senge (1990)
|
X
|
|
|
X
|
|
|
|
|
|
Rouse
|
X
|
|
|
X
|
|
|
|
|
|
Sweeney and Sterman (2000)
|
|
X
|
X
|
|
X
|
|
X
|
X
|
|
Hopper and Stave (2007)
|
X
|
X
|
X
|
X
|
X
|
|
|
X
|
X
|
Kopainsky, Alessi and Davidsen (2011)
|
|
|
|
|
|
|
X
|
X
|
|
Squire, Wade, Dominick & Gelosh (2011)
|
|
X
|
|
X
|
|
|
|
|
|
System thinking on the change process views the "whole" from multiple dimensions simultaneously. The strategic, cultural, structural, and behavioral change aspects are viewed through four distinct discourses, yielding insights that exceed the capabilities of one-dimensional models. Furthermore, a system thinking approach to change allows for a holistic perspective instead of the frequently overly reductionist methods [22].
A systems perspective on organizational change contributes to developing change models. Successful leaders use this perspective to view the business or organization as a complete system. This enables them to see the impact of small activities, interventions, or changes on a sector and the organization. The systematic method is founded on two guiding principles. First, no change occurs without impacting every component of the system to which it belongs. Second, any change to one component of a system affects every other component.
The change concepts could be classified logically as elements or subsystems of the systems model [23]. The systems perspective emphasizes the various components’ interdependence and interrelationships. Based on the interdependencies, the change's characteristics become clearer, facilitating understanding of the impact of one part on the others [24]. The system's properties appear as transcending the various components because they do not surface during a change process. Therefore the change management would be contextualized as a subsystem within a larger system [25].
1.6 Soft System Dynamic Methodology (SSDM)
SSDM evolved after an action study project in late 1992 at the Andean Institute of Systems – IAS (Lima, Peru) when Rodriguez-Ulloa & Paucar-Caceres [26] proposed a framework. The fundamental theory of the combining methodology observed that critical concepts from SSM essential for comprehending real-world situations were not explicitly considered in the formal system dynamics analysis. According to Rodriguez-Ulloa & Paucar-Caceres [26], combining the two approaches could create a synergistic intellectual tool for studying complex situations systemically.
This study employed the Soft System Dynamic Methodology (SSDM), which entails ten steps, beginning with problem exploration and world views, including root definition, system dynamics modeling, and implementation of feasible change in real life.
Throughout the 1990s, there was considerable debate about the appropriateness of employing combinations or segments of multiple methodologies when intervening in complex situations. Mingers & Brocklesby [27] and Paucar-Caceres [28] coined the term "multi-methodology" to refer to systemic practices that integrate and connect various methodologies or stages of two or more methodologies.
Mingers stated that the SSDM paradigm is a multi-paradigm or multi-methodology approach. The paradigm elucidates a methodological framework with ten steps that consider and use both sides' principles, concepts, philosophies, techniques, and technologies. Therefore, SSDM is a cognitive tool more than a synthesis of SD and SSM. It is a synergistic systemic framework that Rodriguez-Ulloa (2005) derived from combining these two methodologies.
Figure 1 shows the details of Soft System Dynamic Methodology (SSDM) as described by [26]:
From the Figure 1, this research will use Soft System Dynamic Methodology (SSDM) with supported by Mckinsey 7S framework to guide the action research to transform organization into agility. The action research uses collaborative approach to involve stakeholders on the change process.
1.7 Mckinsey 7S framework
McKinsey's 7S model comprises seven dimensions, including strategy, structure, system, staff, skill, style, and shared value. It provides a comprehensive approach to examining interdependent organizational subsystems. McKinsey's 7S model was used as a reference to guide the conversation and align the organization dimensions. This framework is an effective tool for assessing and analyzing organizational internal situation changes.
Mckinsey's 7S model was used as a reference to guide the discussion on exploring world views from related stakeholders. The framework was developed in the 1980s by two renowned business consultants, Tom Peter and Robert H. Waterman, with support from Richard Pascal and Anthony G. Athos. Subsequently, many studies have widely implemented the tool since its inception. It is an effective tool for assessing and analyzing changes in an organization's internal situation. Mckinsey's 7S model comprises seven critical elements that determine an organization's success. It is interdependent and aligned to achieve synergistic results. Therefore, the model is applicable in various situations where alignment is required [29].
The model's ultimate goal is to demonstrate how the seven internal elements could be aligned to achieve organizational efficiency. It is predicated on the premise that all seven elements are entwined. Therefore, any change to one element necessitates changes to the rest of the organization to operate successfully and effectively [30].
The Mckinsey 7S model has seven parameters as seen from Figure 2, that all parameter is interlink each other and will be addressed in the transformation process. The details seven parameters are described in Table 2.
Table 2
Definition of the elements of the McKinsey 7S model [31].
Dimension
|
Definition
|
Strategy
|
Action in company plan in response to changes in its external environment
|
Structure
|
The basis of specialization and coordination is influenced primarily by the organization's strategy, size, and diversity.
|
Systems
|
Formal and informal procedures that support the strategy and structure
|
Style/Culture
|
Consisting of two components as below:
Organization culture: the dominant values, beliefs, and norms which develop over time and become relatively enduring features of organizational life
Management style: more a matter of what managers do than what they say; how do company managers spend their time; what are they focusing on?
|
Staff
|
People/human resource management is used to develop managers, socialization processes, and ways of introducing young recruits to the company.
|
Skills
|
The distinctive competence in what the company does best
|
Shared values
|
Guiding concepts, fundamental ideas around which a business is built, must be simple, usually stated abstract level, and have great meaning inside the organization even though outsiders may not see or understand them.
|
Mckinsey 7S framework will support exploratory of the worldviews from stakeholders to express the current problematic situation to continue transform into agile organization. In SSDM methodology, this Mckinsey 7S will be used in step 2. The utilization of Mckinsey 7S framework is expected to guide the conversation and create alignment between element in organization.