Operational excellence is a global concept whose time has come despite a fairly rocky ride since it first made its debut in hazardous industries several years ago. Like many aspirational-sounding concepts, operational excellence has been dismissed by some as yet another management theory with little practical application in the real world. Or perhaps it has suffered from being poorly understood or misinterpreted.
But all that is changing, and fast. A recent survey of oil, gas and petrochemical industry professionals conducted by Petrotechnics shows a growing consensus around operational excellence, what it means and the benefits it can bring to organizations in hazardous industries.
When it comes to defining operational excellence, participants in the survey were presented with the following description: “Operational excellence is the pursuit of world-class performance. It requires everyone from the boardroom to the front line to consistently make the most effective operational decisions based on an integrated view of operational reality [that takes into account] risk, cost and productivity.”
An overwhelming majority—98%—agreed with that statement. Inevitably, some caveats were made: Some people thought that “best possible” was preferable to “world-class,” while others suggested that statements about sustainability, value improvement or risk should be added. But a broad consensus was there.
That consensus continued when considering the value of operational excellence. More than 90% said that achieving operational excellence was important to the success of their business, and 82% said it was very important.
A slightly smaller majority, 80%, said that operational excellence had become more important over the past two years either to some or to all of the people in their organization. The view that operational excellence is simply a management trend that the industry does not take seriously was held by only 13%.
Understanding the benefits
Contained in the definition above are indicators of why organizations are taking operational excellence very seriously indeed: risk, cost and productivity. In its own recent examination of operational excellence, industry analysts at Ernst & Young (EY) suggested that by reducing the growth rate of a company’s compound annual cost expenditure rate, operational excellence could deliver staggering results. The analysts stated that achieving operational excellence could lead to a 29% increase in oil and gas production. It could reduce costs by up to 43% and deliver savings over five years of up to $30 billion. And it could reduce the number of safety incidents by 43%.
Bain and Co. came to very similar conclusions. It pointed out that companies achieving operational excellence would benefit from enhanced asset integrity and improved efficiency of maintenance execution as well as a 50% reduction in critical incidents.
Respondents to the Petrotechnics survey have taken these findings on board. Given a range of options, nearly two-thirds (63%) said the need to achieve greater cost efficiencies was a key driver for achieving operational excellence in their organization.
The same number said reducing operational and major accident hazard risk was a driver, while more than half (56%) said optimizing maintenance programs was a key driver.
The most frequently cited objectives for an organization’s operational excellence program were increasing operational performance; operations maintenance and reliability; and increasing HSE performance.
Making it real
In its earlier incarnations operational excellence struggled. The necessary tools were simply unavailable. But that too has changed. As EY pointed out, “With new technological advancements, we have the potential to improve business functions across the industry…technology has caught up with the industry’s needs.”
This was another area overwhelmingly supported by the Petrotechnics survey: 92% agreed that technology is an enabler for delivering sustainable operational excellence in hazardous industries.
The key word is enabler. As the initial definition recognizes, operational excellence is about everyone in an organization consistently making the most effective operational decisions. In other words, technology doesn’t replace skilled, knowledgeable or experienced people. It supports and enables them to make the best possible decisions based on all available evidence.
As industry professionals pointed out in the survey:
- “Technology delivers only part of the solution. People are still a very important aspect of day-to-day operations”;
- “Technology takes you some way along the journey, but fundamentally operations personnel knowledge and competency are key to sustainable operational excellence”; and
- “Technology is a tool. The strength of desire and depth of understanding of how to use it come first.”
This view also is reflected by the 56% of survey respondents who said a key driver of their operational excellence program was influencing cultural and behavioral change. More than one-third (35%) said providing operations personnel with better, real-time information was a key driver. And 31% of respondents pointed out that operational excellence was driven by everyone in the organization. This is, as the above definition explains, a “boardroom to front line” effort. It’s not just another program sponsored by the C-suite or handed off to a specific operational excellence function.
This is important, because until now one of the things that has prevented organizations from achieving operational excellence is the way information within an organization remains fractured and provides only a limited view on what is happening at any given point on an asset.
This is a diverse and complex industry. Most operators have managed intricacy by organizing themselves in a largely siloed fashion that has produced largely siloed decision-making. In many cases, these technology and information silos have actually impeded people from doing their best work. If everyone is to make more effective decisions, they need a fully integrated view of operational reality in real time.
Technology tools that effectively support operational excellence give everyone that all-important global view of their operations. Personnel can know what’s happening where and when and, equally, what’s driving risk. These tools can bridge the gap between planning, maintenance and operations functions and allow everyone across the entire enterprise to see and manage operational risk, productivity and cost in exactly the same way.
There is some urgency about the adoption of these kinds of tools because the amount of data that is available and will need to be parsed, shared and understood is growing rapidly. The Big Data phenomenon is here, as are the data capture, analysis and connectivity tools behind the Internet of Things.
Today 47% of survey respondents already are using data analytics to support operational excellence, and 31% are using predictive or prescriptive analytics. Onequarter are using 3-D visualizations, and 11% are using the Industrial Internet of Things technology. But twice that number plan to in the future. In fact, all of these technologies are higher up the list of solutions that organizations plan to use in the future than the more traditional systems like enterprise resource planning, asset performance management, enterprise asset management and maintenance management systems.
Scrapping the silos and connecting data gives everyone in the organization the information they need to make better, safer, smarter and more informed operational decisions. That is the long-promised tangible business advantage of operational excellence. It’s time to lower maintenance costs and increase production while reducing risk to people, plant and profit. Only then can companies gain more control over ever-growing costs.
Optimism for the dry gas sector is bubbling up like methane in a Pennsylvania spring.
Kicked out of the club in 2012, the Haynesville was resurrected beginning in 2017 to take on the mighty Marcellus in metrics, aided by a proximity-to-market kicker. Now, it’s taking on oil basins at the IRR weigh-in.
"We remain optimistic about the improving natural gas supply and demand outlook heading into 2021," Cabot Oil & Gas CEO Dan Dinges says.