Culture Eats Strategy for Breakfast!

How organizational culture can be the biggest risk to strategy implementation, and how to mitigate it.

Upstream companies are distressed to improve their net profit. They have each formulated an strategy, but how supportive are their culture to those strategies. Their bottom line next year will largely be determined by their current strategies and success of their current strategies is largely influenced by their current culture. They all seem to have a strategic plan, but do they also have a culture plan?

Deloitte calls culture an asset to the companies, and very unique to replicate. Booz and Co. suggest that capability-driven strategy has a better chance to succeed than opportunity-driven strategy. B&C argues that capabilities are hard-wired into organizations’ resources such as people, know-how, processes and of course culture, which in turn form systems to create differentiated value to customer/investors. Culture can be used as a checkpoint to assess several strategic options to increase chance of success of strategy implementation. Therefore, culture attributes should be considered in formulating new strategy in the first place.  

Peter Drucker believes that in a head-on collision, culture will win strategy.

Upstream industry put portfolio optimization on the first line of its strategy against the mountain of capital. Some indicated revisiting their geographical focus to avoid political risk (e.g. Statoil out of Iraq, Oxy out of Oman). Others decided focusing on certain plays (e.g. Anadarko on NAM unconventional plays). The act which was not highlighted in news but one could read between the lines (also through professional network) is that the major companies are busy with restructuring to improve team productivity , workforce effectiveness and organizational efficiency in project delivery as well as support functions.

While small-to-mid size E&P companies might have the advantage of entrepreneurial culture (inherited from their founders) and a lean organization, the majors might be at trouble turning the ship around in areas such as redundancies, decision process, cost conscientiousness, financial discipline, promoting self-initiations (versus following the process), and other cultural elements (and processes) that need to shift to improve the bottom line. Often restructurings are driven by external forces, and less of a time driven by strategy to develop cultural competitiveness i.e reactive than proactive. This time doesn’t seems to be different.

Historically, cost inefficiencies has never been a huge concern for majors until recently (running out of cheap oil). There is room for majors and independents to emphasize more on a Culture Plan.  Culture can provide resilience in tough times and proved to be more effective than strategy (Southwest employees purchased fuel for company in 1991 gas price spike). This is the time that majors need to work hard to regain investor’s trust by developing holistic strategies, or the portfolio rationalization that all jumped on will only be a band-aid.

 

More to read:

Growth Strategy and Company Behavior

Why Upstream Profit is Going South?

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