Building Corporate IQ - Moving the Energy Business from Smart to Genius: Executive Guide to Preventing Costly Crises

Building Corporate IQ: Moving the Energy Business from Smart to Genius

Ruud Weijermars

Building Corporate IQ: Moving the Energy Business from Smart to Genius Executive Guide to Preventing Costly Crises

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Dr. Ruud Weijermars Department of Geotechnology Delft University of Technology Stevinweg 1 2628CN Delft The Netherlands e-mail: [email protected] and Alboran Energy Strategy Consultants Molslaan 220 2611CZ Delft The Netherlands e-mail: [email protected]

ISBN 978-0-85729-678-8 DOI 10.1007/978-0-85729-679-5

e-ISBN 978-0-85729-679-5

Springer London Dordrecht Heidelberg New York British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library  Springer-Verlag London Limited 2011 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms of licenses issued by the Copyright Licensing Agency. Enquiries concerning reproduction outside those terms should be sent to the publishers. The use of registered names, trademarks, etc., in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant laws and regulations and therefore free for general use. The publisher makes no representation, express or implied, with regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any errors or omissions that may be made. Cover design: eStudio Calamar S.L. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)

The greater danger for most of us is not that our aim is too high, and we miss it, but that it is too low, and we reach it. Michelangelo

Endorsements by Reviewers of This Executive Guide

‘‘A concise primer for business leaders—as well as the asset managers that support them in building business value. My students will benefit from this resource.’’ Terry Daniel, Professor, School of Business, University of Alberta, Canada. ‘‘Typically, young Executives attend an MBA program to advance their abilities to see and contribute to setting direction for their enterprises. Building Corporate IQ is an approach with similar intent. MBA graduates and seasoned professionals will find this Executive Guide a powerful reference during their careers.’’ Ken Graham, former Head Global Leadership Development, Shell. ‘‘This Executive Guide is written in a lively and accessible form that should appeal to the target audience. The lucid synthesis of all these complex concepts is a truly remarkable achievement.’’ Jerry Brashear, Associate Director, George Mason University, USA. ‘‘The strength of this book is that it uniquely clarifies language and concepts. Each enterprise consultant, author, and academic plays the ‘unique label’ game, causing great confusion even among leaders in the same organization. This Executive Guide first selects the most valuable tools and then consistently uses plain language so that jargon is kept to a minimum, but value is retained. This work has great value, especially at the strategic and leadership levels.’’ Ken Graham, former Head Global Leadership Development, Shell. ‘‘Universities play a crucial role in asking the right questions for our society. We raise critical thinkers and invent practical solutions to build value for companies and society. Ruud Weijermars has developed a practical framework for monitoring Corporate IQ in your organization. His IQ tool is important for success in every organization.’’ Karel Luyben, Rector Magnificus, Delft University of Technology.

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Executive Summary

This Executive Guide helps business leaders and asset managers in their difficult task to create value. Every time a company stumbles, one may ask: could this have been prevented by early foresight? Were there developments inside the company or eminent changes in its business environment that predictably led to the failure of the company? Has the company failed to adapt to its changing business environment? The development of Organizational Intelligence to speed up the transformation of knowledge into business value is a central theme of this book. Improvement of business value hinges on the efficiency in utilizing the corporate resources for value adding, which requires a continual Corporate Learning process. Asset managers1 positioned at the intersection of operational and strategic management (Fig. ES-1) must catalyze innovation of technology solutions and workflow processes so that the work can be completed better and faster. Upper management, in turn, critically depends on the effectiveness of their asset managers to execute the corporate portfolio of projects using people, technology and process. The upper management and asset managers thus together have a joint task in executing the corporate strategy, which requires the right leadership and direction-setting skills. Asset managers typically possess the in-depth expertise of engineering professionals (product engineering and client satisfaction), which they must merge with MBA type skills (leadership, strategy, directing Organizational Learning) for near real-time business adjustments in a dynamic world that continually prompts for strategic adjustments. The adjustments directed and executed by them provide crucial input for the corporate decision-making and the associated Organizational Learning process. Asset managers also must continue to stimulate the goaloriented use of the complex knowledge processes that drive value in modern engineering operations.

1

Asset managers comprise a broad group of representative middle managers essential to make a company ‘tick’.

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Managerial Roles Level 5

Upper Management

Level 4

Strategy Management

Level 3

Asset Manager

Level 2

Operational Management

Level 1

Project Manager

Knowledge Exchange

Fig. ES-1 The asset manager must optimize the lifecycle planning of specific company assets and align these with the corporate strategy. The value-adding capacity in each asset-building project depends upon the effectiveness of the asset management and the integrity and quality of the decisionmaking process

Executive Summary

Fig. ES-2 Corporate knowledge is moved up the Organizational Learning Spiral ever faster, while critical decisions are made on business risks and opportunities. The workflow architecture helps to organize the decision-making process and to move the company from its present state to a future state, capturing all opportunities

Directing the operational planning, construction and maintenance of the business assets (operational focus) is not an easy task. Management must ensure all the time the alignment of these operational activities with the strategic directions of the upper management (strategy focus). Asset management, to be successful in realizing their operational targets and objectives into the desired strategic direction, must effectively manage business activities and decisions in the required direction using the following four main ingredients (Fig. ES-2):

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• People, who have the skills, competencies and passion to build the value-added product line using technology, processes and workflow. • Technology, which provides the state-of-the-art tools and innovative methods suitable for the specific branch of business. • Processes, which are naturally occurring or designed sequence of changes of properties or features of an object or system. In business, this may be a transformation of physical state, a chemical reaction or an assembly by humans and machines; it commonly involves capital, time and space. • Workflow, which is the organized sequence of actions that efficiently links people, technology and processes. Workflow includes critical decision gates that prompt for the compilation of new and old knowledge needed for making the right decisions at the right time—for adding optimum value to products, projects and the corporate portfolio. The challenges met in the effective integration of all of the above ingredients are illustrated in this Executive Guide using examples from the Oil & Gas business. Nowhere in our global business environment are the corporate values at stake as high as in the petroleum industry. Organizational Intelligence provides a framework for making the right decisions at the right time, integrating people, technology and processes. The concepts and case studies outlined here from the perspective of the hydrocarbon Energy business can be easily translated and applied to any type of professional organization. Whether operating in the Energy business or any other business, the overriding question remains: ‘‘Is your entity operating as an Intelligent Organization?’’ or formulated more applied: ‘‘Is your organization intelligent enough to beat the competition and meet your targets?’’ This Executive Guide provides insights, answers and remedial solutions for fixing Corporate IQ deficiencies. Organizations must use their integrated resources—their people, technology and processes—in an intelligent fashion to create primary business value. Primary business value means providing the right assessments and decisions to generate competitive returns on investment: the balance sheet is adding carrying capacity and net cash flow is positive and sustainable (i.e. can cover the capital expenditure required to generate future cash flows). A framework that allows the monitoring of the efficiency in the primary process of value creation is needed, in addition to abstract financial and operational KPIs. Such a framework must be able to encompass the entire business and product lifecycle of any organization or company. This Executive Guide highlights Organizational Intelligence as the natural framework for knowledge development and Organizational Learning that facilitate the growth of your business value. A practical assessment tool is provided to evaluate your organization’s effectiveness in creating primary business value, distinguishing the four Focus areas (Fig. ES-3). • Focus area I: Effectiveness in stimulating knowledge development—measured as an Experiential IQ component in Gate Stop 1. • Focus area II: Effectiveness in applying this knowledge goal-oriented, after framing the problem—measured as a Contextual IQ component in Gate Stop 2.

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Fig. ES-3 The business value loop is modeled here into four value-adding Focus areas: (1) Stimulating knowledge development, aggregation and exchange, (2) Goal-orientated application of acquired knowledge, (3) Building of tangible business assets in step with the changing business environment, and (4) Communicating the unique values and mission. The role of the asset manager in smaller organizations coincides with that of the learning manager. In larger corporations, roles may be split, but this requires seamless feedback between the learning and asset managers

• Focus area III: Effectiveness in building the assets—measured as a Componential IQ component in Gate Stop 3. • Focus area IV: Effectiveness in communicating why the organization excels— measured as an Emotional IQ component in Gate Stop 4. Questionnaires are included in this Executive Guide to measure the company’s scores for Experiential IQ, Contextual IQ, Componential IQ and Emotional IQ. The scores for each IQ component are compiled in so-called Gate Stops—given at the end of the corresponding group of chapters and the pertinent questionnaires. Remedial suggestions are also given in Gate Stops 1 to 4, for targeted interventions after the identification of the corporate strengths and weaknesses—or risks and opportunities. In essence, these IQ component scores can be used to support and direct the Corporate Learning process in your organization. Gate Stop 5 combines the IQ component scores and consolidates these into an overall Corporate IQ score. This Corporate IQ score is a KPI that needs to be high for your company to allow its growth and business survival. All other KPIs (financial and operational) will be affected by it. The generic framework, the IQ components and the overall Corporate IQ score—introduced in this Executive Guide—allow you to monitor the success of

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Corporate IQ

Value Adding Capacity

Skilful Application & Best Practice Practical Assessment & Feedback Basic Understanding Awareness Recognition

Frequency of IQ Scores

Genius Continual Advanced Innovation Experimentation

Time

Fig. ES-4 The Corporate IQ scale adopted here to measure Organizational Intelligence reflects the results of Organizational Learning. The median score for all companies is normalized at 100, in analogy to personal IQ tests. Acquisition of Corporate IQ over time passes through typical stages of enhanced knowledge and value-adding capacity. Numeric scores for Corporate IQ follow from periodical IQ assessments

Organizational Learning in your organization as it passes through the traditional (corporate) learning phases (Fig. ES-4): Awareness or Recognition, Basic Understanding, Practical Knowledge, Skilful Application, Advanced Experimentation and Genius level. Most companies that have performed successfully for several decades have done so on the basis of skilful implementation of their Organizational Learning and Knowledge Management strategies. The median Corporate IQs for their business environment may be equated to a numeric fair value of 100 (Fig. ES-4). Setting the mean for the Corporate IQ scale at 100 indicates that one half of the companies of the world have IQs larger than 100, while the other half possess IQs lower than 100. Applying the typical IQ bell curve approach (relying upon the central limit theorem and stochastic calibration of the Corporate IQ scales, see Appendix A for mathematical basis), only 25% of the world’s companies are likely to have Corporate IQs larger than 110. Companies with Corporate IQs rating 120 or higher are in the leading 10% of the smartest organizations. Once a company is getting smarter, even the tiniest incremental increase of the Corporate IQ results in becoming part of a progressively more select group of the smartest companies that lead the business. Organizations that rank as corporate winners and out-performers do so on the basis of a corporate brain that is well above median. If we equate Genius Corporate

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Corporate IQ

Value Adding Capacity

Skilful Application & Best Practice Practical Assessment & Feedback Basic Understanding Awareness Recognition

Frequency of IQ Scores

Genius Continual Advanced Innovation Experimentation

Time

Fig. ES-5 The Efficiency Gap in a company’s value-adding capacity occurs when the Corporate IQ is declining due to poor Organizational Learning. Decline in the Corporate IQ (Trend 1) that strays away from the preferred Corporate Learning path (Trend 2) results in the development of an Efficiency Gap, which means lagging business performance

IQ with a 140 score, winning companies should rate close to Genius within their specific business environment. Less than 0.5% of all companies possess an IQ ranging above 140, according to the bell curve of Fig. ES-4. Successful company leaders have been discovered to outperform their competitors by their ability to establish a climate for faster Organizational Learning. Fast deployment of new tools and skills is a key driver in their business performance. Without continuous Organizational Learning, the Corporate IQ will decline due to the development of an inefficiency gap in the learning process (Fig. ES-5). Such a decline in Corporate Intelligence is disruptive for the business, which must strive to steer toward new best practices and solutions—well ahead of the disruptive phase.

Reading Directions In order to guide the reading of this Executive Guide, bookmarked sections have been created as follows: Bookmark 1 Focus Area I: Stimulate Knowledge Development—Building Experiential (p. 1).

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Bookmark 2 Focus Area II: Knowledge Goal-Oriented—Building Contextual IQ (p. 69). Bookmark 3 Focus Area III: Build the Assets—Building Componential IQ (p. 125). Bookmark 4 Focus Area IV: Communicate Why Your Organization Excels— Building Emotional IQ (p. 181). Bookmark 5 Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ (p. 245). Bookmark 6 Appendices A to D (p. 265). The bookmarked sections, individual chapters and Gate Stops can be read and used randomly. The overview of reading progress can be kept using the bookmarks, together with the detailed Table of Contents, for navigation.

Preface: Market Drivers for Building Smart Companies

An Example from the Oil & Gas Business Oil & Gas companies have a growing interest in the building of intelligent assets— from the development of smart wells to smart field technology. They must develop their Corporate IQ to produce better and smarter assets in response to global competition. In other words, Oil & Gas companies themselves are now scrambling to become smarter for competitive advantage. So what does that mean—‘becoming smarter’? And how can you measure corporate smartness? Knowledge Management and Organizational Learning are theoretical management concepts which first received attention for driving competitive advantage at the end of the 20th century. Any branch of business became aware that it is relevant to learn from past mistakes and to embrace best practice. This included the mining of new knowledge at a speed that outpaces the changing business environment. Knowledge assets, knowledge creation, and knowledge exchanges came to the forefront as the company’s principal assets. In other words, intangibles in the form of competitive knowledge, in this view, are as valuable as, or even superior over, tangibles. The Oil & Gas business, often perceived as a conservative industry, traditionally thrives on the intrinsic value of fossil hydrocarbon fuels, as tangible assets. Or so it seems. In fact, in-depth knowledge has been traded long in the Oil & Gas business as a license for International Oil Companies (IOCs) to operate field development for National Oil Companies (NOCs). IOCs have the expertise to open up new Oil & Gas plays as well as the cash, while the NOCs hold the national rights to vast reserves. IOCs and NOCs—in exploration and production sharing agreements (PSAs)—have been jointly caring for our planet’s energy supply and demand schedules for over a century. But a silent revolution is now taking place. Since the turn of the Millennium, renewed leverage in negotiations on resource development has come to the forefront in the Energy business. NOCs such as Gazprom and others are renegotiating contracts for better PSAs with IOCs. Where IOCs in the past were counting on the profits from the PSAs to develop their business further, now they have to adapt to new realities. IOCs are dependent on

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access to new hydrocarbon reserves, and NOCs have such reserves in abundance. Still, the NOCs have as yet not the substantial foothold of the IOCs in the major consumer markets. Therefore, there are still great opportunities for IOCs and NOCs to work together: to ensure secure and impartial supply to energy markets (IOCs), to optimize the professional management of reserves (NOCs), to share unique expertise on demanding Oil & Gas plays, and to meet the global pressure to jointly understand our energy markets and climate dynamics. These indeed, it seems to me, are all great opportunities to work together. The result of this new relationship with the leverage and expectations of the NOCs higher than before is that developing unique knowledge as a competitive instrument enjoys renewed attention in the IOCs’ programs for future growth. Smart fields (Shell), I-fields (Chevron), Field of the Future (BP) are all trademarked concepts built around competitive knowledge of workflow processes and new technology tools. Peak oil discussions also bring knowledge of how the industry really wheels and reels into center stage focus. Does Oil & Gas suddenly cease to be available within the next 20 years? Or do we expect a gradual replacement of fossil fuel supply rather than a sudden dramatic peak? In other words, the development of unique knowledge and rapid building of Corporate IQ have now become essential to stay ahead in the Oil & Gas business. This Executive Guide explains in a systematic approach how Corporate IQ can be built step by step. This study is based on innumerous discussions with executives and consultants and tested on several generations of students that have attended Executive Master Programs at Delft University of Technology developed jointly with the Energy Delta Institute. What gives this Executive Guide lasting value is the emphasis on what you should ‘know’ and ‘do’ to build an intelligent organization. For example, how do you start if the culture of the firm is not building Organizational Intelligence? How do you assess your Corporate IQ? This Executive Guide provides you with the answers.

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I. Essence of This Executive Guide Why leaders and professionals should read this Executive Guide…

Organizational Intelligence presents a new way to look at what builds success in your organization. Your organization must learn to utilize and expand the store of knowledge. You can break with the ‘sluggishness’ of old ideas by helping your enterprise to embrace Organizational Learning—to adapt, grow and succeed. The learning process must boost knowledge retention and development, competency planning in training, and the stimulation of innovation. Organizational Learning leads to Organizational Intelligence and helps you to unlock the senior leadership’s ‘death grip’ on innovation. Organizational Intelligence is growing when your business entity (Industry, Academia, Government or NGO) succeeds in: • • • •

Stimulating knowledge development (Focus area I) Applying this knowledge goal-oriented (Focus area II) Building the assets (products or services) (Focus area III) Communicating why your organization excels (Focus area IV)

This guidebook explains for each Focus area what is needed to internalize the tactical concept of Organizational Intelligence to position your organization right at the competitive edge. As a young aspiring leader, use this Executive Guide to build new skills and competencies; as a senior policy-maker—or even as an experienced practitioner of leadership—refresh your knowledge with ‘Organizational Intelligence.’ Both young and seasoned professionals can quickly learn together how to build competitive organizations that can assure adaptation under intelligent leadership. First analyze your position on the Organizational Learning curve, and then take action from the observed needs. You assuredly will benefit

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from taking the ‘intelligence’ pulse of your entity using methods explained in this powerful guidebook. What gives this Executive Guide the ‘buzz’ it deserves is that it guides your actions by tomorrow morning if you read a chapter tonight. The emphasis is on what you should ‘know’ and ‘do’ to build an intelligent organization. The practitioner philosophy expected from you is ‘‘Tell me how to get started’’ and then ‘‘I can learn my way to success’’. For example, how do you start if the culture of the firm is not building Organizational Intelligence? Actions you can take include your efforts to acquire ‘‘new’’ personal (or tacit) knowledge while bringing ‘‘old’’ tacit knowledge into the shared (or explicit) knowledge domain. Using this knowledge to better integrate your technology, workflow and people interaction will speed up the knowledge transfer efficiency between your decision-makers. As a result, your business decisions will be implemented faster and be based on better information. Value is then steadily added to your business performance by taking the best industry decisions within your organization, each and every time. Remember that Organizational Intelligence grows with degree of involvement in ‘‘doing’’. This Executive Guide therefore is designed to guide you in ‘‘doing’’— through a concise, practically oriented approach. Case studies help you in finding ‘‘best practice’’ applications that are similar to your own situation. The methods included in the case studies are all generic to any organizational entity, while highlighting current challenges in the Energy business. The section ‘Actions you can take’ gives further advice for practical ‘doing’. Also unique is the set of practical training questions at the end of each chapter listed under ‘Things to think about’, which may act as idea-generating reference. In effect, this Executive Guide is a ‘‘soft-skill’’ business primer with key concepts for strategic use in intelligent organizations. The key processes and skills, leading to recognition, understanding and the practical application of Organizational Intelligence are outlined in a 15-step approach. These steps correspond to the 15 Chapters covering the four Focus areas (I to IV) for the development of Organizational IQ (plus the integration in Chap. 15): Focus Area I: Stimulate Knowledge Development—Building Experiential IQ Chapter 1: Developing Organizational IQ: A Corporate Necessity Chapter 2: Utilizing Value Chains and Knowledge Nets Chapter 3: Stimulating Organizational Learning Chapter 4: Managing Knowledge Resources â Gate Stop 1: Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ Chapter 5: Vision Sharing and Leadership Succession Chapter 6: Building Teams: Bridging Knowledge and Culture Gaps Chapter 7: Aspiring Innovation and Creativity

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â Gate Stop 2: Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented Focus Area III: Build the Assets—Building Componential IQ Chapter 8: Smart Decision-Making Chapter 9: Strategy Planning and Scenario Thinking Chapter 10: Optimizing Portfolio Management â Gate Stop 3: Componential IQ Assessment—Effectiveness in Building the Assets Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ Chapter 11: Championing Sustainable Development and Corporate Governance Chapter 12: Overcoming Communication Barriers Chapter 13: Aiming for Intelligent Negotiations and Effective Agreements Chapter 14: Leading in Organizational Learning â Gate Stop 4: Emotional IQ Assessment—Effectiveness in Communicating Why Your Organization Excels Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ Chapter 15: Maximizing Your Organizational IQ â Gate Stop 5: Combining IQ Component Scores into an Overall Corporate IQ Score The procedure for institutional assessment of your Corporate IQ is outlined in Appendix A and allows targeted interventions to boost your Corporate IQ. The strength of this knowledge resource also comes from its individual chapters, with concise texts—and supported by key illustrations—that quickly outline only the most relevant aspects of each component of Organizational Intelligence. The format chosen here is inappropriate for including exhaustive references in the main text. Key references and suggestions for auxilliary resources are outlined at the end of each Chapter. The principles and concepts within the chapters cover knowledge that has become common intellectual property. This knowledge evolved slowly by incremental contributions of innumerable people: business practitioners, governmental policy makers and academics alike. Almost certainly much room for originality remains in the ways these concepts are applied by readers in their own professional environment. A competency map that allows you to check your progress in mastery of Organizational Intelligence as a conceptual framework is given in Appendix B. Illustration credits are rightfully included in Appendix C. About half of over 190 graphics are original and were drafted by the author; the rest has been modified from the sources acknowledged. A glossary of terms is given in Appendix D for further guidance. The integrated approach in this Executive Guide provides support for maintaining the interconnected perspective between all themes.

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II. The Target Audience This is a business guide and primer for top executives and managers, as well as for the experts that support them. Asset managers will understand better how operational targets and strategic direction setting can be merged for enhanced business success. They, we and you, we all benefit from learning how to ‘integrate’ useful knowledge resources to build intelligent organizations. The format of this Executive Guide is highly accessible, which serves well its intended use as a practical teaching manual for the following educational programs: • Executive master classes for engineers and scientists. • Refreshment courses for seasoned professionals. • MBA studies, with interest in an integrated approach of Organizational Intelligence and Organizational Learning, illustrated with case studies from the Energy business (e.g., energy security, geopolitics, natural resource management, global warming and sustainability issues). • Self-learning for young professionals in preparation of MBA studies. This Executive Guide is designed to be effective in its knowledge transfer by applying instructive visuals—the text to picture ratio is 60–40. The message of this Executive Guide is thereby made accessible to the broadest possible readership: students (of both technical and business disciplines), professionals, managers and leaders. Environmentalists and managers of natural resources also may find this Executive Guide carries a compelling concept, which can assist them in understanding and explaining why we must boost our Organizational IQ. Obviously, increasing the intelligence of individual organizations contributes to better resource management while enhancing our overall ‘Planetary IQ’.

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III. Personal Learning Goals If you take this book, you must ask yourself: ‘‘What does it have to offer to me?’’ The insights and learning goals of this Executive Guide are: â Stimulating knowledge development to enhance your company’s Experiential IQ by • Understanding how a combination of leadership and Organizational Learning can boost the intelligence of your organization. • Developing capacity to stimulate knowledge development and knowledge sharing to accelerate the Organizational Learning processes. â Applying knowledge goal-oriented to build your company’s Contextual IQ by • Creating appreciation for Organizational Intelligence as a framework for the training of individuals (skills and competency development), as well as for the teamwork that builds value for your company. • Being creative in thinking about the drivers of innovation. â Building the asset to maximize your company’s Componential IQ by • Learning how to make decisions based on rational and irrational validation methods. • Realizing that your strategy options are affected by scenario choices—and knowing that this will impact the balance in your company’s project portfolio. â Communicating why your organization excels to capitalize on your company’s Emotional IQ by • Knowing how to communicate and negotiate to muster support for your company and its project completion successes. • Practising good governance to avoid ruining your sustainable business prospects. • Demonstrating that your company’s mastery of technology, skills and competencies, together with your workflow processes, are unique and cost-effective. Many professionals use skill analysis to find gaps in their experience base. For such an analysis you may study the skills and competency matrix of Appendix B. The level of your mastery of any skill depends upon your competency of performance. This Executive Guide helps you to climb the full Organizational Learning Curve from Awareness to Basic Understanding, toward Advanced Experimentation and Genius Level.

IV. Merits in Developing Corporate IQ (Organizational Intelligence) Young executives, like all ‘fast track’ leaders, will tend to take their current organizations as ‘given’. This Executive Guide on Organizational Intelligence suggests there is something you, the reader, must consider that is at first invisible.

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Like water to fish, the store of Organizational Intelligence is invisible unless one learns to observe the processes that contribute to building this store of wealthcreating intelligence. The creation of Organizational IQ or Corporate IQ may be the foremost challenge in your professional action space. But there is a broader and deeper societal benefit that Organizational Intelligence can bring to our society. This deeper value becomes apparent by contemplating the vision implied in the following theses: Thesis 1 If anything can, the global development of Organizational Intelligence could bring us a lasting prosperity—one where the consumption of resources goes hand in hand with the obligation to develop sustainable options for the future inhabitants of our planet. Thesis 2 The Prince’ of Machiavelli (1532) gave world leaders a conceptual framework for ruling the world during the last half of the 2nd Millennium. Organizational Intelligence provides 3rd Millennium leaders a powerful conceptual framework for responsibly managing our planet’s natural resources and its inhabitants. Thesis 3 The method for Corporate IQ rating introduced here (including IQ scale and questionnaire) enables many challenging and provocative IQ rankings for our major institutions (corporations, universities, governments, and NGOs). Ultimately, this may trigger a healthy competition for higher IQ scores that positively stimulates an overall increase of our Planetary IQ.

Progressive growth of your Corporate IQ will provide the largest possible freedom, privileges and sustainable quality in your work environment. If your organization does not take into account sustainability of our planet’s resources and its inhabitants—its competitive strength will vanish. As a result, your organization will become unattractive to employees, customers, investors and other stakeholders. Modern organizations are aware of this challenge. This Executive Guide concisely explains how learning about Organizational Intelligence as a conceptual framework helps you see the bigger picture.

V. Acknowledgements This Executive Guide, which I started in earnest in 2002, has been a fun project. Writing an accessible text on a topic as complex as ‘Organizational Intelligence’ means hundreds of hours were spent on composing, crafting and fine-tuning the text and illustrations of each chapter in a rigorous process of iterative reviewing, discussions and rewriting. It is definitely something one must like—otherwise such a project is doomed to fail. This project has been supported by Delft University of Technology and the Energy Delta Institute, and benefited from my work as Director of Education in both institutions.

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I am grateful to the following reviewers for their feedback on the individual chapters of this Executive Guide: • • • • • • • • • • • • •

Paul Bracken, Professor, Yale School of Management, USA (Chap. 1). Verna Allee, CEO, Verna Allee Associates, USA (Chap. 2). David Skyrme, Director, Skyrme Associates, UK (Chaps. 3 and 4). George Kondrach, President, Isogen International, USA (Chap. 5). Alfons Lansink, Managing Consultant, IBM, Netherlands (Chap. 6). Volko de Jong, Managing Director, Energy Delta Institute, Netherlands (Chaps. 7 and 9). Edward Dawidowicz, Senior Scientist, CERDEC, US Army, USA (Chap. 8). Jerry Brashear, Associate Director, George Mason University, USA (Chap. 10). Leo Jansen, Professor Emeritus, Delft University of Technology, Netherlands (Chap. 11). David Pelton, President, Speakwell Company, USA (Chap. 12). Terry Daniel, Professor, University of Alberta, Canada (Chap. 13). Ford Brett, President, Frontline Group, USA (Chap. 14). Jane Davidson, Director, Davidson Consulting Ltd, New Zealand (Chap. 15).

Substantial portions of the introductory paragraph of Chap. 1 were drawn (with permission) from a presentation handout created by Dr. E. Jane Davidson (Former Associate Director, Evaluation Center, Western Michigan University, USA). Verna Allee gave me an inspirational ‘master-class’ on intangible knowledge nets in 2003 that fine-tuned my value net concepts in Chap. 2, which she also reviewed and improved. David Skyrme provided me reassurance that my integrated approach is novel and worthwhile. David also helped me lay the basis for the relationship between Organizational Learning (Chap. 3) and Knowledge Management (Chap. 4) as the two faces of the same coin: ‘‘Organizational Intelligence is the corporate ‘brain’ that overlooks the stockpile of coins’’. George Kondrach delivered the swiftest review ever and provided input for the Intelligent Solution Positioning cartoon (Chap. 5). Alfons Lansink provided numerous hints on state-of-the-art learning management systems and best practices of networked learning (at IBM, Chap. 6). My ideas about multi-resolution communication in Organizational Learning and Decision-Making were much improved by discussions with Edward Dawidowicz (Chaps. 3 and 8). Volko de Jong emphasized the impact of discontinuities in Life Cycle and Strategy Planning: ‘‘What if disaster strikes?’’ (Chaps. 7 and 9). Jerry Brashear’s comments brought some real strength into the integrative perspective of the relationship between portfolio thinking, strategy, risk analysis and business value (Chap. 10). Leo Jansen helped me making more explicit that poverty reduction is not only a moral plight but also something that suits strategic pragmatism. ‘‘Poor people cannot buy products and services. You have to educate individuals to create new markets with buying power!’’ (Chap. 11). David Pelton

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painstakingly edited Chap. 12 on communication, helping to keep focus on the bigger picture in a concise and accessible fashion. Terry Daniel made me realize negotiations are not about winning a deal but more about finding out how much the negotiation partners are prepared to give away (Chap. 13). Ford Brett shared many creative examples of how Organizational Learning can quickly get compromised if the people in your team lack drive to do better (Chap. 14). Jane Davidson kindly reviewed some of my criteria for assessing Organizational Intelligence (Chap. 15). Ken Graham convinced me that inclusion of ‘Case studies’ from the Energy business would clarify and support the message. I am grateful for the knowledgeable suggestions by reviewers of the Case studies (Noé van Hulst, International Energy Agency, and Jaleel Al Khalifa, 2006 President, Society of Petroleum Engineers). Any shortcomings and simplifications made are entirely my responsibility. A preprint of the entire manuscript for this Executive Guide was critically reviewed by Ken Graham, Stephan Luthi, and Geke Verspui. Their comments have led to a final revision. Ken’s comments led to the inclusion of Actions you can take. Stephan’s comments convinced me that my approach had the intended ‘American’ clarity of style, but improved after his comments. Geke gave me patient support during the final rewriting as well as expert advice on how to keep in touch with non-experts. Jean van Berkel reviewed and shortened some parts of the book; he kindly gave permission to quote his trekking site, which includes many reports on joint hiking trips (http://www.treks.org). Delft, December 2010

Ruud Weijermars

Contents

Part I 1

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Focus Area I: Stimulate Knowledge Development—Building Experiential IQ

Developing Organizational IQ: A Corporate Necessity . . . . . . . 1.1 What Can You Expect from This Book? . . . . . . . . . . . . . 1.2 Why Develop Organizational Intelligence? . . . . . . . . . . . 1.3 What Is Organizational Intelligence? . . . . . . . . . . . . . . . . 1.4 Why Do You Need Organizational Learning? . . . . . . . . . 1.5 Who Are the Stakeholders in Organizational Intelligence? . 1.6 What Are the Drivers for Developing Organizational Intelligence? . . . . . . . . . . . . . . . . . . . . . . 1.7 How Is Organizational Intelligence Attained?. . . . . . . . . . 1.8 How Can Organizational Intelligence Be Rated? . . . . . . . 1.9 Where is My Organization on the IQ Bell Curve? . . . . . . 1.10 How Should You Use This Executive Guide? . . . . . . . . . 1.11 How Can You Assess Corporate IQ?. . . . . . . . . . . . . . . . 1.12 Case Study 1: International Energy Agency—Knowledge Aggregation for Secure Energy Supply . . . . . . . . . . . . . . 1.13 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . . 1.14 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . . 1.15 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilizing Value Chains and Knowledge Nets . . . . . . . . . . . . . . 2.1 Would You Think Knowing Your Customer Intimately Is Essential for Survival?. . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 What is Your Organizational Goal? . . . . . . . . . . . . . . . . 2.3 Who Unlocks the Value of Organizational Intelligence? . . 2.4 What is the Role of Decision Gates?. . . . . . . . . . . . . . . . 2.5 Are You Connecting to External Decision-Makers? . . . . .

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2.6 2.7 2.8 2.9 2.10

Value Chains or Knowledge Nets? . . . . . . . . . . . . . . . . . . . Why Map Value Exchanges and Knowledge Flow Nets?. . . . What is Your Place and Role in the Value Web? . . . . . . . . . What Can Communities of Practice Achieve? . . . . . . . . . . . Case Study 2: Unbundled ‘Roundabout for Gas’—Expanding Value Net in NW Europe . . . . . . . . . . . . . . . . . . . . . . . . . 2.11 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . . . . Bibliography and Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

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Stimulating Organizational Learning. . . . . . . . . . . . . . . . . . . . . . 3.1 Why Learn? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Where Do You Start to Develop ‘Best Practice’? . . . . . . . . . 3.3 What Can be Learned from Robotics? . . . . . . . . . . . . . . . . . 3.4 How Do You Recognize Barriers to Organizational Learning? . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 How Can You Overcome Barriers to the Development of Organizational Learning? . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Case Study 3: Smart Fields-Building Smarter Oil Companies, Learning Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Managing Knowledge Resources . . . . . . . . . . . . . . . . . . . 4.1 Why Knowledge Management? . . . . . . . . . . . . . . . 4.2 Where Do Individuals Fit in? . . . . . . . . . . . . . . . . . 4.3 Can You Elicit New Knowledge? . . . . . . . . . . . . . . 4.4 How Does Knowledge Grow and Flow? . . . . . . . . . 4.5 How Can You Rate Knowledge Management? . . . . . 4.6 How Can You Manage Knowledge Creation? . . . . . 4.7 Case Study 4: Society of Petroleum Engineers—Organizational Learning and Knowledge Management Drive Employee Engagement . . . . . . . 4.8 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . 4.9 Things to Think About . . . . . . . . . . . . . . . . . . . . . 4.10 Input For Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Gate Stop 1:

Part II

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Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development

Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ

Sharing and Leadership Succession . . . . . . . . . . . . . . . How Can We Learn Together? . . . . . . . . . . . . . . . . . . . . What Can You Do Now?. . . . . . . . . . . . . . . . . . . . . . . . What More Can You Do? . . . . . . . . . . . . . . . . . . . . . . . Must My Company Culture Change? . . . . . . . . . . . . . . . Will Everybody Fit in? . . . . . . . . . . . . . . . . . . . . . . . . . How Can You Develop Emergent Leadership? . . . . . . . . . Case Study 5: Chevron—Vision, Strategy and Leadership . Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . . Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . . Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Vision 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10

Building Teams: Bridging Knowledge and Culture Gaps . . 6.1 Why Is Teamwork So Important? . . . . . . . . . . . . . . . 6.2 Why Go for Experience and Best Practice in Team Learning? . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 How Can You Overcome Communication Gaps? . . . . 6.4 How Can You Merge Company Cultures? . . . . . . . . . 6.5 How is E-Learning Part of Knowledge Management? . 6.6 How is E-Learning Most Effective? . . . . . . . . . . . . . 6.7 Case Study 6: Example of Socio-Cultural Tensions Between Europe and Russia in Gas Trade Context . . . 6.8 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . 6.9 Things to Think About . . . . . . . . . . . . . . . . . . . . . . 6.10 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Aspiring Innovation and Creativity . . . . . . . . . . . . . . . . . . . . . 7.1 Why Do Learning Organizations Survive? . . . . . . . . . . . . 7.2 Why Do Unintelligent Organizations Fail?. . . . . . . . . . . . 7.3 How Are New Products and Services Conceived?. . . . . . . 7.4 How Does Knowledge Generation Differ from Technology Development? . . . . . . . . . . . . . . . . . . . . . . . 7.5 How Can You Generate Ideas for Business Improvement? 7.6 Which External Forces Drive Your Innovation Efforts?. . .

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How Can You Rank Your Innovation Ideas and Project Options? . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 How Can You Further Validate Ideas? . . . . . . . . . . . . . 7.9 Can Innovation Affect the Product Lifecycle? . . . . . . . . 7.10 What is Your Leadership Role in Innovation? . . . . . . . . 7.11 Case Study 7: Atomic Bomb, Space Race, and Canadian Tar Sands—Emerging Threats Drive Investments for Innovation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . 7.13 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . 7.14 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gate Stop 2:

Part III 8

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Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented

Focus Area III: Build the Assets—Building Componential IQ

Decision-Making . . . . . . . . . . . . . . . . . . . . . . . . . . . Why Does Organizational Learning Call for Decisions? How Does Your Organization Make Decisions? . . . . . . Does the Market Steer Your Organization’s Decisions, or Vice Versa? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 Is an Organizational Decision Rational? . . . . . . . . . . . 8.5 How Does Your Brain Influence Decision-Making? . . . 8.6 How Does One Mobilize Stakeholders? . . . . . . . . . . . . 8.7 Which Architecture Can You Adopt for the Decision-Making Workflow? . . . . . . . . . . . . . . . . . . . 8.8 Can You Improve Knowledge Transfer for Your Decision-Making Processes? . . . . . . . . . . . . . . . . . . . 8.9 Case Study 8: OPEC, Decision-Making in Strategic Alliances . . . . . . . . . . . . . . . . . . . . . . . . 8.10 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . 8.11 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . 8.12 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Smart 8.1 8.2 8.3

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9.4 9.5 9.6

What is the Role of Organizational Learning? . . . . . . Which Benefits Do Consultants Bring? . . . . . . . . . . . Case Study 9a: National and International Oil Companies—Strategy Drivers and Scenarios . . . . . . . 9.7 Case Study 9b: Mergers as a Strategy—Consolidation of the Global Oil Business . . . . . . . . . . . . . . . . . . . . 9.8 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . 9.9 Things to Think About . . . . . . . . . . . . . . . . . . . . . . 9.10 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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10 Optimizing Portfolio Management . . . . . . . . . . . . . . . . . . . 10.1 What is Portfolio Management? . . . . . . . . . . . . . . . . . 10.2 How Does Asset Value Translate into Portfolio Value? . 10.3 Why Portfolio Optimization? . . . . . . . . . . . . . . . . . . . 10.4 How Do You Balance Project Portfolios? . . . . . . . . . . 10.5 Which Risks Should You Take? . . . . . . . . . . . . . . . . . 10.6 How Do You Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 What Is Portfolio Diversification?. . . . . . . . . . . . . . . . 10.8 How Do You Monitor Portfolio Performance? . . . . . . . 10.9 Case Study 10: ConocoPhillips—Project Prioritization in Corporate Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 10.10 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . 10.11 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . 10.12 Input for Corporate IQ Scorecard (see this chapter and Appendix A) . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gate Stop 3:

Part IV

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Componential IQ Assessment—Effectiveness in Building the Assets

Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ

11 Championing Sustainable Development and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 What is Sustainability? . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Who Leads in Sustainable Development? . . . . . . . . . . . . 11.3 Which Natural Resources Drive Your Actions? . . . . . . . . 11.4 Is Your Corporate Governance Sound? . . . . . . . . . . . . . . 11.5 What Does the UN Agenda 21 Tell You? . . . . . . . . . . . . 11.6 What is Your Leadership Responsibility in Sustainability?.

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11.7 11.8

Why Is Systems Compliance Important? . . . . . . . . . . . . . . . Case Study 11a: SEC—Corporate Governance and Compliance in Oil Reserves Accounting. . . . . . . . . . . . . . . . . . . . . . . . . 11.9 Case Study 11b: Stern Report—Call for Action Based on Knowledge Sharing on Global Warming . . . . . . . . . . . . . 11.10 Case Study 11c: Decision-Making as a Prisoner’s Dilemma. . . 11.11 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.12 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.13 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Overcoming Communication Barriers . . . . . . . . . . . . . . . . . . . 12.1 What Drives Effective Communication? . . . . . . . . . . . . . 12.2 What are the Common Barriers to Effective Communication? . 12.3 How Can You Improve Your Communication Skills? . . . . 12.4 What Is the Best Medium for Your Internal Messages? . . . 12.5 What Is the Role of Corporate Identity? . . . . . . . . . . . . . 12.6 Case Study 12: Branding Apache . . . . . . . . . . . . . . . . . . 12.7 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . . 12.8 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Aiming for Intelligent Negotiations and Effective Agreements 13.1 Why Is Negotiation Part of the Job? . . . . . . . . . . . . . . . 13.2 What Tactics Can You Use? . . . . . . . . . . . . . . . . . . . . 13.3 Which Psychological Traps Must Be Avoided? . . . . . . . 13.4 Can Agreements Be Intelligent? . . . . . . . . . . . . . . . . . . 13.5 Case Study 13: Eurogas—Negotiating to Help Solve Europe’s Future Gas Supply Gap . . . . . . . . . . . . . . . . . 13.6 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . 13.7 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . 13.8 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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14 Leading in Organizational Learning . . . . . . . . . . . . . . . . . . . . 14.1 How Can You Stimulate the Development of Organizational Intelligence? . . . . . . . . . . . . . . . . . . . . . . 14.2 Can Organizational Learning Be Fun? . . . . . . . . . . . . . . . 14.3 Are There Good Alternatives to Organizational Learning? . 14.4 Who Pays the Bill? . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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14.5 14.6 14.7

Who Leads in Organizational Learning? . . . . . . . . . . . . . What Are the Societal Effects?. . . . . . . . . . . . . . . . . . . . Case Study 14: Exxon—Sharing Knowledge and Physical Assets While Averting Global Tension . . . . . . . . . . . . . . 14.8 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . . . 14.9 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . . . 14.10 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Combining IQ Component Scores into an Overall Corporate IQ Score

Appendix A:

Procedure for Assessment of Your Corporate IQ . . . . .

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Appendix B:

Competency Matrix . . . . . . . . . . . . . . . . . . . . . . . . . .

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Appendix C:

Illustration Credits . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Appendix D:

Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Part V

Emotional IQ Assessment—Effectiveness in Communicating Why the Organization Excels

Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ

15 Maximizing Your Organizational IQ . . . . . . . . . . . . . . . . . . 15.1 What is a Good Assessment Mechanism? . . . . . . . . . . 15.2 Which Key Areas Should You Focus On? . . . . . . . . . . 15.3 How Does Individual IQ Relate to the Building of Corporate IQ? . . . . . . . . . . . . . . . . . . . . . 15.4 How Can Growth or Decline in Corporate IQ be Recognized? . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 Why Evaluate Your Organizational Intelligence? . . . . . 15.6 What is Planetary IQ? . . . . . . . . . . . . . . . . . . . . . . . . 15.7 Case study 15: Corporate IQ Tests in Energy Business . 15.8 Actions You Can Take . . . . . . . . . . . . . . . . . . . . . . . 15.9 Things to Think About . . . . . . . . . . . . . . . . . . . . . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Part I

Focus Area I: Stimulate Knowledge Development—Building Experiential IQ

Focus Area I: Stimulate Knowledge Development—Building Experiential IQ Chapter 1: Developing Organizational IQ: A Corporate Necessity Chapter 2: Utilizing Value Chains and Knowledge Nets Chapter 3: Stimulating Organizational Learning Chapter 4: Managing Knowledge Resources â Gate Stop 1: Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ Chapter 5: Vision Sharing and Leadership Succession Chapter 6: Building Teams: Bridging Knowledge and Culture Gaps

2

Focus Area I: Stimulate Knowledge Development

Chapter 7: Aspiring Innovation and Creativity â Gate Stop 2: Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented Focus Area III: Build the Assets—Building Componential IQ Chapter 8: Smart Decision-Making Chapter 9: Strategy Planning and Scenario Thinking Chapter 10: Optimizing Portfolio Management â Gate Stop 3: Componential IQ Assessment—Effectiveness in Building the Assets Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ Chapter 11: Championing Sustainable Development and Corporate Governance Chapter 12: Overcoming Communication Barriers Chapter 13: Aiming for Intelligent Negotiations and Effective Agreements Chapter 14: Leading in Organizational Learning â Gate Stop 4: Emotional IQ Assessment—Effectiveness in Communicating Why Your Organization Excels Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ Chapter 15: Maximizing Your Organizational IQ â Gate Stop 5: Combining IQ Component Scores in an Overall Corporate IQ Score

Chapter 1

Developing Organizational IQ: A Corporate Necessity

We all know that intelligence does not guarantee success, but we also are aware that it provides a huge competitive advantage. What then are intelligent organizations? One obvious property of such organizations is a Corporate or Organizational Intelligence Quotient so high that they stand out: they have sharper perceptive ‘antennae,’ notice things more quickly, and spot patterns and trends that others do not see; they make more insightful inferences, and learn quicker from others’ successes and failures. It pays off to be intelligent and to act intelligently, not only in business, but also in the public sector and, of course, no less so in academia.

1.1 What Can You Expect from This Book? This Executive Guide is about Organizational Intelligence, a conceptual framework that helps you see the bigger picture. You will understand how corporate decisions can be made in an intelligent fashion. The concept of Organizational Intelligence can inspire, both you as an aspiring leader as well as the professionals that support you, to develop a higher Corporate Intelligence Quotient (IQ) in your organization. The Corporate IQ tests included in this Executive Guide help to gain insight into how your organizational entity can stay rooted at the competitive frontier. Although boosting your Corporate IQ is not an easy task, understanding the framework of Organizational Intelligence is a first step. A conceptual framework of Organizational Intelligence is synthesized here on the basis of discussions with over 100 executives, business consultants, and professional business educators. This synthesis is firmly rooted in a system engineering way of thinking; no suitable, concise article is readily available that builds a conceptual framework of Organizational Intelligence based on system engineering principles. Also integrated in this synthesis are the experiences spanning

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_1,  Springer-Verlag London Limited 2011

3

4

1 Developing Organizational IQ

several generations of professional engineers who attended the executive master programs (Executives in the Space industry and the Oil and Gas business) at the Energy Delta Institute and at Delft University of Technology, the Netherlands. Is it possible to measure Organizational Intelligence? And if so, can we express this in a score, say a Corporate IQ? The answer is yes. But although this quantification is important, the measurement of your Corporate IQ is not about abstract numbers. Nor will the reading of this Executive Guide result in the instant improvement of your Corporate IQ. But you will begin to understand how Organizational Intelligence works. That will show you how Corporate IQ can grow if all involved contribute to the learning process. Your unique (tacit) professional knowledge must be shared effectively with the best corporate practices in the company’s explicit knowledge domain. All your colleagues need to do the same. Corporate Knowledge Networks are the highways that enable people to learn together to perform better in their business processes.

1.2 Why Develop Organizational Intelligence? On a personal level, we have long known that paying for advanced education is probably one of the best investments we can make in our lifetime. Advanced education gives us a higher income. For example, master degree holders, on average, earn twice as much as workers that lack this certified training. Personal Intelligence is in part circumstantial—developed by learning—but also genetically determined. Personal Intelligence Quotient’s (IQs) are measured on a scale that calibrates the median at 100 (for details, see later in this chapter). Most exceptionally intelligent persons cluster at an IQ score of 140 (Genius level). The highest IQ ever of 228 was scored by Marilyn vos Savant, a US journalist. Her IQ record was later adjusted because of a lowering of the test score ceilings. Now estimated at 190, Marilyn vos Savant’s IQ still rates as good as Gary Kasparov’s 190 record score. For comparison, Einstein’s IQ is commonly estimated at about 160, but any formal test results have not been publicly confirmed. Unlike Personal Intelligence, Organizational Intelligence is mostly circumstantial, that is to mean that it is developed by the right strategic and operational choices. Smart organizations now realize that their Organizational Intelligence hinges on the combination of top-down strategies for Organizational Learning and bottom-up development of human resources (Fig. 1.1). When it comes to the recruited human resources, obviously your organization needs to select the right person for the right job. Poor recruitment practices may severely impair your Organizational Intelligence. Much like intelligent individuals, organizations that learn fast from the experiences of their teams, and that exhibit flexible and adaptive behavior, can be considered intelligent. Such smart organizations change their goals and redefine problem identification and problem solving methods, searching best practices on

1.2 Why Develop Organizational Intelligence?

5

Fig. 1.1 Learning is the key to corporate progress, prosperity and individual career development. Corporate spending on Organizational Learning is commonly well below 1% of operating costs. For comparison, the national education budget of developed countries ranges between 4 and 6% of GDP

Fig. 1.2 Individuals (i-coded) contribute to the development of Organizational Intelligence while working in society’s major employment entities (s-coded: industry, government and academia). Their main goals are selling services and products, regulating our actions and transactions, and studying all of this, respectively

the basis of experience while continually stimulating innovation. Intelligent organizations typically have Corporate IQs higher than 100 (see later in this chapter). Their business plans typically focus on future challenges and marketoriented solutions—rather than past achievements. Their aspiration levels are ready for change in response to goals assumed and results obtained. In any organization, the success of Organizational Learning and Knowledge Management critically depends on the contributions by—and support of—individual professionals (Fig. 1.2). Individuals with vision are crucially needed for reconciling the corporate abilities with future aspirations.

1.3 What Is Organizational Intelligence? Organizational Intelligence is the powerful corporate force that can be used to ensure the future continuation and improvement of your products and services. It effectively connects those who know how to serve the market in an integrated

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process of monitoring market data, compiling critical information, and analyzing trends. This process turns data and information into knowledge about the competitive business environment that is then being used intelligently in business decisions to add value to your organization’s operations. Are there tests to measure your Corporate or Organizational Intelligence? Yes, there are. For a starter, the best intuitive approach may be reverse-testing: if your company products do not sell, if your workers are unmotivated and if your stakeholders start to withdraw their commitment, this is a sure sign of plummeting Organizational Intelligence. This Executive Guide introduces a more advanced, formal approach for monitoring progress or decline in your Corporate IQ. Truly intelligent organizations typically have an open culture and do not shy away from critical appraisals. Managers in such intelligent organizations like critical challenges, such as the periodic Corporate IQ assessments advocated here, because this puts their carefully nurtured Organizational Intelligence to the test. Like them, applying such IQ assessments can help to keep your organization sharp and focused on what it needs to be good at and should strive to get better at.

1.4 Why Do You Need Organizational Learning? In the modern business environment, knowledge life cycles are becoming shorter and the advent of new concepts and inventions is more closely spaced as the arrow of time moves forward. This requires the utmost agility and fast adaptation from your organization to stay abreast of the learning processes that drive global competition. You must provide competitive products and services. This activity needs visionary leadership, commitment of workers, interest of client groups, sponsorship by shareholders, all under critical economic scrutiny and under competitive market conditions, which commonly change rapidly as business cycles climb and fall (Fig. 1.3). Modern learning organizations must outlast and outsmart their dumber competitors by selectively applying lessons learned and exploiting their tacit knowledge and resources to grow into new competitive markets (Fig. 1.4). The development of Organizational or Corporate Intelligence is further necessary to avoid disruptive paradigm shifts and to facilitate continual adaptation to the market dynamics. In this approach, the adaptation of your organization to the changing environment is done almost imperceptibly, by absorbing information flows and implementing required changes on a perpetual basis (Fig. 1.5). Thus, abrupt changes of business operations are pre-empted and continuity of service is warranted. The chameleon analogy of shifting appearances portrays the evolutionary and imperceptible adaptation of intelligent organizations to critical environmental parameters. The important conclusion is that the chameleon knows how to blend in seamlessly with changes in its competitive environment. It survives because of the presence of its supportive environment and the harmony between them. Abrupt paradigm shifts have become rare in dynamic organizations with high Corporate IQ.

1.4 Why Do You Need Organizational Learning?

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Fig. 1.3 Organizational performance is never static and always threatened by conjectural changes in the business environment. That requires continual scanning of the environment for threats and opportunities, strategic choices and operational adaptations in order to outsmart competitors

Fig. 1.4 Learning organizations excel at processing all internal and external information and knowledge resources such that they outsmart their competitors by transforming in stride with the new challenges of the changing business environment

Industry clockspeed is a concept for the pacing of dynamic business strategies, where different industries move at different clockspeeds, as compared with one another and to the global business environment. Examples of indicators of clockspeed are: rate of change in organizational structures, and frequency of new product launches and of new technology adoptions. Industry clockspeed can be best translated as the velocity of change in the external business environment that sets the pace for a firm’s internal operations. More specifically, clockspeed puts a timer on the well-known concept of strategic transformations. If companies move at too slow a clockspeed, they run the risk of entering into strategic drift and they become disconnected from the competitively changing business environment (Fig. 1.6). Ultimately, organizations

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Fig. 1.5 Similar to the chameleon, learning organizations adapt themselves real-time to the changing business environment. Organizations that learn fastest achieve the best organizational transformation and thus outsmart competitors. Laggards have difficulty to act as learning organizations (for example, by ignoring signals from customers or stakeholders)

Fig. 1.6 Individual companies that cannot keep up with the speed of transformational change in the industry will disconnect and run the risk to fail. Four phases (1 to 4B) of increasing disconnect with the transformational change are indicated. Only a major change (i.e. ‘Big Bang’, 4A) can safe from demise a company that has erred for too long in strategic flux. Industry leaders set the pace for change in the business environment with Best Practice (5) or Better than Peers (6)

1.4 Why Do You Need Organizational Learning?

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that fail to learn how to transform in step with—or ahead of—the competition, will disconnect from the business environment and must cease their operations.

1.5 Who Are the Stakeholders in Organizational Intelligence? The development of Organizational Intelligence involves four principal stakeholders and beneficiaries (Fig. 1.7) Industry driving for profit, Academia aiming for intellectual credit, Governments regulating things for the benefit of all, and Non-Government Organizations (NGOs) who play an important role in shaping public opinion; they may profoundly influence policy-making. These principal beneficiaries of the knowledge aggregation and sharing process—industry, academia, government, and NGOs—ask different questions. For example, in the Energy business, industry asks: ‘‘What profit is there for us in the petroleum business?’’ Academia asks: ‘‘Can we optimize, model and innovate in the underlying processes of energy production and market behavior?’’ Government asks: ‘‘How can our policy instruments (e.g., taxes, regulations) steer the energy market and how can we encourage energy conservation programs?’’ In addition, NGOs may ask: ‘‘Are the effects of unregulated use of fossil energy with emissions that cause Global Warming good for society as a whole (i.e., moral or immoral)?’’ NGOs therefore can help to push for high Organizational IQ behavior (Fig. 1.7). The common challenge of all societal stakeholders is to interact intelligently and to make use of their combined resources in an effective fashion (Fig. 1.8). Effective integration of their combined knowledge resources fuels innovation in the value chain. Scientists and researchers in academia and industry try to come up with new inventions. Their focus is to continually improve theoretical and practical knowledge in novel areas, while training future generations of engineers and other professionals that can apply this expertise. Civil servants try to give us timely and better services in the public sector (law, regulations, tax policies, etc.). NGOs try to affect the opinion of both the general public and of policy makers to take action on certain perceived excesses in our societal and organizational behavior. The general idea is that all these activities make our society richer, smarter, more civilized, and better sustainable. Stimulating the use and integration of the joint knowledge bases of industry, academia, government, and NGOs for national benefit is still a challenge which many nations continue to explore. Improved international cooperation in globalization as a next step has already been started by the more advanced developed nations.

1.6 What Are the Drivers for Developing Organizational Intelligence? Organizational Learning is needed as a conscious program, which ensures continuity in the development of your business knowledge. Whether in industry,

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Fig. 1.7 The stakeholders in Organizational Intelligence bear a joint responsibility and concern for innovation. They achieve this best when utilizing available resources and capabilities (internal and external) in the most intelligent fashion

Fig. 1.8 The drivers that can boost Corporate IQ are commonly different for different organizational entities. Industry must act swiftest and under the tightest compliance rules. Academia must operate under the tightest budget constraints and uphold the highest ethical code. Governments work at unpredictable political premises, subject to public populism—and conjectural support. In spite of their different drivers, all need to work in sync to excel in Organizational Intelligence

academia, government or NGOs, you must continually generate new ways of doing things ‘faster, better and cheaper’ by going ‘deeper, broader and faster’ into your business operations. This requires real-time monitoring of all your tangible assets, ensuring competitive output at the lowest cost, all in effective communication with the workforce, client base and shareholders. For example, for modern private Industry fast development of Organizational Intelligence is indispensable. If you are a business manager, you try to make a

1.6 What Are the Drivers for Developing Organizational Intelligence?

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profit, selling unique products and services. The ability to innovate effectively, and continually, is an important aspect of Organizational Intelligence. You need to offer the market something that is difficult to imitate (a method, product, cost advantage, etc.). Therefore, your organization must invest in the development of Organizational Intelligence and needs to assess the Corporate IQ for improvement opportunities—to achieve and maintain your organization’s competitive advantage. Unlike us mortals, business corporations may enjoy an eternal and profitable life, but only if you can make them learn fast enough to survive the competitors. In the twenty-first century, Academic Institutions in all modern nations themselves struggle to stay abreast of the ever-faster learning cycles. Emerging knowledge areas are weighed against portfolios of traditional programs that now may lose societal relevance faster than ever before. If you are an academic, you strive to maintain and expand your university’s Organizational IQ. Not only to protect your programs against obsolescence, but also as a member of a complex professional institution that earns its place by rating well with students, sponsors and its staff workers. Next to Industry and Academia, Government forms a key pillar in the societal network of Organizational Learning. If you work in public services under direct government control, in our era of deregulation and privatization, your organization must learn to operate intelligently. This is required to retain talented workers, to earn public funding and to foster support for public services. If you work for an NGO, the complex role and drivers of NGOs in the societal network of Organizational Learning are highlighted separately, in Chap. 11.

1.7 How Is Organizational Intelligence Attained? Visionary leadership and skillful management of soft and hard organizational assets are crucial agents in the development of Organizational Intelligence. Winning organizations simply do so by persistently being smarter than others, and by assimilating changes in the business landscape seemingly effortless into their business operations. This winning position is realized through the people in your organization. People are both the engine and the lubricant of your business cycle. The optimization of knowledge based processes (Fig. 1.9) is fuelled by a business culture that: 1. Stimulates knowledge creation, aggregation and exchange, 2. Applies this knowledge in a goal-oriented fashion, 3. Builds tangible business assets based on the acquired knowledge and in step with the opportunities offered by the changing business environment, and 4. Creates an atmosphere of intelligent communication where everybody understands why your organization is uniquely equipped for the job. Your organization must succeed in getting everybody supporting your mission, expressing trust in your governance (for both the outside world and your employees).

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Fig. 1.9 The chapters in this Executive Guide are clustered sequentially around four major Focus areas of knowledge aggregation processes that fuel the Organizational Learning Cycle. These four key processes or Focus areas are (1) Stimulating knowledge development, aggregation and exchange, (2) Goal-orientated application of acquired knowledge, (3) Building of tangible business assets in step with the changing business environment, and (4) Explaining your unique values and mission

In order to stay abreast of the changing business landscape, modern organizations see Organizational Learning as a continuous process, key to their success, and not achievable by intermittent overhaul of their programs. The Learning Manager ensures that smart workers learn in step with—and ahead of—your company’s business needs. Not unlike individuals, ambitious, forward-looking organizations must now dedicate themselves to life-long learning in order to build Corporate IQ to advance their competitive abilities. Moderately intelligent organizations can rapidly boost their intelligence through a conscious process of IQ upgrading and by dedication to Organizational Learning. The learning process for developing Corporate IQ will pass through the traditional learning phases (Fig. 1.10). Awareness, Basic Understanding, Practical Knowledge, skillful Application, Advanced Experimentation, and Genius level. Successful company leaders have been discovered to outperform their competitors by their ability to establish a climate for faster Organizational Learning. Fast deployment of new tools and skills is a key driver in your business performance. Without continuous Organizational Learning, your Corporate IQ will decline. Episodic paradigm shifts are no longer enough to stay abreast of the changing business landscape. Such shifts are too disruptive and intelligent organizations steer toward new practices and solutions—well ahead of the disruptive phase.

1.8 How Can Organizational Intelligence Be Rated?

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Value Adding Capacity

Corporate IQ

Genius Advanced

Continual Innovation

Experimentation

Skillful

Application & Best Practice Practical Assessment & Feedback Basic Understanding

Awareness Recognition

Time

Fig. 1.10 Acquisition of Corporate IQ over time with typical stages of enhanced knowledge and value adding capacity. Numeric scores for Corporate IQ follow from completing the questionnaire statements at the end of this Chapter and Chaps. 2–14 and aggregating the result in the cumulative IQ scorecard of Gate Stop 5

1.8 How Can Organizational Intelligence Be Rated? Organizational Intelligence represents the corporate aptitude to utilize and develop, in the fastest possible fashion, the disseminated tacit knowledge into the explicit knowledge domain for competitive business advantage. Therefore, Learning Managers and their Organizational Learning programs are important agents for enhancing your Corporate IQ. In fact, Knowledge Management and Organizational Learning are two sides of the same coin. And Organizational Intelligence is the corporate brain that overlooks the stockpile of coins. Most companies that have performed successfully for several decades have done so on the basis of skillful implementation of their Organizational Learning and Knowledge Management strategies. The median Corporate IQs for their business environment may be equated to a numeric fair value of 100 (Fig. 1.11). Organizations that rank as corporate winners and out-performers do so on the basis of a corporate brain that is well above median. If we equate Genius Corporate IQ with a 140 score, winning companies should rate close to Genius within their specific business environment. Concurrent S&P 500 companies should certainly possess Advanced Corporate IQ and possibly never strayed far from being corporate Geniuses. Low Corporate IQ companies are learning to become smarter and rate 100— or higher—before long. Failure to achieve a Corporate IQ above median commonly equates to a lagging learning performance. This also will translate to slower value-adding capacity and leads to a less competitive business position.

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Fig. 1.11 Range of Corporate IQ scores normalized in a probability density function. Appendix A explains the mathematical basis. The standard deviation (r) and finite mean value (l) are scaled in a bell curve that mirrors Personal IQ scores

Modern business development is all about achieving a Corporate IQ higher and faster than your nearest competitors. Failure to do so leads to flagging business performance.

1.9 Where is My Organization on the IQ Bell Curve? To understand better what IQ scores could say about organizations, it is useful to first briefly dwell on IQ scores for people (Fig. 1.12). The distribution curve for Personal IQ scores shows that 95% of all Earthlings have IQs plotting somewhere between 70 and 130. Some 50% of us have an IQ between 90 and 110, nearly 70% have IQs between 85 and 115. About 10% of the world’s population have IQs [120, and only [0.5% range [140. Mental retardation is concluded for IQs \70 and ranges from mild retardation (IQs 70–50) to profound (IQs \20). A disputed benefit is that criminals with IQs \70 have been exempted from the death penalty in the United States since 2002. If the mean for the Corporate IQ scale is set at 100 (Fig. 1.11), one half of the companies of the world have IQs larger than 100—while the other half possess IQs lower than 100. If the bell curve approach is applied to Corporate IQs, relying upon the central limit theorem and stochastic calibration of the Corporate IQ scale (see end of Appendix A for mathematical basis), 25% of the world’s companies are likely to have Corporate IQs larger than 110 (Fig. 1.11). And 25% of the world’s companies will have IQs \90. Only 15% of the organizations normalized in the bell curve have IQs higher than 115, implying that 85% of the competition is outsmarted by them and left behind. If your Corporate IQ rates 120, you are in the leading 10% of the smartest organizations. Once your company is getting smarter, even the tiniest incremental increase of your Corporate IQ moves you into a progressively more select group of the smartest companies leading the business in your branch.

1.10

How Should You Use This Executive Guide?

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Fig. 1.12 Typical bell curve showing frequency of specific IQ scores of individual people. The median score (l) is normalized at 100 and 95% of the global population’s IQ ranges between 70 and 130. These IQ Scores are within two standard deviations (r = 15) away from the median score

1.10 How Should You Use This Executive Guide? This Executive Guide arms you with a quick overview of the processes and mechanisms that help to build Corporate IQ for your organization. Key attributes that make up smart corporate brains are covered. There is no need to read the chapters sequentially; this Executive Guide as a whole is your comprehensive road map. Your reading tour is about grasping the meaning of Awareness (IQ 25), Basic Understanding (IQ 50) and then nudge toward Practical Knowledge (IQ 75) of Organizational Intelligence. Hints to take the next step towards skillfull Application (IQ 100)—and beyond—are given in the final Chap. 15 of this Executive Guide. Each chapter is concluded with a Case study so that readers can find ‘best practice’ applications for transposition to their situations. Also included are ‘Actions you can take’, suggestions for readers to start implementing by tomorrow what has been read the night before. The additional ‘Things to think about’ section provides further suggestions for developing Organizational Intelligence.

1.11 How Can You Assess Corporate IQ? Each chapter finishes with a questionnaire of ten true/false statements. These statements are related to the four Focus areas of IQ performance (Fig. 1.13). • Experiential IQ (Chaps. 1–4), • Contextual IQ (Chaps. 5–7),

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Fig. 1.13 The four focus areas of knowledge aggregation processes that fuel the Organizational Learning cycle (see Fig. 1.9) correspond to the four IQ performance categories: (1) Experiential IQ, (2) Contextual IQ, (3) Componential IQ, and (4) Emotional IQ. These are separately rated in the cumulative IQ Scorecards of Gate Stops 1 to 5 for diagnostic purposes and for targeted interventions (see Chap. 15 and Appendix A)

• Conceptual IQ (Chaps. 8–10), • Emotional IQ (Chaps. 11–14). Completing all 140 questions provides input for the cumulative scorecard for Corporate IQ assessment at Gate Stop 5. The questionnaire statements are based on well-established Quality Assurance (QA) systems (for details see Chap. 15). The rationale, behind the IQ scale and the methodology and tools introduced here for assessing your Corporate IQ, are further discussed in Appendix A. Scoring poorly in certain Corporate IQ performance categories can be remedied. That is achieved by targeted interventions, paying attention to the identified categories of IQ deficiencies and by going back to the associated questionnaire to pinpoint the problem areas (i.e., low scores). The graph of Fig. 1.14 provides a quick overview of the key skills, competencies, and processes involved with crossreference to individual chapters. Flipping back and forth between the cumulative IQ scorecard and Fig. 1.14 and Gate Stop 5 may help you to quickly grasp the coherence between the individual chapters and how these provide input for the Corporate IQ rating based on professional QA systems. No less important, it is worthwhile to reflect on the three Theses in Page xxiv. These forward-looking Theses statements are positively ambitious about the value that the development of Organizational Intelligence can bring to our society.

1.11

How Can You Assess Corporate IQ?

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Fig. 1.14 Organizational Intelligence can be assessed using the questionnaire statements provided at the end of each Chapter and assembled in the cumulative IQ Scorecards of Gate Stops 1 to 5. Key skills, competencies and processes involved are included on this view graph. They are grouped into four focus areas corresponding to the four categories of IQ performance

Realizing steep IQ growth, towards Advanced Experimentation (IQ 120) and Genius level (IQ 140 and beyond) should remain your ultimate challenge.

1.12 Case Study 1: International Energy Agency—Knowledge Aggregation for Secure Energy Supply The International Energy Agency (IEA, seated in Paris) acts as energy policy advisor to 26 OECD Member Countries (17 EU states, Australia, Japan, New Zealand, Republic of Korea, Turkey and USA). Founded during the oil crisis of 1973, the initial role of the IEA was to co-ordinate policy measures in times of oil supply emergencies. Current work includes supporting Members in their efforts to ensure reliable, affordable and clean energy for their citizens. Supplying affordable energy to everyone at our planet remains a complex business challenge. Regional stakeholders compete for energy resources in a tense and politicized global environment (Fig. 1.15). Concerns about security of supply, affordability and environmental impact are evaluated by different organizations for countries or federations of states: (e.g., IEA, OPEC, Russia, India, China, etc.) with varying emphasis. With a core staff of around 150, mainly energy experts and statisticians from its Member Countries, the IEA conducts a broad program of energy research, data

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Fig. 1.15 All nations compete for energy resources. Allied nations pool knowledge: on the global distribution of reserves, on the potential of new technology to discover more reserves and enhance production, and on the geopolitical tensions that may influence the global Energy business

compilation, publication and public dissemination of the latest energy policy analyses and recommendations on good practices. Involved with the energy business at a global scale, the IEA realizes that staying at the knowledge frontier means gathering data from, and sharing data with, allied nations and organizations—basically a fight against knowledge hoarding. Reluctance to share knowledge by some organizations and some countries threatens to create knowledge gaps and impedes the IEA’s efforts to produce wellinformed predictions for the future energy outlook. Nonetheless, the IEA excels continually at unlocking new knowledge at an ever faster pace and in an effective co-operation with its partners. The IEA realizes this by maintaining excellent knowledge networks. Knowledge Management at the IEA has proven effective with the accumulation of over 30 years energy data—a unique knowledge repository of energy statistics. Providing Member Countries with aggregated knowledge reports has demonstrated the IEA’s value-adding capacity. The IEA publishes its statistics and forward projections periodically, most prominently in its annual economic vision document ‘World Energy Outlook.’ IEA excels in knowledge aggregation and its successful integration—and at high speeds—so that everybody sees merit in sharing knowledge with them. IEA Member Countries contribute data and share the cost of the data integration, because IEA keeps asking the questions relevant to all stakeholders in the Energy business. Your organization, whether involved with the Energy business or other global business, needs to realize too that knowledge hoarding and reluctance to share knowledge slows your innovation process. Instead, your organization needs to excel continually in unlocking new knowledge at the highest frequencies.

1.13 Actions You Can Take… Assess your Corporate IQ: please make an attempt to rate your organization’s IQ numerically by simply estimating it intuitively on a scale of 1–140. Compare this

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Actions You Can Take…

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estimate with the future outcome of your formal Corporate IQ rating based on completion of the questionnaire aggregated in Gate Stops 1–5 (you will be reminded in the Action suggestions of Chap. 15).

1.14 Things to Think About...

• Can you validate the intuitive assessment of your Organizational Intelligence by examples of contemporary growth or decline in the Corporate IQ acquisition process? • Can you document, and briefly explain, at least one illustrative event of past failure and/or success that qualifies for your corporate ‘lessons learned’ data file? • How do you rate the Organizational IQ of your three nearest competitors? • Where is the tangible evidence and knowledge base to substantiate and support your claims? • Are you working effectively together with the societal partners (industry, academia, government and/or NGOs) to jointly enhance your Organizational IQ? • Can you suggest two actions to make better use of each of above stakeholders?

1.15 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. Our organization is aware of the importance of Knowledge Management and Organizational Learning for business development. 2. Our organization has a central coordination point for our Organizational Learning and Knowledge Management strategy. 3. Knowledge exchange between project teams, programs, departments and business units is ineffective in our organization. 4. Our organization takes sufficient effort to acquire knowledge from and exchange knowledge with external parties, such as industry, academia, government and NGOs. 5. Our organization is optimizing business processes but also concerned about other factors such as employee satisfaction and societal responsibilities. 6. Continued education and resource allocation policies are in place to support learning objectives in our organization. 7. Personnel are cross-trained to understand other functions and the impact of their specific duties on other parts of our organization.

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8. Recruitment in our organization brings in excellent managers with relevant business knowledge, excellent management skills and profound technical competence. 9. Staffing levels are maintained in our organization but they are ineffective in performing the required tasks. 10. Our organization is perceived as designed for problem solving and Organizational Learning. For IQ Scorecard assembly move to Gate Stops 1 and 5 Statement 1 2 3 4 5 6 7

8

9

10

True False

1 0

0 1

1 0

1 0

1 0

0 1

1 0

1 0

1 0

1 0

Score

Input for IQ Scorecard from Chap. 1: Total True and False

Bibliography Allee V (1997) The knowledge evolution: expanding organizational intelligence. ButterworthHeinemann, Woburn, Massachusetts Koulopoulos T, Spinello RA, Forms W (1997) Corporate Instinct. Wiley, New York Matheson D, Matheson J (2001) Smart organizations perform better. Res Technol Manag 44(4):49–54 McKelvey B (2001) Improving Corporate IQ. In: Proceedings of the workshop on managerial implications of complexity theory in network economy, sponsored by ISUFI, Univeristy of Lecce, Italy,14 July, 2001, p 6 Mendelson H, Ziegler J (1999) Survival of the smartest: managing information for rapid action and world-class performance. Wiley, NewYork

Chapter 2

Utilizing Value Chains and Knowledge Nets

A business process is an ordered collection activities, designed to offer value to the customer by transforming inputs into outputs. You cannot eat or grow money. But with an appropriate investment for ‘branding’, you can turn grandma’s cookies into a handsome profitable business. The value chain concept views your business process as a system of interconnected exchanges of tangibles that result in added value. Alternatively, the concept of value creation in your organization can be viewed as a structured set of knowledge exchanges through knowledge nets, designed and managed to deliver products and services with an added value (NGOs, Academia, Government) or a competitive advantage (Business & Industry).

2.1 Would You Think Knowing Your Customer Intimately Is Essential for Survival? Just imagine an extraterrestrial intelligent life form observing Earth. Their conclusion might well be summarized as follows: ‘‘Sphere of rock with organic substances stuck to its surface. The most mobile life form displaces itself either aided by machines or walking upright. Preference for hiding inside rectangular buildings.’’ The aliens, after studying us a little bit more, decide to send a small team of observers. The organizational structures and products created by us draw their particular attention (Fig. 2.1). They then approach some top managers to unlock information on this newly discovered, seemingly complex business world. The managers concerned assume the alien visitors want to know how our economy works. ‘‘How is value created?’’ that is the key business question in our knowledge economy. The traditional answer to that question, they continue, is: ‘‘through the value chain.’’ And the managers continue to dwell on the value chain concept as a means to deliver value to customers: ‘‘In short, the traditional value chain is our framework for thinking about how a company can build and sustain a unique advantage over its competitors with long-term profitability.’’ R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_2,  Springer-Verlag London Limited 2011

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Fig. 2.1 Organizations operate from a certain structure, whether a business corporation, academic institution, government agency or professional NGO. They share a common goal and motivate their employees and members to achieve these goals. In our present world of economic expectations, all organizational entities need to function cost-effectively like intelligent organizations that optimize efficient use of resources

One manager now attempts to address the ‘Why?’-question with a sense of humor by quoting: A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty—Sir Winston Churchill

Upon that, our courageous manager is instantly killed by the enigmatic aliens. The alien team of observers swiftly departs for another planet. Apparently, all they wanted to know was whether our planet could produce and deliver good chicken soup. The managers failed to serve these potential clients—and the aliens ran out of patience without prior notice!

2.2 What is Your Organizational Goal? Your business organization is a goal-seeking entity that needs to serve customers and markets with competitive products and services. Improving the understanding of your customer and stakeholder expectations contributes to better business forecasts. By learning to watch and understand end-consumer behavior and buying patterns, producers commonly gain more reliable predictive tools. Traditional value chain thinking is rooted in customer-oriented analysis (Fig. 2.2). The strategic choices made by your business organizations must be based on competitive scenarios using data which project future market developments. The process of information gathering includes the monitoring of market needs, the compilation of product and customer information, the analysis of trends, and the sharing of tacit knowledge to build tangible assets (Fig. 2.3). Such knowledge exchanges result in enhanced corporate intelligence and better strategic decisions.

2.2 What is Your Organizational Goal?

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Fig. 2.2 Traditional value chain management is concerned with market penetration, customer satisfaction, technological progress, innovation of products and services, and professionally-focused employees. Value is added to products and services by optimizing all steps in the value chain

Fig. 2.3 Picking up signals of the business environment is crucial for meeting customer expectations. Information on the quantity and quality of your products and services must be monitored to guide decisions on the adaptations of your selling and marketing concepts

Taking good decisions based on your organizational knowledge resources is crucial for rolling out to the market the right products and services, just-in-time or ahead of competitors.The exchange of knowledge must lead to the improvement of strategic planning knowledge, process knowledge, technical know-how, collaborative design, and policy development. This supports your organization in adjusting faster to changing market requirements. The integration of all information flows (across people, processes and technology, Fig. 2.4) is required to steer an adaptive behavior that is prerequisite to stimulate innovation and better manage the associated risks. Not innovating at all is the biggest risk factor, as this surely will lead to the eclipsing of your business activities while others gain a competitive advantage through customer-oriented innovation.

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Fig. 2.4 Organizations are challenged to channel data, information and knowledge that are essentially disorganized and chaotic into an orderly process of Organizational Learning and Knowledge Management. Ready access to information anytime and anywhere for business applications everywhere is the aim of intelligent organizations

2.3 Who Unlocks the Value of Organizational Intelligence? The management architecture of modern organizations aims to optimize the valueadding capacity in your business operations. Decisions are taken at various hierarchical levels. Five such layers can commonly be distinguished (Fig. 2.5). These hierarchical layers correspond to specific data aggregation layers within horizontal and vertical decision-making networks. Information moves up the hierarchy from project managers (aggregation Layer 1: project teams), to program managers (aggregation Layer 2: several project teams), to asset managers (aggregation Layer 3: various programs), to the business manager (aggregation Layer 4: multiple assets), to the corporate manager (aggregation Layer 5: business conglomerate). Decisions are made at each hierarchical level and the relevant information and knowledge need to be continually recorded, consolidated and aggregated—at each level. Determining exactly which information is relevant in the aggregation process depends on the effectiveness of the decision-making and value-adding efforts in the organization. An example of information aggregation is given here (Fig. 2.6). Project management teams (Layer 1) build new products and services within certain budgetary limits and according to an established time-path. They do this either to contribute to the creation of new asset value, or for the conservation of current asset value. Their typical deliverables include the validation of a product or service, and the establishing of a realistic costing of the profit–loss account for the project’s life cycle. Project teams study and develop plans for products and services on a daily basis. Weekly progress is reported to the program manager.

2.3 Who Unlocks the Value of Organizational Intelligence?

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Fig. 2.5 Although many organizations operate projects in a matrix structure (see Chap. 10), there commonly exists a layered corporate hierarchy that processes information—and knowledge—flows across decision gates. The principal decision gates are located between the layers. Each layer differs in value scale of decisions, impact period and business focus. Obviously, the Organizational or Corporate IQ benefits from effective transfer of information and knowledge across the vertical decision gates that connect horizontal and vertical knowledge networks or information highways

Program managers (Layer 2) assemble and merge the deliverables of the project teams into their life cycle planning for the company’s products and services. Typical deliverables comprise a multi-year projection of value development and improvement of market penetration. Monthly overviews of the various projects and their interaction in the development program are provided to the asset manager. Asset managers (Layer 3) optimize the life cycle planning of the various on-going business or service programs and align these with the organizational strategy. The asset manager is the guardian of the interfacing process between operational units (project management, program management) and the strategic units (business manager, corporate manager). The asset manager is at the cross roads of operational targets and strategic directions and therefore in the best position to prompt for adjustments in the decision-making process at any level in the organizational hierarchy. Responsibilities of the asset manager include: the translation of strategic targets into operationally successful products and services across the decision gates. Typical deliverables are records of production and sales data, future projections, annualized budgetary needs and benchmarking results against Key Performance Indicators (KPIs) of the nearest competitors (even between business units or departments within the company).

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Fig. 2.6 Focus of managerial responsibility at five different Layers in the corporate hierarchy. Organizational Intelligence evolves around the balancing of strategic and operational targets

The business manager (Layer 4) balances the organization’s distribution of asset value, risks and opportunities. Deliverables are industry-wide comparisons of KPIs and strategic recommendations for unlocking future value and to meet future challenges. The corporate manager’s (Layer 5) primary concern is to govern the organization, to vouch for its accountability, to adjust the vision, mission and corporate strategy when needed, and to audit any progress whenever prompted by signals from inside or outside the organization. The temporal impact of the respective decisions ranges from long-term (decades) at corporate management level (Layer 5) to very short-term (days) at project team level managing day-to-day operations (Layer 1). The asset manager is commonly active at the interface (Layer 3) between strategic business decisions (mostly strategic) of upper management (Layers 4 and 5) and operational decisions (mostly technical) of lower management (Layers 1 and 2). The budgetary impact of decisions range within thousands (Layer 1), tons (Layer 2), millions (Layer 3), multi-millions (Layer 4) or billions (Layer 5) of Euros or US Dollars.

2.4 What is the Role of Decision Gates? It is precisely the quality of the communication between the various management layers, and at the hand-over of decisions via the decision gates between them, where smart organizations outperform others that function less intelligent.

2.4 What is the Role of Decision Gates?

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Fig. 2.7 Decision Gates allow decision-makers to decide whether a project should proceed, rework, hold, change, or be killed

The organizational mission and vision continually need reinforcement and support from the alignment of underlying products and services, until adjustments are required either way. The decision makers weigh the project aims against risks and opportunities, keeping sight of the corporate strategy when assessing the project options. They may decide (Fig. 2.7): to proceed to the next phase, to rework in the preceding phase, to stall the project, to change the project scope, or to kill the project. The speed and quality of the decision-making process is continually improving in organizations that learn effectively and in step with the changes in the market place.

2.5 Are You Connecting to External Decision-Makers? The generic functions of the five hierarchical layers distinguished can be translated to corresponding managerial roles in all of society’s organizational entities (Fig. 2.8): Industry is headed by CEOs, Academia by Rectors, Government by (Prime) Ministers, and NGOs by Presidents. Broadly equivalent managerial hierarchy can be recognized within all these organizational entities. Assets are managed by facility directors (Industry), department heads (Academia), cabinet secretaries (Government) and country managers (NGOs). Finding precise equivalence between managerial roles in different organizations is not beyond dispute. What matters is that at each level, there is an underlying responsibility as to who generates which value, and at what time scale. Asset value is optimized by

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Fig. 2.8 ‘Decision gate keepers’ have different job titles in different organizations but all need to understand the importance of facilitating intelligent and effective decision-making in order to enhance Organizational Intelligence. Vertical and horizontal exchange and sharing of information and knowledge are crucial to the development of prosperity and competitive advantage at regional and global scales. Effective Learning Managers can facilitate the transfer of knowledge

unlocking new knowledge that underpins and stimulates the right decisions at the right time. This requires a specific set of skills and competencies at each managerial level. The proper interaction of all managers in a society’s decision gate space becomes more efficient when everybody is aware of the importance to develop Organizational Intelligence, to help boost Corporate IQ, and to make better and faster decisions. Learning Managers play a pivotal role in this process. They must integrate a variety of knowledge resources and managerial views across horizontal and vertical decision gates. They also must remove any obstacles that impede speedy progress of the workflow.

2.6 Value Chains or Knowledge Nets? Value-chain thinking originates from an industrial age production-line model. The value chain thus describes the full range of activities required to bring a product from its conception to the customer as a linear sequence of tasks. This includes activities such as design, production, marketing, distribution and customer support. The activities that comprise a value chain can be contained within a single firm or be divided amongst different firms.

2.6 Value Chains or Knowledge Nets?

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Fig. 2.9 The exchange of goals, services and revenue in the value cycle hinges on the valuable exchange of knowledge and innovative contributions by numerous individuals (engineers and customers). This places people, as repositories of (tacit) knowledge, central in the value cycle, constituting the intellectual capital of your organization

Meanwhile, the traditional model of the value chain has been superceded by a new enterprise model of value networks or value webs. A major strategic challenge today is to transform the business from a sequential (or ‘linear’) value chain organization to the more fluid structure of the value network. A value network generates economic or social value through complex, dynamic, and knowledge-intensive exchanges between one or more enterprises, customers, suppliers, strategic partners and the wider community of stakeholders. Virtually any organization can be understood as a value network, including government agencies and non-profit organizations. Value networks engage in more than just transactions around goods, services and revenue. By reaching far across the value network, managers, engineers and technologists gain exposure to new ways of thinking (Fig. 2.9). This is particularly true when the product delivered to the end-market combines a broad variety of technologies and customized software. As more and more products and services depend on the exchange of knowledge, this intangible itself has become a valuable asset for exchange of currency in its own right. But direct revenue exchange is only part of the picture. The value of knowledge and that of tangible assets are of equal importance, and success depends on building a rich web of trusted relationships. Modern information technology enables the stimulation of and the monitoring of knowledge flows more effectively. This increase of depersonalized electronic communication needs to be balanced by an enhanced capacity to decide which information is valuable to the organization. Again, it is the people in your organization that must act effectively, and in tune with the management’s vision and goals, to boost the Corporate IQ.

2.7 Why Map Value Exchanges and Knowledge Flow Nets? Constructing process maps of the value stream and the identification of value-added and non-value-added activities may help to streamline the business process. Value exchange mapping consists of a detailed diagram of the value-adding process from supplier to client and among the stakeholders (Fig. 2.10). This gives insight into the

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Fig. 2.10 Example of a value exchange map of a pharmaceutical company (PharmCo). The majority of interactions involve knowledge transfer, which indicates that value is added in the value network primarily by knowledge aggregation and the associated decision-making processes across decision gates

value-add ratio and reduces wasteful steps. ‘Systems thinking’ is extended to all parts of the value network. The outcome is a list of essential and non-essential tasks, which yields opportunities for improvement of the business process. Another goal of value network analysis is to find the optimum use of knowledge in the business processes from provider to clients. Ideally, every task directly adds knowledge or quality to the business processes that create the product or service. Value exchanges may be mapped in a flow diagram showing goods, services and revenue, including the associated flow of intangible knowledge. You then optimize patterns of professional interaction to improve communication, connectivity and performance. Such an inventory of knowledge flows reveals the strategic value of your formal and informal knowledge networks.

2.8 What is Your Place and Role in the Value Web? Value adding in organizations occurs principally by knowledge transfer between people—supported by technology and business processes via the company’s value webs and workflow infrastructure (Fig. 2.11). This has become widely accepted in cyber age as incorporated organizations into professional electronic networks.

2.8 What is Your Place and Role in the Value Web?

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Fig. 2.11 Value adding in modern organizations occurs via the exchange and sharing of knowledge. The aggregation of this knowledge in the value web occurs in a structured workflow supported by technology and business processes. Workflow must include performance criteria and gatekeepers that enhance the corporate decision-making capacity

But what remains inconspicuous in many cases is the crucial effect of the organizational hierarchy on this knowledge and information transfer. The vertical migration of information involves critical choices about which data are relevant for the next level upwards in the hierarchy. Workflow design has become crucial for effective decision-making. Organizational Learning strives to continually improve and innovate the best practice workflow to boost the corporate efficiency, accuracy and value-adding capacity.

2.9 What Can Communities of Practice Achieve? Functions that should maximize bodies of knowledge (e.g., the expert, project manager, and program manager) often tend to do so with short timelines, and this operational focus diverts attention away from fundamental thinking and knowledge creation. This diversion of attention brings the risk that knowledge remains isolated, neglected or under-used. Likewise, the asset manager, business manager, and corporate manager, who all should encourage the integration and aggregation of new knowledge are often better at directing cross-functional applications of explicit knowledge and the finding of new business opportunities. This is a sub-optimal situation, because: the ‘best practice’ of today can never be the ‘best practice’ solution for the problems of tomorrow. The focus on the identification of new applications areas is much needed, but may go at the expense of efforts on the development of deeper and new (tacit) knowledge.

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Fig. 2.12 Communities of Practice (CoPs) are spontaneous, commonly selfinitiated task forces of project teams that have a strong motivation, appropriate skills and keen interest in solving (future) business issues making use of (hitherto unmined) tacit knowledge spread across the company and outside

New knowledge creation is often seen as something that can be farmed out to universities and other research establishments. Such co-operations certainly are fruitful, but cannot replace the critical process of business rejuvenation by Organizational Learning. It is important to continually assess where knowledge resides in your organization and how it is shared (or not). Mapping knowledge flow nets is an effective method to spot opportunities for additional value creation, a primary role of systems engineering and program management. Commonly, social networks emerge as essential ‘highways’ for knowledge creation and discoveryoriented business development. In order to stimulate knowledge development, consider initiating or joining a Community of Practice (CoP)—to elicit and unlock tacit knowledge in your organization (Fig. 2.12). The basic rules of engagement for such CoPs are: • To focus on a relevant knowledge domain—the domain of knowledge gives members a sense of joint enterprise and brings them together, • To agree how to function as a community—the relationship of mutual engagement binds members together into a social entity; • To build a balanced community—the CoP should include representatives from different hierarchical layers to encourage cross-functional exchange of knowledge; and • To document and share the knowledge that the CoP has produced—the shared repertoire of communal resources that members have developed over time through their mutual engagement (e.g. routines, lessons learned, identification of experts, artifacts, standards, tools, stories, vocabulary and styles) has become an explicit knowledge resource. Communities of Practice (CoPs) empower people via a participative development process with various discussion platforms (either technical or not). The dialog focuses on the real practices and experiences of people, and facilitates spontaneous processes. There is a conscious emphasis on mutual learning and the actual tasks of people, not on teaching ‘out-of-context.’ Management concentrates on ‘what to do,’ while the networked professionals and system experts ‘make it happen.’

2.10

Case Study 2: Unbundled ‘Roundabout for Gas’: Expanding Value Net

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Fig. 2.13 The Dutch gas grid of Gasunie has provided homes and industries with natural gas since 1963. Gas is distributed from the giant Groningen field (produced by NAM) throughout the Netherlands and abroad. New suppliers (i.e., Norway, Russia, and spotmarket LNG) now compete with NAM in an international gas market to supply natural gas at the best price

2.10 Case Study 2: Unbundled ‘Roundabout for Gas’: Expanding Value Net in NW Europe The structure of the international energy market is changing rapidly. Uncertainty about future energy security (supply and demand) has put energy policy high on the agenda of the EU Council and of its Member States. For example, the European directives to liberalize the energy market, and to support security of supply, are echoed in the Dutch political agenda. The Netherlands holds 56% of European gas reserves on its soil and provides 55% of the gas volume in the EU market. Dutch energy policy and regulation must take both the international and the European developments into account. Similarly, Dutch energy companies (and their foreign competitors) must absorb the new regulations and develop strategies for the future. Gas transport capacity and knowledge nets are both changing and expanding rapidly in the wake of internationalization of the European gas market. The Dutch transport network, one of the largest high-pressure networks in Europe, consists of 11,600 km of pipeline and transports around 95 billion cubic meters of gas per year (Fig. 2.13). Initially most of the gas came from the Slochteren field in Groningen, discovered in 1958 and producing since 1963. For some 40 years the Dutch gas market remained a state monopoly dominated by Gasunie. In the period 2002 to 2005, liberalization policies led to the unbundling of this monopoly. Finally, on 1 July 2005, N.V. Nederlandse Gasunie was split to create two autonomous companies. The newly created companies are a gas trade and supply company (GasTerra) and the gas grid asset owner (Gas Transport Services, or GTS, which remains a subsidiary of N.V. Nederlandse Gasunie). The de-merging or unbundling was carried out in response to the EU directives and the liberalization of the European Gas market. GasTerra and GTS maintain a strictly regulated commercial relationship. This means that GasTerra must now negotiate with GTS for gas transport

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services in the Netherlands on the same conditions as any other gas trading company. Competitive pricing of products and services now dominates the liberalized European gas market. In theory, GasTerra may decide to reduce the volume of gas—bought from Slochteren and elsewhere—sold and transported in the Netherlands by selling directly to—or through—Germany. That could leave the Dutch grid of Gasunie, now managed by GTS, underused. Therefore, both GasTerra and GTS independently experience a process of rapid Organizational Learning: ‘‘How to share knowledge with new customers and new stakeholders? Which knowledge is crucial for them?’’ The changing business environment requires a different attitude, as the liberalized gas markets prompt for a new approach. Competitive tariffs and reliable transportation of gas must be offered to suppliers in order to utilize full pipeline capacity and add more capacity where needed. Meanwhile, the physical network of N.V. Nederlandse Gasunie that provides GTS with dispatching capacity has been expanded too with further international connections, making it possible to pipe through the Netherlands natural gas coming from Eastern Europe, Norway and Russia. The existing connections with the German grid will, in the future, enable entry of Russian gas from the North Stream Pipeline to the Dutch grid. Next to these interconnections with Germany, pipelines tie in with the gas grids in Norway and Belgium. New international pipelines have recently been completed, such as the Balgzand-Bacton Line (BBL), which links the Dutch grid of N.V. Nederlandse Gasunie directly with the UK gas grid. The stakeholders of the BBL Company are Gasunie (60%), EON Ruhrgas (20%), and Fluxys (20%). New partners in the Dutch ‘Roundabout for Gas’ help develop projects that will enlarge the gas transport infrastructure: three LNG-terminals are planned, two of which at the Port of Rotterdam and one at Eemshaven (Groningen). The future connection of these terminals to the gas grid means that GTS can actually transport gas for any gas trade and supply organization willing to utilize the terminals, storage and transport facilities in the Netherlands. This capacity must make the Dutch ‘Roundabout for Gas’ in Western Europe attractive to major gas suppliers and thus ensure sustainable growth for GTS. The ‘Roundabout for Gas’ is a physical network, but one where people trade knowledge to support decision-making in an expanding network of physical assets, economic value and knowledge capital—in an expanding Knowledge Net.

2.11 Actions You Can Take… A. Compile a map of the value exchange and knowledge flows in your organization. Take the following steps: (1) Identify and map the internal divisions and departments that exchange knowledge, goods, and/or services. (2) Specify what each unit needs from the other unit to optimize the business process. Use the map

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of your corporate knowledge intra-net (intra, for internal) to stimulate exchange, aggregation and bundling of knowledge in an expanding value and knowledge network. B. Stimulate knowledge sharing in your organization. Take the map of your corporate knowledge intra-net (alternatively, the hierarchy pyramid of Fig. 2.5) and determine your relative position in the value network. Make sure that each organizational level in your company does not act as an isolated knowledge repository. Can you identify bottlenecks in the knowledge sharing process? C. Mine your internal knowledge sources. Take the map of your corporate knowledge intra-net (alternatively, use the corporate hierarchy of Fig. 2.6) and mark your own position. Map out the names of the nearest knowledge partners (at adjacent levels) inside your organization. Determine how often you have talked about pooling, integrating, and streamlining your knowledge development activities vertically across the hierarchical layers within your organization. Identify where in your organization resides the largest corporate repository of ‘best practice’ or experience. Make an action plan and fix appointments for improved utilization of the joint knowledge resources. Initiate innovative projects across the established knowledge layers when opportunities arise. D. Mine your external knowledge sources. Take the decision-gate matrix of Fig. 2.8 and mark your own position. Map out the knowledge extra-net (extra, for external) to identify the nearest knowledge partners outside your organization but very relevant for knowledge sharing and integration with your internal knowledge net. Determine how often you have talked about pooling, integrating, and streamlining your knowledge development activities laterally across organizational boundaries. Identify which knowledge partners have the largest repository of ‘best practice’ experience. Make an action plan and fix appointments for improved utilization of the joint knowledge resources. Initiate innovative projects with these knowledge partners when opportunities arise. E. Identify the value of your tangible and intangible business transactions. Decide on specific actions (short-term, medium-term, and long-term) to court potential knowledge partners into your value net. Align all these partners with your strategic business interests (and vice versa) in win-win agreements. Suggest ways to create more value in your business operations based on value and knowledge network analysis.

2.12 Things to Think About… • Is there a relationship between your current financial performance and the quality of your tangible assets and intangible knowledge network(s)? • Can you identify inefficient links and communication sinks or knowledge blocks between certain units or certain individuals in your unit, division, or organization?

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• Can you suggest ways to improve professional communication between people and teams of people in various departments and business units in order to stimulate the exchange of information and knowledge?

2.13 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) 1. Our organization has established an atmosphere of continuous improvement regarding quality, productivity, and customer responsiveness in its operations. 2. Key support processes are in place in our organization to ensure we meet operational requirements and add value to our organization’s clients. 3. Our organization has an image crisis, and fails to use its societal networks to adjust our strategic position when necessary. 4. Employees are poorly motivated to work in our organization and retention of personnel is low. 5. Customers and other stakeholders are rarely involved in the development of new products and services of our organization. 6. Financial and process measures, people skills and customer relationship measures form a key part of our managers’ performance reviews and gratification. 7. We meet and occasionally exceed customer expectations—but our goal is to be 100% dependable—we deliver on our promises. 8. We do not utilize information technology to get closer to customers: no systems integration, and no capturing of customer knowledge. 9. Performance measures are initiated in our organization to reinforce responsiveness to customer wants and needs (e.g., quality measures, productivity measures, timeliness measures, etc.). 10. Our organization uses a formal system for periodic performance assessment with detailed benchmarking against competitors and world class organizations to drive performance improvement. For IQ Scorecard assembly move to Gate Statement 1 2 3 4 True 1 1 0 0 False 0 0 1 1

Stops 5 0 1

1 and 6 1 0

5 7 1 0

8 0 1

9 1 0

10 1 0

Score

Input for IQ Scorecard from Chap. 2: Total True and False

Bibliography and Websites Allee V (2003) The future of knowledge: increasing prosperity through value networks. Butterworth-Heinemann, Woburn, Massachusetts

Bibliography and Websites

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http://www.educause.net/ EDUCAUSE is a nonprofit association whose mission is to advance higher education by promoting the intelligent use of information technology http://ocw.mit.edu/ The idea behind MIT OpenCourseWare (OCW) is to make MIT course materials that are used in the teaching of almost all undergraduate and graduate subjects available on the Web, free of charge, to any user anywhere in the world http://www.eknowledgecenter.com/ eKnowledgeCenter offers the only professional development program to pass Knowledge Manager Certification test. Also offers a suite of products and services related to knowledge management http://www.skyrme.com/ The place to gain insight into the networked knowledge economy, and help in creating successful knowledge management and Internet commerce strategies http://www.sol-ne.org/ SoL, the Society for Organizational Learning, is an international learning community composed of organizations, individuals around the world http://www.12manage.com Professional web portal for managers with explanations of many basic management tools and skills, including Organizational Learning and Knowledge Management

Chapter 3

Stimulating Organizational Learning

If corporate leadership is about maximizing shareholder value, Corporate (or Organizational) learning is necessary to develop all of the valuable company resources in the right direction. Just like ordinary people, organizations can strive to use their unique endowments and talents intelligently to give something useful to the world. Your organization is a mine filled with precious gems and minerals. Individual education has already helped each person in your organization to reveal his or her unique values. People in intelligent organizations are provided with training and tools that enable and motivate them to enhance your organization’s unique capabilities. Organizational Learning is a creative team effort that adds vitality and sustainable value to your corporate future.

3.1 Why Learn? Active Organizational Learning occurs when your organization is able to engage in the process of detection, diagnosis, and reduction of errors in a direction favorable for success. Your workers contribute to the organizational knowledge base embedded in the core processes consistent with your corporate strategy, using intranets and extranets for ‘just-in-time’ delivery. An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage—Jack Welch, former Chairman, General Electric.

Although learning faster, and applying the acquired knowledge skillfully, must be your organization’s goal, almost paradoxically, it takes time to acquire Corporate Intelligence. It takes time to get started, develop the expertise and realize the full potential of your Corporate IQ. The road to success requires that you are familiarized with the basic concepts and tools of Organizational Learning (Fig. 3.1).

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_3,  Springer-Verlag London Limited 2011

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Fig. 3.1 Organizational Learning concepts and tools can help build pathways that stimulate a whole range of knowledge creation, transfer, and sharing activities. The result is that knowledge is readily available in learning organizations such that knowledge can be delivered (JIT) for application in your business operations

Preliminary questions that may drive Organizational Learning are: ‘‘How well or badly are we doing? Is the business adding value? Is the return on equity greater than the cost of equity? Are the prospects for growing value good?’’ If we are doing the right thing and doing things right, business is healthy and intelligent. If not, the Organizational Intelligence will reflect this, and the company is a candidate for a strategic overhaul, a take-over, or if things are really bad, for bankruptcy. In order to keep our jobs, all of us ought to be interested in Organizational Learning, Knowledge Management and the building of Organizational Intelligence. Periodic IQ assessment is required and must be used as a tool to adjust the learning curve. Climbing up the corporate learning curve to boost your Organizational IQ is a steep challenge. Organizational Learning is a team effort and only then will it be effective (Fig. 3.2). Commonly, the steepest boost in Corporate IQ can be achieved during the implementation phase that occurs after Awareness and before achieving a state of Practical Knowledge in Organizational Intelligence (see also Fig. 1.10). It is also the phase that requires the most commitment to establish learning systems, new work flows and learning events (and realistic capital budgeting). Corporate learning is not only for big firms. It is essentially a managerial philosophy that needs to be voiced and put into action in order to work. In any case, the uncoordinated transmission of collective knowledge meets its limits in organizations exceeding about 200–300 people. This is the maximum size of an

3.1 Why Learn?

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Fig. 3.2 Organizational Learning boosts the Corporate IQ of your organization. The acquisition of Organizational Intelligence evolves through the typical stages (see also Fig. 1.10). Awareness (IQ-25), Basic Understanding (IQ-50), Practical Assessment (IQ-75), Skillful Application (IQ-100), Advanced Experimentation (IQ-120) to Genius level (IQ-140)

Fig. 3.3 Knowledge workers in learning organizations must work effectively together to unlock new knowledge and share individual (tacit) knowledge (see Chap. 4) to broaden the corporate knowledge base. Organizational Learning as a program provides tools and a corporate framework to enhance knowledge-sharing activities

entity in which people know one another well enough to have a reliable grasp of their collective organizational knowledge (Fig. 3.3). Smaller organizations are commonly privately owned and company intelligence is typically closely protected at the top. Additionally, smaller firms may be handicapped in developing Organizational Learning, as there often are no separate managers for the development of human resources and the implementation of technology enabled learning systems.

3.2 Where Do You Start to Develop ‘Best Practice’? So what is motivating people to learn how they can contribute to Organizational Intelligence? Research has shown that it is less about pay, but mostly about delegated responsibility, recognition of achievement and personal growth with positive career advancement prospects.

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Fig. 3.4 The corporate vision on the development of Organizational Intelligence and the importance of Organizational Learning need to be communicated using well understood ‘shared symbols’. This Executive Guide provides a useful primer to raise awareness and basic understanding by all people involved in your business processes

The management vision needs to include a mission statement for the development of Corporate Intelligence and establishment of ‘best practice’ by Organizational Learning. Directors must give direction, empower the learning managers, and measure achievement of objectives. The importance of Organizational Learning as a process must be communicated frequently and individual contributions need to be awarded and encouraged. An organization cannot become intelligent without proactive and cooperative individuals. The visionary message needs to be repeated, using shared symbols (Fig. 3.4) to improve alignment of managers at all levels and to enhance support for the need to develop Corporate Intelligence. Communicate the message and demonstrate that the development of Organizational Intelligence is an integral component of your organization’s strategic plan. Change the enterprise culture to encourage and reward knowledge sharing. Technology is an enabler for supporting the Organizational Learning processes and creating the knowledge repository. Successful creation of awareness needs internal champions. The culture change needs to start focused and then expand; reward the sharing of information; integrate information users, providers and intermediaries. Organizational Learning as a managerial philosophy is closely aligned with Knowledge Management, leadership, economic value-adding and the principles of change management. Corporate knowledge must be used intelligently to stay ahead: given the same access to technology and open markets, learning faster than any others in the business gives your organization its competitive edge. Organizational Learning stimulates the mining of the precious gems and minerals in your organization: building ‘best practice’. Assessing top-down versus bottom-up change can help your management to persuade practitioners to change their mindsets. A better understanding of the multi-resolution structure of Organizational Intelligence may significantly improve the information flow between hierarchical layers (Fig. 3.5). This multiresolution concept explains why middle management sometimes thinks that upper management is swaying from the right path, while in reality they both may operate to realize the same operational goals.

3.2 Where Do You Start to Develop ‘Best Practice’? Fig. 3.5 Using ‘shared symbols’ is particularly important when messages travel up and down the corporate hierarchy. As reference frames and operational focus are different at different levels in the organization, even ‘shared symbols’ may be misinterpreted in multiresolution communication across decision gates such as in Figs. 2.5 and 2.6

Feedback up

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Message down SENDER

RECEIVER Decoding

Encoding

SENDER Encoding

RECEIVER Decoding

This perceived difference in understanding commonly manifests itself because the various organizational levels operate on different temporal and conceptual levels of resolution. This effect is well-known in military doctrines. To ensure a continuity of propagation of the organizational goals at a particular level requires understanding an instruction given at two levels above, while the same level requires generating an instruction that will be understood two echelons below. The irony is that we all intuitively know that. It is too frequent when workers below are misunderstanding messages that upper management considers ‘visionary’. Each echelon of management, not to mention specific departments, tends to develop an expressive language of their own. The intent coming from above needs to align with the understanding from below and vice versa. That alignment can be accomplished by continual feedback. This feedback exists in any organization, but increasing the learning speed and quality of interpretation is a major contributor to the success of the organization. More hints on the importance of effective organizational communication in change management and Organizational Learning are outlined in Chap. 12.

3.3 What can be Learned from Robotics? An illustrative analog for explaining the functionality of inter-managerial communication in your organization is provided by Robotics. A robot is, in fact, a complex information-processing device with hard wiring, sensors, and a mission to fulfil in a challenging environment (Fig. 3.6). The robot’s Head contains the far-field sensors and strategic decision-making software (Layers 5 and 4), while its Feet sense the short-term obstacles (Layer 1) that need to be factored into the workflow for the leg dynamics, as appropriate technical decisions to keep moving ahead (Layer 2). Head and Feet communicate via the Gut zone (Layer 3), where information from the Head’s strategy and Feet’s operations need to be smartly merged.

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Fig. 3.6 The robot provides a powerful analog for explaining the sensitivity of inter-managerial communication. Synchronization between information and knowledge flows from the Feet to the Head via the Gut zone, and vice versa, is essential for intelligent and sustainable progress. The robot mirrors the information flows across decision gates in the corporate hierarchy

It is important to achieve your organizations’s objectives. But your organization (the robot) will increasingly encounter difficulties in staying abreast of the competitors when the following occurs (Fig. 3.6): • If the Feet do not know the Head’s strategic direction, your competitors will easily outrun your organization. • If the Head does not listen to the Feet’s experience, your organization will never learn to outrun its competitors. • If the Head does not see obstacles in the environment or signposts far-a-field, the whole organization might walk into the sump. • If skill gaps go unnoticed, the communication between the Head and Feet would be structurally impaired; your organization will lag behind its competitors. • If your recruitment practices are flawed, the flow of knowledge between the Head and Feet will retard; your organization will be outsmarted by its competitors. • If either the Head or Feet do not respect and comply with the rules of the game, regulatory auditors will disqualify your organization. The aggregation of information at each level in the organization results from intensive exchanges of specialist knowledge in, and mostly confined to, the value networks at that level (Fig. 3.7). When information moves up in the hierarchy, the value of that information is commonly a product of time spent and number of people involved in processing the information to add knowledgeable and tangible results. The higher aggregation level commonly requires more concise formats. Likewise, downward dissemination of information on vision and expectations

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Fig. 3.7 Template of knowledge aggregation up the value chain in an organization with decision gates between the hierarchical Layers as outlined in the model of Fig. 2.5. Managers at the various levels hold responsibility for swift progress in the knowledge aggregation and decisionmaking process. Fusion of strategic and operational knowledge in the Gut zone must be integrated in a seamless workflow (integrating people, technology and processes)

mandates the use of concise and common language, which is unambiguous. Only then will the vision and expectations be effective, well understood and relevant even at the lowest hierarchy level in the organization.

3.4 How Do You Recognize Barriers to Organizational Learning? Fast access to organizational knowledge has been greatly improved by the advent of affordable computing power, efficient servers and online information systems (Fig. 3.8). Attention must now mostly be paid to organizational dynamics: ‘‘How to overcome barriers to sharing knowledge and foster a spirit of innovation?’’ For example: ‘‘How can you enable people’s learning contributions and knowledge-sharing activities within the familiar technology and processes?’’ The translation of data into information, extraction of knowledge from the acquired information, and subsequent use of corporate wisdom to act intelligently with these assets may lead to either corruption or enhancement of your Corporate IQ. Here are some sure signs of IQ-corrupting agents: you repeat mistakes. You duplicate work. Your client relationships are strained. You do not share good ideas. You have to compete on price. You lag market leaders. You depend on too few key individuals—who may be close to retirement. You are slow to innovate. You don’t know how to price for service.

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Fig. 3.8 Computerized networks continue to accelerate the speed of knowledge-sharing. Classification of corporate data and information resources remains of crucial importance. Improving the corporate knowledge memory, sharing of databases and incentives for new knowledge creation must be part of successful Organizational Learning programs

Here is the remedy against such corruption: Develop your Organizational Intelligence by effective Organizational Learning and grow smart enough to avoid costly mistakes. Ensure that both Organizational Learning and Knowledge Management are aligned with specific business processes. Monitor your progress by assessing your Corporate IQ on a periodic basis in a structured program as outlined in Appendix A. Successful Organizational Learning in itself requires directing your attention to performance in four fields (Fig. 3.9): (1) people engagement and talent management, (2) technology innovation, (3) business process improvement, and (4) workflow optimization. The generic challenges in these fields, the intrinsic drivers of your business operations, are outlined below.

3.5 How Can You Overcome Barriers to the Development of Organizational Learning? People engagement and talent management: Modern and complex learning organizations need team workers with optimum communication and integration skills that continually help fine-tune the business process from within. The effective interaction of all professionals makes the business tick better, while enhancing the competitive edge. The value-adding capacity of professional teams is optimized when they succeed to work together in rapidly unlocking their best

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Corporate Knowledge Spiral

DecisionMaking

Risk Analysis

Fig. 3.9 Given the same access to new technology, and certified business processes, it is your employees that can make a difference in implementing, optimizing, and revolutionizing these tools and processes. Their ability to progress your business up the knowledge spiral faster than your nearest competitors, while making the right decisions on risks and opportunities, is crucial for staying at the competitive leading edge

Fig. 3.10 A skill gap occurs when skills required for business completion are not matched by the skills of the workforce. Causes for skill decline are: poor recruitment, lack of learning incentives, insufficient corporate realization that new skills and competencies are needed. Individual, life-long learning is necessary to fill the otherwise imminent skill gap

tacit knowledge for the benefit of the business operations and in line with the corporate strategy. Business leadership—integrated with people skills and technical skills—is needed, to optimize the decision-making capacity in the business value chain. Development of young business leadership helps to meet the new challenges in your business. Although there is now a global talent pool available for hiring, companies still need to invest in growing their own talent. Transfer of experienced professionals does occur among companies but will not be sufficient to bridge the skill gap. Individual, life-long learning is needed to fill the otherwise imminent skill gap (Fig. 3.10). Technology innovation and business process improvement: Closure of technology gaps to seize new business opportunities are widely understood but continual

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Fig. 3.11 The Efficiency Gap in a company’s value-adding capacity grows when the Corporate IQ is declining due to poor Organizational Learning. Decline in the Corporate IQ (trend 1) that strays away from the preferred Corporate learning path (trend 2) results in the development of an Efficiency Gap, which means lagging performance

innovation is needed to stay leading in technology applications. The same holds for business process improvements. For example, the mining group Rio Tinto improves their asset management tools and processes under the slogan ‘Improving Performance Together’ sharing ‘best practice’ across business units. Your company should engage in R and D cooperation to stay abreast of the competition and innovate your technology and business processes faster than all others. Workflow optimization: Efficiency Gaps (Fig. 3.11) commonly arise from ineffectiveness (sluggishness and inaccuracies) in the workflow, which can be avoided by effective Organizational Learning. Improving the Corporate IQ by the building of Experiential IQ, Contextual IQ, Componential IQ, and Emotional IQ (see viewgraph of Fig. 1.12) are critical elements for improving the performance of your company. The building of strong assets—reflected by high Componential IQ scores—remains important.

3.6 Case Study 3: Smart Fields-Building Smarter Oil Companies, Learning Organizations At the onset of this third Millennium, the Oil and Gas industry faces steep challenges to satisfy the growing global demand for hydrocarbons. A snapshot in time was provided at the Intelligent Energy 2006 Conference in Amsterdam. Some 1,200 leading Oil and Gas technology experts from 56 countries gathered on the quest to be able to provide our planet with sufficient Oil and Gas by the end of the decade.

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Fig. 3.12 Geographical Information Systems (GIS) and other software platforms enable data integration in petroleum production. New data accumulate continually and are integrated into the subsurface model to improve the reservoir model and enhance production capacity. Data gathering is costly (seismic sections, drill cores, borehole logs) and no information may be overlooked in assessing the reservoir potential

Companies like Shell have came up with the ‘Smart Field’concept, BP with ‘Field of the Future’, and Chevron with the ‘intelligent Field (I-Field)’ solutions. The central focus of all these approaches is to integrate innovative technology with new work processes and automated control and decision systems (Fig. 3.12). The energy systems of the future must optimize and integrate knowledge at every organizational level and all the time, while responding to the societal need to address environmental concerns. The petroleum industry utilizes the most advanced technologies available in its exploration for new oil and gas reserves. Data from remote sensing, seismic imaging, drilling, logging and surface mapping are merged in GIS databases (Fig. 3.12) to monitor the production process of oil and gas. The exploration and production for Oil and Gas projects include high precision extended reach drilling steered toward the target at reservoir trajectory depths of over 10 km. Offshore drilling now occurs in water depths that may exceed 1 km and sub-sea production units continue to bring new hydrocarbon wells on stream. The subsequent appraisal of economic viability and the planning of facility infrastructure involve advanced decision-making tools, sometimes applying real option analysis. What has changed only recently is the way in which oil flows out of the producing pipes while pressurized by remote injector wells. Traditionally, this leaky circuit of

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Fig. 3.13 Smart Fields technology allows real-time monitoring and steering of oil production. This leads to more efficient (enhanced) recovery of oil and gas from the subsurface reservoirs. New data accumulate continually and are integrated into the subsurface model, for assessing the reservoir potential, and to improve the recovery factor

subsurface fluid flow was maintained by heavy duty, mechanical devices. A new approach is the so-called smart well technology, where down-hole gauges measure fluid flow, temperature, and pressure. Using this information, smart valves can be shut electronically—and at will—to optimize the reservoir drainage. Smart Fields technology includes the application of optimization control theory on powerful numerical reservoir models that then are fed with data from the real oil and gas production fields. The iterative improvement of the simulation merged with the real data contributes to build production models that yield improved oil and gas recovery volumes. Shell’s Smart Fields technology integrates digital information technology with the latest drilling, seismic and reservoir monitoring techniques to provide energy more efficiently. The digital information technology with integrated subsurface, production and facility data allows monitoring a continuous flow of information enabling engineers to optimize production nearly real-time (Fig. 3.13). Fields can be unmanned, enabling engineers anywhere to operate them remotely. Smart Fields technology could increase the global average amount of oil recovered from a field by around 10% and the amount of natural gas by around 5%. It also boosts production rates. Shell states in a 2007 web-log: Champion West, located 90 km off the coast of Brunei in the South China Sea, is Shell’s flagship Smart Fields project—the forerunner of more than a dozen expected to be in operation by 2009. For 30 years Champion West lay dormant, its rich oil reserves locked 2–4 km beneath the seabed in a complex web of thin reservoirs deemed too expensive to develop.

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But now Smart Fields technology and new drilling techniques have turned Champion West into one of the world’s most advanced oil and gas fields. From deep beneath the seabed, sensors with fiber-optic cables relay digital information about temperature, pressure and other field conditions to control centers on land. Engineers can make speedy decisions on how best to extract the maximum amount of oil, monitor its movement within the reservoir and instantly spot production problems, such as blockages. They can take action—for example, by activating well valves electronically—either to solve a problem, or to increase production by better managing the oil flow.’’ Organizational Learning on smart field development started out with 100% focus on technology. In fact, the development of Smart Fields technology (Shell), I-field (Chevron), and ‘field of the future’ (BP) is now commonly perceived to be only 30% about applying new technology and 70% about improved people competencies and modified workflow processes. Integrating new technologies into old and new oil fields is a major technological challenge, but requires interchange of personnel, superb communication skills and tedious assessment of economic viability, using advanced risk analysis and decision-making algorithms. The Smart Fields vision aims to develop and deploy capabilities such that Oil and Gas production with the Smart Field approach is continuously and proactively optimized for lifecycle value, through the application of integrated capabilities (people skills, technology tools, business processes, and workflow). Smart Fields will get smarter only if the evolving knowledge spiral (Fig. 3.9) is continually upgraded with real data and with new insights for improving the workflow, preferably real-time. Replacing the term ‘Smart Field’ with ‘Intelligent Organization’ makes clear that the industry-wide challenges for the Oil and Gas operations are, in fact, wholly generic: ‘‘Making our Organizations more Intelligent’’. The automotive industry, banking, chemicals, communications, consumer package goods, commodity traders, energy sector, health care, industrial products, mining industry, retail and utility companies all compete for optimizing knowledge, business processes, and technology. They all require increased levels of integration and cooperation between disciplines and across organizational boundaries. This Executive Guide provides the generic framework for the sharing and integration of knowledge across organizational boundaries using the benefits of Organizational Intelligence.

3.7 Actions You Can Take… Enhance your Organizational Learning capacity: Organizational Learning is driven by four principal factors: people skills and competencies, technology tools, business processes, and workflow (see Fig. 3.9). Improved performance may be achieved by any single or a combination of factors. These are: (1) better teamwork and better knowledge sharing between the people in your organization

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(e.g., bringing personal, tacit knowledge and higher quality into the explicit knowledge domain), (2) technology breakthroughs and strategic rollouts (e.g., Smart Fields example), (3) improved physical or chemical business processes (e.g., new pipeline welding methods), or (4) improvement of workflow speed (e.g., dramatically shortened project development times). Identify for which of the four drivers of Organizational Learning, your organization is lagging behind. Make an action plan to enhance your Organizational Learning capacity by renewed focus on the concurrent drivers of progress in your industry. These drivers are people, technology, processes, and workflow.

3.8 Things to Think About…

• Can you document examples illustrating that the strategic vision of your top management was not well understood by the operational units? • Were there obvious barriers that impeded the transfer of organizational information, knowledge sharing, and Organizational Learning? • Can you suggest remedies to prevent such situations of miscommunication and improve your Organizational Learning processes and systems?

3.9 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) 1. I am not aware of the career development programs in our organization. 2. An ongoing education process supports people in our organization to develop the skills and competencies necessary for dealing effectively with our evolving business environment. 3. Our business processes change rapidly and the adjustment of our specific individual expertise is not adequately supported by an organization-wide training program. 4. There is inconsistent understanding about the role of communication at different management levels in our organization. 5. There is a high-level of trust between our top management and its staff. 6. I often receive information too late or information is missed by me due to obscure communication methods prevailing in our organization. 7. Our organization has a project reporting policy defined that ensures corporate memory is continually upgraded, archived and expanded. 8. Technology automation in our organization is inadequate for the distribution and retrieval of project information in a timely fashion. 9. Business performance indicators are regularly reported to our leadership.

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10. Our key performance measures are well-known, monitored and files with this information are accessible to our management when needed to support our workflow. For IQ Scorecard assembly move to Gate Statement 1 2 3 4 True 0 1 0 0 False 1 0 1 1

Stops 5 1 0

1 and 6 0 1

5 7 1 0

8 0 1

9 1 0

10 1 0

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Input for IQ Scorecard in this Chap. 3: Total True and False

Bibliography Marquardt MJ, Revans R (1999) Action learning in action: transforming problems and people for world-class organizational learning. Davies-Black Publishing, London Gilley JW, Maycunich A (2000) Organizational learning, performance, and change: an introduction to strategic human resource development. Perseus Publishing, Cambridge Senge PM (1994) The fifth discipline: the art and practice of the learning organization. Currency Doubleday, New York

Chapter 4

Managing Knowledge Resources

Your organization cannot learn effectively unless everyone has access to adequate sources and records from which to expand your organizational knowledge base. Appropriate Knowledge Management, therefore, is a prerequisite for effective Organizational Learning. Enterprises and other organizations need to know what their knowledge assets are, how to manage these assets, and how to make use of them to get maximum return. Knowledge resides in databases, knowledge banks and peoples’ heads—all distributed right across the enterprise. Effective Knowledge Management uncovers the crucial experience, accelerates time-to-market and results in growth. Ineffective Knowledge Management results in duplication, waste and loss of your market share.

4.1 Why Knowledge Management? The failure of companies in promptly knowing what they already know is costly. ‘‘If HP knew what HP knows, we would be three times as profitable’’—a classic comment by Lew Platt (former HP CEO). The need for a perfect link between knowledge, business strategy, and information technology is a key driver for Knowledge Management. Getting the right information to the right people at the right time—anytime—is now possible when servers and automatic data acquisition systems are in place. The value of Knowledge Management becomes clear if you consider the high cost of ignorance—David Skyrme, 2004.

There is an obvious need for faster knowledge transfer and avoidance of sluggishness in knowledge flows. Typically, enterprise effectiveness is limited by restrictions in the flow of, and access speed to, information. The World Wide Web has already revolutionized the way enterprises conduct research and exchange

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_4,  Springer-Verlag London Limited 2011

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Fig. 4.1 Finding and eliciting tacit knowledge requires conscious Knowledge Management. ‘Harvesting’ of data, information and knowledge is a continuous process that rejuvenates your (explicit) knowledge resources so that cutting-edge knowledge is available on demand anytime, anywhere and for all concerned

Fig. 4.2 Knowledge Management also is about shedding data and information such that your corporate knowledge aggregation contributes to all IQ performance categories (experiential, contextual, componential and emotional, see Figs. 1.13 and 1.14)

Intelligence

Human, judgemental

Knowledge

Contextual, tacit Transfer needs learning

Information

Codifiable, explicit Easily transferable

Data

knowledge on business, science and engineering. Therefore, professional management of your organization’s internal and external knowledge resources has become crucial for maintaining a competitive advantage (Fig. 4.1). Knowledge Management and Organizational Learning are two sides of your corporate brain, from which your Organizational Intelligence originates. This Organizational Intelligence enables successful organizations to enhance corporate success and financial wealth. But the benefits of Knowledge Management are numerous. Business risk is reduced through the use of high-quality, reliable, and validated knowledge. Professional Knowledge Management ensures timely access to-and reliability of-all relevant organizational resources. It improves the maturity of Organizational Intelligence through knowledge-based process improvement (Fig. 4.2). It accelerates knowledge sharing events, promotes knowledge mining and facilitates

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Fig. 4.3 Individual professionals are able to translate data and information into knowledge. This personal and tacit knowledge can benefit the business process more effectively if shared such as to create organizational knowledge

knowledge reuse for strategic advantage. In this environment, Organizational Learning is possible in a purposeful fashion, making use of knowledge repositories while complying with the visionary mission of the leadership, rooted in ‘best practice’.

4.2 Where Do Individuals Fit in? The human side of Knowledge Management is very important. The term knowledge capital is sometimes used to describe the intellectual wealth of employees and is a real demonstrable asset of organizational value. Data-processing can be solidly performed by computers, but only the human mind can upgrade this information to process knowledge (Fig. 4.3). Knowledge is founded in facts and figures, but becomes useful only if put in the workflow context: ‘‘What happens if…? How can we avoid…? What do we need to do to achieve…?’’ Questions like these can be answered successfully by knowledgeable individuals making use of theories, facts and figures. Expert views can be voiced more convincingly if they know how to pitch their experience in popular anecdotal style. A positive personal track record and good reputation help, while past mistakes, damned lies and obsolete knowledge will reduce the impact of your professional contributions. Human knowledge emerges from the interpretation of received information colored by experiences, ideas, insights, values, and judgments of individuals. Business data, a set of discrete facts about events and the world, are continually captured and provide informative context to experiences and ideas. The flow of knowledge progresses through retrieval of data, organizing the information, assessing the results, followed by translation into actions to some tangible effects: decisions—possibly implementation—and critical communication of the results. This process is now increasingly seen as a value loop, minutely controlled all the

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Fig. 4.4 Explicit knowledge is knowledge that is already elicited into the corporate knowledge domain. It is the tip of the iceberg seen at the surface. But the real bulk of knowledge is still hiding as tacit knowledge inside people’s heads

way to add value rather than waste valuable resources. One person who pitches the right idea across your organization enhances value. Reversely, wrong ideas should not pre-occupy your organization for too long and must be rapidly dispelled.

4.3 Can You Elicit New Knowledge? Organizational knowledge is commonly distinguished into tacit and explicit knowledge (Fig. 4.4). The organizational knowledge is found as explicit knowledge in repositories: books, journals, manuals, documents, reports, letters, memos, patents, presentations, videos, audio recordings, electronic messages with attachments, blueprints, architectural designs, specifications, simulations, and computer programs. Virtually all our explicit knowledge is codified using shared symbols such as professional terms, jargon, and other agreed signs and vocabulary. Experienced knowledge managers love lists of key terms and categories, including synonyms and homonyms. They must organize, classify and categorize knowledge for navigation, storage and retrieval. Clearly, there is a major role for information technology in managing organizational change to a knowledge organization, and in enhancing and supporting the resulting intellectual capital. More inconspicuous is the tacit knowledge, buried in people’s minds. These minds are the proprietary intellectual currency of your organization. They include consultants, strategic partners and, most importantly, the people inside your organization. Tacit knowledge needs to be unlocked and codified into the accessible realm of explicit organizational knowledge (Fig. 4.5). Meanwhile, new tacit knowledge accumulates in the minds of people and effective Knowledge Management is required to accelerate the externalization of new tacit knowledge into the explicit knowledge domain (Fig. 4.6). Research on knowledge diffusion consistently shows that human agents are knowledge actors that bounce around randomly (at worst) in a global playground. Senders and receivers of ideas interact at a speed determined by conjectural circumstances and prompted by high impact events. Some receivers of information

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Fig. 4.5 Corporate Knowledge Management should encourage individuals to share their tacit knowledge. Their contributions to the corporate knowledge base and participation in Communities of Practice should be positively rewarded in annual performance reviews

Fig. 4.6 The impact of newly generated tacit knowledge rises when codification succeeds in gaining broad support and collaboration. Specialist journals play a role—but so do human agents—in spreading the message

only absorb, and if not transmitted, they act as knowledge sinks. But most professional interactions result in knowledge exchanges with a certain focus and future direction lead by shared values, common goals, and not the least, fuelled by infective and energetic passion. The outcome of knowledge transmission models using social networks indicates that codification and distribution of knowledge follows the saturation curve as stylized in Fig. 4.7. Populations of social networks absorb new knowledge at speeds determined by the frequency of interaction (meetings), exposure (publications, media), and aptitude of the audience (interested, knowledgeable, etc.). The degree of codification of the new knowledge increases as the number of interactions and publications increase. Rapid release of mature tacit knowledge into the explicit knowledge domain is but one aim. Creating an environment that stimulates the development and innovation of new tacit knowledge must be another organizational goal. This can be realized by: • Facilitating communities of practice, • Providing personal learning experiences to support organizational learning,

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Fig. 4.7 Tacit knowledge migrates into the explicit knowledge domain fastest by publicizing. Concepts are adopted and elaborated further in professional literature, which leads to the introduction of new jargon and further codification. The transition phase of tacit knowledge to explicit knowledge is poorly defined

• Stimulating external knowledge sharing activities (conferences), • Rewarding innovation in annual performance reviews. Failure to ‘grow’ new tacit knowledge leads to the loss of supply in new explicit knowledge. Your Organizational IQ will decline.

4.4 How Does Knowledge Grow and Flow? Knowledge Management is not only about real-time access to knowledge tools and means. Effective Knowledge Management means missing no opportunities to elicit dormant knowledge from within your own organization. Internal brainstorm sessions and annual performance reviews should not overlook the importance of harvesting knowledge. Explicit knowledge carriers such as classified internal reports should customarily include a ‘best practice’ summary to facilitate easier access and spread valuable ‘lessons learned’ across the company for future application. Corporate memory and culture should align to encourage innovative knowledge development using ‘best practice’ and ‘lessons learned’. Effective Knowledge Management also means seizing on every opportunity that catalyzes the mining of new knowledge from both internal and external sources. Thematic conferences organized by you or your associated trade partners are extremely valuable for unlocking fresh tacit knowledge and distributing it across company boundaries to fuse with explicit knowledge. Web-based learning has been heavily promoted over the past decade, but traditional knowledge transfer methods remain equally important. Cost-effective and smart choices have to be made about knowledge transfer tools and methods (Fig. 4.8). Knowledge fusion is most efficient when tacit knowledge is shared in face-to-face discussions. The nurturing of experts and consultants that have exceptional ability to elicit new knowledge and merge this with your organization’s highly specialized

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Fig. 4.8 Matrix of knowledge transfer methods for sharing local and remote knowledge (tacit and explicit). E-mail, phone conversations and letters are indispensable tools to share tacit knowledge between professionals in different locations

knowledge is key in staying at the competitive edge. The removal of knowledge flow impediments includes the avoidance of info-glut. The filtering and prioritizing of information and knowledge is incredibly important. Ultimately, all your tacit and explicit knowledge resources should be managed to support humans in decisions and in generating new business opportunities of interest to your market—and with the aim to enhance societal well-being in a sustainable fashion.

4.5 How Can You Rate Knowledge Management? The quality of Knowledge Management in your organization can be quickly assessed. Ask a middle manager to explain what the company’s strategic aims are—and how Organizational Learning and Knowledge Management support these aims. If you draw a blank, this means awareness about its importance for developing Organizational IQ has not come through. More detailed questions are: ‘‘How good is your corporate memory? Do all managers have the same information you do? Can you easily find all information on a customer? Can you easily capture customer feedback? Does customer feedback drive your new development projects? Can everyone rally to respond to a crisis? Finally, what is the cost of not knowing?’’ Effective Organizational Learning and Knowledge Management occur when the people in an organization are able to engage in the process of detection, diagnosis, and reduction of errors in a direction favorable for success. This requires maximizing people engagement in order to capture the full potential of the workforce. Knowledge is hard to develop but easy to loose or overlook. Therefore, each professional in your organization should think about the mechanisms that help him or her to maintain and update the knowledge that is put to work for them in their business planning and operations. Before long, everyone will agree with you that better Knowledge Management makes everyone’s job much easier and more effective and profitable.

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Fig. 4.9 The Stokes matrix shows Pasteur-type knowledge development is best suited for immediate business application, while still pursuing a quest for fundamental understanding. In contrast, Bohr-type research is least suitable for immediate business application, because it requires further work before translation into a commercial application (e.g. nuclear plants) becomes possible

4.6 How Can You Manage Knowledge Creation? Organizations that have a strong performance-driven focus may run the risk that new knowledge sources remain isolated, neglected or underused, because attention is away from fundamental thinking and knowledge creation. Ultimately, new insights are generated for goal-oriented application of this knowledge in an efficient workflow. But an overly goal-oriented organizational focus impedes the creation of new knowledge that is needed to stay competitive. Senior leaders and other functions that should maximize the corporate value-adding capacity tend to focus on goaloriented application of explicit knowledge. They are often excellent at directing cross-functional application of existing knowledge and the finding of new business opportunities. This is a sub-optimal situation, because the best practice of today can never be the best practice solution for the problems of tomorrow. The focus on new applications areas is much needed, but should not go at the expense of efforts on the development of new knowledge potential. New knowledge development means effective organizational learning occurs and this in turn improves your Organizational Intelligence. Heavy investment in pure, curiosity-driven basic science will by itself not guarantee the technology required to compete in the world economy and meet a full spectrum of other societal needs—Donald Stokes, 1997.

The corporate brain must be actively stimulated and receive support when searching for innovation and new solutions. Organizational Learning needs to provide for infusions of fresh, use-inspired knowledge. The process of knowledge creation is best illustrated by the well-known Stokes matrix (Fig. 4.9), which maps Bohr/Pasteur versus Edison-type knowledge acquisition. The Stokes matrix shows Pasteur as the example of a scientist whose work encompassed both ‘pure’ and ‘applied’ science and therefore could not be located

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on the classical one-dimensional basic-applied spectrum. In fact, it is impossible to draw a sharp line between fundamental and applied research. Pasteur-type knowledge development is best suited for immediate business application— combined with a practical need and drive for fundamental understanding. Edison-type knowledge application exemplifies the skillful translation of available knowledge into commercial products. In contrast, Bohr-type research is least suitable for immediate commercial application, because it requires further work before translation into business applications (e.g. nuclear plants) becomes possible. Goal-oriented application of knowledge is not counter to creating new knowledge, the two views can be—and need to remain—connected as subsequent (and parallel) stages in the business workflow. Loosening the managerial reins of goaloriented functions and business operations is one way to give room to innovators that then can then pour energy into novelty development with an entrepreneurial spirit. If top-down control is too strong people may become passive and dependent. Keep in mind that effective top-down vision-sharing means both the adoption of a shared vision and the delegation of leadership to help realize the organizational vision and associated goals. Organizational Learning and Knowledge Management may even provide a positive impulse for adjustments of the corporate vision.

4.7 Case Study 4: Society of Petroleum Engineers—Organizational Learning and Knowledge Management Drive Employee Engagement Meeting future energy demand requires investment in technology, workflow and people. Oil and Gas companies invest more and more to apply new technologies for developing and producing difficult fields and enhance oil and gas recovery. Conferences organized by professional societies (e.g. SPE, SEG, AAPG, EAGE) provide venues for the rapid exchange of knowledge on the latest developments and needs. Additionally, dedicated workshops and training programs help our professionals accelerating their efforts to contribute new insights by enhancing their competencies and skills. But an alarming 55% of the professionals responded—in a SPE 2005 survey— that they believe their job does not make use of their full potential. These are employees on industry payrolls, yet they are not fully engaged and seem to have a lot more to offer. This implies that the petroleum industry can enjoy a much higher level of innovation and efficiency with the current workforce at no extra cost. This higher level of innovation and efficiency will only be realized if full engagement can be stimulated. Improved employee engagement is important because the petroleum industry is loudly complaining about a major shortfall in human resources. Abdul-Jaleel Al-Khalifa, 2006 President of the Society of Petroleum Engineers stated: ‘‘But what is engagement? Why do employees disengage? How do employees move up and down the engagement scale and how does engagement impact the performance of the corporations?’’

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Fig. 4.10 Matrix for expressing employee engagement. Employees with high competency levels supported by a deeper call to drive innovation will fully engage, but only continue doing so if embedded in an organization that understands Organizational Learning and effective management of its intellectual capital

His answer is as follows: ‘‘Dreaming of an honorable, important life generates a clear vision of the future, associated with deep, motivating passions. We strive for various objectives with detailed action plans for personal achievement. Striving tirelessly to achieve these objectives brings a lot of gratification and happiness. Every step toward answering this deeper call brings flashes of commitment and perseverance that drive further progress. The interest level, excitement, dedication, and persistence elevate with time until they draw on full strengths and exploit the full potential of the individual. That is the state of full engagement, called ‘the flow’ by psychologists. It is not the same as overworking or being a workaholic; rather, it is a smarter focus, a sincere interest, and a higher level of thinking.’’ This means that the vast majority of employees joining the petroleum industry aspire to answer to a deeper calling. They answer to a deeper call to play a global role in shaping the future and nurturing the prosperity of mankind. Hence, their energy level, engagement, and expectations tend to be extremely high at the beginning of their career. Companies with a culture that stimulates Organizational Learning tend to enjoy durable engagement of their employees (Fig. 4.10). Such smart companies will be blessed with highly motivated workers that embrace knowledge generation with keen regard for efficiency and cost-effectiveness. In contrast, organizations with slow and modest Organizational Learning programs and no incentives for the recognition of their intellectual capital run a large risk that some of their employees may lose momentum and hence scale down their expectations even before reaching mid-career level of experience. Such workers may end up trying only to ensure peer recognition or, worse, they may completely disengage and aim only to secure a salary at the end of the month. This can be prevented by providing learning incentives to keep employees intellectually and professionally challenged. Training is needed continually, in order to ensure that individuals, these exceptionally talented people, find it worthwhile to engage with lasting commitment to the energy industry. Only then can they help to unlock new tacit knowledge at dazzling speeds!

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4.8 Actions You Can Take… Improve your supply of fresh tacit knowledge: select an appropriate knowledge area, in need of fresh tacit knowledge supply. Ask yourself: ‘‘Does your company have mechanisms in place to encourage the replenishment of ‘new’ tacit knowledge in people’s minds while the ‘old’ tacit knowledge is transformed into the explicit knowledge domain?’’ Identify your own position in the workflow process and assess your creative aptitude as a Knowledge Management Champion. Consider raising the incentive level for those who contribute relevant tacit knowledge of exceptional value. Boost your corporate memory: Review the quality of your ‘lessons learned’ and associated databases. Make sure knowledge classification methods in your organizational or corporate memory banks classify richness and depth of knowledge about tangible and intangible products, processes, and relationships. Accurate and accessible knowledge about your company assets (and that of your competitors) is your intellectual capital.

4.9 Things to Think About… • • • • • • • • •

What are the principal sources of knowledge used in your organization? Can you suggest ways to improve access to these knowledge sources? What do you need this organizational knowledge for? Could colleagues benefit from your knowledge and resources? Are you prepared to share that knowledge or do you hoard and shelter information? How can you make better use of your people and systems to unlock and transfer tacit knowledge within your organization? Here is a deep cognitive science question: How long must an idea linger in the realm of tacit knowledge before it should be released into the explicit domain? How does your company ensure that tacit knowledge is useful in the explicit domain? How rapidly does explicit knowledge become obsolete?

4.10 Input For Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. I know the meaning of Knowledge Management in our organization as well as our Knowledge Management strategy. 2. I have insufficient knowledge resources (research time, expertise, and equipment, etc.) to carry out my job effectively.

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3. I feel that my professional expertise is recognized and that my knowledge contributions are valued. 4. My personal contributions and achievements are subjected to an audited and comprehensive performance assessment. 5. All knowledge capture procedures are standardized in our organization. 6. The integration of the various information systems in our organization is not seamless. 7. Data and information about our business processes are reliable, accurate and accessible to the appropriate managers in a timely manner. 8. Our management information systems enable appropriate managers to assess their progress towards meeting goals and targets. 9. Our organization has and follows a validated written policy for planning, tracking, controlling and reporting the status of project progress. 10. Our confidential data and proprietary information are inadequately protected against unauthorized and inappropriate use. For IQ Scorecard assembly move to Gate Stops 1 and 5 Statement 1 2 3 4 5 6 7

8

9

10

True False

1 0

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Bibliography Davenport T, Prusak L (1998) Working knowledge: how organizations know what they know. Harvard Business School Press, Harvard Nonaka I, Hirotaka T (1995) The knowledge-creating company: how Japanese companies create the dynamics of innovation. Oxford University Press, New York Skyrme DJ (1999) Knowledge networking: creating the collaborative enterprise. ButterworthHeinemann, London

Gate Stop 1: Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development

The inputs from the questionnaire statements at the end of Chaps. 1–4 can be inserted into the Experiential IQ Scorecard given below. The outcome is your individual rating of your organization’s Experiential IQ. Remember that this result is not free from individual bias. A representative response group provides a less biased basis for assessing the IQ components of your Corporate IQ. This more advanced procedure is outlined in Appendix A.

Scorecard for Experiential IQ (Take Inputs from Chaps. 1–4) The Experiential IQ Scorecard below uses your individual ratings from the questionnaire statements of Chaps. 1–4. These questionnaires sample your scores for the organization’s effectiveness in stimulating knowledge development.

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The internalization of Organizational Learning and Knowledge Management principles was assessed in Chap. 1. Responsiveness to product performance and customer satisfaction and the effectiveness of quality assurance were rated in Chap. 2. The effectiveness of the Organizational Learning process and quality of internal information flows were evaluated in Chap. 3. Effectiveness of Knowledge Management and the transformation of tacit to explicit knowledge were assessed in Chap. 4. Your results can be inserted here for a review of your company’s Experiential IQ rating. The ultimate aim is to use these results to improve the weaknesses that contribute to the impairment of your overall, Corporate IQ. Areas that need attention in the targeted interventions to improve your Experiential IQ can be identified as follows: Low scores for Chaps. 1–4 (i.e. Experiential IQ \ 30): Your organization does not effectively stimulate the development of new knowledge and puts too little effort in Knowledge Management and Organizational Learning. Henceforth your organization does not benefit optimally from its knowledge potential. Targeted intervention will boost your Corporate IQ. Return to Chaps. 1–4 and remediate the weaknesses pinpointed in your assessment. Your overall, Corporate IQ Score can be assembled at Gate Stop 5 (p. 259), upon completion of your IQ component scores in Gate Stops 1 to 4.

Part II

Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ

Focus Area I: Stimulate Knowledge Development—Building Experiential IQ Chapter 1: Developing Organizational IQ—A Corporate Necessity Chapter 2: Utilizing Value Chains and Knowledge Nets Chapter 3: Stimulating Organizational Learning Chapter 4: Managing Knowledge Resources â Gate Stop 1: Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development

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Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ Chapter 5: Vision Sharing and Leadership Succession Chapter 6: Building Teams—Bridging Knowledge and Culture Gaps Chapter 7: Aspiring Innovation and Creativity â Gate Stop 2: Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented Focus Area III: Build the Assets—Building Componential IQ Chapter 8: Smart Decision-Making Chapter 9: Strategy Planning and Scenario Thinking Chapter 10: Optimizing Portfolio Management â Gate Stop 3: Componential IQ Assessment—Effectiveness in Building the Assets Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ Chapter 11: Championing Sustainable Development and Corporate Governance Chapter 12: Overcoming Communication Barriers Chapter 13: Aiming for Intelligent Negotiations and Effective Agreements Chapter 14: Leading in Organizational Learning â Gate Stop 4: Emotional IQ Assessment—Effectiveness in Communicating Why the Organization Excels Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ Chapter 15: Maximizing Your Organizational IQ â Gate Stop 5: Combining IQ Component Scores in an Overall Corporate IQ Score

Chapter 5

Vision Sharing and Leadership Succession

The search for company goals and value is actualized through missions and objectives. A vision statement supports the ‘vision’ of how your business or organization wants to be seen. It clarifies aspirations and intentions, values and beliefs. Some call it ‘core ideology.’ But explaining what your organization intends to do—and why—is not enough. You need to find ways to get everybody involved and motivated to build Organizational Intelligence with you. Vision Sharing is a top down and bottom up process. Good leadership finds swift ways to achieve the effective Vision Sharing which preceeds knowledge sharing.

5.1 How Can We Learn Together? As an executive manager, you are responsible for organizational performance and leadership effectiveness. You must support your drive for innovation with a vision for excellence and competitive distinction. Doing things the way they were always done is not enough. True leadership requires direction-setting skills that help to define and realize the vision by inspiring the work force into ambitious goals for the future. Make sure everybody in the organization feels these are unique and worthwhile goals (Fig. 5.1). Only then will your professionals be able to muster their best contribution to reach the targets set by the leadership. Leaders must develop visions that set worthwhile goals and targets for the future. These goals and targets must be communicated in a way everybody understands so well that they can whole-heartedly support the company vision and so that their jobs stay meaningful. If you are the right person for the right job, you will excel in unlocking the integrated value of employees’ innate talents. Actualizing people’s unique capacities is part of the corporate learning process. The more we are attracted to, understand and are able and willing to work for our goals, the more likely we are to achieve them.

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Fig. 5.1 Vision Sharing in effective leadership must set out inspiring directions for the future. This goes much further than promoting ‘best practice’ and leaps beyond the way things are always done. You must re-invent the organization and strive to innovate the business in your vision for the future; make sure your vision is supported by your managerial teams

Managers must make explicit what the organization will do to satisfy customers, what it will do to achieve necessary quality at acceptable costs, and how it will learn and improve. A strategy is needed to show explicitly how the organization intends to convert its various assets into desired outcomes (Fig. 5.2). This value proposition includes the key internal processes, as well as the organization’s learning requirements and the performance evaluation of employee learning and skill development. Ultimately, internal processes such as customer management and operational excellence, the delivery of customer value and financial outcomes (sales growth, operating costs, asset utilization), must be executed intelligently to improve shareholder returns.

5.2 What Can You Do Now? You must find ways to convince employees that their knowledge, skills and systems are needed to innovate your business. The approach can be summed up in the following questions: • To achieve our vision, how must we learn and improve? • To satisfy our clients and stakeholders at which processes must we excel?

5.2 What Can You Do Now?

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Fig. 5.2 Vision Sharing between the corporate leadership and operational management facilitates meeting the corporate objectives. Your products and services ideally should occupy the intelligent solution niche. These must have a high lifecycle value, based on unique and powerful concepts, and are highly adaptable by scaling and extension into new business environments where possible

• To achieve our vision, how must we brand ourselves to our customers? • If we succeed, how must we present our results to our shareholders? Subsequently, you must set organizational goals and objectives for various stakeholder groups and set goals (learning, internal processes, customer, and financials). The measures thought necessary to achieve these goals and objectives are then taken. Crucially, benchmarking tests must be adopted in the workflow to meet the targets. As a leader with a vision for change you evaluate team behavior at the most senior levels and coach to influence leadership team effectiveness in a positive way. You help design organizational structures that support the desired business model. More than anything else, you take a holistic view of major organizational initiatives and set directions for the aspired organizational behavior in staff. You coordinate a wide range of activities related to the business development in step with the changes of the global business environment. Your personal skills, strategy and leadership insight are used to promote the aggregation of new knowledge at every echelon in the organization (Fig. 5.3). Your understanding of Organizational Learning is used to steer process excellence, process thinking, and to design improvement methodologies to excel in

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Fig. 5.3 Leaders can stimulate the aggregation of new knowledge across organizational boundaries in support of the corporate goals by effective Vision Sharing qualities

business performance. You can come up with creative and innovative problem solutions that will produce breakthrough performance improvements. You are a champion of high potential opportunities to lead and drive business innovation. Your role is to lead high quality strategic interventions based on an in-depth understanding of best-in-class practices. Good leaders make every professional challenge look worthwhile and do-able. They project a confident vision, which ensures us that our future will be fine—the Author, 2008.

5.3 What More Can You Do? Even if your organization is well into the Organizational Learning curve, it is useful to inventory the inherent knowledge of your organization on a regular basis. The corporate learning loop (Fig. 5.4) is designed to develop the right capabilities (skills and competencies) and efficiencies (internal processes) in order to bring specific value to the market (the customer) that will lead to sustainable shareholder returns (the financials). Encourage knowledge sharing and knowledge exploitation. Make knowledge available to those who need it. Identify information gaps. Establish maintenance, updating and quality control systems. Encourage expectations and objectives for information provision and use. You must market your Organizational Learning program. Develop constant and consistent communication methodologies to keep people both informed and excited.

5.3 What More Can You Do?

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Fig. 5.4 Leaders must encourage and invest in corporate learning by filling critical skill gaps and actualizing the learning portfolio with development activities, both for individual career development and for Organizational Learning

Stimulate quality contributions of information and eliminate multiple creation and duplication of knowledge collections. Almost without exception, information technology has now transformed industry into a decision-compelling apparatus, which uses corporate resources to assure the highest return on investment. In the present competitive business environment, value networks come into existence through corporate creativity, smartly exploiting the ingenious efficiency of electronic communications. Use the tacit corporate knowledge to select the best course of action from all options available. Although the realization is now there that people are the most valuable corporate asset, tangibles such as information technology systems can still be developed into more sophisticated tools that are better integrated with people’s workflow (Fig. 5.5). Research has revealed that 44% of your top employees will look for a new job within a year if learning opportunities are poor, while this reduces to a sleek 12% if training opportunities are excellent. Even more dramatically, 50% of the typical IT employee’s skills become outdated in less than 3 years—training is crucial to adapt to the market. Also, five out of seven recent college graduates rank educational opportunities over starting salary when selecting a first employer. Learning and educational opportunities are a clear factor for new recruits in selecting their next company. As individuals are the sources, authors, and knowledge champions, make sure there are incentives for communities of practice (CoPs) in your learning organization. Enable collaboration amongst employees. They must concentrate on critical business knowledge, keeping in mind one key question: ‘‘Are we quick enough in anticipating and capturing new skills and learning requirements based on changes in the business environment and strategy?’’ Providing leadership by Vision Sharing and explaining the goal of your organization’s endeavor helps to stimulate innovation. You must transmit information on new business activities to all members of your organization. Some of the information is factual. Some of it requires interpretation and the integration of diverse value propositions taking into account a variety of organizational

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Fig. 5.5 People are the most important link in utilizing technology to work for you in new business processes and the application of new business data and technology. Speeding up their adaptive ability in Organizational Learning is a major achievement

influences. All information is geared at guiding your organization in further decision-making by weighing risks and opportunities (Fig. 5.6).

5.4 Must My Company Culture Change? Learning organizations are a human community capable of providing diverse meanings to information outputs generated by their technological systems, instead of the traditional emphasis on command and control. They de-emphasize the adherence to the ‘‘way things have always been done.’’ There should be continuous assessment of prevailing practices from multiple perspectives for their optimum alignment with the dynamically changing external environment. Greater proactive involvement of human imagination and creativity must be encouraged to better match the variety and complexity of the challenging business environment. The organizational information base should be accessible to all those organization members who are closest to the action, while simultaneously ensuring that they have the skills and authority to execute decisive responses to changing conditions. Meanwhile, encourage diverse viewpoints by avoiding premature consensus on issues that need deeper analysis of underlying assumptions. Often, viewpoints of persons with differing backgrounds and expertise can provide a much broader

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Fig. 5.6 The decision-making process may involve numerous resource parameters that affect the leverage of risk and opportunity in new business options. Intelligent organizations get it ‘‘right’’ while others do not. Your organization should succeed in optimizing the workflow between departments and speed up the decision-making process for intelligent solution positioning (see Fig. 5.2)

focus that is essential for completely grasping the essence of the core issues. Critical review is particularly tough when the changing context demands a fresh look at what was yesterday defined as a ‘‘benchmark’’ or a ‘‘best practice.’’ Give more explicit recognition to tacit knowledge and related human aspects, such as ideals, values, or emotions, for developing a richer conceptualization of knowledge management. Implement new, flexible technologies and systems that support and enable Communities of Practice, informal and semi-informal networks of internal employees and external individuals based on shared concerns and interests.

5.5 Will Everybody Fit in? Identify, on the basis of your own experience, what are the most important skills and attitudes in order to enhance professional performance—select some to work on. Learning experiences that are exciting, fresh, and interactive must be provided by your organization. Such learning challenges will heighten your self-management competency. Try to create a great leap forward in your conceptual framework for

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Fig. 5.7 Competency maps with personal growth targets (levels 0 to 5) are commonly used in (online) learning management systems to track the competency base in your company. It is a powerful tool to support annual performance reviews and personnel planning

the way of doing things most professionally. Would you not rather do it in a way you understand better? Self-assessments are useful to see how your professionals fit against the competency model. Learning organizations monitor their competency progress and ask their managers to validate the competency assessments. Individual assessments are supplemented by assessments from one’s manager, peers, direct reports, internal customers, external customers and/or others. In performance evaluation assessments (Fig. 5.7), probe whether leadership for skills and learning is visible within business units and how it can be improved. Ask yourself: ‘‘Are individual learning and leadership development embedded in our business strategy?’’ Larger organizations will maintain an online competency map of their knowledge and skills base. Such maps are now routinely used in all major corporations. New teams can be quickly formed by browsing competency maps and by assembling the appropriate diversity of skills required in the project. Additionally, such competency maps reveal excess competency capacity that can be duly avoided in hiring policies. On a personal level, there is clear progression of your competencies (Fig. 5.8) and associated responsibilities, which over the years grow in importance and impact value. In your 20s, you get started. You develop job skills and prepare for advancement. There is pressure to get ahead. Often long, hard work schedules are maintained to help advancement. And job changes may be necessary to ensure

5.5 Will Everybody Fit in?

Experimentation with new applications of the competency Compete ency Streng gth

Fig. 5.8 Competency progression as lifelong learning continues. Each individual can master numerous competencies, which may be at different strength levels. Seasoned professionals that have mastered most relevant competencies are valuable resources for story telling and sharing best practices

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Application and Practice using the competency Assessment and feedback on the competency Understanding the competency Recognition of the competency Time / Age

career growth. In your 30s, you develop management expertise and try to gain visibility. Career challenges commonly compete with, financial and family pressures. Career changes are still common. In your 40s and 50s, your potential has become clear. But former security of middle-management jobs no longer exists. The rapid business culture frequently forces early retirement, combined with the pressure of growing older—life-long learning and development of competencies remain important. Ultimately, in your 60s and 70s, preparation for retirement is imminent. But you could remain an excellent mentoring resource for young careers, although—this too—is subject to critical appraisal. In any case, our society is built on the knowledge foundation laid by wise men and women like you.

5.6 How Can You Develop Emergent Leadership? Development of young business leaders helps your organization to retain talent. Exceptional talent often suffers from lack of incentives to excel beyond the median corporate effort level. Renewed insight says that individual knowledge motors— your star players—are indispensable for your organization and need to be nurtured. Your star players themselves indicate that in most organizations the flattened hierarchy leaves professional pride and continued learning as the only reliable sources of inspiration. These exceptionally talented people, the individual motors of innovation, must find it worthwhile to engage with lasting commitment to your business. They enjoy learning incentives to stay intellectually and professionally challenged. Obviously, opportunities are needed continually, in order to ensure that your professional crew power is not declining. Emergent business leaders must combine technical skills (Engineering & Technology), behavioral skills (Vision Sharing) and direction-setting skills (Strategy Planning) (Fig. 5.9). They can influence the workflow and speed in your

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Fig. 5.9 Successful business leaders commonly start out in a technical discipline, then make the transition to management and develop behavioral or people skills (First step). They subsequently grow to true leadership by acquiring direction-setting skills (Second step)

organization to achieve your corporate objectives. Your organization can effectively bridge the interaction gap between technical managers and business managers by educating ‘business engineers’ (Fig. 5.10). Training of aspiring leaders with an engineering or science background should focus on broadening their soft-skills. This learning may benefit their attitude on the exchange of tacit knowledge through the enhanced capacity to share their specialist knowledge into terms accessible to all concerned. Still, leadership is built only 10% by formal learning, 20% by coaching and mentoring, and a formidable 70% by experience. Executive training, therefore, goes far beyond formal learning, and commonly includes strategy games that evoke unique leadership learning and decision-making experiences.

5.7 Case Study 5: Chevron—Vision, Strategy and Leadership David O’Reilly, long-time Chairman and CEO of Chevron Corporation, embarked upon a strong vision strategy for internal and external communication at the onset of the twenty-first century. His typical open letter of 2006 started with the statement (Fig. 5.11): ‘‘It took us 125 years to use the first trillion barrels of oil. We will use the next trillion in 30. So why should you care?’’ Research has shown that of all communication in our organizations only 15% is about content, the other 85% is used to create the appropriate team spirit other social interactions, and logistical coordination. Chevron seems to have found a way via its media campaigns: ‘‘Energy will be one of the defining issues of this century. One thing is clear: the era of easy oil is over. What all do next will determine how well we meet the energy needs of the entire world in this century and beyond.’’

5.7 Case Study 5: Chevron—Vision, Strategy and Leadership

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Fig. 5.10 Better integration of business and technology can be achieved by the training of highly specialized technologists and engineers in business management principles. Such training enables them: (1) to assume more managerial and organizational responsibilities and (2) to contribute more actively to vision sharing and knowledge fusion for making better decisions

Fig. 5.11 Vision Sharing requires clear messages

Will you join us?

Chevron’s vision is to engage every willing citizen in the discussion on sustainable energy supply. They do so in an extensive media campaign stating: ‘‘Demand is soaring like never before. As populations grow and economies take off, millions in the developing world are enjoying the benefits of a lifestyle that requires increasing amounts of energy. In fact, some say that in 20 years the world will consume 40% more oil than it does today. At the same time, many of the world’s oil and gas fields are maturing. And new energy discoveries are mainly occurring in places where resources are difficult to extract, physically, economically and even politically. When growing demand meets tighter supplies, the result is more competition for the same resources.’’ All of us are invited to join Chevron in its concern: ‘‘We can wait until a crisis forces us to do something. Or we can commit to working together, and start by asking the tough questions: How do we meet the energy needs of the developing

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world and those of industrialized nations? What role will renewable and alternative energies play? What is the best way to protect our environment? How do we accelerate our conservation efforts? Whatever actions we take, we must look not just to next year, but to the next 50 years.’’ O’Reilly commonly concludes his press statements with a tone of personal concern: ‘‘At Chevron, we believe that innovation, collaboration and conservation are the cornerstones on which to build this new energy world. We cannot do this alone. Corporations, governments and every citizen of this planet must be part of the solution as surely as they are part of the problem. We call upon scientists and educators, politicians and policy-makers, environmentalists, leaders of industry and each one of you to be part of reshaping the next era of energy.’’ The visions and missions of all SuperMajors—the world’s six leading International Oil Companies—are summarized in Table 5.1 for comparison. The vision statement commonly reflects how the company wants to be seen by the outside world, and where it is going. The mission statement shows what business the company is engaged into ensure shareholder return.

5.8 Actions You Can Take… Improve your Vision Sharing skills: take the knowledge pyramid of Fig. 2.9 (also look ahead in Fig. 12.6) and determine whether you operate at corporate level of ‘Grand Concepts’ and visionary leadership. Reduce communication gaps between different levels of the corporate hierarchy by stimulating knowledge sharing across decision gates. Formulate your unique vision and focus on language and concepts that emphasize how your organization plans to integrate its people, processes and technology to meet your future market expectations by developing knowledge appropriate for new solutions. Innovate your skills and competencies: Identify new trends in your business landscape, whether Industry or Academia, or Government, or NGO. Assess what skills and competencies are required. Implement tools and means to acquire these skills and competencies for your organization. Include efforts to sell the vision, providing leadership and opportunities for Vision Sharing with all echelons in the organization.

5.9 Things to Think About… • Are there clear mission and vision statements for your organization? • What are your corporate goals? • What are the key competencies you possess to help achieve and realize the corporate goals?

5.9 Things to Think About…

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Table 5.1 Vision-and mission statements by the world’s leading International Oil Companies Company Vision Mission Exxon-Mobil

To achieve superior financial and operating results, while simultaneously adhering to high ethical standards

Using innovation and technology to deliver energy to a growing world; explore for, produce and sell crude oil, natural gas and petroleum products Shell To work closely with customers, Engaging efficiently, responsibly and partners and policymakers to profitably in oil, oil products, gas, advance more efficient and chemicals and other selected sustainable use of energy and businesses and to participate in the natural resources search for and development of other sources of energy to meet evolving customer needs and the world’s growing demand for energy BP To apply digital technology where the Finding, producing and marketing the pace of change is rapidly natural energy resources on which increasing—in a world that is the modern world depends always on Total To leverage innovation and initiative to Engaging in all aspects of the petroleum industry, including provide a sustainable response to Upstream operations (oil and gas humankind’s energy requirements exploration, development and production, LNG), and Downstream operations (refining, marketing and the trading and shipping of crude oil and petroleum products) Chevron To be the global energy company most Engaging in oil and gas exploration; refining and marketing of oil, admired for its people, partnership lubricants, fuels, petrochemicals; and performance. To engage every power generation citizen in the discussion on sustainable energy supply ConocoPhillips To responsibly deliver energy to the Conducting business to return world maximum value to shareholders while utilizing a wealth of knowledge and resources from its employees and acting responsibly in all communities in which it operates

• Which competencies would you want to strengthen or develop further to meet your goals? • Do you see merit in competency tools and planning? • Do you have a competency map at hand for your business? • Which knowledge and competency areas could be strengthened to position your organization better in the market place?

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5.10 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. Our organization has a clearly stated vision and mission, which rarely changes over time. 2. Our organization concentrates on achieving its mission, values and objectives. 3. Our leadership clearly understands their responsibility and is widely perceived to possess the experience and required authority to lead our business activities and meet the challenges that lie ahead. 4. Our upper management is not systematically reviewed or regularly coached; there is no adequate mechanism to ensure the performance of the organization’s leadership system and its key leaders. 5. Our leadership focuses on strategic policy issues and leaves full delegated responsibility for short-term objectives to middle and lower management. 6. I do not feel encouraged to improve my own—and other people’s—performance. 7. I do receive the training that is needed to do my job and grow professionally. 8. I am unable to give examples of actions taken by my organization to support my development and my professional performance. 9. After receiving training or development courses, my management evaluates together with me what I got out of it and how I can apply the learning gained to my job. 10. Either: Project managers in our organization are professionally certified; or: Our organization follows industry’s standard process improvement techniques (Six Sigma, LEAN, Lean Six Sigma, or Total Quality Management, others). For IQ Scorecard assembly move Statement 1 2 3 True 1 1 1 False 0 0 0

to Gate 4 0 1

Stops 5 1 0

2 and 6 0 1

5 7 1 0

8 0 1

9 1 0

10 1 0

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Input for IQ scorecard from Chap. 5: Total True and False

Bibliography Collins J (2001) Good to great: Why some companies make the leap… and others don’t. Harper Collins Publishers, New York Ulrich D, Zenger J et al (1999) Results-Based Leadership: How leaders build the business and improve the bottom line. Harvard Business School Press, Boston

Chapter 6

Building Teams: Bridging Knowledge and Culture Gaps

People contributing to organizational goals become motivated through their involvement in setting the goals and planning of their activities: teamwork is an example. Team members are motivated when they attempt challenging tasks where success is perceived as possible but not certain. Raising the probability of success is a strong motivating force. To maximize learning in your organization, team workers must develop intercultural and communication skills and ‘inquire’ into rather than be directed and instructed into solving business challenges. Leadership succession and learning progress need to involve mentoring and is more effective when incorporated into the reward system. Learning Management systems can aid in monitoring the Organizational Learning process.

6.1 Why Is Teamwork So Important? Many business activities are now performed and practiced in teams. Professionals need to be more than just experts in their technology. Our technology-driven society requires professionals that go deeper, broader and faster into their business operations. The effective interaction of your professionals in the decision-making process crucially hinges on a set of ‘‘soft-skills’’. Your people must foster an effective decision-making capacity, outstanding communication skills, intelligent negotiation competencies and creative solution abilities. These intangible assets, traditionally the typical attributes of managers, now need to be mastered by experts at every level in your organization to support the management in smoothening the business process from within. These ‘‘intangible’’ soft-skills constitute the lubricant that keeps your business engines running. Learning to do a better job includes learning to be a better team member. The professional interaction of people in teams leads to synergy and there is a better chance of finding the optimal solution. In effective teams, tasks and objectives are

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Fig. 6.1 Effective team functioning critically depends not only upon a spread of professional expertise. All team members must have a constructive attitude towards cooperation. Only then will knowledge sharing and team learning move forward swiftly (constructive, green/forward track). Poor team spirit leads to progressive corruption of knowledge-sharing activities (destructive, red/reverse track)

well understood and accepted and there is genuine commitment to contribute to the accepted goals (Fig. 6.1). As a team leader you must not dominate, but instead safeguard the following processes; you should ask: • • • • • • •

What are the specific, measurable project deliverables? How do we recognize, measure, and celebrate performance? How can we build teamwork? How can we communicate more effectively? How can we build more trust? How can we be more respectful of one another? What can I, as a leader, do differently? How can I inspire you?

It is important to realize that the leadership role demands ‘‘authentic enthusiasm’’. The rewards of the work done must be for the team and not just for the leading individuals. The drawback is that investment in time and personnel are needed to build teams. The team process sometimes has low efficiency. It may generate lots of ideas but only a few of them may be practical. And there is a lurking danger of team conflict. But teams have a wider knowledge base and more shared experience. Make sure you monitor group performance for individual competencies and select for diversity of skills in the team composition. You should agree on direct, prompt, and dependable feedback. Newly assembled teams need to encourage spending time on discussions in which virtually everyone participates. Members listen to one another, and there is room for disagreement. Correction or adjustment is frequent, frank, and relatively comfortable. There is exceptional trust and mutual appreciation for integrity, competence, consistency, loyalty and openness. Team members also more readily accept their formulated solutions and work better to implement these if they have a mandate to do so. Team members learn from each other more quickly when their interaction encourages the development of, and feedback on, leadership skills. Teams are most successful if individual tacit knowledge is shared and brought into the explicit knowledge domain, while bringing solutions to the task at hand.

6.2 Why Go for Experience and Best Practice in Team Learning?

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Fig. 6.2 A good blend of knowledge transfer involves on-the-job learning activities, preferably in teams exposed to hands-on job expertise. Team work can be supported by synchronous classroom seminars with access to tacit knowledge holders such as lecturers. Asynchronous sessions with self-study resources that hold explicit knowledge (such as books) are least effective for most of the team members

6.2 Why Go for Experience and Best Practice in Team Learning? When the subject matter to be learned possesses meaning, organization, and structure that are clear, learning proceeds more rapidly and lessons are retained longer. Readiness is a prerequisite for learning. Subject matter and learning experiences must be provided starting at a stage where the learner is comfortable. Teams must be motivated and encouraged to learn. Learning activities should be provided that take into account the wants, needs, interests, and aspirations of junior team members. Problem-oriented approaches to knowledge development are attractive psychomotors and lessons are retained best when practice is repetitive and successful (Fig. 6.2). Many seasoned professionals have attained valuable experience by performing the activity hands-on. They are well positioned to share their knowledge through a ‘‘lessons-learned’’ approach. This must be hands-on: allowing for reactions of trainees to the activity and discussion of the experience by comparison with their personal practices. Processing the information requires reflection and analysis from your personal perspective. The generalization only then connects the lessons learned to life (Fig. 6.3). Ultimately, the application and authorized transfer of what was learned to future situations brings value to your organization. Organizational Learning requires the same embedding in practical situations. Concentrate on provoked experience-sharing, triggered by questions such as: ‘‘What did you think? What did you like about this activity? How did it affect your views? Which skills would

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Fig. 6.3 Sharing of best practices by seasoned professionals commonly provides ‘‘lessons learned’’ knowledge that can be mirrored and generalized against on-going business processes that is then applied to improve performance

you need to implement this in your career?’’ Participation of learners not only leads to increased retention of knowledge, it also may help to trigger the awareness of the need to share tacit knowledge with others. Teamwork yields the best retained results when combined with learning-bydoing. People remember 20% of what they hear, 30% of what they see, 50% of what they see and hear, 70% of what they do, and 90% of what they say while doing. In team learning, attention for technology innovation remains important, but the human factor should not be overlooked. Modern business management must address cultural diversity and requires trans-cultural competence, using communication, empathy and creativity. As human actions are in part based on emotions rather than rational consideration, it is legitimate to highlight the role of human emotions and cultural barriers in multicultural and multidisciplinal projects.

6.3 How Can You Overcome Communication Gaps? Business is driven by speed: (1) speed in gaining access to new prospects, (2) speed in discovering new markets, and (3) speed in decision-making subject to multiple operational risks. All these activities are executed by professionals, who must communicate and share their expertise to make rapid and balanced decisions. The hiring of a multicultural workforce from a range of countries, distinct company cultures, and different age groups pose a challenge in itself through the increased risk of communication barriers or gaps. Global companies must now integrate their knowledge across different disciplines, in teams with experiential differences and cultural diversity. The principal barriers that obstruct effective interpersonal communication between professionals in complex engineering organizations are: • Experiential Technical Gaps: When junior and senior professionals interact, the receiver and sender may lack some common language, slang, jargon, vocabulary or symbols. For example, junior engineers lack the experience of a senior asset manager. Integration of their knowledge base requires continual effort to bridge the interaction gap (Fig. 6.4, Gaps 1). Establishing Communities of Practice, mentoring and career planning play a major role in closing these gaps.

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Fig. 6.4 Communication gaps may inhibit the effective sharing of technical knowledge. As professionals specialize during their careers, they need to stay in touch with younger colleagues by coaching and mentoring to help bridge Experiential Technical Gaps (1). They need to pay attention to broadening their knowledge base as well, to make sure they can connect with professionals in other disciplines to help bridge Inter-disciplinary Technical Gaps (2)

• Inter-disciplinary Technical Gaps: Most engineering operations require experienced professionals to interact coming from a range of different specializations. For example, the design group hands over the project specifications to structural engineers for load modeling and economic appraisal. Because the receivers and senders frequently lack common understanding of vocabulary and symbols, this requires mutual effort to bridge the interaction gap by broadening their inter-disciplinary technical knowledge (Fig. 6.4, Gaps 2). • Organizational Gaps: In large organizations the chain of command may have too many layers that a message passes through between sender and receiver. A large number of receivers will require clear, concise, and consistent message-sending methods. Strategic goals must be understood at all organizational levels. Increasing the learning speed—as well as the quality of communication—are major contributors to the success of an organization. For example, integration of design, economic evaluation and project development teams can reduce the average lead–time from project conception to completion by years. In essence, clear corporate communication helps to reduce the Inter-disciplinary Gaps of Fig. 6.4. • Cultural Gaps: Different cultural customs and beliefs may profoundly interfere with mutual understanding (Fig. 6.5). Spending time abroad in different cultures and in different companies is very beneficial—if not essential—for bridging Cultural Gaps. The ultimate secret behind effective cooperation between professionals is to avoid lack of trust. Professionals working within newly merged companies all know too well that peoples’ egos, prejudices, traditions, cultures, conflicting

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Fig. 6.5 Communication gaps may inhibit the effective sharing of knowledge. As professionals come from different company cultures, different countries, or both, they need to bridge the Cultural Gaps (3)

Fig. 6.6 Integration of People, Technology, Processes and Workflows of Company A and Company B requires dedicated attention. Human emotions may stand in the way of the successful sharing of corporate capacities. The respective Organizational Learning programs of Company A and B need to address specifically Cultural Gaps in communication in a continuous effort to safeguard and increase their overall Emotional Intelligence

feelings, goals, and their strong differences of opinion may undermine mutual understanding. Company mergers must integrate people, technology, processes and workflow across the former company cultures (Fig. 6.6). If people are on opposite sides of an issue, they may not be comfortable sharing their knowledge to

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Fig. 6.7 Cornelis generic concept of Feeling’s Logic (modified from Cornelis)

the full effect. Many of these feelings, prejudices and traditions have their roots in cultural identity. The effect of Emotional Intelligence and the related emotional risk that may impair the efficiency of your business cycles is highlighted in the next section.

6.4 How Can You Merge Company Cultures? A rational framework for the role of emotions in communication across sociocultural systems has been postulated by Cornelis. The Cornelis model of ‘‘Feeling’s Logic’’ conceptualizes the embedding of emotions in so called ‘cultural layers of stability’ (Fig. 6.7); three such layers are distinguished: ‘‘Culture’’, ‘‘Skills’’ and ‘‘Self-actualization’’. Each layer needs conditional fulfillment for any action on the subsequent level to be undertaken and may be applied at both an individual and macro-or societal level. The lowest level is the ‘‘Culture’’ level, which refers to cultural ‘‘embeddedness’’ of social groups or companies, the extent to which they have adopted its language, norms and customs. Individuals in a society share a common language, adhere to cultural traditions, and display similar customs and beliefs. ‘‘Skills’’ refers to the specific set of skills the people in a certain social group require for successful functioning. Skills enable recognition of—and adherence to—a social regulatory system; the economic, legal and political systems. ‘‘Self-actualization’’ refers to people’s ability to formulate and realize their goals and ambitions within a society. These three layers ‘‘stack’’ on top of one another. In other words, fulfilling the cultural layer is contingent on fulfilling the

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skill layer; it is highly implausible for a member of any society or organization to realize his or her goals and ambitions (self-actualization) without first learning the language and understanding the culture. The emotional responses related to the second skill layer is ‘‘Confidence’’ for those who have the appropriate skills—and ‘‘Frustration’’ for those entities that do not. A third, fundamental emotional response is related to the self-actualization or self-fulfillment level. A social entity or organization is happy and successful if self-fulfillment can be realized, and sad and unsuccessful if this is not the case. The great merit of the Cornelis ‘‘Feelings Logic’’ lies in his recognition of the importance of emotional responses to the three societal action layers. Social entities that understand and ‘‘grasp’’ each other’s cultural layer feel trusted, while they may still recognize culturally distinct habits of one another. Social entities that do not learn to understand each other’s culture (or fail to recognize it) may feel scared when confronted with distinct cultural habits. Once societies become scared through cultural misunderstanding they can adopt only three strategies: fight, flight or stay put. Within an international institutional context, misunderstanding at the cultural level may therefore ultimately lead to war. One society may battle with the other because they cannot reach their goals of self-fulfillment, and do not possess a cultural bond of mutual understanding with their rivaling society. Adding a coherent view on cultural risk management could greatly enhance efficiency in multicultural engineering co-operations. New business development should therefore be allocated a budget to overcome Cultural Gaps in the communication and negotiations between company professionals. This is needed to make sure that professionals are ready to communicate effectively to share knowledge of their respective company resources. Here are some further recommendations for tackling Cultural Gaps to effectuate a high Emotional Intelligence in your organization: • Assess your goals, skills and culture from an emotional viewpoint and assess the emotional acceptability for your partners. • Improve not just the cultural understanding of your workforce but also their emotional intelligence, making them capable to sense the emotions of your business partners. • Start with those groups of people most likely to enter into dialogue with culturally distinct parties. Study and teach your employees the cultural customs and peculiarities of your trade partners. • Be careful with overemphasizing communication via modern ICT tools, the emotional signals are poorly captured and thus filters out important information from the message. • Set up and maintain international training centers to engage in cross-cultural cooperation. Train local workers by sending them abroad, thus increasing their appreciation and ability to adapt to foreign cultures. Organize student exchanges between foreign nations on a far larger scale than what is currently commonplace.

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Embedded

Enabled

High Context Real-Time

Medium Context Just-in-Time

Entrenched within work

Experienced as part of work

Transaction Workflow

User Process Workflow

Enterprise Search Engine Indices

Associated Artifacts

Formal Low Context Ahead-of-Time

Takes place separately from work Learning Management System

Embedded, Enabled & Formal Learning

Course Catalog

Fig. 6.8 Organizational Learning is commonly supported by learning strategies. For example, IBM distinguishes formal, enabled and embedded learning. All three learning modes are supported by web-based platforms (learning management systems, search engines or knowledge management systems and workflow management systems)

• Stimulate working abroad, and facilitate complex immigration and migration procedures. Ultimately, only those organizations which act with high Emotional Intelligence will survive in a world were we no longer can dominate any other party with our own culture and language. Building in targeted interventions in your Organizational Learning program is advised if Emotional Intelligence scores low, making provisions for structural improvements.

6.5 How is E-Learning Part of Knowledge Management? The relationship between Knowledge Management, corporate learning and individual learning is complex. Companies like IBM distinguish three basic settings of the personal learning process (Fig. 6.8). Embedded learning is, in fact, the learning that takes place as part of the business process. This is real-time learning that leads to effective product and service delivery. Enabled learning is self-instructional use of corporate learning platforms that can be consulted for just-in-time delivery of knowledge needed. Formal learning is part of a structured curriculum that ties in with specific roles and functions that need a set of competencies and skills. This

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Fig. 6.9 Networks support corporate learning programs and knowledge sharing. Providing ‘‘quality’’—content requires cooperation with providers and suppliers, and a learning platform that can be easily shared by users and instructors. Remote access must be convenient and allows 24 h learning anywhere around the globe

often involves a component of classroom based tuition. The courses can be selected on the basis of a course catalog and the electronic workplace supports all three categories of corporate-supported learning of individuals. Ultimately, the developed skills and competencies in the workforce form a pivotal basis for the corporate knowledge resources that must be effectively managed to enhance your Organizational Intelligence and improve your decisionmaking capacity. Integrated business processes are driven by: (1) secure access to knowledge and learning repositories anywhere and anytime, (2) shared information, (3) shared services & outsourcing, and (4) learner-centered needs. Businesses have gone far beyond the stage of putting computers on everyone’s desk. They are now building advanced computer information systems. Information literacy is the ability to utilize technology tools in decision-making. Some key questions are: ‘‘How can I learn to use this? How can I use the attained skill in my job? Will I be appreciated better for my efforts?’’

6.6 How is E-Learning Most Effective? Knowledge or learning management systems (e.g., Blackboard and more advanced systems) have become so important and powerful that these transform the business of learning if deployed responsibly. Also, integrated PDAs, cell phones, laptops and such, all running a course management or learning environment system are now reality. Sessions can be real-time (synchronous): communicating directly with peers and/or tutors, using technology such as whiteboards, electronic presentations and document sharing. But even non real-time (asynchronous) functionality is an added advantage. You can now carry on a conversation, by leaving and responding

6.6 How is E-Learning Most Effective?

Multimedia

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Catalog & Administration, Management

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Learning Delivery Learning Management

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Fig. 6.10 Modern web-based learning systems include learning management services (administration, learning catalog, content provision, progress tracking, competency and skills mapping) as well as learning delivery capacity for groups and individuals

to messages over time. Examples are bulletin board systems and groupware discussion databases. The tele-campus is no longer a myth and distance learning is here. The PC revolution and internet explosion have enabled us to launch and access multimedia resources that are powerful tools for Organizational Learning. Coursework now ranges beyond on-campus (e.g., seminars, laboratory sessions, small classes) to on-line (e.g., one way, fact-based large lecture), where the learning mode is based on the coursework, the learner and the teacher. Coursework may be supported web-enhanced to web-enabled, from physical to virtual. The new media enable more complex (and effective) connections (Fig. 6.9). E-learning has innovated instructional design by greater diversification, flexible learning on demand, differentiated staffing, collaboration across the organization, and quick access to discipline-specific knowledge repositories. Interactivity promotes asynchronous interaction with other team members and instructors, and therefore enhances productivity. Information technologies allow varied educational delivery modes and models: not one size fits all. There is not one mode or model for all learners, for all subjects. Networked learning allows for a mix of learning modes (blended learning) and offers new opportunities (Fig. 6.10) for a different—may be better—educational ‘‘product.’’ The ability to learn faster than your competitors may be the only sustainable competitive advantage—Arie de Geus, former Planning Manager Shell Group.

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Fig. 6.11 European and Russian socio-cultural systems, their potential mismatch, and the associated risks

6.7 Case Study 6: Example of Socio-Cultural Tensions Between Europe and Russia in Gas Trade Context Delivering gas from the world’s major reserves to the future demand centers will require a major expansion of inter-regional, cross-border gas transport infrastructures. Europe is no exception, as European natural gas production, the bulk of which is located in and around the North Sea basin, has entered into decline. The imminent gas demand–supply gap in NW Europe will need to be filled by increasing supplies from Norway, Russia and LNG sources such as Qatar. Of all prospective suppliers ready to fill NW Europe’s natural gas appetite, Russia is the largest current supplier and its share in NW European supplies is expected to grow steeply in the coming decades. Managing the risk of the emotions involved (based on feeling’s logic) and realizing the value of cultural education are crucial stepping stones, if NW Europe and the NW European gas industry are to realize the goal of security of energy supply. As NW Europe is ready to engage in even larger scale trade in natural gas with Russia, one may ask: ‘‘What is the match between the socio-cultural systems of NW Europe and Russia?’’ The Russian and NW European cultures vary to a great degree, one is hierarchical and has a long history of centralized government and the other is a liberal decentralized ‘‘networking’’ society. Seen from the perspective of the Cornelis ‘‘Feeling’s Logic’’ model, the NW European social regulatory systems for natural gas emphasize unbundling and liberalization along the gas value chain in order to maximize price and efficiency levels (Fig. 6.11). Even though large scale

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Fig. 6.12 Emotional Map for Feeling’s Logic in business cooperation between Gasunie/EDI and Gazprom

infrastructural projects are undertaken, investments made and political will explicated, there is a seemingly large difference in the socio-cultural systems of Europe and Russia. There are differences in base aspects such as language and cultural disposition towards authority, differences in the social regulatory systems with respect to the distribution of natural gas, differences even in the political ambitions concerned with natural gas. These differences pose risks to the agreements, which must be reached if NW Europe is to secure its security of supply. Russian social regulatory systems for natural gas supply emphasize concentrating all activities along the gas value chain in a single organization and creating synergy between state affairs and fuel resource affairs (Fig. 6.11). In summary, NW Europe’s ambitions seem to be securing supply and facilitating open markets, whereas Russian ambitions seem to be the growth of export volumes, maximizing revenue and utilizing energy as a political tool. Today, multi-billion dollar investments are risked in infrastructural projects of unprecedented scale in order to balance energy supply and demand of Russia and NW Europe. Existing gas infrastructure is expanded, new natural gas contracts are negotiated and existing ones extended and oftentimes renegotiated. Examples are the Shtokman and Sakhalin field developments, the Nordstream pipeline, and the Interconnector project. European engineers and CEO’s remain optimistic about the future prospects for oil and gas deals with Russian partners, the odd report set aside. To acquire security of energy supply, the Feeling’s Logic model indicates that actions have to be taken to narrow the language and cultural gaps between the partners. For example, Gazprom and Gasunie invested in the establishment of the Energy Delta Institute as a Business School for skills and knowledge exchange in

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Fig. 6.13 Modern knowledge exchange events for professionals require the (inter-) active participation of the audience in real-time discussions, quizzes and exercises that enable rapid translation to current and future business applications

the Oil & Gas business (Fig. 6.12). Large cultural exchange programs underpin the joint technical and business co-operation (e.g., the Replin and Diagalev exhibitions in Groningen). The common aim is to establish an emotionally balanced relationship between the two partners and to narrow the communication gap. This results in better alignment of the cultural values, skill sets, and common goals, which is important to overcome the residual ‘cold-war’ impediments of the past. Any person in business today who thinks to get along without study is going backward. There is no saturation point in education… especially in its applications to business —Thomas J. Watson, CEO IBM, 1930.

6.8 Actions You Can Take… Determine new opportunities for action learning or enabled experiential learning in your organization: Encourage maximum exposure to team learning (and team functioning) in your action learning program. Remember that the transfer of knowledge (K) is the product of the information source (I) and the Audience (A), or K = I *A (see Fig. 6.13). This means that the quality of your lectures and learning materials (I) must meet the expectations of your Audience (A). Scout the Organizational Learning portfolio of your competitors and vendor offerings to ensure your organization’s learning platform offers state-of-the-art content at the best price.

6.9 Things to Think About… • • • • •

How do you fit into your organization? What can you contribute with your current knowledge and skills base? Where lies your core expertise? How can you broaden your expertise? What are the benefits to your company?

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• Is there an e-learning system in place to help you? • Can you narrate about your access and experiences with a networked learning platform? • Are you a team player? • What do you like most about teamwork? • Can you list your personal strengths and weaknesses in the teamwork setting?

6.10 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. The people in our organization have a complete range of skills and competencies needed for selecting successful project teams. 2. Our project teams are manned by carefully selected, dedicated professionals, rather than being manned by permanent matrix-style teams. 3. Besides communicating about workflow schedules, tasks and resource assignment, the majority of our team effort is spent on exchanging knowledge about the project’s content. 4. The targets in our performance plan are agreed by all those held responsible for meeting them. 5. Our project plans are, in terms of tasks and activities, often incomplete and/or appropriate and therefore unlikely to be successful. 6. Either: Key Managers in our organization receive regular coaching on project management issues, leadership and people skills; or: Our organization uses one or more industry standard for project management methodologies (EVM, PEO, PMI, Summit, others). 7. Our organization is experimenting with new learning strategies. 8. Our learning programs collaborate and coordinate effectively with related programs that share similar goals and objectives. 9. Our Organizational Learning programs have a certain number of annual performance goals that demonstrate progress toward achieving the long-term goals. 10. I think the performance of our Organizational Learning programs compares unfavorably to other programs with similar purpose and goals. For IQ Scorecard assembly move Statement 1 2 3 True 1 1 1 False 0 0 0

to Gate 4 1 0

Stops 5 0 1

2 and 6 1 0

5 7 1 0

Input for IQ Scorecard from Chap. 6: Total True and False

8 1 0

9 1 0

10 0 1

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Bibliography Cornelis A (1988) Logica van het gevoel, filosofie van de stabiliteitslagen in de cultuur als nesteling der emoties. Uitgave Stichting Essence, Amsterdam Rothwell WJ, Lindholm J, Wallick WG (2003) What CEOs expect from corporate training: building workplace learning and performance initiatives that advance organizational goals. AMACOM, New York Trompenaars F, Hampden-Turner C (1997) Riding the waves of culture. Nicholas Brealey Publishing, London Weijermars R, De Jong V (2008) Closing Communication Gaps can improve the success of Oil & Gas Ventures. Oil and Gas Business Journal:1–24. http://www.ogbus.ru/eng/ EL N77-4426 State Reg 0320200609. Accessed 6 Oct 2008

Chapter 7

Aspiring Innovation and Creativity

Innovation or coming up with something new, reforming or reworking of promising ideas, is the result of a creative process. The ability to bring something new into existence is a key characteristic of learning organizations. They use their Organizational Intelligence in order to foster and encourage creative solutions to complex problems. Organizations with higher Corporate IQs can provide innovative solutions in any given situation swifter than their competitors. Your organization can achieve this leading position by stimulating the creative process of Organizational Learning. This fuels the fast renewal of organizational knowledge, the development of best practices, and spurs major innovations.

7.1 Why Do Learning Organizations Survive? Most organizations provide a product or service that caters to a need subject to certain favorable market conditions that prompt demand. Sooner or later the world will have changed so much that the business environment for that particular product or service has neared the end of its life cycle. As a leader in your organization, you continually inquire into your competitive edge: ‘‘Do we need to introduce something new or enhance our current products to remain competitive?’’ Intelligent organizations effectively identify opportunities in turbulent business environments and have confidence in their ability to succeed. Like them, your organization must learn to use information and knowledge to act in the face of uncertainty and to take calculated risks. Your organization must have a clear vision of what it wants to achieve and uses this as a lodestar. You draw effectively on a wide range of internal and external knowledge resources to respond to changes in the business environment in a structured way.

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_7,  Springer-Verlag London Limited 2011

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Fig. 7.1 The business environment for your current and future markets is continually changing because of shifts in geo-political, economic, socio-cultural and technological (PEST) factors. Scanning the business environment for change allows your organization to adapt timely to market dynamics

Scanning the environment for change and opportunities (Fig. 7.1), not unlike old-fashioned intelligence-gathering, is essential for intelligent organizations. The process of knowledge discovery can even be automated using the concept of a knowledge scout. Such knowledge scouts utilize resources of an inductive database to create personal knowledge agents that synthesize knowledge of interest to a particular user. They ‘‘live’’ in cyberspace, in the sense that they may continuously and autonomously search for knowledge. In the course of its existence, the cyberscout can learn about your interests and habits, past experiences, and use that knowledge history for gathering new knowledge. For example, your knowledge scout can be customized to continuously monitor a changing database using algorithms to synthesize knowledge that matches your concurrent areas of interest.

7.2 Why Do Unintelligent Organizations Fail? Ignorance and arrogance are both lethally detrimental to maintenance and expansion of the Corporate IQ in your organization. For example, some large and powerful companies (or, yes, indeed some nations) may still have an illusion of

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Fig. 7.2 Personal career growth sometimes suffers when ambitions and vocal individuals air their views and criticism on current ‘best practices’. This promotes self-censorship and is very detrimental to knowledge sharing and the building of Organizational Intelligence. The blackboard, obviously, is meant as an ironic reflection

invulnerability: ‘‘no one can match our research.’’ Likewise, unintelligent behavior may be led by overconfidence in the inherent morality of the group: ‘‘our competitors’ products are inferior; they can not provide service.’’ Even worse is a company culture of ‘groupthink.’ Symptoms are pressure on dissenters, demotion or firing of managers who disagree on a subject, while imposing excessive selfcensorship (Fig. 7.2). The subject of foreign competition is never put on the table by anyone in the group. Such organizations with groupthink symptoms are full of self-appointed mind guards. Evidence that contradicts the thinking of the group is removed as it moves up the organization. Innovation from the work floor is severely impeded in such organizations—chances for innovation and sustainable business development are lost in such organizations. For the innovation of your products and services, your organization must continue its Organizational Learning process and ensure that creativity of each individual is not stifled. Some really, poor killer phrases are: ‘‘Yes, but that’s irrelevant.’’ And: ‘‘We haven’t got the manpower,’’ or ‘‘Don’t rock the boat!’’ Instead encourage everyone to think out of-the-box. Challenge assumptions, and cue with trigger words like: ‘‘What—if…?’’

7.3 How Are New Products and Services Conceived? Organizational knowledge grows in a process that ‘organizationally’ amplifies the tacit knowledge created by individuals. Your organization cannot create knowledge without creative individuals. They must be encouraged to generate new insights and ideas and bring these into the explicit knowledge network of the organization. Idea generation can be jump-started in a task force by asking inquisitive questions: ‘‘Can a new product or service be modified for other uses? Are there better ways to use our products?’’ Consider using a systematic process for idea generation. For example, you can resort to requirements analysis of your customer wants, stakeholder mapping of

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your market players, check-listing, brainstorming, mind mapping, building objective trees, drawing morph charts, studying analogs from synectics, bionics, and even science fiction—all these approaches can help in generating useful and innovative ideas. Do not shy away from dialectic inquiry using consultation, reasoning, independent investigation of truth, meditation, parables, stories, metaphors, and reflection to develop creative thinking. Valuable Ideas?—‘‘What is the value of an idea that comes in the flash of a second but is based on a lifetime of experience?’’—Karl Erik Sveiby.

Describe the idea, gather and examine the facts, and consider the possibilities and options for going forward. Then evaluate the situation logically (lists of pros and cons, cause-and-effect scenarios). Look at the impact of the proposed solution and evaluate its effects: ‘‘Is it what you want for your organization? Is it congruent with your value system?’’ Consider alternatives and develop an assessment plan. Knowledge creation is driven by the ‘‘mind-sets’’ at each stage of the process. Knowledge that can be expressed in words and numbers represents only the tip of the entire body of knowledge. People’s mind-sets must be encouraged to acquire new knowledge by actively creating and organizing intelligent experiences. As said correctly, ‘‘we know more than we can tell.’’

7.4 How Does Knowledge Generation Differ from Technology Development? There is an inherent tension between the esoteric knowledge seeking questions of science and the pragmatic solutions offered by new technologies. Scientific research and technology development compete for funding and both can generate innovation. Each discipline has generated new products in the past used for either good or bad applications (A- and H-bombs as well as nuclear reactors from fundamental science; submarines and airplanes from technology engineering for civilian and military applications). New knowledge generation or pure science commonly seeks answer to broader questions, like ‘‘What is the origin of species? Where did the Universe begin to exist? When was the beginning of time?’’ These are broad questions that are slowly and patiently answered by numerous incremental discoveries that lead to the required answers. In contrast, new technology development commonly offers solutions to an immediate practical need in the market, like: ‘‘How can we drill for deeper oil and gas? How can we transport the gas with better pressure control?’’ New technology is commonly developed to fill a technology gap on the short-term, and—unlike pure science—is very practice-oriented. When it comes to generating new project options for new products and services in your organization, try to use the benefits of both scientific inquiry and

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technology engineering. For example, Organizational Learning is driven by four principal factors (revisit Fig. 3.9): (1) people skills and competencies, (2) technology tools, (3) business processes, and (4) workflow. As explained in Chap. 3 (Sects. 3.5 and 3.7), improved performance may be achieved by optimizing any single or a combination of these drivers. Examples of optimizations in organizational performance are: (1) better teamwork and better knowledge sharing between the people in your organization (e.g., bringing personal, tacit knowledge and higher quality faster into the explicit knowledge domain), (2) technology breakthroughs and strategic rollouts (e.g., Smart Fields example of Case study 3), (3) improved physical or chemical business processes (e.g., new pipeline welding methods), or (4) improvement of workflow speed (e.g., dramatically shortened project development times). In order to find areas for innovation, you may consider to first identify for which of the four performance drivers of Organizational Learning your organization is lagging behind (see next section).

7.5 How Can You Generate Ideas for Business Improvement? Making an action plan to enhance your organization’s competitive capacity may focus on improving any single or a combination of the four drivers: people, technology, processes, and workflow. Finding areas for improvement for each of the four internal driving forces of your business can be explored as follows: (1) People’s knowledge sharing: Utilize the mapping of Knowledge Intra-nets and Knowledge Extra-nets (see Chap. 2) to identify bottlenecks in your information highways. Perhaps dedicated training is needed to reduce any internal communication gaps between your professionals (revisit Figs. 6.4, 6.5). Next, stimulate the building of new links to external knowledge partners that can help you to attain better knowledge sharing capacity for competitive advantage. For example, if a university is establishing a consortium to study carbon dioxide storage options, consider joining the consortium’s knowledge network. Bottlenecks in knowledge transfer efficiency between your decision-makers, researchers, consultants, and stakeholders can be very detrimental to the quality and speed of your decision-making process (see Chap. 8). Consider an approach that establishes criteria to monitor and further optimize the success of knowledge transfer processes in your organization. Such an assessment of the quality of your knowledge exchange processes could focus on criteria for decision-making substance, relevance, and decision-impact as explained later in this book (Chap. 8, p. 125). Improving your Knowledge Management process (see Chap. 4) is a goal in itself so that lessons learned are not forgotten and the corporate memory is not deteriorating to avoid the repetition of past mistakes. Proactively eliciting the generation of new knowledge in training programs and in thematic conference remains a proven method to accelerate the bundling of new knowledge into goal-oriented outcomes. Additionally, consider using traditional tools like the House of Quality to inventory your customer and stakeholder expectations (see Chap. 8, Fig. 8.8).

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Fig. 7.3 Optimum industry clockspeed accelerator settings. Leading businesses lead the industry because they approach this optimum clockspeed mode

(2) Technology engineering and (3) Process engineering: Identifying areas for improvement of suboptimal technology and processes can benefit from formal situation and problem analysis: ‘‘When and where does the technical problem occur? Which problem is most urgent? Is the problem getting better or worse? How quickly? What are the consequences of the problem being left unsolved?’’ The Kepner-Tregoe method uses problem analysis in combination with formal decision analysis. For example, ask: ‘‘Why is the problem important? What actions are needed to correct the problem? How do we prevent further problems from occurring?’’ Improvement of economic performance commonly requires cost-effective solutions, for example, by weighing net present value over the life cycle of the problem solutions for the project. If uncertain parameters are involved, rather than discrete values only, try stochastic models and decision trees to choose the best course of action to mitigate project risk and optimize project profit. (4) Workflow efficiency: Your company’s workflow efficiency can benefit from a comprehensive analysis derived from Fine’s concept of industry clockspeed. Industry clockspeed is best translated as the velocity of change in the external business environment that sets the pace for a firm’s internal operations. The three principal dimensions of clockspeed acceleration adopted here are (Fig. 7.3): • Accelerator 1: Speeding up the workflow for decision-making, • Accelerator 2: Mitigating project risk by quantifying uncertainty, risk and opportunity in the workflow; this mitigates project delays and reduces production downtime, and, • Accelerator 3: Adding value to assets—at project level and portfolio level— during project execution. You may consider using clockspeed benchmark diagrams (Fig. 7.4a-c), to plot your company’s performance in the three clockspeed accelerators.

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Fig. 7.4 a–c Benchmark diagrams for tracking the historic performance of industry clockspeed accelerator 1 to 3

Each of the clockspeed accelerators represents the increase in performance over time; scaling of the three axes is based on historical performance. For example, the acceleration of workflow speed (accelerator 1, Fig. 7.4a) is needed for faster project completions and higher production efficiency. Enhancing safety by effective risk mitigation (accelerator 2, Fig. 7.4b) reduces the frequency of production downtime, project delays and failures. The accrual speed of portfolio value (accelerator 3, Fig. 7.4c) needs to accelerate in order to improve your company’s financial KPIs year after year.

7.6 Which External Forces Drive Your Innovation Efforts? You may discover key areas for business improvement in your organization by using Porter’s analysis of the five competitive forces to review the external factors that may threat your competitiveness. These five force factors are: • Bargaining power of suppliers. • Bargaining power of buyers and clients. • Threat of new entrants.

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• Threat of substitutes. • Rivalry among competitors. In order to find areas for innovation, identify for which of the five developing forces your organization should take remedial action. Make an action plan to enhance your competitive capacity by improving your control over any single or a combination of the five emergent forces. Of course, the PEST analysis of Fig. 7.1 can be a starting point. Alternatively, you can start by formulating the desired future position of your company and compare its present and desired state. Then proceed by identifying the obstacles that must be overcome to realize the desired future state. This approach may be particularly helpful when you want to influence policymakers in government and other stakeholders or when you need something specific from a stakeholder to improve your company’s position. Consider using so-called backcasting to formulate smaller outcomes or incremental successes required to achieve the final objective of your aspired state. In addition to innovation, organizations must continually review and validate their strategy planning and scenario thinking process (see Chap. 9), optimize the risk management of the corporate project portfolio (see Chap. 10), improve the Corporate Governance and enhance sustainability efforts (see Chap. 11), improve the Corporate branding and effectiveness of the internal communication (see Chap. 12), improve the negotiation process and enhance the commercial value of agreements (see Chap. 13), and remove obstacles to Organizational Learning (see Chaps. 3, 14). All these areas can be concisely monitored in periodic assessments of your Corporate IQ (see Chap. 15).

7.7 How Can You Rank Your Innovation Ideas and Project Options? Ultimately, your idea and project options generation efforts yield ideas and projects that need ranking for further development or abandonment. Three simple matrices can be used for quick project screening and idea ranking: (1) the Idea Matrix, which plots idea originality against complexity (Fig. 7.5), (2) the Prioritization Matrix, which plots project do-ability against impact (Fig. 7.6), and (3) the Boston Matrix, which plots sales growth-rate against market share (Fig. 7.7). You can use the Idea Matrix to plot idea originality against complexity (Fig. 7.5), so that you rank innovative-breakthrough ideas (Red Ideas), dreams for the future (Yellow Ideas), and proven ideas that are easy to implement (Blue Ideas), and discard less original ideas that are overly complex (Bad Ideas). Alternatively, the Prioritization Matrix can be used to plot project do-ability against impact (Fig. 7.6), and you can use the following workflow:

7.7 How Can You Rank Your Innovation Ideas and Project Options? Fig. 7.5 Idea Matrix, for screening and ranking idea development projects

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Idea Matrix High “Difficult”

Idea Complexity

BAD IDEA

YELLOW IDEA

RED IDEA

BLUE IDEA

Low “Easy” Low “Old”

Fig. 7.6 Prioritization Matrix, for screening and ranking idea and technology development projects

High “New”

Idea Originality

Prioritization Matrix High 4

HIGHER PRIORITY OPTIONS

Impact

3

2

1 Low Low

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Do-ability

• List on separate post-it notes the options under consideration. • Each option is rated in terms of the impact it would have if it were implemented and in terms of how ‘‘do-able’’ the option is to help short-list the best candidates to take forward. • Define what you mean by impact so everyone is working from the same understanding. • Similarly, define what you mean by do-ability (probably includes effort, cost, time, resources, risk, etc.). • Work through each option by asking where each option lies (one is low and four is high) for impact and do-ability.

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Fig. 7.7 BCG’s Boston Matrix, for screening the business potential of your old and new project ideas

Boston Matrix

Produ uct Sales s Grow wth Rate

High

Problem Child

Low

Slow Dog Low

Rising Star

Cash Cow

Relative Market Share

High

• Plot each score by placing each post-it on a prioritization matrix drawn on a flipchart or large piece of paper. The Boston Matrix anticipates and classifies the potential success of your business idea as follows (Fig. 7.7): • Rising Stars. Have high growth potential and could capture high market share. Stars use large amounts of cash, but as they develop into market leaders they can also generate large amounts of cash for your business. However, you need to be prepared to invest in vigorous marketing and product development to maintain and expand market share, because the rewards will be a cash cow as the market matures. • Cash Cows. Have not much more room for growth but they have high market share. This is a mature market, where the product is likely to have an established identity and brand name so that high profits and cash generation can be maintained. Further investment in product development is not needed, because of the market has already been captured. • Slow Dogs. Have low growth and low market share. These could still be profitable products for your business, as long as the cost of product development has been paid back well in the past and marketing costs can stay low. • Problem Children. Have high growth rates but still low market shares. These are in a critical phase because of the high demand on marketing and repayment of product development while returns are still modest due to the low market share. If you are unable to rapidly increase the product’s market share, problem children will simply absorb great amounts of cash and fail or become a dog. You may consider to divest this product line if early and attractive opportunities arise.

7.8 How Can You Further Validate Ideas?

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7.8 How Can You Further Validate Ideas? Serendipity and insight are needed for developing creative solutions in your products and services that go beyond the traditional accepted views. But you also need critical idea validation that is driven by devil’s advocacy and dialectic inquiry, to further appraise the best project options. Reasoning and constructive challenging put such project options in a wider context and then may serve to clarify the business potential: ‘‘Is there a plausible claim that the most interesting project option can be developed into a successful business proposal? Is there a plausible claim saying the opposite is true? Do the premises made support the conclusions? Are the premises reasonable?’’ Be charitable in your critical appraisal while reconstructing the arguments of others. In this fashion, strong criticism in a structured debate forces careful review of information used, and premises made, for a particular project idea. This approach may expound why an idea is flawed, weak or wrong: ‘‘What is the most interesting project?’’ For each new idea generated, repeat your project option ranking and give a high, medium, or low ranking of importance. ‘‘Is the project description clear enough or does it requires more work? How quickly can it be tested or assessed? What are the consequences if the idea for this project is not further explored?’’ In engineering, product design and testing are important as well as market-pull, revenues critically influence the design phase. Another major challenge in innovation decisions is to balance your technology-push that comes from new possibilities offered by science and technology with the demand-pull by customers in the market (Fig. 7.8). Matching of the two knowledge flows, demand-pull and technology-push, is sustainable only if your customers remain satisfied and stay prepared to pay for your products and services. The technical solution needs to be such that the cash flow for the end-to-end system can be maintained over the life cycle of the project (Fig. 7.9). This means that the revenue generating capacity of the product (or Net Present Value) can only be sustained if balanced with the real cost and money risk for developing and rolling out the product, plus the cost of maintenance and associated services, over the expected lifecycle.

7.9 Can Innovation Affect the Product Lifecycle? Innovation means bringing about significant changes to products, processes or services in your organization: by optimizing people interaction, capacity and by eliciting tacit knowledge from your employees, by developing new technology and industrial processes, and by improving the work flow. Ideally, your innovation power covers all four areas mentioned.

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Innovation Pipeline Organizational Learning Government R&D Support

Science & Technology

Manufacturers

Incubators

Customer Information

Pilot Projects

Demand Pull

Education

End User

R&D

Technology Push

Investors

Manufacturers

Integrators

Market, Policy, and Regulatory analysis

Distributors

Investors

Financial Institutions

Fig. 7.8 Balancing the push of new technology with the demand-pull of new markets requires swift Organizational Learning. Pilot projects and incubators help smooth the way and product roll out should be supported by dedicated training and learning programs. Innovation potential and managerial strength of your organization will determine how much investment you can attract

System Lifecycle

Fig. 7.9 Total lifecycle management and validation requires forecasting of cash flow and growth of product volume. Modern finance instruments require short gearing between product launch and break-even point

7.9 Can Innovation Affect the Product Lifecycle?

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Three Phases in Conventional Oil Business 60 Billions of Barrels per year (Gb)

Past Discovery 50

Future Discovery Production

40 30 20 10 0

1930

1950

1970

1990

2010

2030

2050

Fig. 7.10 The majority of conventional oil reserves have been discovered in the twentieth Century. Production has depleted part of these reserves. In order to be able to maintain sustained production, companies need to replace produced volumes by new discoveries. In the twenty-first Century, the reserve replacement volume falls behind the production volumes for all International Oil Companies (EXXON data)

As an example of product development, take oil. Petroleum, of all our natural resources, became interesting only when the industrial revolution required cheap fuel to power engines. Innovation of technology has brought the petroleum industry access to large oil discoveries, progressively deeper on-shore, and later off-shore. To substantiate the increasing demand on technology and innovation, the lifecycle of the global petroleum development is best subdivided into three phases (Fig. 7.10): 1. Early Exploration (1930-1970): discovery volumes increased year by year, while annual production capacity grew steadily from less than a billion barrels in 1930 to over 17 billion barrels in 1970. Some of the larger volumetric discoveries from the Early Exploration phase can still continue to feed twentyfirst Century oil production, provided new technology continues to enhance their recovery rates. 2. Development Plateau (1970-2000): discovery volumes, after peaking in 1964, kept sliding back and could no longer replace annual production since 1990. Overall, between 1970 and 2000 as much oil was produced as discovered, with time-averaged annual production just above 20 billion barrels. Since 1990, a cross-over has occurred between the annualized discovery bell curve and the shifted production bell curve in a point (Fig. 7.11), marking a situation where the annualized global production volumes began to outpace the discovery of new volumes. 3. Unconventionals and Alternatives (2000-2050): In order to meet the short-term projections for oil demand, industry must continue to boost annual production from 30 billion barrels in 2007 to over 31 billion barrels by 2010.

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Fig. 7.11 Technology gaps: oil production of both complex and deeper (offshore) fields requires the development and application of advanced technologies. New reserves need to be added by using (1) new technology to discover new prospects and to allow these reserves to be reported as proven; (2) production from conventional oil is under duress as remaining reserves are in challenging reservoirs; new technology is needed to maintain production volumes; (3) production from unconventional reserves also requires deployment of new technology

New discoveries of (conventional) oil volumes will not be sufficient to turn up the production decline curve. To meet demand, so-called unconventional oils (e.g., tar sands, heavy oils and gas hydrates) need to be developed. Conventional oil reserves are likely to be fully depleted by about 2050. Meanwhile, global demand for hydrocarbons continues to rise, and price levels may reach the so-called Break Point. Oil production of both complex and deeper (offshore) fields require the development and application of advanced technologies and processes, and the phasing in of new engineers and new leaders. Creative scientists and innovative engineers are needed that can inspire the next generation of petroleum professionals. New reserves need to be added by the industry’s efforts using a variety of technological solutions (Fig. 7.11). These include: (1) new technology deployment to mature reserves such as to be reported as proven; (2) as production from conventional oil is under duress because remaining reserves are in challenging reservoirs, new technology is needed to maintain production and enhance recovery from the remaining proven conventional reserves; and (3) production from unconventional reserves also requires the deployment of additional new technology. The summary of Fig. 7.12 shows that the lifecycle of conventional (or traditional) oil and gas production nears completion in the twenty-first Century. Technology and process improvements already have brought the petroleum industry access to progressively deeper on-shore and remote off-shore resources.

7.9 Can Innovation Affect the Product Lifecycle?

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Fig. 7.12 Energy life cycle replacement: The energy supply gap (red, double arrow) that emerges when innovation (green, curved arrow) can no longer extend the production from oil and gas fields to match the global demand curve. In reality, the Supply Gap is likely to be filled by alternative sources, and more efficient usage of energys

When technology and process innovation can no longer extend the production from conventional and unconventional oil and gas fields, the new solutions for energy supply must come from alternative energy sources. Price elasticity of oil and gas reaches the high end, which means that alternative energy sources can count on a bigger market share, while fossil energy consumption may slow-down due to leaner use. The market itself will continue to steer and gear the energy industry to a proper balance between energy prices, essentially from the diversification of energy supply options, directed by supply and demand ratios.

7.10 What is Your Leadership Role in Innovation? Keep challenging the way you and your organization are doing things: ‘‘Has the focus of your organization changed? How has this affected your job? Which direction are you going? Why?’’ And: ‘‘Which direction would you want your company to go?’’ In a competitive environment, the entrepreneurial manager searches the organization and environment for opportunities and initiates ‘improvement projects’ to bring about change. The environment is full of actuators (politic, economic, socio-cultural, and technologic) that prompt adaptive behavior of intelligent organizations. Do not overlook communicating relevant information to outsiders on your organization’s plans, policies, actions, and results. Demonstrate that you are leading in your organization’s line of business. Induce the people in your organization to contribute to your corporate goals. Consider establishing and staffing an organizational structure for searching and testing new commercial business activities. Ultimately, new business is implemented by allocating organizational resources of all kinds (Fig. 7.13). This includes continued Organizational Learning and

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New Business Development Challenge No. 1 ‘Conception’

Idea

Concept

• Change • Customers • Activity • People

~0,01

• Creativity • Assets • Know - How • Capacity • People

Challenge 3 ‘Implementation’

Business Plan

Commercial Business

• Market & Business Case • Experience & Know - how • Sexy Story • Finance (internal) • Support • People

~0,1- 1MEuro

10 - fold increase

Challenge 2 ‘Validation’

• Startup Activities • Management & Network • Partnerships • Finances & Stakeholders • Organization & Structure • Advice

~1 - 10 MEuro

10 - fold increase

~10 - 100 MEuro CAPEX

10 - fold increase

Earning Back

Fig. 7.13 The development of new commercial business commonly passes three challenging stages: (1) conception (2) validation, and (3) implementation. Main stages are commonly separated by decision gates. The new business line must fit the corporate strategy and reinforce the leadership vision. Budget of project stages typically increases tenfold after each decision gate

innovation by measuring performance against the planned objectives and initiating corrective action where necessary. This is now commonly achieved by adopting workflow architectures for decision-making with distinct Gate-Stages for Value Assurance Reviews.

7.11 Case Study 7: Atomic Bomb, Space Race, and Canadian Tar Sands—Emerging Threats Drive Investments for Innovation A goal-setting vision, underpinned by investment of company resources (human resources and real money), is needed to drive major innovations. For example, take the Manhattan Project that yielded the first atomic bomb at the secret World War II research facility of Los Alamos. The project succeeded because of the well-documented engineering leadership of Robert Oppenheimer (a scientist) and genius business leadership of Leslie Groves (a military), each held together by direct interest from the inner circle of advisors in the Roosevelt presidency. The total budget provided exceeded some $2 billion by the end of the project and involved about 125,000 people. The same investment incentive holds true for the Apollo Project that put the first man on the Moon in 1969. In fact, the USA moon exploration program originated during the Eisenhower administration in early 1950s, but it was not until US president John F. Kennedy looked for an American project that would capture

7.11

Case Study 7: Atomic Bomb, Space Race, and Canadian Tar Sands

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North Sea Oil Production UK Fields Cummulative Production 20 billion barrels (Gb)

3

120

4

5

6

2

7

2nd Oil Shock

100 80 1st Oil Shock

60 40 20

Real Price Nominal Price

1st Gulf War

80

2nd Gulf War

60

1 2

40 20

Nymex Oil Price

Million tons oil anually

140

Expected Production 5 to 7 Gb

0 0 1975 1980 1985 1990 1995 2000 2005 2010

Fig. 7.14 Innovative solutions in the development of North Sea oil reservoirs (marked by individual colors) have been stimulated by tax incentives, market conditions and technology breakthroughs. Drivers are: (1) EU Government tax incentives, that made offshore risks attractive; (2) Iran–Iraq War price hikes; (3) mid-1980s peak production; (4) end of North Sea production decline because of low oil price, production picks up caused by price hikes at the onset of the Iranian revolution of 1989; (5) new field development with help of 4D seismic and multilateral wells; (6) extended plateau production; and (7) postponement of anticipated decline in twenty-first Century by relatively high oil prices since 2005. (Compiled from Nymex Oil price and UK Energy Board data)

the public imagination. After the early Soviet successes, especially Yuri Gagarin’s 1961 space flight, the USA feared a missile technology gap. Kennedy asked his vice president Lyndon Johnson to make recommendations on a scientific endeavor that would prove the USA’s world leadership. The proposals included non-space options such as massive irrigation projects to end famine in the Third World, but it was determined that the US would have the best chance of beating the Soviets in a race to a moon landing. Between 1959 and 1973 NASA spent some $35 billion on human spaceflight, inclusive of infrastructure and support, of which nearly $20 billion was for the Apollo program. Not only was the funding a critical component for the Apollo Project, personnel with the appropriate skills and competencies had to be hired as well. NASA had grown to 36,000 people by 1966, from the 10,000 employed at NASA in 1960. Contractor employees working in the program increasing by a factor of 10 from 36,500 in 1960 to 376,700 in 1965. Private industry, research institutions, and universities, therefore, provided the majority of personnel working on the Apollo project. Modern spin-offs of the project includes: weather

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satellites, spy satellites, Earth observation satellites, geostationary TV satellites, and global positioning systems. The space segment’s total added ‘innovation’ value exceeds trillions of US dollars. The Oil and Gas industry is no exception—it takes major investments to develop better ways to get Oil and Gas to the surface. Unfortunately, the Oil and Gas industry is already dealing with huge subsurface risk and volatile market prices which add up to considerable project risks. That means that the Oil and Gas industry is traditionally adverse to risk-taking. For example, the giant Slochteren Gas field in the Netherlands was only developed in the early 1960s by a consortium of Shell and Exxon, because the Dutch government provided extensive loans and guarantees to finance the building of the national gas pipeline network. The development of the Dutch domestic gas market was made possible only after an historic government decision to provide attractive incentives to the field operators. In another example, the first Oil Crisis was needed, orchestrated by OPEC in 1972/1973, to galvanize European governments into providing the huge tax incentives that made off-shore exploration and production in the North Sea economically attractive and less risky. Subsequent innovations in exploration and production engineering technology have helped to extend the production plateau (or life cycle) of the North Sea Oil and Gas fields (Fig. 7.14). But more investment is needed to keep Oil and Gas supplies coming. The International Energy Agency (IEA) has estimated the cumulative investment, required worldwide for developing new Oil and Gas supplies over the period 2005-2030, at nearly $8.5 trillion. In fact, new technology needs to be developed faster and more urgently than cash can generate. The IEA costing rises to $20 trillion if including the investment required for developing new electrical power stations, new coal supplies and new bio-fuels. Interestingly, the development and life cycle periods in the Oil and Gas industry are so long that any investments over the next decade will lock in the technology remaining in use for up to 50 years. Several major oil development projects, requiring major investment to drive innovative solutions, are set in the Canadian tar sands. The tar sands, located in northern Alberta with some extensions into adjacent Saskatchewan, consist of crude bitumen trapped in the Athabasca deposits composed primarily of sand and clay. Local Indian tribes have historically waterproofed their canoes using some of the bitumen from the deposits cut by the Athabasca River. To produce barrels from the bituminous sands is costly, and oil cannot be recovered simply by letting it flow into a well bore like conventional crude oil. The Athabasca deposits are shallow enough to be suitable for surface mining, because about 10% of the Athabasca sands are covered with less than 75 m of overburden. The pay zone itself consists of tar sands typically 40-60 m thick deposited above relatively flat limestone beds—suitable for so-called strip mining. The first ‘‘tar sand strip mine’’ was started by Great Canadian Oil Sands (now Suncor) in 1967. The Syncrude mine, among the largest mines in the world, followed in 1978. The Albian Sands mine, operated by Shell Canada, opened in 2003. All three of these strip mines are associated with massive handling

7.11

Case Study 7: Atomic Bomb, Space Race, and Canadian Tar Sands

119

and processing systems that mine the rock with giant earthmoving equipment and hauling trucks. The recoverable reserves of upgraded synthetic crude oil for Athabasca are as high 267 billion barrels, equivalent to the 260 billion barrels of proven reserves of Saudi Arabia. The Mackenzie Valley gas pipeline out of northern Canada, providing about one-fifth of anticipated daily Canadian gas production, will have to be used to meet production targets set for the energy intensive extraction of the deeper tar sands that are not accessible by surface mining. By 2015, Canadian tar sands might yield about 5 million barrels of oil per day (or about 5% of world demand estimated at 99 million barrels per day for 2015 by the IEA). For comparison, new exploration frontiers such as the African offshore plays have added two billion barrels of oil, which covers only four weeks of global consumption of oil. The ‘re-discovery’ of the entire global deepwater resource play (some 52 billion barrels to date) would offset only by three years the current deficit between global oil consumption and global reserve additions. Clearly, innovations are needed urgently to energize the Energy business into closing the imminent gap between Oil and Gas supply and demand that will widen in the middle of the next decade.

7.12 Actions You Can Take… Generate ideas in your organization: hold a brainstorming session, or apply a more systematic analysis method (as outlined in this chapter), to generate ideas that may enhance the value of the products or services offered by your organization. Validate the generated ideas against your organizational mission and goals and rank them accordingly. Find resources and support to test the best ideas in the market. Revisit your failed projects: List and discuss three ideas that you had but let go consequent to killer phrases (‘‘great idea, but nor for us’’ or ‘‘we do alright now’’) or because of lack of corporate interest. Assess their current status.

7.13 Things to Think About…

• What are the main sources of new knowledge at your work place? • Are there appropriate incentives and resources for innovation in your organization? • What crucial role exists for, and which interaction occurs between, the societal trinity (academia, industry, and government) in the process of innovation? • Has your organization made some major innovations in the past 2 years? Explain and discuss the principles of these innovations.

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7.14 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. Multiple viewpoints and open productive debates are encouraged and cultivated in our organization. 2. Our organization is an industry leader in knowledge based innovation, we are at the forefront of innovative approaches. 3. Our leadership stimulates innovation, creativity, and calculated risk-taking by encouraging employees to develop and communicate creative ideas for improving the business. 4. Our external business drivers relate to regulatory changes and market development. 5. There are strong incentives for managers to achieve step changes in performance in our organization. 6. Project team members are neither encouraged to contribute to, nor are they rewarded for innovative and paradigm breaking solutions to our business challenges. 7. Our new products and services have an emphasis on balancing technology-push and demand-pull to stimulate an accelerating growth path for our business. 8. Our innovations are unrealistic and do not take full account of client expectations and needs, new technology requirements, workforce capabilities, and availability of other resource needs. 9. New products and services are designed, but not tested and evaluated prior to implementing these in our business processes. 10. Our organization is unaware of timely information on client requirements; we do not have the required performance indicators. For IQ Scorecard assembly move to Gate Stops 3 and 5 Statement 1 2 3 4 5 6 7

8

9

10

True False

0 1

0 1

0 1

1 0

1 0

1 0

1 0

1 0

0 1

1 0

Score

Input for IQ Scorecard from Chap. 7: Total True and False

Bibliography DeBono E (1967) New think: the use of lateral thinking in the generation of new ideas. Basic Books, New York DeBono E (1971) Lateral thinking for management. McGraw-Hill, New York DeBono E (1991) Teaching thinking. Penquin Books, London Govindarajan V, Trimble C (2005) Ten rules for strategic innovators: from idea to execution. Harvard Business School Press, Harvard Janis I (1982) Groupthink. Houghton Miflin Company Sherwood D (2002) Creating an innovative culture. Capstone Publishing, Oxford Syrett M, Lammiman J (2002) The innovative individual. Capstone Publishing, Oxford

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Weijermars R (2009a) Competitive advantage from an E&P clockspeed accelerator. First Break 27(6):87–94 Weijermars R (2009b) Accelerating the three dimensions of E&P clockspeed–a novel strategy for optimizing utility in the Oil & Gas industry. Appl Energy 86:2222–2243 Weijermars R (2010) Guidelines for clockspeed acceleration in the US natural gas transmission industry. Appl Energy 87:2445–2466 Weijermars R (2011) Critical drivers of exploration and production clockspeed. Explor Prod Oil Gas Rev 9(1):12–17 Weijermars R, Watson S (2011) Can technology R&D close the unconventional gas performance gap? First Break 29(5):89–93

Gate Stop 2: Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented

The inputs from the questionnaire statements at the end of Chaps. 5–7 can be inserted into the Contextual IQ Scorecard given below. The outcome is your individual rating of your organization’s Contextual IQ. Remember that this result is not free from individual bias. A representative response group provides a less biased basis for assessing the IQ components of your Corporate IQ. This more advanced procedure is outlined in Appendix A.

Scorecard for Contextual IQ (Take Inputs from Chaps. 5–7) The Contextual IQ Scorecard below uses your individual ratings from the questionnaire statements of Chaps. 5–7. These questionnaires sample your scores for the organization’s effectiveness in applying its knowledge resources goaloriented.

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The effectiveness of your organization’s Vision Sharing efforts and the supplementary process of skill gap analysis—to stay competitive—was assessed in Chap. 5. The company’s focus on team building and leadership succession was rated in Chap. 6. The success of your organization in keeping up with the changing business environment and in producing market driven innovations was assessed in Chap. 7. Your results can be inserted here for a review of your company’s Contextual IQ rating. The ultimate aim is to use these results to improve the weaknesses that contribute to the impairment of your overall, Corporate IQ. Areas that need attention in the targeted interventions to improve your Contextual IQ can be identified as follows: Low scores for Chaps. 5–7 (i.e. Contextual IQ\20): Your organization’s vision of goal-oriented knowledge development is poorly supported. The company’s focus on team building and leadership succession is weak. Your organization is poor at innovation. Return to Chaps. 5–7 and remedy the weaknesses pinpointed in your assessment. Your overall, Corporate IQ Score can be assembled at Gate Stop 5, upon completion of your IQ component scores in Gate Stops 1 to 4.

Part III

Focus Area III: Build the Assets—Building Componential IQ

Focus Area I: Stimulate Knowledge Development—Building Experiential IQ Chapter 1: Developing Organizational IQ—A Corporate Necessity Chapter 2: Utilizing Value Chains and Knowledge Nets Chapter 3: Stimulating Organizational Learning Chapter 4: Managing Knowledge Resources â Gate Stop 1: Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ Chapter 5: Vision Sharing and Leadership Succession Chapter 6: Building Teams—Bridging Knowledge and Culture Gaps

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Chapter 7: Aspiring Innovation and Creativity â Gate Stop 2: Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented Focus Area III: Build the Assets—Building Componential IQ Chapter 8: Smart Decision-Making Chapter 9: Strategy Planning and Scenario Thinking Chapter 10: Optimizing Portfolio Management â Gate Stop 3: Componential IQ Assessment—Effectiveness in Building the Assets Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ Chapter 11: Championing Sustainable Development and Corporate Governance Chapter 12: Overcoming Communication Barriers Chapter 13: Aiming for Intelligent Negotiations and Effective Agreements Chapter 14: Leading in Organizational Learning â Gate Stop 4: Emotional IQ Assessment—Effectiveness in Communicating Why the Organization Excels Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ Chapter 15: Maximizing Your Organizational IQ â Gate Stop 5: Combining IQ Component Scores in an Overall Corporate IQ Score

Chapter 8

Smart Decision-Making

Learning organizations and their management systems are most effective if the results of information gathering on the workflow are presented in a decisioncompelling format. The Organizational Learning process must support your organization in its development of knowledge and asset management strategies. The adoption of alternative solutions should be weighed on the basis of relative uncertainty, risk, and opportunity. Your organization therefore must provide adequate support for advanced decision-making methods. The learning process of conscious choices involves the associated collection of data, continuous feedback and further assessment to optimize future decision-making.

8.1 Why Does Organizational Learning Call for Decisions? Learning organizations monitor data and operational and strategic changes and then process and examine these for clues to identify problems and opportunities. Problems are identified for opportunity situations and these commonly require design and choice. Sometimes, intelligence gathering results in dissatisfaction with the current state, and identifies potential benefits of a new, desired state. Making intelligent choices is a more or less rational process of decision-making. Key processes include prioritizing organizational objectives, data search and scanning procedures, problem identification, classification and solution (Fig. 8.1). Decision-making is a problem-solving process (remediation) preceded by a separate problem analysis or framing the problem process (examination and diagnosis). Make sure you have the right expertise at hand. The synergy of human judgment becomes ever more powerful when technology tools, people and processes are seamlessly integrated by effective workflows. Common tools to facilitate your intelligence gathering are email and messaging services, search and retrieval tools, electronic meeting systems, group scheduling systems, online skills

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_8,  Springer-Verlag London Limited 2011

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Fig. 8.1 Information flows (Steps 1 and 2) in knowledge organizations aggregate into goaloriented applications (Step 3). The goal is to control business risks and opportunities better (Step 4), to realize strategic objectives, and to make better decisions (Step 5) for business application (Step 6). ‘‘Lessons Learned’’ must be fed back into the knowledge loop (Step 7). This scheme, developed for US army battlefield situations, can be equally applied to civilian business operations

inventories, yellow pages, and online subject experts. You may start up virtual communities and document management systems to support the workflow. Problem solving uses a combination of information, knowledge, and techniques—and some intuition—to make decisions on a problem that has previously been defined. A serious obstacle may be the individual differences in situational perception: our judgment is based on sense perception that ties in with retained knowledge. Most of the conclusions by our cerebral cortex are guided by expectation, as follows from the reputed Ames room experiment (Fig. 8.2). The room is perceived as rectangular and we conclude similarly tall people erroneously as being of different size. The true lesson of the Adelbert Ames experiment is that we may need to go deep into cognitive science to decide whether what we perceive and see is real or simply an illusion. In fact, some branches of philosophy (e.g. metaphysics and ontology) still try to find out whether we really exist and in how much we fool ourselves…. Because we succeed so poorly in separating knowledge from sense perception, approaches like the scientific method have introduced reasoning, based on measurements, in order to support and—where necessary—overrule our unreliable senses. If you are not convinced yet, try to decide whether any lines in the picture of Fig. 8.3 are really straight and parallel without the use of a ruler… are you sure yet?

8.2 How Does Your Organization Make Decisions?

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Fig. 8.2 Classical setup for visual deception in so-called Ames Room experiment. Equally tall persons appear as different in length because of the room’s arrangements. This room is permanently accessible in the M.C. Escher museum in the Hague, Netherlands

Fig. 8.3 Pop-art patterns tend to disable judgment about line arrangement and orientation

8.2 How Does Your Organization Make Decisions? Your Organizational Intelligence can be measured in part by the sophistication of your decision-making processes (Fig. 8.4). Networked professionals all over the world are producing ever-larger volumes of information. And as long as the power of computerized systems increases logarithmically, the volume of business data will continue to balloon unabated. Consequently, our society’s leading professionals themselves are now under the threat of becoming the slowest and weakest links in our organizational structures. We all need to engage with enormous commitment to resolve and handle an ever-greater stream of detailed professional data. The advent of real-time monitoring of critical information inspires an expeditious process of sound decisionmaking based on rapid data compilation, uncertainty modeling, and risk analysis. And we must bear in mind that the accuracy in our assessment of this data needs to match the quality of the data concerned.

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Fig. 8.4 Intelligent organizations use advanced methods to quantify uncertainty in terms of probabilities and risks analysis (Case A). Ignorance about uncertainty and risk analysis occurs when organizations lack the appropriate professional expertise about decision-making and risk analysis methods (Case B). Certain risks or parameters that were not included in your risk analysis may cause grave problems if they manifest themselves with unexpected but relevant impact in the course of your business operations (Case C)

At the same time, the swelling flow of complex information in our field of specialization brings to us a real risk of losing scope and overview. Keeping sight of the larger conceptual framework of our professional efforts remains important. And while the ‘‘devil is in the detail’’, which ‘‘devil’’ we meet in our detailed operations depends on the wider strategic framework set for our business in the first place. Therefore, taking more time, at the outset of any new business venture, to assess the validity of the basic premises and strategic choices made, pays off. An intelligent approach is needed. Invariably, this results in better operational performance of the developed products and services. Modern organizations are aware of this challenge. Many decisions remain subject to uncertainty: your information and knowledge may be incomplete. The worst case is ignorance, the best case of uncertainty modeling occurs when you are at least aware of what you do not and cannot know, but then decide to make a decision according to ‘‘best practice’’, using sophisticated techniques for uncertainty analysis. Does your organization use a structured, conscious process to make decisions? The list of popular techniques available to arrive at controlled decisions is rather long. For example, mechanistic tools include decision trees, rule induction, neural networks, nearest neighbors, evolutionary computation, clustering techniques, and Bayesian belief networks (see Glossary, Appendix D).

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Fig. 8.5 Business volume produced with current business practices will decline over time. New business challenges need to be pursued. Factoring in uncertainties, risks and opportunities in a systematic approach will add new business volume if done professionally

8.3 Does the Market Steer Your Organization’s Decisions, or Vice Versa? Validating ideas and data trends is not easy. Our world changes all the time, in a seemingly unpredictable fashion. Who could have guessed: ‘‘That Iraq would raid Kuwait in 1991? That a US-led Coalition Force would once again enter Baghdad in 2003? That carbon dioxide emission rights would be sold on global trading systems? That China will over take the US as largest energy consumer by 2010? That ‘‘air rights’’ would be sold in New York?’’ Useful scenarios must be relevant by identifying new business challenges, responding to certain circumstances at the right time and tie in with current information and models (Fig. 8.5). Substantial decisions are reached when they are well researched and internally consistent, while providing fresh perspectives that improve our understanding of the past, present and—foremost—the future. Good business managers seek new business challenges by asking: ‘‘Where do we want to be?’’ Would such visionary mission statements for your organization mean that you must be able to predict the future? In fact, making decisions and developing a vision for the future direction is an integrated conscious process of dialectic inquiry based on knowledge: ‘‘Is important information missing? Are the basic assumptions clear? Are standard reporting and recording practices observed? Has the business decision been made ignorantly or is there some justification?’’ Your vision must also help to answer bottom up questions like: ‘‘Where are we going?’’ Good business managers also know how to think critically. They know that expertise can be bought and that the experts may disagree. And a subject may be such that nobody can claim expertise. They uncover hidden assumptions, while carefully listening and tracing the consequences of claims. They recognize and

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avoid various sorts of rhetoric and pseudo-reasoning but do not avoid analyzing and evaluating arguments. Do not forget that individuals are the repositories of the most up-to-date knowledge: know what you know, and know how to best share it. Learn how knowledge makes you and everyone else prosper. And technology is the knowledge management enabler. It provides the foundation for solutions that automate and centralize the sharing of knowledge and that fuel the innovation process.

8.4 Is an Organizational Decision Rational? Decision-making concepts can be readily categorized into programmed decisions—those that can be pre-specified by a set of rules or decision procedures, and non-programmed decisions—those that do not have any pre-established decision rules or procedures. A rational decision-maker is expected to decide on the optimal alternative or outcome. The optimal alternative is one that is related to some optimization criteria such as minimized cost and optimizing Net Present Value. For example, consider purchasing two products that are identical in all respects and appear equal in value. All other things being equal, the rational decision-maker will choose the one with the lower cost. Conversely, the supplier will bring to market the product or service with the highest Net Present Value. If the outcomes are known, and the values of the outcomes are certain, the task of the decision-makers is to compute the optimal alternative or outcome rationally. But are we rational decision-makers? People are said to be limited rationalists. We tend to look for a limited number of alternatives and, especially under time pressure, decide in part on the basis of experiential intuition. In organizations, reaching decisions is even more complex than for individual persons. Organizational expectations arise from inferences from available information. Choice—in many organizations—emerges as the selection of the first alternative that expectations identify as acceptable in terms of goals. And even early bargaining amongst coalitions commonly produces agreements that suit the organization’s goals. Choice in the short-run is then driven by standard operating procedures rather than considering all alternatives. And choice in the long-run is driven by organizational targets rather than by innovation objectives. Limitations dictate the quality of the decision-making process. Therefore, you should strive to use all available explicit and tacit knowledge repositories, plus state-of-the-art tools and methods in your organizational decision-making process (Fig. 8.6). Further, empirical research has shown the importance of rationality and bounded rationality in organizational decision-making. Rationality and bounded rationality may be viewed at opposite ends of a continuum with the decision setting playing a contingency role. Threatening environments, high uncertainty,

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Fig. 8.6 The development of new knowledge, for better decision-making must be supported by an Organizational Learning program

and external control all decrease rationality. The more complex or turbulent the environment, the less rationality is likely to be used. Many complex decisions in organizations are made by groups of people. Groups can sometimes produce inadequate solutions to problems: ‘‘A camel is a horse designed by a committee.’’ Groups may produce results that reflect the average expertise… or lack of it! In the end, use your Organizational Intelligence to stick to some key value targets: ‘‘Which markets to serve? Which customers to serve? Which technologies to master? How to get the best out of employees? And where is the money in your business? What is being bought? How is it procured? Who are the customers? Who is the buyer? Where is the supplier? What is selling?’’ Recognize that organizations place constraints on the decision-maker. Rationality is not always an option. And even when you think that choices have been settled in a rational decisionmaking process, neuroscience suggests otherwise (see below).

8.5 How Does Your Brain Influence Decision-Making? Recent neuroscience research has demonstrated how strongly our human decisions are linked to our emotions. Brain scans on people who suffered physical damage to their frontal cortex have revealed such people cannot take any rational decision. That is because that part of the brain processes emotions. Emotions stop to exist when the frontal cortex ceases to function. And although people with damage to the frontal cortex can still summarize the choices available in a given situation as well as anyone else, without their emotions to guide them, they cannot actually make a choice (Fig. 8.7).

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Fig. 8.7 Decision-making by humans takes place by emotionally motivated processes in the frontal cortex of the brain. Rational decisions cannot be taken when the frontal cortex is impaired

Remember that in the TV-serial ‘‘Star Trek’’ it is not Mr. Spock, the emotionless Vulcan, who commanded the spaceship ‘‘Enterprise.’’ That responsibility required making many tough decisions, a task better executed by an emotionridden human, the revered Captain Kirk. In summary, decision-making by humans is done because we feel motivated and rewarded to do so. We can follow instructions, use tools and methods to optimize decisions. But we will only makes conscious decisions if our emotions make us think this is worthwhile, each time again. Unhappy people tend to take decisions that are overly motivated by personal grievance. Happy people make decisions that are less self-centered and more duly account for stakeholder expectations. The lesson is clear: your company should strive to transfer decision-making responsibility to happy and rational decision-makers, positively engaged with their internal emotions and motivated by your corporate objectives. Your company’s ethical guidelines, corporate rules and sustainability vision help to set the frame of reference for upholding the expected people values.

8.6 How Does One Mobilize Stakeholders? In a review of over 400 decisions made by private, public and non-profit organizations in the USA, Canada and Europe, half of the outcomes from the decisions were no longer relevant after two years. And between 30 and 40% of the decisions were ‘‘initial failures,’’ meaning that they were never implemented. Part of that failure may come from ineffective decision-making processes in which stakeholders were overlooked and support was lost. Stakeholder support is needed, to consider the consequences of new activities on the economy, environment and society, and including the interaction between these domains. The required actions are the consequences of decisions, meaning that the decision-making can provide a vital foothold for developing sustainable development thinking within intelligent organizations.

8.6 How Does One Mobilize Stakeholders?

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Fig. 8.8 The Quality Function Deployment customer can be anyone with needs from a product or process. The example to the right is for a factory workflow evaluation in which the customer might be the plant manager. Symbols indicate corellation inventory

‘‘How doe you mobilize those stakeholders? And how can you optimally integrate their insights and views?’’ One solution is role-playing games which involve participants from the very start in a vision-generating process. Such games stimulate all those involved to solve their stakeholder challenge in the planning of the new project. Creativity is mobilized and participants must be encouraged to freely deal with the problems but also to take advantage of the potential offered by the future design space provided. Choices must be made and estimations: on the key drivers in our society that influence your future planning. ‘‘How do you think technology, demography or the relation between civilians and the government will develop? What is your vision on these issues? How do you prefer to deal with the broad spectrum of opinions that exist in our society? And which future scenarios will you develop?’’ It is important that the choices to be made for the future are robust—avoiding oversight or lack of stakeholder support—so that any unexpected event will not lead to a negative impact on your project. Your final decision for the optimal solution to the problem studied must be a product of a network of people who are able to look over one another’s shoulder, to understand one another’s arguments and appreciate mutual inspiration. In a similar approach, system engineers working on complex engineering tasks use the Quality Function Deployment or ‘‘House of Quality’’ matrix to inventory the various expectations and needs of stakeholders (Fig. 8.8).

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The necessity of sustainable development presents some significant opportunities and challenges to your company. To move towards a more sustainable future, the decision-making process in your organization needs to consider the consequences of its actions on the domains of the economy, the environment and society, and the way the three interact with each other. However, few decisionmaking tools attempt to combine all of these analyses into the decision-making process. Typically decision-making is rich in economic and technical information, but poor in environmental and social information. Instead, the decision-making process must be grounded in the holistic domains of economy, environment and society if the decision-making process is to be robust and to support sustainable development. Preferably, there should be a workflow requirement in place to integrate the consequences of your decisions and interactions into all your corporate actions.

8.7 Which Architecture Can You Adopt for the Decision-Making Workflow? The concept of Decision-making Support Package (DSP) is designed to aid decision-makers. The DSP is prepared to offer senior management a choice between alternatives based on estimates of the values of those alternatives. The DSP is prepared by professionals working alone or in a group, and involves information gathering, the generation of alternatives, and quantification of comparisons of alternatives. The DSP should follow a common structure. This will enable professionals to ease the communication with each other on the contents of their work. The DSP will also facilitate cooperation in the Gate-Stage or Value Assurance Reviews. The DSP architecture, recommended here, is comprised of five Steps, as follows (Fig. 8.9): Step 1: Framing the Problem—introduce the asset(s) and area involved. Describe the problem and business challenges in terms of technology, economics, environmental impacts and societal consequences. If applicable, introduce geopolitical issues as well. This section ends with a well-framed problem, and states the research goals. Step 2: Method of Solution—here, the DSP explains the resources (people, tools and processes) that will be used, and the method(s) followed, to come to a solution. This includes literature review, selection of software tool, interviews, risk inventory, data gathering and so on. Step 3: Research Process—in this Step, the actual research activities are described in terms of workflow and results. Observations and intermediate results of multiple runs are discussed. Special attention should be given to the decision and risk analysis procedure. Step 4: Risks, Results and Proposed Solution—based on the research results, the conclusions and recommendations are formulated in relationship with the

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Fig. 8.9 Five systematic steps are recommended when initiating a problem solving business action. The steps ideally correspond to chapters in the DSP documentation. Identification of the problem (Step 1), should be fine-tuned with the team members selected in Step 2

preset goals. The conclusions need to be based on the decision and risk quantified in the research process. Step 5: Recommendations and Implementation Plan—conclusions and recommendations are transformed into an implementation plan for the company. For this plan, the following basic elements need be used: smart goals, balanced scorecard, time schedule, risk register, resources and so on. A gatekeeper checks the DSP for completeness, audits the decision making process for integrity, and helps to minimize any undue delays at the decision gate. The Gate-Stage or Value Assurance Review at the specific decision gate is the moment in time where decision-makers assess the DSP prepared by the expert teams. The decision-makers weigh the Gate Aims against risk and opportunities, keeping sight of the Corporate Strategy when assessing the Strategy Option. They may decise to proceed, rework, stall, change, or kill the project.

8.8 Can You Improve Knowledge Transfer for Your Decision-Making Processes? The quality of your decision-making processes is strongly affected by the quality of the knowledge transfer efficiency in your organization. To enhance the quality of your decision-making processes, you must improve the quality of the

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knowledge transfer efficiency between your decision-makers, researchers, consultants, and stakeholders. For example, establish criteria by which the success of the knowledge transfer between them can be measured and judged. The quality of knowledge transfer in your organization is high in: Decision-making substance: if the knowledge that is exchanged and generated is scientifically sound and innovative, while effectively addressing the issues raised by the initial problem faced by the decision-makers. Decision-making relevance: if the knowledge exchanged and generated fulfills the actual need of the decision-makers, but also draws attention to a dimension (scope or detail) different from the initial problem raised by the problem owners. Decision-making impact: if the knowledge exchanged and generated is not only received and understood, but also used to internalize the decision-making process to the extent that it guides future actions. Industry impact: if the knowledge exchanged and generated finds its appropriate application not only in your own organizational decision-making processes, but is adopted throughout the industry as a reference standard. This occurs only if the knowledge is willingly disseminated and when all stakeholders adopt your results. Clearly, all these categories of knowledge transfer quality need stimulation and benefit from periodic assessments of your Organizational Learning program. Knowledge sharing events should ideally focus on use-inspired knowledge transfer and critical appraisal, underpinned by a quest for optimized solutions.

8.9 Case Study 8: OPEC, Decision-Making in Strategic Alliances The Organization of the Petroleum Exporting Countries (OPEC) contributes to the world’s economic development by its efforts to match supply and demand for oil and gas, while communicating very clearly and cautiously about its policies. OPEC coordinates the oil production policies of its Member Countries (Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela). One of OPEC’s major challenges is to streamline, optimize and co-ordinate the decision-making process (Fig. 8.10). Decision must be reached on its pricing policies, production targets and press releases. The Ministers of energy and hydrocarbon affairs of OPEC Member Countries meet twice a year: to review the status of the international oil market and to review the forecasts for the future in order to agree upon appropriate actions. OPEC policy is also designed to promote stability in the oil market and to ensure that oil consumers continue to receive stable supplies of oil. OPEC’s Secretariat, a permanent inter-governmental body

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Fig. 8.10 OPEC’s decisionmaking style is highly directive. Such decisions allow for less ambiguity and are based on rational criteria such as maintaining economic stability and the maximizing of profits

based in Vienna since 1965, provides research and administrative support to its Member Countries. The OPEC Secretariat disseminates news and information to the World at large—communicated in the form of OPEC Press Releases—in order to help stabilize the oil market and to help oil producers achieve a reasonable rate of return on their investments. Founded in 1960, OPEC first rose to international prominence during the 1970s, when its Member Countries took control of their domestic petroleum industries and acquired a major say in the pricing of crude oil on world markets. There were two oil pricing-crises: one triggered by the Arab oil embargo in 1973, and the other by the outbreak of the Iranian Revolution in 1979. Fed by fundamental imbalances in the market, both events resulted in oil prices rising steeply. OPEC’s ability to control the price of oil has somewhat diminished since the 1970s, following the much-expanded development of the Gulf of Mexico, the North Sea, and the growing fluidity of the market. While OPEC’s mission is to ensure the stabilization of oil prices in order to secure an efficient, economic and regular supply of petroleum to consumers, its responsibilities are dominated by the need for a steady income to producers. They need a generous return on capital to those investing in the petroleum industry. The considerable impact of OPEC policies on the price of oil continues to have global impact on the financial markets. OPEC is now under considerable pressure by the world community to expand its production capacity fast enough to fill a possible gap between oil demand and supply, which may start to emerge next decade. To close that gap, OPEC oil supply—which took 22 years to rise from 15 million barrel of oil per day (mmb/day) in 1984 to 30 mmb/day in 2006—needs to rise to nearly 40 mmb/day by year 2015. That steep rise in production is needed because supply by Non-OPEC producers, which stands at 55 mmb/day in 2006, can barely be lifted beyond 60 mmb/day in the early part of next decade (Fig. 8.11). Total demand for oil, at 85 mmb/day in 2006, is expected to have risen to 99 mmb/day by 2015, according to the IEA. In simple terms, growth of Non-OPEC oil production is slow and expensive in a race against declining reserves and limited access to new resources. In contrast, OPEC has access to relatively huge oil reservoirs that can be produced with

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Fig. 8.11 Non-OPEC oil production based on historic data till 2006 and anticipated production to 2020 based on on-going projects and investments. Non-OPEC conventional oil-production will peak and decline early next decade but is mitigated by growth of unconventional oil resources. Natural Gas Liquids (NGL) in unconventional supply includes both Non-OPEC and OPEC supply. Demand beyond conventional oil peak needs to be met by a boost in OPEC crude supply

relatively low investment. The world community now hopes that OPEC will fill the 2015 supply-gap. Still, the risks involved in oil exploration and production are high even for OPEC Member Countries. Therefore, one may ask: ‘‘Is it fair to expect OPEC Members to bear the burden of investment for our global demand for oil?’’ And: ‘‘Is OPEC Prepared to Expand Production?’’ Only time will tell if the global market can convince OPEC to decide to boost production in time to close the imminent oil supply gap. In 2006, OPEC and the European Union have initiated Joint Workshops on the reverse impact of financial markets on the price of oil. These events were co-chaired by OPEC’s Acting Secretary and the EU Director for Conventional Energy Sources. And as long as energy remains vital for our society, the OPEC press releases that result from its decisions will stay prominent in the world’s headlines. The Oil and Gas industry has succeeded to carefully match supply and demand from global consumer markets for well over a century. Prices have been kept relatively stable and provided conditions for steady growth in demand for hydrocarbons as the principal energy source. Oil and Gas cater for 63% of the world’s primary energy demand (USA DOE, 2005). The remainder is supplied for by coal, nuclear and renewable sources. International Oil Companies (IOCs) now face a challenge either in finding new reserves or in buying access to new reserves by cooperation and joint ventures with National Oil Companies (NOCs), entering

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Fig. 8.12 In the upstream Oil and Gas business, the full field development value is realized by reducing risks and quantifying probabilistic uncertainty to optimize the production strategy options

into production sharing agreements (PSAs). Without the PSAs no additional reserves can be reported under the SEC guidelines. The Oil and Gas industry is already dealing with huge subsurface risk and volatile market prices, which add up to considerable project risks. That means that the Oil and Gas industry is traditionally adverse to risk taking. Real time integration of field data into reservoir and economic models is now standard practice to allow for the early identification of discrepancy between the real and the simulated reserves. Reservoir modeling capacity already enables more accurately representations of reservoir and fault geometry and improves the placement of complex horizontal and multi-lateral wells. These developments benefit Decision Support Packages that now increasingly address field development risks and production strategy (Fig. 8.12), by utilizing geological uncertainty and risk in the subsurface reservoir while quantifying economic and portfolio uncertainties. It is not money that is ruling the world. It is energy that is ruling, and money is used to buy that energy—Kjell Aleklett, University of Uppsala.

8.10 Actions You Can Take… Validate new activities and project plans in your organization with improved quality of knowledge transfer: Examine the knowledge transfer and decisionmaking loops in your organization in order to establish a verifiable workflow. Problem solving and decision-making may benefit from an action plan with steps.

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Each step requires investment and commitment while gathering more information and intelligence to close knowledge gaps. Formulate such an action plan, on one of your organization’s biggest challenges. Start by breaking down the challenge into a number of sub-problems with clear go/no-go decision points. Formulate the criteria that will be used for these decisions. Your plan may lead to a major strategic decision about the future direction of your firm. Discuss in a ‘‘board’’ meeting the SWOT of your proposed course of action. Subject your plan to a PEST analysis (see opening figure Chap. 8). Improve your decision-making grasp: Consider attending a seminar on sophisticated decision-making tools and methods to broaden your personal skill base.

8.11 Things to Think About… • Do you think decisions or choosing between alternatives available must be based on an assessment of economic risk and opportunity only? Validate and discuss your views. • What is the cost of failure? And can you afford the cost of ignorance? • Do you see merit in decision tree analysis, rule induction, neural nets, nearestneighbor clustering techniques or Bayesian belief networks to support the decision-making process with risk analysis in your organization? • Which risk analysis and decision making methods could be most suitable for your business operations?

8.12 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. I am conscious about my role in decision-making processes and I feel encouraged to be involved in decision-making in our organization. 2. People in our organization have access to the information and data to support their professional decisions. 3. Our knowledge and information management systems are inadequate to make timely and accurate decisions needed to run our business. 4. I always have the data, information and knowledge resources timely available for doing my job and to reach well-informed decisions. 5. Risk analysis of new projects in our organization is rigorous, periodic and based on modern stochastic and deterministic techniques (e.g., @risk or Crystal Ball). 6. Risks associated with projects are not formally assessed and documented in our organization.

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7. Our project teams are composed of cross-functional professionals to improve the decision making process. 8. There are insufficient people with the appropriate skills to execute a professional decision-making process at the decision gates of our business development projects. 9. The life cycle plan of our products and services includes well appraised, major decision gates. 10. Our projects do not have effective decision-making gates in terms of objective setting, key milestones, tradeoffs, and priorities. For IQ Scorecard assembly move Statement 1 2 3 True 1 1 0 False 0 0 1

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Bibliography Feldman, DA (2002) Critical thinking: strategies for decision making. Thomson, Boston Clemen R (1997) Making hard decisions: an introduction to decision analysis. Duxbury Press, Pacific Grove French S (1989) Readings in decision analysis. Chapman & Hall, London Goodwin P, Wright G (1998) Decision analysis for management judgment, 2nd edn. Wiley, Chichester Keeney RL, Raiffa H (1976) Decisions with multiple objectives—preferences and value tradeoffs. Cambridge University Press, Cambridge

Chapter 9

Strategy Planning and Scenario Thinking

Traditional Strategy Planning sets positions, targets, and milestones. In modern society, a mere survival strategy will barely suffice to maintain your current level of success. The fundamental basis of your competitive advantage lies in the rapid unlocking of tacit knowledge. Your Strategy Planning therefore must be directed to apply such tacit knowledge. Scenario Thinking is used to prepare for the unthinkable. Project Options and Strategy Plans must focus on innovation opportunities and capitalize on knowledge of future markets. This approach reveals the strategic drivers in your industry. Increasing the Organizational Learning speed is therefore a strategic objective in itself that brings you a competitive advantage.

9.1 What Is the Role of Strategy Planning? The decision-making rigors associated with running a company in head-to-head competition with other companies prompt certain actions. You must take risks to adapt to uncertain and sometimes volatile market conditions. You must not only react to shifting markets but also anticipate the moves of your competitors. Strategy Planning helps your organization to better recognize alternative courses of actions. Planning your strategy based on your company’s vision to get where it wants to go creates shared models of potential future conditions to guide your strategy implementation (Fig. 9.1). Strategy Planning not only helps to maintain and manage the focus of your organization, but also makes your organization more perceptive to the changes in its internal culture and external business environment. You think about your company’s situation, business prospects and project options. Your Strategy Planning motivates action and change, and makes people think critically about the available strategy routes and project options needed to realize the vision for the future. Your company’s vision for the future is a starting point for Strategy Planning. Your Strategy Plan must weave functional decisions regarding production,

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_9,  Springer-Verlag London Limited 2011

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Fig. 9.1 Your organization is one stakeholder in the business ecosystem—one of many. Strategy Planning increases your awareness of the importance of scanning the business environment for suitable project options that help to realize the company’s vision for the future

distribution, marketing, finance, and human resources into a coherent plan for strategic action. Assess the business risks and competitive uncertainty in your markets. React to changing markets and competitive conditions (Fig. 9.2). Strategy Plans must be internally consistent. Prepare for the unexpected by developing scenarios that can produce new and original perspectives on organizational issues. Consider the impact of the various scenarios on your business. Consensus is that three scenario are best. Two scenarios would tend to polarize as either ‘‘good’’ or ‘‘bad’’, and more than three become unmanageable in the hands of users.

9.2 Why Does Scenario Thinking Matter? Events in your Strategy Plans must be related through cause and effect, and through arguments that better prepare your company for mitigating future risks and uncertainties. Scenarios help to anticipate vulnerabilities in your Strategy Plan when the unexpected would happen, even though we donot really think it will happen. For example, it may be good to be prepared for what happens if the price of…‘‘oil’’ exploded? Or what would our world look like without…‘‘oil’’? What would be alternatives? What would markets do regardless of the price of…‘‘oil’’? The occurrence of the unthinkable, unexpected event commonly provides both the

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Fig. 9.2 Explorative forecasting in Strategy Planning and scenario development begins with the identification of possible changes (Step 1, commonly actualized by environmental changes). Next, possible preferred futures are generated and fine-tuned (Steps 2–4) to establish your Strategy Plan (Step 5)

biggest business threat and opportunity, at the same time. It is often useful to interweave Scenario Thinking and forecasting techniques. You may consider trends, mega-trends and unexpected events using forecasting techniques (Fig. 9.3). Got It Right? Shell did not buy oil fields when price was 30 US$/barrel, they bought when it was 15. Scenarios gave them a huge long term advantage…an understanding of how the world might change, how to recognize it when it was changing, and as it changed, what to do next—Peter Schwartz.

Scenarios are stories or ‘‘fairy tales’’ about the future. Scenario Thinking first emerged as a method during the Second World War. The method was refined for business strategy planning during the 1960s by Herman Kahn and others at RAND Corporation and the Stanford Research Institute (SRI). Shell’s global scenarios in the 1970s became the official recognition of the method. Strategy Planning and Scenario Thinking are now widely used by companies, governments and others.

9.3 How Do You Develop Strategy Plans? Strategy Planning begins with an intention to set goals based upon your vision for the future position of the company. Ask questions like: ‘‘Where are we going?

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Fig. 9.3 Considering the broadest parameterization of the range of uncertainties provides the best preparatory mitigation of business risk. It enhances readiness to seize strategic options when disaster strikes or when the unthinkable happens. Normative forecasting by extrapolation of current trends tends to focus your Strategy and narrow your Stratgey Plan. Scenario Thinking helps to prepare you for future Strategy shifts and triggers of change

Where would we want to go? Which environmental drivers guide us to explore this new path? How will we get there? Which performance targets make us clear when we have realized the goals? Is this really the best strategy path to realize our vision?’’ In short, Strategy Planning is required to align your organization’s potential with future trends and business changes as anticipated in your vision (Fig. 9.4). A first step in Strategy Planning is to identify the focal issues based on environmental signals (interviews, surveys, tacit knowledge mining). Examples of strategic measures are: entering new markets, developing new products, pricing strategies, growth strategies, starting new businesses, or launching competitive responses. The focal issues of your business strategy also guide your knowledge assets. Ask yourself: ‘‘What knowledge does it take to achieve our goal? What are our critical knowledge gaps? Can we ‘‘spark innovation’’ through a participatory culture? How can we accelerate our clockspeed? Can we build a quick-learning organization? Can we design breakthrough products? How profound is our customer knowledge? Can we radically improve time to market? Do we have knowledge leverage in the marketplace?’’ Some business drivers for the development of your Strategy Plans are generic for our time:

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Fig. 9.4 The quality of your Strategy Plan for the future and the agility of your strategic responses determine your future business success. Strategy Planning and Scenario Thinking must be supported by knowledge-generating information technology, which accelerates your tactic response

• there is acceleration of change, the ‘‘life-time’’ of everything is getting shorter, • the value shift from production to information services, • the internationalization and globalization that lead to global sourcing of goods, and • the instant access to information affecting prices and quality. Your Strategy Plan is a robust tool for integrating future Project Options (Fig. 9.5) into your current assets to achieve your envisioned future business objectives. Strategic moves are initiated to build competitive advantage. Decide how to defend against aggressive actions by competitors. Optimize corporate success by integrating projections about your production targets, marketing scenarios, human resource development, and financial planning into your business strategy so that your decisions fit the company-wide perspective for the future. The generation of Project Options and the development of Strategy Plans should always involve the people who will implement the outcome. People in your organization will experience what it means to be accountable for performance and for achieving satisfactory business results. They are also accountable for integrating creative new concepts with the corporate planning process. Your Strategy Plans may be expressed in an assortment of charts and graphs showing various Project Options and pathways. You should generate several competitive Project Options as part of your Strategy Plan, using insight of your industry’s competitive drivers.

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Fig. 9.5 As the future unfolds, success of your selected Project Options determines the appropriateness of your Strategy Plans (Step A). Develop time lines and strategic responses related to the scenarios developed to anticipate market developments (Step B). Keep scanning the business environment for signs that prompt strategy shifts (Step C)

Develop your Project Options and Strategy Plans and revise them in the light of changing market conditions. Prepare multi-year Strategy Plans and focus on the high impact events that follow from Scenario Thinking. There is no point in worrying about low impact and low probability events. Evaluate the tradeoffs between preserving short-term profitability and the longer-range need to strengthen your company’s competitive position. Never overlook the fact that your company is a business operation. Evaluate the effect of new Project Options: on your sales revenue (a proxy for market share), on your earnings per share (EPS), on the return on investment (defined as after-tax profit plus interest payments divided by total debt plus shareholders’ equity), and on your market capitalization (defined as the company’s current stock price multiplied by the number of common shares outstanding). Do not overlook the importance of your company’s credit rating. Your company has a workforce to compensate, marketing and sales campaigns to wage, a corporate image to protect and expand, and financial performance to consider. Additionally, you have distribution expenses and inventories to control, capital expenditure decisions to make, as well as risks in exchange rates, interest rates, and the stock market to take into account. Meanwhile, you must ensure shareholder satisfaction via competitive dividend payments and stock price appreciation. All your business strategies ultimately affect your operational goals, such as increasing sales, reducing costs, and improving the bottom line. Keep monitoring your industry’s competitive conditions in a dynamic market setting. Your environmental scouting also scans for triggers that activate swift strategic response based on pre-existing scenarios. Prepare your strategy shift triggers based on information commonly found in your company’s financial statements. Your company performance is based on performance measures.

9.4 What is the Role of Organizational Learning?

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Fig. 9.6 Decline of reserve volumes in the petroleum industry and SEC actions at the onset of the third Millennium have influenced strategy choices in portfolio development. Option A, a strategy exploring for new oil fields, now dominates over asset led portfolio options (Option B). This strategy shift has resulted in the re-allocation of corporate resources to new exploration activities, sometimes at the expense of enhanced recovery methods financed by the business units (BU). Sophisticated decision-making and risk analysis tools provide support for making the right strategy choices

9.4 What is the Role of Organizational Learning? Strategy Planning in intelligent organizations is increasingly about the speeding up of business processes, the modeling and simulation of Project Options, in order to ensure sustainable operational success (Fig. 9.6). Almost without exception, information technology has now transformed industry into a decision-compelling apparatus, which uses corporate resources to assure the highest return on investment. In the present competitive business environment, value networks come into existence through corporate creativity, smartly exploiting the ingenious efficiency of electronic communications. Use the tacit corporate knowledge to select the best course of action from all options available. Although the realization is now there that people are the most valuable corporate asset, tangibles such as information technology systems can still be developed into more sophisticated tools that are better integrated with people’s workflow.

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In order to implement innovations in technology swiftly, the project management skills that are particularly important include leading effective change, leadership and human behavioral skills; multicultural team management, managing project risks, and knowledge retention and management. Business managers also need to understand the industry sector in its economic, financial and geopolitical dimensions. They must be able to build detailed models of investment analysis, sometimes taking into account fiscal aspects, inflation and financing tools in order to take informed decisions. Uncertainty quantification and decision-making processes control how technology generates information for new ventures and Strategy Options for investment of resources (Fig. 9.6). Between now and the time of decision, market conditions may change unpredictably, making one or other of the available decisions better. The greatest value can be created identifying and exercising managerial flexibility or ‘‘real options.’’ It takes a ‘‘multi-path’’ view of business, where there are many possible routes to success. Given the uncertainty and change in the world, the complete right path cannot be chosen at the outset. Instead, one must set off in the right direction, actively seek learning opportunities, and then be prepared to adjust appropriately as events dictate. Effective Organizational Learning support the business process of analytical decisions. Real options analysis focuses on the modeling of opportunities, uncertainty and irreversibility. It is computationally feasible with computer programs. A real option exists if we have the right to take a decision at one or more points in the future (e.g., whether to invest or not to invest, or to sell out or not to sell out).

9.5 Which Benefits Do Consultants Bring? Professional experts or consultants are able to synthesize effectively mass quantities of data, structure an approach to a given issue and hypothesize logically and creatively. In your selection for the right person, test for analytical ability, the ability to think logically and in structured thought processes. Look for tolerance of ambiguity and data overload, poise and communications skills under pressure, and decide on the right ‘‘fit’’ for the problem at hand. Your objective is not to determine if the candidate ‘‘gets the answer right’’ but rather to evaluate the process the candidate employs to structure a competent approach to derive a solution (Fig. 9.7). Your consultant has a higher success rate if positively assessed on the following criteria: ‘‘Does the person appear relaxed and confident? Is he or she a good listener? Is the interaction engaging, enthusiastic and challenging? Is the person asking insightful questions?’’ Further, confident and creative professionalism should radiate from your consultant. Ask yourself questions like: ‘‘Is the consultant organizing the information effectively and developing a logical framework for analysis? Is he or she stating assumptions clearly? Do you feel comfortable discussing multi-functional aspects of the case? Is the consultant trying to quantify the response at every opportunity? Is he or she displaying business sense? How about thinking creatively?’’ In brief,

9.5 Which Benefits Do Consultants Bring?

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Fig. 9.7 Bringing in professional consultants may help to validate elements of your company’s scenario development, Strategy Planning, Project Options, decision-making and risk analysis process. Making sure you have the right professionals on board is crucial

your internal or external consultants should summarize the questions, verify the objectives, ask questions, and identify the pathways to the future. Your professional must introduce the right terminology, draw upon experience of earlier work, and aim for the ‘‘best practice’’. The world’s best practice is the outcome of generic benchmarking, i.e. against the best wherever found, an ultimate measure of success. This is opposed to limited benchmarking (internal, i.e. against oneself, or industry wide, i.e. against competitors). The consultant must come up with new solutions and provide a road map for getting there. The difference between what the client thinks they need and what they actually do need is the consultant’s value added—Bob Norton.

9.6 Case Study 9a: National and International Oil Companies— Strategy Drivers and Scenarios The fast growth of energy consumption—particularly by emerging economies—is increasingly fueling concerns over security of the global Oil and Gas supply. NonOPEC countries (mostly Western and Asian nations) are running out of conventional oil and there is a shortage of conventional opportunities in all Non-OPEC countries. With conventional opportunities presented by OPEC reserves not easily accessible to them, capital of International Oil Companies (IOCs) flows in greater amounts to gas and unconventional hydrocarbon reserves. These unconventional

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opportunities (gas hydrates, heavy oil, tar sands, and shale gas) commonly are ‘‘thin margin’’ barrels relative to so-called conventional oil and gas plays. IOCs traditionally work together with National Oil Companies (NOCs) in order to secure mutually beneficial partnerships. NOCs are such attractive strategic partners in the oil industry because they have access to some 88% of the world’s ‘‘proven’’ oil reserves (Fig. 9.8). In these partnerships, the NOCs have access to the hydrocarbon reserves, whereas the IOCs have access to equity and can bring in their carefully developed cutting edge technology. And most NOCs have limited access to the equity market—because they are not listed as shareholding companies. That means access to cash is better for some OPEC countries with expanding production and is more difficult for those with declining reserves. Therefore, IOCs that can bring in equity and state-of-the-art technology are attractive partners to some NOCs, especially if production decline needs to be mitigated. In turn, IOCs prefer operations in OPEC countries with good reserve-adding potential. Renewed ‘‘resource nationalism’’ will continue to erode the returns to those IOCs that act as operating companies in partnership with NOCs. Meanwhile, Service Companies (SCs, notably Schlumberger) increasingly provide NOCs with horizontally integrated management solutions and vertically integrated technology solutions, cutting out the need to involve IOCs. The strategic relationships between NOCs, IOCs and SCs are governed by the following questions: ‘‘Is there enough mutual trust? Is there sufficient knowledge sharing? Which actors and technologies are the drivers of innovation? Where can they improve? Should they change their policies?’’ There still are going to be significant challenges to growing conventional NonOPEC oil production beyond 55 million barrels per day (mmb/day) and total Non-OPEC production beyond 62 mmb/day, in the early part of the next decade. OPEC is expected to help out by the world community, and will be challenged to expand its production capacity fast enough to address the gap between demand growth and Non-OPEC supply. This is the case even under average-to-moderate demand growth projections. To meet the required growth targets and bridge the Oil and Gas supply gap, strategic cooperation between NOCs and IOCs is needed too. And because even NOCs have variable access to hydrocarbon reserves (Fig. 9.9), closing the supply gap requires a dramatic improvement in reserve addition through exploration in Non-OPEC regions. Exploring Strategy Options for co-operation and partnerships remains high on the global (energy) agenda.

9.7 Case Study 9b: Mergers as a Strategy—Consolidation of the Global Oil Business Most business mergers are motivated by goals of efficiency and improved performance. Improvements in technology have brought down the costs of transportation and communication dramatically, making cross-border trade and

9.7 Case Study 9b: Mergers as a Strategy—Consolidation of the Global Oil Business

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Fig. 9.8 Securing access to reserves is a strategy driver in the energy business. All nations compete for energy resources. Allied nations pool knowledge: on the global distribution of reserves, on the potential of new technology to discover more reserves and enhance production, and on the geopolitical tensions that may influence the global Energy business

investment attractive. International Oil Companies say it takes size and scale to compete with the National Oil Companies that control most of the world‘s proven oil and gas reserves. Rex Tillerson, President of Exxon-Mobil, stated: ‘‘We need energy companies that have the scale and financial strength to make the enormous investments, to undertake the risk and develop the new technologies necessary to provide Americans with greater energy access and greater energy security.’’ Given an increasingly global environment, it is often profitable to expand operations, but in this fast-paced, high-tech world, growth from within or green field investment overseas can seem painfully slow. Acquiring new business by merging tends to be much faster and it may be a particularly effective way to penetrate a foreign market, with its different national tastes. Soaring stock markets have enabled firms to finance acquisitions with high-valued shares of stock. There have been over 2,600 mergers in the Oil and Gas business since 1991, including the combination of Exxon-Mobil, BP-Amoco and Chevron with Texaco. Exxon-Mobil Corporation or Exxon-Mobil, a multi-national US corporation, was formed in November 1999, by the merger of Exxon and Mobil. Exxon-Mobil became the world’s largest company by revenue, at $377.6 billion in the 2006 fiscal year. It is the world’s largest corporation by market capitalization, at $517.92 billion in July 2007, with daily production of 6.5 m barrels of oil equivalent. Exxon-Mobil ranks first in the world in proven oil and gas reserves among corporate oil producers, though it is still eclipsed by several of the largest state petroleum producers.

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Less adept

Technology

More adept

Strategy Drivers for NOCs Entrepreneurial NOCs

National Asset Holders

Petrobras

S. Aramco

Statoil Petronas

Gazprom/Rosneft PEMEX

CNOOC CNPC Sinopec Strategic Resource Seekers

NIOC ONGC

KPC PDVSA

Pertamina

Sonangol

Ecopetrol

NNPC

Declining NOCs Diminishing Production

Market Seekers

LNOC

EGPC PTT

Sonatrach QP

Reserves (domestic)

Technology Seekers Finance & Security Seekers Expanding Production

Fig. 9.9 Strategy ranking matrix for National Oil Companies (NOCs). Quadrants take into account technology level and production growth or decline. Knowledge networks in the oil industry help to balance geopolitical tensions, which may influence knowledge transfer in the global Energy business. Acronyms of NOCs ranked can be readily retrieved using web search engines

The $53 billion US merger of British Petroleum Company and US Amoco Corporation was approved December 30, 1998, by the United States Federal Trade Commission. The companies were given the go ahead after they agreed to divest themselves of a number of gas stations and petroleum terminals and allow owners of more than 1,600 gas stations to wind up their contracts. The merger was until then one of the largest in history. Chicago-based Amoco was the fifth-largest U.S. oil company, while London-based British Petroleum was the third-largest oil company in the world. The new entity has more than 27,000 gas stations worldwide. One of the main driving forces behind the Exxon-Mobil and BP-Amoco mergers was the falling price of oil, which went to as low as $10 per barrel in the wake of the Asian financial crisis, and the slowdown in world economic growth. As retired Mobil executive Herb Schmitz commented at the time: ‘‘Its the way the industry and others have been going. The only way to find profits is by cutting costs.’’ Since then the price of oil has risen but the pressure for mergers has not lessened. The $35 billion merger of the Chevron Corporation and Texaco in 2001 created the world’s fourth largest oil company. One of the main reasons for the ChevronTexaco deal was the need to create a larger company to compete with the economies of scale available to Exxon-Mobil, BP-Amoco and Royal Dutch Shell. More than 4,000 jobs were cut from their combined workforce. The combined ChevronTexaco had annual revenues of $66.5 billion, according to 1999 figures. Both

9.7 Case Study 9b: Mergers as a Strategy—Consolidation of the Global Oil Business

157

companies have a global reach, with Chevron operating in nearly 100 countries and Texaco in more than 150. The Chevron-Texaco deal was the third mega-merger in the oil industry in the space of 2 years following British Petroleum’s acquisition of Amoco (and Arco) in late 1998 and the merger between Exxon and Mobil in 1999. The merged company was known for a time as ChevronTexaco, but in 2005 it changed its name back to Chevron. Texaco remains as a Chevron brand name. The term Supermajors is used as a popular reference for the world’s six, largest market-listed energy companies, after the mergers near the turn of the Millennium. The Supermajors—all merged between 1998 and 2002, except for Royal Dutch Shell, which continues single—are (Fig. 9.10). • • • • • •

ExxonMobil Royal Dutch Shell BP Total Chevron Corporation ConocoPhillips

The mega-merger trend created some of the largest global corporations as defined by the Forbes Global 2000 ranking, and as of 2007 all within the top 25—and ExxonMobil, Royal Dutch Shell and BP consistently in the top 10 ranking. Meanwhile, regulators in the US and EU regularly scrutinize mega-mergers to ensure that no monopolies emerge that could threat fair competition for customer choice. The theory behind open markets is that fair competition will result in optimal benefits for consumers in terms of the price and quality of goods and services. Competition is also good for businesses—it promotes efficiency, dynamic growth and innovation. Deregulation and privatization have opened up former monopolies, state-owned enterprises and other limited entry markets, increasing firms’ competitive opportunities. To further encourage fair competition the US Senate has considered legislation that would make it illegal for companies to hold back refining crude oil in order to boost gasoline prices. Concurrently, Oil industry executives have argued that supply and demand, not mergers, have led to higher gasoline prices. Debra Valentine, General Counsel of the US Federal Trade Comission states in a 1999 anti-trust affidavit:‘‘Simply put, there is nothing inherently bad with firms getting bigger, or with an industry consolidating by eliminating excess capacity and squeezing out inefficiencies, or with firms combining complementary products or services. What we do need to be on the lookout for is the possibility that a merger may substantially lessen competition. This can happen in two ways. First, the merged firm itself may become able to increase prices, regardless of the actions of other firms in the market. For such unilateral effects to occur, the merged firm typically must have a very large market share, around 35% or greater.’’ ‘‘Second, the market may become so concentrated that firms are able to engage in tacit or express collusion. This means that firms are able to agree, expressly or implicitly, to raise prices or reduce output. … My one concern—and I would not

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2003 data

250 225 200

US$ billlion

175 150

Exxon Mobil Shell

BP

125 100 75

Total

Chevron

50 25

Conoco Phillips

0

Fig. 9.10 The SuperMajors are six IOCs with major market capitalization as stock-listed companies. SuperMajors and their parent companies used to dominate the global Oil business. They now face tough competition from NOCs. Some diversified National Oil Companies, such as ENI of Italy, are stock-listed as well. ENI has a market capitalization similar to that of ConocoPhillips

be an enforcer if I did not have some concerns—is that the consolidation process we are seeing and a winner-takes-it-all philosophy could lead to global oligopolies or, in high-tech markets with network effects, a worldwide monopolist. For consumers and for national competition agencies, that individually may be powerless to remedy the situation this would not be a good result.’’

9.8 Actions You Can Take… Fine-tune your Strategy Plans: Determine whether the Strategy Plan of your organization fits well into the business ecosystem of Figs. 9.1 and 9.4. If there is a tension in strategic interests your actions may alienate knowledge partners. Remember that the speed of your knowledge creation and transfer processes provide your company its cutting edge rather than your trade marking policies. Preparedness to share knowledge and ‘‘best practice’’ makes your company an attractive joint venture partner. Realign your strategic plans with the business ecosystem whenever necessary. Consider three stages in your organization’s Strategy Planning: (A) Develop the Project Options and Strategy Plans, (B) Develop three different scenarios for the future, and (C) Review your Strategy Plans and Project Options in Scenario Thinking and define Strategy Shift Triggers. (A) Develop the Strategy Options and Strategy Plan. In order to get started, consider the following approach:

9.8 Actions You Can Take…

• • • • •

159

Establish your Strategy Plan team. Set the focal scope of your Strategy. Identify the critical uncertainties and drivers in your business environment. Survey the effect of these drivers on your own business performance. Generate competitive Project Options and a Strategy Plan.

(B) Develop scenarios for the future. Pull together all themes and concentrate on three different scenarios. Consider scenarios that anticipate the improbabilities and risks for the average product lifecycle in your industry. (C) Define Strategy Shift Triggers • Set your agenda for actions, implementation and resource requirements. • Predict outcomes and set the agenda for your targets. • Design a monitoring system of leading indicators and timeline for reviewing your Projects and Project Options in view of your current Strategy Plan.

9.9 Things to Think About… Review your company’s Strategy Plan, Project Options and Scenarios. Concentrate on: • • • • • • • • •

Is the strategy clear? What is your organization trying to achieve? What makes your organization credible? Can you support the intentions of the Strategy Plan? Can you identify problems that get in the way? Are the scenarios adequately clear? Do you see valid Project Options under considerations? Do these complement existing projects? How is risk spreading handled in your current Strategy Plan and Project Options?

9.10 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. Our organization uses Scenario Thinking to support our long term business strategy; I know that several scenarios for our future business development are in place. 2. Our leaders are known to actively scan the environment for any major changes that are underway or anticipated and which may affect our business (e.g.,

160

3. 4.

5. 6. 7. 8. 9. 10.

9 Strategy Planning and Scenario Thinking

demographic changes, technological advances, new laws and regulations, etc.). Our leadership has taken little effort to develop a Strategy Plan that is widely supported and understood in nearly all echelons of our organization. Our business strategy is developed in consultation with our external stakeholders (e.g., users, other agencies etc.) through an ongoing process of adjustments. Our business strategy does not clearly differentiate our organization from any competitors. External knowledge resources (i.e. consultants) are rarely used in our organization. Our organization has developed terms of reference to facilitate selecting the appropriate vendor or product modules. The optimization of existing technology is leveraged in our organization against the procurement of new systems. Choices for either in-house solutions or outsourcing of technology development are subject to a rigorous decision-making process in our organization. New technology systems are preferably bought from external service providers and they are only purpose built or customized in our organization if there is a very strong and financially validated business case. For IQ Scorecard assembly move Statement 1 2 3 True 1 1 0 False 0 0 1

to Gate 4 1 0

Stops 5 0 1

3 and 6 0 1

5 7 1 0

8 1 0

9 1 0

10 1 0

Score

Input for IQ Scorecard from Chap. 9: Total True and False

Bibliography Porter ME (1980) Competitive strategy: Techniques for analyzing industries and competitors. Free Press, New York Porter ME (1985) Competitive advantage. Free Press, New York Weijermars R (2010) Tracking the impact of recession on oil industry supermajors and timing of sustained recovery. First Break 28(1):33–39 Weijermars R (2011) Time for Europe to face oil and gas supply realities. First Break 29(7):43–46 Weijermars R (2011) Price scenarios may alter gas-to-oil strategy for US unconventionals. Oil & Gas Journal 109(1):74–81 Weijermars R (2011) Trans-Atlantic energy prices show need for realignment. Oil & Gas Journal 109(23):26–33 Weijermars R (2011) Credit Ratings and Cash Flow Analysis of Oil & Gas companies: Competitive disadvantage in financing costs for smaller companies in tight capital markets. SPE Economics & Management 3(2):54–67

Chapter 10

Optimizing Portfolio Management

Corporate planners in your organization must continually monitor and justify their portfolio of business programs and projects. Your company’s capital investments must be used to maximize value and mitigate risk. Portfolio Management is designed to implement strategic decisions, about product development, market positioning, and the future investment of company resources. Intelligent Portfolio Management selects investment opportunities, applies rigorous validation criteria, and leads to operational decisions within the strategic framework adopted by your organization. Capital and other resources are allocated to operations that are consistent with your existing organizational goals. Business performance indicators must be continually monitored to judge and steer operations on their contribution to shareholder value.

10.1 What is Portfolio Management? Since the 1950’s the dominant corporate strategy has been diversification, providing multiple products to diverse customers. The modern corporation chooses which businesses will receive capital funds through its investment strategies. A diversified firm operates multiple businesses in diverse markets. The businesses constitute a ‘‘portfolio’’. Just as stockholders hold multiple stocks of diverse businesses in their portfolio, similarly a corporation manages a portfolio of projects as investments. Intelligent organizations know that poor project selection may lead to ineffective use of resources. The challenge of Portfolio Management is to align strategic plans and to achieve a profitable balance between strategic goals, project risks and corporate capabilities (Fig. 10.1). Project selection, therefore, should be carried out using sophisticated procedures, rigorously challenging all underlying assertions. This means that corporate portfolios must be developed in an audited

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_10,  Springer-Verlag London Limited 2011

161

162 Fig. 10.1 Systematic management of your business portfolio is needed for successful execution of projects within your strategy planning. Intelligent organizations know how to spread risk and opportunity in the business portfolio

10

Optimizing Portfolio Management

What is Portfolio Management?

The Bridge Between Strategic Planning and Tactical Project Execution

process, with clear decision criteria and an accepted level of risk. Performance goals are intelligently monitored, preferably in real time, and adjusted where necessary to optimize resource utilization. Portfolio Management seeks to answer the following questions: • • • •

‘‘Which projects should we start?’’ ‘‘Which projects should we continue?’’ ‘‘Which projects should we drop?’’ ‘‘What level of risks can we accept?’’

10.2 How Does Asset Value Translate into Portfolio Value? The building of a profitable and sustainable corporate asset portfolio—reflected by high Componential IQ scores—remains an important expression of your Organizational Intelligence. At the portfolio level, company performance can be monitored through corporate key performance indicators (KPIs): share price, profitability, liquidity, annual growth, Price/Earnings ratio, reserve replacement ratios, and the balance of risks and opportunities in the portfolio. Company performance therefore, is the result of effective project management and effective management of the overall portfolio of projects (Fig. 10.2). Project optimization runs the risk of sub-optimization if not contributing to portfolio optimization. Project performance must be monitored and fed into the project portfolio for selecting future project options. Such project value realization techniques are aimed at closing the strategy-to-performance gap. At the project level, value management concentrates on the Expected Monetary Value, Net Present Value (NPV), discounted cash flow, and time to market or development time. Management decisions must be taken fast, but need to stay aligned with the corporate strategy and market drivers. Capital efficiency must be optimized, by linking or combining, production control centers to improve the

10.2

How Does Asset Value Translate into Portfolio Value?

163

Asset Value Realization Effective Project and Portfolio Management

Total Value Potential

Portfolio Value Realized

100% Portfolio Management

3

50% Value Potential

66% 2 50% Value Realized

0%

Project Value Realized

Project Management

1 75%

100%

Fig. 10.2 Effective building of assets, corresponding to high Componential IQ, results from effective project and effective portfolio management. For example, if project development captures only 75% of the total project value (1), and portfolio value captures only 66% of the total project options value for the company (2), 50% of the business value remains unrealized or needs development over time (3)

production performance with economic asset management teams, for real-time and pro-active asset management. Corporate management must be prepared to invest in new technology for enhancing value creation through new production capacity and the application of more cost-effective technology.

10.3 Why Portfolio Optimization? Allocating capital in any organization can be an inefficient process. Therefore, successful Portfolio Management sets achievable goals, while recognizing corporate constraints. Portfolio Management has a strategic interest in goal achievement, and therefore monitors performance goals. This assures operational projects stay in line with the strategic direction. Remember that the corporate portfolio is a collection of businesses and projects that execute the firm’s strategy. A decision-making process aids the prioritization and selection of the highest priority projects. Investment opportunities are selected on a project-by-project

164 Fig. 10.3 Portfolio Management balances operational resource allocation with strategic Portfolio Management objectives. Project execution requires participation of all. You must maintain your knowledge collaboration and communicate the results achieved to support the (project) management

10

Optimizing Portfolio Management

Portfolio Management Cycle

basis, and by various groups in the company. Companies may have several different activities in many areas, governed by an overall corporate plan. Corporate decision-makers often receive data from disparate sources. An accepted level of risk or standard of return should be identified in advance. In general, Portfolio Management must strive to obtain optimum alignment between the operational project portfolio and the business strategy (Fig. 10.3). The portfolio must contain a healthy mix of moderate-to-high value projects. Project portfolios must be cautiously formulated to balance the right number of projects and the right types of projects (large vs. small, high risk vs. low risk, etc.). Businesses that have too many projects underway, given the resources available, commonly suffer from unintelligent project selection and inadequate prioritization. This results in the ineffective use of resources. The challenges of creating a premium portfolio include selecting new product development projects to achieve the following goals: • • • •

Maximize the profitability or value of the portfolio. Minimize the portfolio risk. Provide balance to, and support for, the strategy of the enterprise. Respond appropriately to changes in the economy.

Achieving targets and the goals set by the leadership needs monitoring. That requires best practice, using the following processes (Fig. 10.4). • Keep checking the portfolio against strategic corporate objectives. • Adjust to the company’s working interest when required by lagging performance. • Optimize resource utilization. • Compare the portfolio performance with that of other viable portfolios. Monitor progress to learn with a decision-makers perspective in mind.

10.3

Why Portfolio Optimization?

165

Without Portfolio Management No Portfolio Management Means...

Immediate Results

End Result: Poor New Product Performance

• Reluctant to drop projects • New projects added • No focus

• Too many projects • Resources spread • Execution suffers

• Increased time to market • Higher failure rates

• Weak decision points • Poor Go/Kill decisions

• Too many mediocre, low value projects • Good projects starved

• Too few stellar product winners • Ho-hum launches

• No rigorous criteria • Selection based on emotion, politics

• Wrong projects are selected

• Many failures

• No strategic criteria for project selection

• Projects lack strategic direction and alignment

• Scattergun effort • New products do not support strategy

Fig. 10.4 Active Portfolio Management is needed, using knowledge based procedures to validate new projects and drop others, to spread risk, and to seize new business opportunities. Intelligent organizations are more likely to excel in Portfolio Management performance

10.4 How Do You Balance Project Portfolios? The earliest Portfolio Management techniques optimized projects’ profitability or financial returns using heuristic or mathematical models. However, this approach paid little attention to balancing or aligning the portfolio to the organization’s strategy. An alternative approach is to start with the overall business plan that should define the planned level of investment and resources (e.g. headcount etc.), and related sales expected from new products. With multiple business units, product lines or types of development, decide on a strategic allocation process based on the business plan (Fig. 10.5). This strategic allocation should apportion the planned investment into business units, product lines, markets, geographic areas, technology development, platform development, new products, etc. Once this is done, then a project listing can be developed including the benchmarking of relevant portfolio data. With the organizational list of projects in hand, the next step is to determine ‘‘the cut-off point’’ based on the business plan and the planned level of investment of the available resources. Project selection and resource allocation methods include: • Technical feasibility: magnitude of technology gap, degree of technical complexity, degree of technical uncertainty. • Ease of doing: cost of doing, project complexity, resource availability, impact on resource commitments.

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Optimizing Portfolio Management

Balancing Portfolios Are Strategic Goals and Objectives Met?

Strategic Initiatives

Tactical Planning

Execution

Decision Making Process

Are Tactical Plans On Track?

How Well Is Work Executed?

Fig. 10.5 Strategic choices made in project support for portfolio balancing is a decision-making challenge that ties in with exiting or adjusted strategic goals and plans

• Benefit measurement methods: comparative approaches, economic benefits, scoring models, benefit contribution models, market research, strategy impact. • Strategic planning methods: portfolio matrices, cluster analysis, cognitive models. • Synergies (leverages core competencies): degree of marketing synergies, degree of technological synergies, degree of manufacturing/processing synergies. The high priority projects that survive your project selection process there after need to be further analyzed and validated for risk and opportunity balance. Ultimately, this balanced portfolio that has been developed is checked against the business plan. Define the objectives of project Portfolio Management and the project portfolio process. Link the project portfolio and your strategic planning with your resources and assets. Prioritize, and improve the project flow and management of the resources. Avoid the trap of becoming too involved in the details. Define roles and responsibilities of your project management teams, executives and others. Ensure clarity in the process or project ownership and sponsorship. The currently owned assets constitute the majority of the company’s portfolio. To assess the value of the new investments, it is essential to place them in the framework of the other ‘core’ assets in the total portfolio (Fig. 10.6). Several of the assets will require some investment and can be directly characterized in terms of risk and value. Other currently owned assets require little or no new outlays beyond operating cost and can be grouped for the portfolio analysis. Consequently, currently owned assets certainly must be included in the portfolio analysis for true optimization.

10.4

How Do You Balance Project Portfolios?

167

Product Lifecycle Learning Cycle Risk & Value Point of Minimum Risk & Minimum Profit Growth List Projects

1

Validation & Benchmarking

10

Selecting New Projects

2 Project in Portfolio

9

3

Planning Resources

Core Business

Crossing Threshold

Road Back to Core Business

New Business Venture

4 Go for it! Monitoring Early Performance

8 5

Full Product Roll out

Abandonment

7

6

Sales Decline Point of Maximum Risk & Maximum Profit Growth

Fig. 10.6 Stages in the product lifecycle (see arrows and Steps 1–10, i.e. project validation, roll out and abandonment) a part of value-cycle where risks may fluctuate over time. Mature Portfolio Management requires validation of products over the full lifecycle, including the cost of abandonment (e.g. platform removal in petroleum industry can be very costly, particularly in offshore regions)

Mapping techniques use a graphical representation to visualize a portfolio’s balance. These are typically presented in the form of two-dimensional matrices that show the trade-off’s or balance between two factors such as risks and profitability, marketplace fit and product line coverage, financial return and probability of success, etc. Modeling and experimentation with graphic representation often leads to new strategic insights that help to define a business portfolio which is better balanced and more robust.

10.5 Which Risks Should You Take? Strategic investments and policy decisions create a range of opportunities, each of which may have a different outcome. Investment and policy opportunities can be viewed as potential net benefits and risks, plus a set of future options. Even if not

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Optimizing Portfolio Management

Risk Matrix High

Project Risk

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quantifiable, they can be used to structure the analysis of projects and policies by focusing on the opportunities created and destroyed. The central idea of diversifying the portfolio is to manage risk and value creation at the same time (Fig. 10.7). One common drawback of searching for synergies is that it tends to negatively correlate risk exposure and value opportunities. In contrast, portfolio diversification is a technique that seeks out investments that move counter to one another. When one set of investments is suffering from an unfortunate turn of uncertain events, other businesses in the portfolio profit from the same events. With each business, risk at the asset level can be assessed using tools such as decision trees, Monte Carlo simulations, and real options. The true value and risk of a project is determined by the impact on the aggregated risk and aggregated value of the portfolio. Clearly, understanding the degree of correlation or dependency amongst the projects (all faced with uncertain futures) is essential to capturing full portfolio value. An option is the opportunity—but not the obligation—to take an action in the future. The determination, tracking and hedging of a variety of options becomes particularly valuable when there are large uncertainties in the business process. Real options analysis requires continuous updating but provides early warning. The approach keeps management and policy-makers on the alert. It focuses on the unknown and the decisions needed to combat uncertainty. It puts a premium on decision-making options. Decision tree analysis lies at the core of the decision-making process. Decisions are made on the basis of highest return on investment criteria or others. Most traditional investment valuations produce an amount (such as Net present value), and perhaps a set of assumptions underlying this number. The management actions required over time to realize this value must be clearly identified. In real options analysis, the value estimate of future business is based on the specific management actions that are critical in achieving the highest return on

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investment. As a result, the real options approach aims to reveal precisely what events are important, what milestones to monitor, and what responses are necessary to realize maximum value from your business investment. Getting your options right is your ultimate business performance indicator.

10.6 How Do You Use Use of rigorous portfolio validation-criteria means that rigorous decisions can be taken. Low value projects are killed in favor of product lines and services that show stellar performance results. You must be willing to ‘‘take cars off the freeway’’: ‘‘killing’’ a project is often as successful as completing it. A logical starting point is to create a business strategy—markets, customers, products, strategy approach, competitive emphasis, etc. The second step is to understand the budget or resources available against which to balance the portfolio. Third, each project must be assessed for profitability (rewards), investment requirements (resources), risks, and other appropriate factors. Organizations must balance these goals: risk versus profitability, new products versus improvements, strategy fit versus reward, market versus product line, longterm versus short-term goals. The weighting of the goals in making decisions about projects varies from company to company. Consistency in the uncertainties considered and the valuation methodology is an absolute necessity for portfolio optimization (Fig. 10.8). It involves: • A company-wide standard approach for evaluating project progress and performance with agreed logic and parameters in all phases of the project lifecycle. • Dedicated certification and training of everybody engaged in project evaluation. • Data capture and lessons learned reviews to improve project performance. • Distribution of lessons learned to allow the whole organization to learn from the experience. • Peer review by the most experienced professionals in the company. • Reward, in periodic performance evaluations, examples of good decisionmaking (e.g., project termination) as much as project progress outcomes.

10.7 What Is Portfolio Diversification? The notion that there is a core business often leads to a diversification strategy, resulting in a mixed corporate portfolio. Such diversification starts from a core from which the company is expanding into other products and markets. The very concept of synergy suggests that there is some fundamental business that is

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Benchmarking Projects Vs. Strategic Scenarios Benchmark each project against each scenario. SWOT analysis is one useful tool;

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Add learning points and actions required.

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Fig. 10.8 Project portfolio validation against your scenarios for the future. A spread of projects that stay balanced over various scenarios can buffer your business performance against adverse impact of unexpected developments in the future business environment

complemented or supported through diversification. Value is added, created, or enhanced by adding businesses to this core. The rationale is that there is some kind of economy of scope. The synergy effect is attained through shared resources, pooling experience, competencies, technologies, or other value-creating factors to manage a range of projects in your organization (Fig. 10.9). The economic efficiency of the whole must be greater than just the sum of its parts. What is the ‘‘synergistic’’ match of a new business venture to the existing corporate portfolio is difficult to predict; the test must be that the new business creates new value when added to a corporation’s line of existing businesses. One major portfolio diversification strategy is vertical integration. All vertically integrated businesses have a buyer–supplier relationship, or represent stages of production. The portfolio expansion may be backwards or forwards. Backwards expansion means that your businesses extend from the core to the suppliers to your core business. Forwards expansion means that your businesses extend to buyers of your core business and are closer to distribution and sales. Another approach is conglomerate diversification—where new lines of business relate to the core activities but with different products or services (Fig. 10.10). Related businesses complement one another (Fig. 10.9); these have ‘‘synergy’’, may be in marketing, R&D, or production. Unrelated businesses have no specific relationship to one another; there is no ‘‘synergy’’ but such a portfolio is less vulnerable to market risks (Fig. 10.10).

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Project Portfolio in a Matrix Organization Company Management

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Fig. 10.9 The project portfolio in a matrix organization will benefit from shared expertise (e.g., on markets, product rollout and financial performance indicators) and the application of ‘‘best practices’’ across project boundaries. This organizational structure may also be seen as a horizontal network slice of operational units in a vertical hierarchy (see Fig. 2.6)

Traditional Portfolio Diversification

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Fig. 10.10 Risk spreading by portfolio diversification commonly leads to new lines of business so loosely related that founding different business units (each with their own organizational matrices, see Fig. 10.9) provides the best organizational structure

10.8 How Do You Monitor Portfolio Performance? Overseeing the Portfolio Management team is the responsibility of the senior management of an organization or business unit. This team should meet regularly to manage the product pipeline and make decisions about the project and business portfolio. The portfolio selection team should have members who represent a broad array of stakeholders. Key project personnel should be involved in the

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Web - enabled Portfolio Management Data Gathering Product Volume

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•Sharing •Feedback •Decisions •Transparency •Track Record

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Fig. 10.11 Knowledge based Portfolio Management requires dynamic monitoring of performance indicators across all business units (BU 1–3) in order to allow intervention at corporate level

selection process. If the results of the prioritization are not honored, team morale can be adversely affected causing additional resource delays. Honor the priorities and decisions made. Therefore, critical players in the Portfolio Management process are people managers, decision-makers, portfolio analysts, and technical staff. An absolutely necessary element for successful portfolio teams is the alignment of the personnel evaluation and reward systems with the objectives of strategic portfolio thinking. Otherwise good projects may be killed in favor of less attractive projects. The valuation process will be skewed, if professionals and managers believe their value to the company, peers, and profession depends on the acceptance of their projects. Risks will go unrecognized, and Organizational Learning will be impeded. ‘‘Safe’’ decisions and targets will then dominate and the prudent risk-taking that could lead to break-through profits and new markets will be lost. The portfolio monitoring process should strive to automate KPI monitoring and organizing data, such as to avail more quality time for analyzing portfolio alternatives (Fig. 10.11). The business process should ensure that the sources of data and calculation methods are consistent and secure throughout the project lifetime. The Portfolio Management process is based on sound analytical concepts. You can begin simply and increase sophistication over time. Make sure portfolio planning stays aligned with the strategy objectives of your organization. Develop insight into how initiatives and resources align with business objectives and

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Global Energy Portfolio Multiple Asset Management Oil Sands

Oil Well Onshore

Oil Well Offshore

Mining mining

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Gas to Liquids Gas & LNG Storage Oil Refinery

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Fig. 10.12 Vertically integrated Energy Portfolios comprise assets in different geopolitical environments and across industry sectors (Upstream, Midstream, and Downstream)

performance. Control projects and resources to make smart decisions as business conditions change.

10.9 Case Study 10: ConocoPhillips—Project Prioritization in Corporate Portfolio Market capitalization of individual International Oil Companies (IOCs) is in the order of hundreds of billion of US dollars. IOC portfolios include assets across the globe and across industry sectors (Fig. 10.12). The annual budget allocation in their global Energy Portfolios must balance business risk and opportunity. Here is an example of how Jim Mulva, Chairman and CEO of ConocoPhillips, takes his responsibility: ‘‘Our 2007 planned capital program reflects our commitment to selectively invest in projects that will enable us to deliver energy to consumers worldwide, while providing long-term value for our shareholders. The total authorized capital program for 2007 is $13.5 billion. Full 84% of the company’s 2007 total authorized capital program will be allocated to its Exploration and Production segment. The refining and marketing segment will receive approximately 13%, with 1% being spent in emerging business and corporate.

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‘‘The capital program is spread over several of the company’s business segments as follows. In North and South America, the Exploration and Production capital program is expected to be about $6.5 billion: • In the US Lower 48, this includes ongoing development programs in the San Juan Basin, the Permian and Barnett Shale basins in the Mid-Continent region and the Bossier and Lobo trends in the Gulf Coast region; and new project developments such as the Piceance Basin. • Spending in Canada will focus on ongoing development programs in the Western Canada gas basins; progression of heavy oil projects, including those associated with the EnCana transaction; and continued work on the Mackenzie Delta gas pipeline project. • E&P capital spending in Alaska is expected to be primarily directed toward the development of the Alpine satellites and the West Sak heavy-oil field, as well as continued development within the existing Prudhoe Bay and Kuparuk areas. • Within South America, the company’s primary focus will be on the development of the Corocoro field offshore Venezuela.’’ ‘‘In Europe, Asia, Africa and the Middle East, the Exploration and Production capital program is expected to be approximately $4.9 billion: • Projects in the North Sea include continued development of Britannia, including the Britannia satellite fields, in the UK sector; and development of the Alvheim and Statfjord fields, as well as ongoing development of existing and new opportunities in the Ekofisk area in the Norwegian sector. • In the Russia and Caspian Sea region, the majority of the capital funds will support the continued development of the Kashagan field in the Caspian Sea and the Yuzhno Khylchuyu field in northern Russia. • Within the Asia Pacific region, the majority of the funding will support the continued development of Bohai Bay in China; oil and gas reserves offshore in Block B and onshore South Sumatra in Indonesia; and fields offshore Malaysia and Vietnam. • Funding in Africa is primarily for the ongoing development of the Waha Concession in Libya and several oil mining leases in Nigeria. • In the Middle-East, the company will focus spending primarily on the development of the Qatargas three liquefied natural gas facility in Qatar.’’ ‘‘The 2007 capital program for Refining and Marketing is approximately $1.7 billion, with about $1.3 billion of this amount allocated to ConocoPhillips’ US businesses. The company has allocated $1.1 billion for US refining, primarily for projects related to sustaining and improving the existing business with a focus on reliability, energy efficiency, capital maintenance and regulatory compliance. Work continues at a number of refineries on projects to increase crude oil capacity, expand conversion capability and increase clean product yield. International Refining and Marketing is expected to spend about $0.4 billion, with a focus on projects related to reliability, safety and the environment, as well as the advancement of a full-conversion refinery project in Yanbu, Saudi Arabia. The

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company continues to study other international refinery projects. The remaining capital budget is for projects in the company’s domestic transportation and marketing businesses.’’ ‘‘The 2007 capital program for Emerging Businesses and Corporate is approximately $0.4 billion. The majority of the spending is earmarked for power generation, primarily for an expansion project at the company’s Immingham Combined Heat and Power plant in the UK. In Corporate, capital expenditures are expected to be primarily for global information systems and services projects.’’ ‘‘In addition to the capital budgeted in 2007 for projects that will provide needed energy supplies in the near- and long-term, the company also will increase research and development spending on technology by 50% to more than $150 million annually,’’ said Mulva. ‘‘Research and development efforts will focus on projects that aid the development of nonconventional oil and gas resources, such as Canadian oil sands, as well as the development of new energy sources, such as alternatives and renewables. The company is committed to diversifying its energy resource development, significantly enhancing the efficiency of energy use, and doing so in a way that addresses climate change and other environmental concerns. ConocoPhillips believes a number of sources of energy are necessary to meet the demands of consumers, including fossil fuels, nonconventional sources like oil shale and heavy oil, and alternatives like bio-fuels. The company intends to become a leader in new energy resource development.’’ ‘‘In addition, we are completing a study on how best to market our domestic refinery system’s clean products. ConocoPhillips plans to market gasoline, diesel fuel and aviation fuel through approximately 10,000 outlets, the majority of which utilize the Phillips 66, Conoco or 76 brands. However, our company-owned and operated outlets will be divested to existing or new wholesale marketers. Of the approximately 830 retail outlets scheduled for divestiture, 330 are company-owned and company-operated. The remaining outlets are operated by dealers. As a result of the adoption of this plan, the company anticipates recording a charge to earnings for a held-for-sale impairment of about $200 million (after tax) in the fourth quarter of 2006.’’

10.10 Actions You Can Take… Revisit your business portfolio: Determine vulnerability and tolerance in your organization’s business portfolio for the impact of corporate governance failure. Balance your commitment to sustainability with your leverage in a positive way to set an agenda for excellence in corporate governance. Analyze and discuss whether the project portfolio of your organization is operated in traditional business units, in a matrix organization, or both. Research and summarize the benefits of some of the techniques that have been used to support the Portfolio Management process in your company (e.g. heuristic models, scoring techniques, visual or mapping techniques, etc.).

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10.11 Things to Think About…

• Can you give examples of cancelled projects in your organization? Discuss the lessons learned in terms of risk exposure and value opportunity. • Which key role do you play yourself in current portfolio projects? • What is the SWOT of your current project or business portfolio?

10.12 Input for Corporate IQ Scorecard (see this chapter and Appendix A) 1. Our organization is aware of its weaknesses and the problems lying ahead. 2. The impact and collective risk of new business ventures are thoroughly assessed before these are communicated, developed and implemented in our organization. 3. The desired financial and non-financial goals of our business operations are not known at all managerial echelons. 4. In our organization, risk is insufficiently evaluated before undertaking new projects. 5. Risk mitigation strategies are included in our organization’s portfolio planning process. 6. Our organization bases decisions on performance measures—preferably through key performance indicators. 7. The value of our assets is closely monitored and integrated with the cost of individual projects and development programs. 8. Either: Our asset management methods and standards are periodically audited by industry certification institutes (ISO 9001, ISO 14001, ISO 17799, OHSAS 18001): or: Our asset management methods and standards are periodically benchmarked in a rigorous auditing process. 9. Some of our business programs or project development schedules lack key milestones, timescale and deliverable specifications. 10. Some of our business programs have no incentives (e.g., competitive sourcing or cost comparisons, IT improvements) to measure and achieve efficiencies and cost effectiveness in program execution. For IQ Scorecard assembly move to Gate Statement 1 2 3 4 True 1 1 0 0 False 0 0 1 1

Stops 5 1 0

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Bibliography

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Bibliography Bernstein WJ (2002) The four pillars of investing: lessons for building a winning portfolio. Mcgraw-Hill, New York Emery D, Finnerty J, Stowe J (2004) Corporate financial management. Pearson, New Jersey Reilly F, Brown KC (2002) Investment analysis and portfolio management. South-Western Publishing, Cincinnati

Gate Stop 3: Componential IQ Assessment—Effectiveness in Building the Assets

The inputs from the questionnaire statements at the end of Chaps. 8–10 can be inserted into the Componential IQ Scorecard given below. The outcome is your individual rating of your organization’s Componential IQ. Remember that this result is not free from individual bias. A representative response group provides a less biased basis for assessing the IQ components of your Corporate IQ. This more advanced procedure is outlined in Appendix A.

Scorecard for Componential IQ (Take Inputs from Chaps. 8–10) The Componential IQ Scorecard below uses your individual ratings from the questionnaire statements of Chaps. 8–10. These questionnaires sample your scores for the organization’s effectiveness in building the assets.

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The effectiveness of your organization’s risk analysis and decision-making capacity was evaluated in Chap. 8. Your company’s effectiveness in Strategy Planning and Scenario Thinking was rated in Chap. 9. The effectiveness of your company’s Portfolio Management practices was evaluated in Chap. 10. Your results can be inserted here for a review of your company’s Componential IQ rating. The ultimate aim is to use these results to improve the weaknesses that contribute to the impairment of your overall, Corporate IQ. Areas that need attention in the targeted interventions to improve your Componential IQ can be identified as follows: Low scores for Chaps. 8–10 (i.e. Componential IQ \ 20): The business culture in your organization does not revolve about optimizing knowledge transfer and decision-making targets for the benefit of the business. Your organization is poor at Scenario Thinking, Strategy Planning, and/or Portfolio Management. This indicates a low capacity for sustainable value adding and asset building may be suboptimal in your organization. Return to Chaps. 8–10 and remediate the weaknesses pinpointed in your assessment. Your overall, Corporate IQ Score can be assembled at Gate Stop 5, upon completion of your IQ component scores in Gate Stops 1 to 4.

Part IV

Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ

Focus Area I: Stimulate Knowledge Development—Building Experiential IQ Chapter 1: Developing Organizational IQ—A Corporate Necessity Chapter 2: Utilizing Value Chains and Knowledge Nets Chapter 3: Stimulating Organizational Learning Chapter 4: Managing Knowledge Resources â Gate Stop 1: Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ Chapter 5: Vision Sharing and Leadership Succession Chapter 6: Building Teams—Bridging Knowledge and Culture Gaps

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Chapter 7: Aspiring Innovation and Creativity â Gate Stop 2: Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented Focus Area III: Build the Assets—Building Componential IQ Chapter 8: Smart Decision-Making Chapter 9: Strategy Planning and Scenario Thinking Chapter 10: Optimizing Portfolio Management â Gate Stop 3: Componential IQ Assessment—Effectiveness in Building the Assets Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ Chapter 11: Championing Sustainable Development and Corporate Governance Chapter 12: Overcoming Communication Barriers Chapter 13: Aiming for Intelligent Negotiations and Effective Agreements Chapter 14: Leading in Organizational Learning â Gate Stop 4: Emotional IQ Assessment—Effectiveness in Communicating Why the Organization Excels Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ Chapter 15: Maximizing Your Organizational IQ â Gate Stop 5: Combining IQ Component Scores in an Overall Corporate IQ Score

Chapter 11

Championing Sustainable Development and Corporate Governance

Dynamic entrepreneurship includes accepting challenges and assuming responsibilities. Longevity of your organizational reputation and good standing grow by responsible behavior in response to new challenges. Intelligent organizations and intelligent nations take challenges like curbing carbon dioxide emissions in their stride. Sustainable development contributes to societal stability and therefore is favorable for the business environment. Contributing to sustainable development is a strong indicator of high Organizational IQ. This also goes hand in hand with good corporate governance and good leadership. If applied to governments, Organizational Intelligence distinguishes civilized countries from the less responsible nations in our world.

11.1 What is Sustainability? Sustainable development envisions societies that live in sustainable harmony with their natural environment and natural resources. We all use and live off the earth’s resources. We have sliced out the threat of any other living species. Humans commonly consider themselves the sole custodians and stakeholders of our planet’s future. Commodities and other resources are primarily shared and allocated via business transactions. But the rate at which we can responsibly and intelligibly develop the natural resources of our planet is limited. This also applies to the rate at which waste can be broken down without disturbing the natural balance in our environment. Consequently, sustainable global development requires that we adopt lifestyles that do not upset our planet’s ecological balance. Yet, we already know that the pervasive scale of our presence and needs has pushed the natural ecosystem out of balance in nearly every spot of the planet. That disequilibrium was primarily initiated by the industrial revolution and grew further in the twentieth Century.

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_11,  Springer-Verlag London Limited 2011

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Fig. 11.1 Our extreme desire for economic growth that leads to the imbalance in our planet’s ecosystem is not yet fully understood. Constructive cooperation of all stakeholders aiming for sustainability is required to ensure societal stability. This in turn contributes to optimize the responsible utilization of natural resources

Sustainable development provides societal stability and helps to preserve planetary resources for future generations whenever possible. We are all stakeholders in meeting the challenges of sustainable development (Fig. 11.1). More specifically, sustainability implies that our production and waste disposal activities do not adversely impact the ecosystem. The long-term preservation of bio-diversity mandates that our population size and growth stay in harmony with the productive potential of our planet. Science and technology will bring us new solutions to manage our resources better in the future. Policy choices are still needed to determine the kind of future we want to bring about. You may ask: ‘‘What role is played by business in all this?’’ The answer is that business needs markets. And markets develop best when poverty is reduced. Smart companies know that markets grow rapidly when education is used to combat poverty. And markets can continue growing when education and investment provide new opportunities for economic growth. Education therefore contributes to societal stability. Your organization’s use and distribution of resources should be such that you stimulate education for local communities. Economic progress must reduce negative impact on the environment such that you would be willing to change places with your great-great grandchildren. Their quality of life should be equal to—or better than—yours. The value of bio-diversity should be part of value chain ramifications in your business economics. We owe that to future generations. That means preserving the diversity of genes, species, populations, habitats, ecosystems and landscapes. And our air and water should stay clean and healthy. We already know beyond reasonable doubt that the future diversity of animals and plants requires a healthy

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Fig. 11.2 If we lived in an ecosystem without boundaries we could expect unlimited resources and unlimited sites for waste disposal. On a planet of finite dimensions, both resources and waste disposal sites are limited. Organisms that depend on certain resources better follow a cyclic sink model B. The linear sink model A leads to huge problems in the near future and is not sustainable on a finite planet

natural ecosystem, where limited resources and waste produced are managed responsibly (Fig. 11.2). We should not neglect the value of social equity in the value network of business economics. In the distant future, comparable efforts should yield equivalent material goods and necessities, and resources that have not been used to scarcity. It is important to improve socio-geographical justice and equity as well as inter-generational equity. The global business climate is continuously threatened by societal instability. Intelligent companies avoid violating the principle of environmental justice (a key element of the value network), when relocating activities from rich to poor nations. It is immoral to unfairly burden a class of citizens with morbidity and mortality from pollution, economic impact of pollution, or to dislocate them by ruining their acres. It is also a serious threat to the longevity of your business operations. Strategic pragmatism says that you bear responsibility to combat poverty, promote education, and protect human health—now and for the future (Fig. 11.3). A thing is right when it tends to disturb the biotic community only at normal spatial and temporal scales. It is wrong when it tends otherwise—Meffe et al. 1997.

11.2 Who Leads in Sustainable Development? The nations in our world harbor a variety of religions, ideologies (e.g. globalism and anti-globalism) as well as various degrees of prosperity (rich and poor) and education (illiteracy vs. accessible and affordable education for all). In fact, no single government is powerful enough to be entrusted with full responsibility for sustainable development of our world. Care for our planet’s future rests with all of us. The more intelligently we act, the more sustainable our future will be (Fig. 11.4).

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Policy Cycle

Poverty Issues

Fig. 11.3 Poverty can be reduced by education and by policies (1–6) that provide support and opportunities for the disadvantaged poor. Poverty reduction is a prerequisite for developing economic power and societal stability

Fig. 11.4 Our actions determine what society we end up with. In 2060 (an arbitrary date half a century away), possible societies A to D differ in degree of sustainability as well as Corporate IQ. We can improve and develop both, and they are positively correlated

Typically, the advocates of our moral responsibilities and values are the nongovernment organizations (NGOs). These are organizations that operate independently of any particular governmental policy program. Such NGOs commonly are concerned with influencing our policy-making processes. The scientific

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community and NGOs in particular are concerned with this single paramount question: ‘‘How do we get this important moral issue on the global agenda?’’ It is fair to say that globally organized NGOs and policy-making studies have only recently begun to highlight the importance of sustainability. The Club of Rome, founded in 1968 by distinguished individuals, published ‘The Limits to Growth’ in 1972, arguing that economic growth could not continue indefinitely because of the limited availability of natural resources. But it was the Brundtland Commission that developed the broad political concept of sustainable development in the course of extensive public hearings that were distinguished by their inclusiveness. The report ‘Our Common Future’ of 1987 provided the momentum for the 1992 Earth Summit in Rio, followed by Earth Summits in Kyoto (1997), Cairo (1999), and Johannesburg (2002). In ‘Our Common Future’ we asked ourselves two simple questions: How will it be possible to meet the needs of all the world’s people? And how can we ensure that future generations are able do the same? … By striving for consensus and concerted action, we pursue the goals of sustainable development and poverty reduction. There is no purpose more vital, noble, and just—Gro Harlem Brundtland, Earth Summit, Johannesburg, 2002.

NGOs have broad public trust and acceptance and influence our opinions. There are environmental organizations (e.g. Friends of the Earth, WWF), national groups with broad or narrow protection focus (e.g. Sierra Club); local groups with protection focus (e.g. BANANA, NIABY, NOPE, CAVE) as well as local groups with community focus (e.g. NIMBY, LULU, see Appendix D for explanation of all acronyms). There are a dozen or more of globally influential and effective sustainable development organizations (e.g. Pembina Institute, Rocky Mountain Institute, Forum for the Future, SustainAbility, AccountAbility, ISSD, UNDSD, WBCSD). Their aim is to keep sustainability on the global agenda and to influence the public opinion making use of reliable research data. As an example, the International Institute for Sustainable Development (ISSD) contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change, measurement and indicators, and natural resources management. They report on international negotiations and broker knowledge gained through collaborative projects with global partners. Their actions contribute to research in sustainable development issues, capacity building in developing countries and better dialogue between North and South.

11.3 Which Natural Resources Drive Your Actions? At the start of the third Millennium concerns about access to natural resources and security of energy supply dominate our society. Humans need land, water, food, energy and minerals (Fig. 11.5). With 9 billion people in 2050, compared to 7 billion people in 2010 innovative solutions are needed to provide energy, as well as clean water, clean air, and healthy food for all, and an environment free from

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air

Fig. 11.5 Population growth is critically dependent on access to natural resources. Of all natural resources needed, the demand for energy and mineral resources per person per year has risen most dramatically because of technological advances (see Fig. 11.6)

natural hazards (including diseases), war and terrorism. These issues cause concerns and provide challenges that probably will dominate the global agenda for the next few centuries. Humans need clean water, clean air, food, energy and industrial minerals and aggregates for building and manufacturing. For personal nutrition, water and food consumption per capita has barely risen over time. The effective need for land space per capita has been oddly reduced, because each inhabitant has now less than two soccer—pitches land space to his or her disposal—our global land area subdivided by the number of inhabitants. The conclusion is that we make do with much less land space than our ancestors, because we have become smarter in land use and because of the development of high rise urban communities. Intensified land use and industrial production cycles have put our water supplies under duress, and our air has become polluted. The atmosphere and hydrosphere are thin shells of our ecosystem that have changed dynamically by geological processes over millions of years, but probably the impact of human activities is now overriding natural global change—a process increasingly under public scrutiny. Of all resources needed, the demand for energy per capita per year has risen most dramatically as a result of technological advances (Fig. 11.6). With nine billion people in 2050, we need 50% more energy, while the consumption of minerals and building materials is also expanding. Explosive population growth was made possible by the industrialization of our society. Who is responsible for maintaining the security of energy supply? And who must mitigate the adverse effects on our environment? Science and technology may help us to manage our resources better, but our management actions and policy choices determine what kind of future we want. The creation of a biosphere that resembles a cesspool must be prevented. NGOs must continue to advocate our moral responsibilities. Government must issue rules and regulations, such as

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Fig. 11.6 Energy consumption per capita has expanded first in the industrial revolution of the ninteenth century. Next, technological advances (cars, planes, electrical appliances) of the twentieth century have led to further expansion of our personal energy demand. This demand will outrun supply with Earth’s population growing from 1,2 billion in 1850, toward 6 billion in 2000 and 9 billion in 2050

coercive laws and taxing devices that make it cheaper for the polluter to treat pollutants than to discharge them untreated. Increasingly, management schools too realize that they are at the basis of the next generation of leaders that should embrace the principles of good corporate citizenship. To encourage management schools in their task, the United Nations has launched the Global Compact program in 2000, formulating the basic principles of responsible business education in curriculum development. Global Compact principles of good corporate citizenship include the notion that people who manage company assets have a fiduciary responsibility to take into account sustainability and societal impact of their activities, in addition to shareholder value (Fig. 11.7). MBA students want to work for companies that are making a positive difference in the world. Business schools now cover civil rights issues and the impact of climatic change.

11.4 Is Your Corporate Governance Sound? The World Business Council for Sustainable Development (WBCSD) is a coalition of 175 international companies united by a shared commitment to sustainable development via the three pillars of economic growth, ecological balance and

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Fig. 11.7 As an Executive who manages company assets you have a fiduciary responsibility: for taking into account sustainability and societal impact of your activities, in addition to shareholder value. You are increasingly held responsible and must be able to account for your decisions at any point of time

social progress. The WBCSD believes that business is good for sustainable development and that sustainable development is good for business. It provides a voice for business, and translates that voice into actions. Members benefit from a global network of 50 national and regional business councils and partner organizations involving some 1,000 business leaders globally. The foundation of the WBCSD was established in 1991 in the hold of a creaking wooden ship in Bergen harbor, Norway. Representatives from countries the world over had come together to plan their approach to the Rio Earth Summit of 1992. In 1995, the early Business Council merged with the World Industry Council for the Environment (WICE) in Paris—a brainchild of the International Chamber of Commerce (ICC)—, and set up a permanent base in Geneva as the WBCSD. The vision of business contributions to sustainable development that took shape around the Rio Summit are now well-established within the WBCSD, and spread through extensive member involvement, stakeholder consultations and research reports tackling the most pressing sustainability issues affecting today’s corporate world. A higher agreement level on the way we manage our planet is likely to contribute to sustainable use of our resources, and should be stimulated by corporate innovation (Fig. 11.8). ClimateWise, established in 2007 by a group of leading companies and organizations in the insurance business, pledged to take action on Climate change and to report publicly on their performance. They want to lead and help in reducing the risks of Climate changes to our society by: • • • • •

Leading the way in analyzing and reducing risks. Supporting Climate awareness among customers. Incorporating Climate change into their investment strategies. Informing and engaging in the public debate. Reducing the environmental impact of their business.

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Fig. 11.8 Corporate governance and dedication to sustainable development should be embedded in your corporate scenario planning. It goes hand in hand with innovation and needs attention at all hierarchical levels (Layers 1–5, as defined in Figs. 2.5 and 2.6)). Short-term performance goals may never compromise corporate governance principles (including sustainability issues and compliance rules)

Larger corporations, governments, research organizations, and NGOs all help to shape our future by sustainable Strategy Planning for their business operations. To avoid chaos in our social structures, natural ecosystem and economic framework, there is a need for a common agenda between these organizations. One of the aims of the United Nations is to provide such a common agenda for humanity.

11.5 What Does the UN Agenda 21 Tell You? The United Nations Division for Sustainable Development (UNDSD) provides leadership and is an authoritative source of expertise within the United Nations system on sustainable development. It promotes sustainable development as the substantive secretariat to the UN Commission on Sustainable Development (CSD) and through technical co-operation and capacity building at international, regional and national levels. Its goals include the integration of the social, economic and environmental dimensions of sustainable development in policy-making at international, regional and national levels.

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The Agenda 21 plan of action was first discussed at the Rio Summit of 1992 and then reaffirmed at the Johannesburg World Summit on Sustainable Development of 2002. Priority activities of the UNDSD in their Agenda 21 program include: • Facilitating inter-governmental negotiations, building consensus on decisionmaking in support of sustainable development issues. • Providing technical assistance, expert advice and capacity building to support developing countries and countries with economies in transition in their efforts to achieve sustainable development. • Promoting and facilitating the monitoring and evaluation of, and reporting on, the implementation of sustainable development at national, regional and international levels. The UNDSD Agenda 21 also stipulates the need for new forms of participation at all levels to enable a broad-based engagement of all economic and social sectors in making sustainable development happen: ‘‘One of the fundamental prerequisites for the achievement of sustainable development is broad public participation in decision-making. Furthermore, in the more specific context of environment and development, the need for new forms of participation has emerged. This includes the need of individuals, groups and organizations to participate in environmental impact assessment procedures and to know about and participate in decisions, particularly those, which potentially affect the communities, in which they live and work. Individuals, groups and organizations should have access to information relevant to environment and development held by national authorities, including information on products and activities that have or are likely to have a significant impact on the environment, and information on environmental protection measures.’’

11.6 What is Your Leadership Responsibility in Sustainability? Your mission should include the provision of business leadership as a catalyst for change toward sustainable development. Good corporate governance includes the promotion of eco-efficiency, innovation and corporate social responsibility. Your dedication to sustainable development should be visible in your Strategy Plan, and must be supported by your Organizational Learning program and performance goals. Here are some practical guidelines: • You may strive to be the leading business advocate on issues connected to sustainable business development (business leadership). • You could participate in policy development in order to create a framework that allows business to contribute effectively to sustainable development (policy development). • You may demonstrate business progress in environmental and resource management and assume corporate social responsibility using leading-edge

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Fig. 11.9 Durable goods come at a price. Lifecycle design strategies for product innovation commonly strive to minimize the number and chemical complexity of components. Product innovation speeds up further by reducing size and energy consumption and improving durability, reliability and maintenance requirements. The need for cyclic sink model thinking (Fig. 11.2) is undiminished

practices (best practice). Your overall business responsibility should include demonstrating the sustainable use of resources and total lifecycle product strategies (Fig. 11.9). • You may contribute to a sustainable future for developing nations and nations in transition (global outreach). For example, by providing scholarships and training opportunities for the disadvantaged.

11.7 Why Is Systems Compliance Important? The importance of system compliance in your business environment should be reinforced in line with your responsibility as a co-custodian of our planet’s resources. Your corporate mission sets the overall tone for your organization. Therefore, your performance goals must relate to being a good corporate citizen by advocating system compliance and sustainable development (Fig. 11.10). In fact, you must balance your company’s strategy by good judgment on morality, taking into account your obligation to shareholders, employees, and with regard for health, safety and environment. More specifically, these topics include: • Strategy: continuity of operations, long-term social economic stability, acceptable qualities, and reasonable prices. • Morality: respect and responsibility for the earth, care for future generations, and justified distribution of wealth. • Stakeholder Needs: stockholders value, profit, growth, ROI, and good citizenship.

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User-Producer Relationships Mission Agencies

Universities

Public R&D Labs

Financing Systems

Hybrid R&D Labs

Monetary Policies

Private Firms with Corporate R&D labs

Scientific and Technological Societies

Internal Organization of Firms

Technology Sharing Regimes

Industrial Organization

Intellectual Property Regimes

Demand Conditions

Technology Licensing Regimes

Natural Resources

Fig. 11.10 Business governance and operations are subject to numerous compliance rules and regulations. System compliance contributes to societal stability and sustainability. Intelligent organizations will act accordingly

• Employees: safe workplace, fair pay, secondary benefits, job security, community, and care for health, safety and environment. • Environmental: agriculture and rural development, combating deforestation, bio-diversity, conservation, protecting our atmosphere, and ecologically sound biotechnology. Forward modeling of cause and effect of all our activities is our only hope and means of generational survival (Fig. 11.11). Your company will benefit from such studies because it will help to understand better how the world works.

11.8 Case Study 11a: SEC—Corporate Governance and Compliance in Oil Reserves Accounting The US Securities and Exchange Commission (SEC) requires US listed companies to follow its method of tallying reserves. The world’s major oil companies criticize––as outdated and pessimistic––the method SEC uses to assess oil and gas reserves. SEC, they say, misleads investors because it underestimates the success the industry is having in finding new stores of fossil fuel. The difference between the SEC’s method of tallying reserves and the calculation favored by the industry can amount to the equivalent of hundreds of millions of barrels of oil at the level of one company alone.

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Fig. 11.11 Simple systems allow a high degree of certainty in cause and effect studies. This certainty encourages a high agreement level and rational exchange of information and knowledge. In complex systems certainty of correlation between cause and effect is poor. That, in turn lowers agreement levels, so that the exchanging of information and knowledge becomes more complex. Case A represents rational consensus about lower process certainty; Case B represents higher disagreement about the process uncertainty. Total lack of orderly information and knowledge exchange (i.e. chaos) may occur in extremely complex or open systems where no agreement exists and correlation of cause and effect remains largely uncertain

Royal Dutch/Shell Group, whose disclosure in 2002 that the company massively overstated its reserves triggered the spotlight on reserves accounting in the first place, has since revised downward its ‘proved’ reserves by about a third. Scrutiny from investigators on both sides of the Atlantic, gave Shell renewed diligence for practicing good corporate governance: ‘‘We follow with interest the debate on proved reserves, but our focus remains on ensuring that we meet SEC requirements.’’ At issue is how energy companies calculate their ability each year to find enough new oil and gas to at least replace what they have pumped out of the ground. International Oil Companies are going ahead by investing billions of dollars based on indirect methods for assessing reserves. While investors watch quarterly earnings as a short-term measure of an energy company’s success, they monitor reserve replacement ratios as a fundamental indicator of a company’s growth prospects. Reserves tell investors, in effect, how much money an energy company has in its bank. But SEC reporting standards do not give companies flexibility to account for expected technological improvement. Institutional investors in oil companies call for reserve estimates to be subjected to external auditors. At present, SEC rules do not require periodic outside auditing

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of reserve numbers. Instead, industry calls on the SEC to revamp its reservesaccounting methodology to reflect changes in the oil industry as their reporting guidelines were generated more than 20 years ago. Among the changes that have occurred are major technology innovations, which allow the industry to retrieve more of the oil and gas it finds. But also the increasing globalization, means that more of the world’s fossil-fuel supply lies in countries where the oil and gas is owned by the state (e.g., OPEC countries, reserves of National Oil Company), whose policies on production often do not accord with the SEC’s rules. Broader measures than the SEC’s in assessing reserves are: not just counting ‘proved’ reserves, which means oil and gas that can be produced given current technology and current market prices, but also counting ‘probable’ reserves, which takes into account longer-term estimates of technological development and price changes. In fact, the SEC has broadened its reporting guidelines when this book went to first press. The SEC still prescribes companies to compute ‘proved’ reserves in a given year depending upon of the prevailing price of oil and gas, using a 1982 Financial Accounting Standards Board guideline. The SEC guidelines recommend that energy companies compute their annual reserve replacement ratios based on the time-averaged price of oil and gas in the reporting year. The goal is to give investors a snapshot of a company’s solvability that allows comparisons of one company’s performance with another’s. For years, oil companies largely ignored the SEC guidelines. Exxon, for instance, has traditionally calculated its reserves based on the price the company uses internally to determine whether an oil or gas project will be consistently profitable over the long term. Exxon argued that the before said measure is the most realistic for investors, because it reflects the way the company runs its business. But in the wake of the Shell reserves scandal, all major companies have now adopted the SEC rules for reporting their reserves, and have had to lower their reserveaddition numbers as a result. Typically, IOCs have ‘proved’ reserves in order of 10 billion barrels (subject to SEC guidelines), whereas National Oil Companies report—no guidelines—reserves in the order of hundreds of billion barrels.

11.9 Case Study 11b: Stern Report—Call for Action Based on Knowledge Sharing on Global Warming A 2006 report commissioned by the UK government and supervised by Sir Nicholas Stern, a former chief economist of the World Bank, suggests that global warming could shrink the global economy by 20%. But taking immediate action would cost just 1% of global gross domestic product, the 700-page study says. The report reviews the scientific evidence of global warming and calls for international response. The Stern review coincided with another release of new data by the United Nations showing an upward trend in the global emission of greenhouse gases.

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Fig. 11.12 Relative area occupied by Oceans, Polar Regions, Deserts, Wilderness, and Cultivated Land. How much Cultivated Land do we occupy per person? Each of us has global footprint of about 1.8 ha (100 m 9 180 m) or about two football pitches. And it is shrinking the whole time, as population grows and sea level rises. But it is the floods and droughts resulting from atmospheric pollution that threaten to disrupt the lives of millions of people within the next few decades, according to the Stern Report

The Stern report further says that without action, within an international framework, up to 200 million people could become refugees as their homes will be hit by drought or flood. ‘‘Whilst there is much more we need to understand—both in science and economics—we know enough now to be clear about the magnitude of the risks, clear about the short time available for action and clear about how we must to act effectively,’’ according to Sir Nicholas Stern. The Stern Review states that 1% of global gross domestic product (GDP) must be spent on tackling climate change immediately: ‘‘If no action is taken to reduce emissions, the concentration of greenhouse gases in the atmosphere could reach double its pre-industrial level as early as in 2035. This would virtually subject our planet to a temperature rise of over 2C, globally averaged. In the longer term, there would be more than a 50% chance that our planet’s average temperature rise would exceed 5C. Such a steep temperature rise would be very dangerous indeed; it is equivalent to the change in average temperatures from the last ice age to today. And such a radical change in the physical geography of the world must lead to major changes in the human geography—where people live and how they live their lives.’’ The Stern Report warns that if no action is taken (Fig. 11.12): • Floods from rising sea levels could displace up to 100 million people. • Droughts may create tens or even hundreds of millions of ‘‘climate refugees.’’ • Melting glaciers could cause water shortages for 1 in 6 of the world’s population, affecting over 1 billion people. • Wildlife will be harmed; at worst up to 40% of species could become extinct.

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Stern: ‘‘I am optimistic—having done this review—that we have the time and knowledge to act: but only if we act internationally, strongly and urgently. Countries facing diverse circumstances will use different approaches to make their contribution to tackling climate change. But action by individual countries is not enough. Each country, however large, is just a part of the problem. It is essential to create a shared international vision of long-term goals, and to build the international frameworks that will help each country to play its part in meeting these common goals.’’

11.10 Case Study 11c: Decision-Making as a Prisoner’s Dilemma In 1968, Garret Hardin has introduced the term ‘‘commons,’’ for any resource that is shared by a group of people at little or no expense. For example, the air we breath and the water we drink come from commons. When we pollute water by leaking oil wells, or the air by flaring natural gas we rely on the ‘‘logic of the commons’’ as follows. Each user has the right to take resources from and put wastes into the commons. To accumulate wealth, each user believes that one unit of resources can be acquired (i.e. use injection water) and one unit of waste water may well be dumped. The burden of the diluted waste coming from that one unit of waste is distributed across the commons, for all of the users with whom the commons is shared. Thereby, the gain to the user appears large and the cost very small. The utility function of the independent rational man says that the cost of the wastes discharged into the commons is less than the cost of purifying wastes before releasing them. Applying this principle, some users accumulate wealth more rapidly than others and this, in turn, gives them the means to access an even larger share of the commons. The fallacy in the logic of the commons lies in the failure to recognize that all rational users are attempting to do the same thing. Thus, on average, one unit of gain for a user actually produces a net one unit of cost for each user. However, users who accumulate wealth from the commons by acquiring more than their fair share of the resources and paying less than their fair share of the total costs for remediation or replacement have a huge responsibility. The quality of the commons degrades and suffers each time a pollutant is put into it. And as long as we behave as independent, rational, free enterprises, we lock in the systemic ‘‘fouling of our own nest.’’ Ultimately, as population grows and if profits would run rampant, the commons will collapse, and that is the deeper message in ‘‘The Tragedy of the Commons.’’ Being aware of the tragedy of commons principle suggests that we need custodians and operating rules to look after our planetary ‘‘commens’’ in a more sensible manner. Many agree that the tragedy of the commons as a cesspool must be prevented, by coercive laws or taxing devices that make it more attractive for the polluter to treat his pollutants than to discharge them untreated. Typically, the advocates of our moral responsibilities and values are the non-government

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Fig. 11.13 Cost matrix for Prisoner’s Dilemma applied to sharing the burden of environmental responsibility between two nations A and B

organizations (NGOs), and operating rules and regulations are issued by the government. Science and technology may help us to manage our resources better, but our leadership actions and policy choices determine the type of future we get. What can you do to make a positive difference for determining future developments? Let us revisit the old the Prisoner’s Dilemma for some guidance. The Prisoner’s Dilemma is a game theory tool used to analyze the rational choices involved in comparing expected benefits against the cost of alternative choices of action. The Prisoner’s Dilemma, first introduced at Princeton’s Institute of Advanced Studies in the 1950 s, traditionally considered four choice options. These are: lying about one’s own crime by denial, incriminating one’s fellow in crime by cooperating for justice, colluding with the fellow criminal in denial, or denial in blind faith (prisoner’s are not allowed to communicate and have to make the choice based on stochastic chances). Translated to the situation of Global Environmental Actions, the case can be laid out as follows. Instead of taking the well-documented prisoner’s choices, consider two lead negotiators for two nations. Nation A must choose to act in an environmentally friendly way or unfriendly way. Nation B faces a similar choice. All nations N can choose to do the same or abstain from taking responsibility. Who pays the cost at what choice? The cost matrix is given in Fig. 11.13. First suppose that Nation B cooperates, then both Nations A and B share the nominal cost (say five monetary units, adopting a total ‘eco-tax’ cost of 10 units). If Nation B does not cooperate, Nation A must alone bear the full cost of 5 monetary units. In terms of capital cost, they either have to spend 10, 5 or 0 monetary units with chances of the optimum outcome (5 each) only being 25%. The chances for each of the two nations to pay for their decisions are as follows: Decision to cooperate: 25% that you pay 10, and 25% that you pay 5 cost units; Decision to defect results in a 50% chance you pay 0 (see Fig. 11.14).

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Outcome

Decision Tree for Prisoner’s Dilemma of Nations

(-5,-5) 25% chance

Nation B (-10,0) 25% chance

Nation A (0,-10) 25% chance

Nation B (0,0) 25% chance

Fig. 11.14 Decision Tree for Prisoner’s Dilemma applied to sharing the burden of environmental responsibility between two nations A and B. Choices have equal weight of 50% but may vary in specific cases and must be assessed in its own context

With multiple nations, the relative burden of cost and risk only increases, the principle of the Prisoner’s dilemma can be equally applied. If we take 100 nations that jointly cause 500 monetary units of environmental burden to the commons, all nations joining the optimum outcome means paying 5 units each. Only one nation signing the agreement means loosing 495 monetary units for that benevolent nation, instead of spending just 5 (if all would share the burden). Clearly, collective participation is required for reasonable and sustainable solutions. Of course, the percentage of monetary cost, now taken equal for all nations, could be prorated to reflect number of inhabitants or real units of production volume (e.g., USA and China) produce more (of everything) than other nations. The chances to end up paying more than one’s fair share of 5 cost units multiplies by each additional nation that becomes part of the equation. Clearly, the only positive way out is making sure you communicate and explain the mutual benefits that are gained by sharing the cost. A system of economic incentives is needed to stimulate cooperation. For example, if Nation X does not voluntarily contribute its share, Nation A pre-finances the cost of unburdening the commons. The pre-financing can be recouped by imposing import tariffs on goods coming from Nation X. The system of pre-financing and levying of tariff would be

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best administered by an independent institution such as the United Nations or the World Bank.

11.11 Actions You Can Take… Consider the impact of governance failure: determine vulnerability and tolerance in your organization’s business portfolio for the impact of corporate governance failure. Balance your commitment to sustainability with your leverage in a positive way to set an agenda for excellence in corporate governance. Consider the effect of full lifecycle-costing: assume that full lifecycle-costing must be borne by your company. There are three main cost-bearing parties involved: costs borne by your company: raw materials, labor, transportation, regulatory compliance, warranty, waste disposal, post-disposal risk, taxes. Costs borne by customers: cost of acquisition, of use (energy, repair, supplies), of disposal, of taxes, transportation. Costs borne by others: air and water emissions, natural resource depletion, disposal of waste. Discuss your life-cycle costing strategy. Check critically whether the value of bio-diversity, social equity and environmental justice are accounted for. Challenge the assumptions and basic premises made. Build your corporate image: balance your commitment to sustainability with your leverage in a positive way to set an agenda for excellence in corporate governance. Determine vulnerability and tolerance in your organization’s business portfolio for the impact of the coming Sustainability Crisis. It seems that our planetary knowledge base of understanding the impact of global warming— aggregated in the Stern Report—equips us with a strong incentive to negotiate intelligent agreements and measures needed to safeguard our planet’s ecosystem. According to the Stern recommendations, key elements of future international frameworks should include: • Emissions trade: expanding and linking the growing number of emissions trading schemes around the world. This is a powerful way to promote cost-effective reductions in emissions and to bring forward action in developing countries. Strong targets in rich countries could drive flows amounting to tens of billions of dollars each year to support the transition to low-carbon development paths. • Technology co-operation: informal co-ordination as well as formal agreements can boost the effectiveness of investments in innovation around the world. Globally, support for energy R&D should at least double, and support for the deployment of new low-carbon technologies should increase up to five-fold. International cooperation on product standards is a powerful way to boost energy efficiency. • Action to reduce deforestation: the loss of natural forests around the world contributes more to global emissions each year than the transport sector. Curbing deforestation is a highly cost-effective way to reduce emissions;

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large-scale international pilot programs to explore the best ways to do this could get underway very quickly. • Adaptation: the poorest countries are most vulnerable to climate change. It is essential that climate change be fully integrated into development policy. International funding should also support improved regional information on climate change impacts, and research into new crop varieties that will be more resilient to drought and flood.

11.12 Things to Think About… • Can you search the web for more information on ‘‘Build Absoluted Netting Anywhere Near Anything (BANANA) ’’and ‘‘Not In My Back Yard (NIMBY).’’ • Consider the importance of the Earth Summits held at Rio (1992), Kyoto (1997), Cairo (1999, where the Kyoto Protocol was adopted) and Johannesburg (2002)? • What was the importance of the 1972 report by the Club of Rome?

11.13 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) 1. Our organization provides baseline training related the importance of human safety and environment. 2. Achieving environmental sustainability is not a core priority in our organization. 3. Our management follows ethical guidelines in dealing with employees, suppliers, customers, investors, creditors, insurers, competitors, regulators and auditors. 4. Our leadership has established a sustainability policy, objectives and a framework that are well communicated for achieving sustainability targets in our organization. 5. Our organization has adopted a process for reviewing environmental and broader sustainability objectives. 6. We all know how our job function relates to our organization’s environmental policy. 7. Our organization has developed procedures to identify the environmental aspects of our activities, products and/or services that it can control and over which it can be expected to have an influence in decision-making processes. 8. I am unaware of our organization having any documented procedures to monitor and measure on a set frequency the impact of our operations in relation to the significant environmental aspects.

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9. I think our organization is aware of the merits of adopting international sustainability standards and the associated certification requirements (e.g. ISO 14001). 10. I believe our organization has adopted procedures to ensure that all business transactions are recorded in compliance with accounting rules (e.g. GAAP) and corporate governance standards (e.g. SOX and SEC). For IQ Scorecard assembly move to Gate Statement 1 2 3 4 True 1 0 1 1 False 0 1 0 0

Stops 5 1 0

4 and 6 1 0

5 7 1 0

8 0 1

9 1 0

10 1 0

Score

Input for IQ Scorecard from Chap. 11: Total True and False

Bibliography Bouma JJ, Jeucken M et al (2001) Sustainable banking: The greening of Finance eds. Greenleaf Publishing Limited, Sheffield Braithwaite J, Drahos P (2000) Global business regulation. Cambridge University Press, Cambridge Brown LR (2001) Eco-economy: building an economy for the Earth. W.W. Norton and Company, New York Doppelt B (2003) Leading change toward sustainability a change-management guide for business, Government and Civil Society. Greenleaf Publishing, UK Eldredge N (1998) Life in the balance: humanity and the Biodiversity Crisis. Princeton University Press, Princeton Habermas J (2003) The future of human nature. Polity Press, Cambridge Lukacs J (2002) At the End of an Age. Yale University Press, USA Soros G (1998) The crisis of global capitalism: open society endangered. Little, Brown and Company, London Weijermars R (2008) Taking Responsibility for Natural Resource Management: Resolving the Prisoner’s Dilemma of Petroleum and Mining Engineers. In: Peet DJ (ed) Geotechnology and Sustainable Development, Eburon Publishers, Delft, 77–89

Chapter 12

Overcoming Communication Barriers

Intelligent people like talking to other intelligent people. Likewise, intelligent organizations seek out partners who can keep up with—and accelerate—their own thinking. Act intelligently in communicating the organizational mission, vision, values, and share innovative ideas. Leaders and managers in intelligent organizations typically encourage the Organizational Learning process at every opportunity. Participate in meetings. Help solving problems. State positions and opinions. Find out facts and details. Try to understand other points of view. Give instructions or directions. Avoid team conflicts. Participate in communication when appropriate and give consistent, up-to-date information at all times.

12.1 What Drives Effective Communication? Modern and complex learning organizations need people with optimum communication and integration skills that continually help fine-tune the business process from within. The effective interaction of your company’s professionals makes your business tick better, while enhancing the competitive edge. Well-networked professionals also facilitate dynamic adjustments and ensure the optimum integration of crucial business decisions. In fact, the integration speed and power of any smart organization is in no small degree a reflection of the interpersonal skills of its professional workforce. Intelligent organizations efficiently connect those who know with those who need to know, and are good at converting personal (tacit) knowledge into organizational (or explicit) knowledge. This requires a working environment where knowledge and experience can be shared and internalized into the workflow. People can act more efficiently and effectively if information and knowledge can be accessed by them anytime, anywhere. But, mostly, it must lead to the generation of adequate solutions and support decisions at the right time.

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_12,  Springer-Verlag London Limited 2011

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Evolution of Organizational Learning Culture Competency

Stages

Degree of Support

Advanced Experimentation Developing new methods for doing the job better Skillful Application Knowing how to apply it on the job

Goals

Institutionalization Internalization Commitment

Recommend to Others Positive Perception

Innovation

Experimentation

Users recognize the advantages

Utilized long enough to show benefits to all

Fully implemented, operational and accessible to all Repeated Use Awareness Contribute to organizational learning Learning regularly as part of their work Installation about it Interest People understand the inherent changes Recognition brought by organizational intelligence

Time

Fig. 12.1 Over time, support for Organizational Learning in your organization may grow such that knowledge sharing is optimized. Being at the top of the learning curve positively contributes to the ‘emotional IQ’ component of your Corporate IQ score (see Gate Stop 4)

The company’s vision for the future directs the organizational strategy and its implementation needs support from the work force (Fig. 12.1). Imagine that everyone in the organization always knows exactly the right thing to do. That organization will reliably capture, share, and improve its best experience to leverage success and to eliminate repeating mistakes. There will be no ‘‘I could have told you so!’’ or ‘‘How was I supposed to know?’’ Your company must change in step with the business environment as it adjusts the corporate strategy and culture to realize the vision and goals. Individuals in your organization must have a shared belief in the purpose of the organization (mission-directed culture). The communication structures within the organization must enhance the willingness to learn from each other and the willingness to learn from past mistakes. But getting your workers motivated to share information and knowledge needs continued attention. The communication of changes to effectuate and execute your corporate strategy needs support at all managerial levels. The degree of employee participation depends in no small degree on the ambition and effort spent on activating your people (Fig. 12.2). It is too optimistic to assume that a CEO’s statement about the desired changes will lead to swift implementation of changes in the work process. The common steps required to effectuate adoption of new directions—by even experienced line managers—are: receive, review, understand, support and propagate the message about the preferred direction of change. Once you have won over the management for your new strategy, decisions about new project options can be reached in time. Establishing new guidelines for decisions rooted in the company’s best practice, and their documentation with an auditable

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Fig. 12.2 Messages that require a change of current practices require a staged approach to effectuate buy-in from the work force. The degree of participation will increase as the new vision for change is better understood by a broader group of professionals

trail of arguments is recommended. Team workers who understand their common goals will value each other’s opinions and can effectively share their experience for the benefit of these goals. Their performance can be carefully monitored, innovation encouraged and regular evaluation of models and predictions may lead to an updated forecasting system with improved reliability.

12.2 What are the Common Barriers to Effective Communication? It should be acceptable within the organization to ask: ‘‘How do you know this is true? What knowledge base did you use? When this knowledge was audited and is it still up-to-date? What can we do together do to improve this knowledge to optimize our planning?’’ Such an intelligent company culture is not brought about overnight. It requires continuous attention, and each new employee will have to grow into your organizational culture by a process of adoption, loyalty, and collaboration. A major obstacle to effective communication in an intelligent organization arises when you are overly optimistic about the effect of your instructional

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Communication Resistances Compose Message R1 Share Message R2 Receive Message R3 Review Message Messages that come through are Effectively shared by others, but not all recipients may join

R4

Understand Message R5

Resistances may strand Message

Support Message R6

Share Message

Fig. 12.3 New directions need to be rolled-out in stages. The message for change is carefully prepared and shared with the entire organization after rigorous review (R1) by the top management. Subsequently, the message is released into the organizational structure, where five more resistance switches need to be reset by a process of Organizational Learning

messages. There are always communication resistances that need to be overcome, especially in our era of information overflow (Fig. 12.3). Resistance commonly resides in three groups of people: • Devils: whatever you try they will not embrace your ideas (about 10% of your workers). • Potential supporters: these are people who know your idea, but remain critical and need more arguments and training to become supporters (about 40% of the work force). • Reluctant followers: these are critical to any changes, but will be submissive to instructions; they will follow mostly passively and not actively pull or push your idea forward (about 40% of the work force). A fourth group of people, say 10%, are your Angels in the organization, they commonly share and support your views unconditionally, and right from the onset. This group normally includes your fellow leaders and the top management. Devils in your organization’s work force are not necessarily bad. They have a high sense of moral duty and may advocate rightly for alternative viewpoints. But a fifth group that really needs attention is a small number of individuals that have lost passion for what they do (Fig. 12.4). Passion is what gives us drive to achieve more than we held possible. Passion inspires us to convince, persuade, motivate, and influence others and to help us break down barriers to communication. It is at

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Getting it Across In our internal magazine is mentioned that for the last 20 years you are working on the same research topic as I am.

“I Know That I Don‘t Know Anything” Fig. 12.4 Passion for your work and pride about your professional expertise drives people to readily share content information. Knowledge exchange needs stimulation by way of personal passion and pride displayed in communication between individuals in your organization. This cartoon shows the opposite, undesirable situation

the water cooler and in the coffee room where passion is put behind words to keep the corporate culture swinging forward.

12.3 How Can You Improve Your Communication Skills? At an individual level, acting intelligently can sometimes lead to knowledge hoarding and an introverted attitude. At an organizational level, intelligent behavior is only possible if teams are open-minded, dynamic, and looking for multiple solutions. In your team contributions, you must FOCUS, SHARE, STATE, STAR, and KISS (see below). Avoid lack of trust and assuming you already know it all. Jumping to conclusions and not valuing diverse opinions may lead to unintelligent results (Fig. 12.5). Weak reading skills, weak listening skills, weak vocal skills, weak questioning skills may all get in the way. Also, peoples’ egos, prejudices, traditions, cultures, conflicting feelings, goals, and their strong differences of opinion may undermine Organizational Intelligence. If people are on opposite sides of an issue, they may not be comfortable sharing their knowledge to full effect. The importance of cultural sensitivity in communication has been highlighted in Chap. 6.

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Fig. 12.5 We all know that poor communication between otherwise fine professionals leads to unprofessional outcomes. Great listening and communication and interpersonal skills are needed to build unrivaled products and services. Intelligent organizations succeed in this where others fail

FOCUS Focus the discussion on the specific information you need. Open-ended questions to expand the discussion. Close-ended questions to get specifics. Use active listening skills to understand what you are hearing. Summarize and close the discussion. SHARE State the main point of your message. Highlight other important points. Assure the receiver’s understanding. React to how the receiver responds. Emphasize/summarize your main ideas. STATE State the constructive purpose of your feedback. Tell specifically what you have observed. Address and describe your reactions. Tender specific suggestions for improvement. Express your support and respect for the person.

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STAR Situation you experienced. Task you had to carry out. Action you undertook. Result you achieved. KISS Keep It Short and Simple! Create a need to listen by thinking about what you can learn from the speaker. Set aside the time to listen so that you will not feel rushed or become distracted by other responsibilities. Be tolerant and patient. Be willing to listen. Do not prejudge the message based on who is delivering it. Focus instead on the content of the message. Monitor the way you listen by asking yourself such questions as: ‘‘Did I really pay attention or was I thinking about what I was going to say next? Was there information I missed because I allowed myself to become distracted?’’ You should not neglect non-verbal communication or body language associated with understanding. For example, when we speak, some studies suggest that only 8% of our actual words contribute to the impact of our message on others. The rest is determined by the tone of our voice (34%), and such non-verbal cues (58%) as posture, facial expression, demeanor, gestures, eye contact, and dress. Adding music, art, visuals and positive emotions—yes, true passion combined with expert authority—can further enhance the impact of your communication efforts, either positively or negatively. We all know that the interest of readers and audiences is heightened when pictures are added to documents and presentations. This, in fact, has been demonstrated by using an intricate eye-tracking device on people scanning text and images such as shown in the viewgraph example of Fig. 12.6. But make sure you do not hide behind slides—make yourself visible as a knowledge resource and demonstrate your inspirational force, good judgement and decision-making capacity.

12.4 What Is the Best Medium for Your Internal Messages? Organizational Learning requires reliable communication; your professional teams communicate for a multitude of reasons. They communicate to share ideas and opinions, to provide feedback to each other, and to get information from others. They also communicate to gain power and influence, to develop social relationships, to maintain self-expression, and to change the company culture when needed. Intelligent organizations understand that intelligent individuals need some degree of self-expression and will accept a large degree of individuality in the medium of choice for communication. Depending upon the situation, one method of communication may be better than another (Fig. 12.7). Face-to-face

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Eye-tracking Experiment

Fig. 12.6 Eye-tracking devices in the headgear shown to the left are used to monitor eyemovement over pages of text with images. On the page shown on the right-hand side, the eyes dwell longest on the text next to the portrait and moves fastest further away from the image

Choice of Communication Channel Channel Richness Richest

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Ambiguous • Face-to-face • Telephone • Electronic mail • Memos, letters • Flyers, bulletins, reports

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Fig. 12.7 Premium attention for your topic is attained in face-to-face talks, the richest channel for your interactive communication. Non-personalized documents (flyers, bulletins, and reports) are poorly read unless accompanied by personalized memos pointing out why the document is worthwhile reading. Degree of priority for your message determines which communication channel or medium is most appropriate (or a combination thereof)

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Organizational Communication and Knowledge Aggregation Coarse granularity, Grand concepts

Layer i+1 Decision Gates

Levels of Echelon

Layer i

Fine granularity, Lots of details

Layer i –1

Fig. 12.8 Communication up and down the knowledge pyramid competes for priority, emphasis, and detail in the granularity of knowledge transfer. Multi-resolution communication barriers may coincide with decision gates between hierarchical layers. Intelligent organizations ensure that communication gaps and traps are minimized by stimulating knowledge sharing. That means the aggregation of knowledge across decision gates, following professional procedures for Knowledge Management and Organizational Learning

communications have the biggest impact. Direct communication not only allows you to use your full body language, you can also monitor for the reaction of your audience. In order to choose the best medium for your message, determine: What you—as the sender—want to achieve, what the receiver needs to understand, and what the receiver probably wants to know. Examine how detailed, important, and or personal the information in the message is. And anticipate which behavior you want to influence and how. Written communication has certain unique advantages. For example, writing results in structured thoughts with ample opportunity for verification and revision is very appropriate for creating a permanent record that can be distributed widely without much additional effort. The level of detail in your message is subject to the expectations about knowledge aggregation at different levels in your organization (Fig. 12.8). Connection with ‘Grand concepts’ is expected at corporate level (Layers 4 and 5) and progressively more detailed granularity in your messages is expected at Layers 1–3 (see also Fig. 2.5 and 2.6). A person who can’t communicate effectively can never lead—Ken Graham, 2006.

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Ultimately, some form of negotiation and gentle arm-wrestling may become part of your communication—another intelligent challenge. Chap. 13 addresses this negotiation aspect in multi-resolution communication.

12.5 What Is the Role of Corporate Identity? Awareness of the role of external communications is essential for building your Corporate Identity. Companies must be asking: ‘‘Why do investors choose my products or services over those offered by the competitors?’’ All your communication and advertising must build Corporate Identity and brand awareness. Your corporate positioning or branding statement expresses a comprehensive vision of what your Corporation Identity is, where it is going, and how it is different. That will build trust and loyalty among your shareholders. Corporate Identity seeks to project what makes a company special in order to influence the perceptions and actions of a diverse set of audiences. Failing to establish a corporate identity (and build distinct brands) means that shareholders may not be able to appreciate your potential. But building Corporate Identity is not simply a communications challenge. Executives overseeing the marketing, strategic planning and shareholder service functions are continually challenged to develop products and services that offer added value, that make the company stand out from competitors, and that build equity in the corporate brand. Failure to successfully brand a company leads to the marginalization or elimination of any or all of these functions. Branding your Corporate Identity is a long-term enterprise. A 1993 Advertising Age study concluded that customers only begin to ‘‘hear’’ a message after 18–36 months of reasonable and consistent exposure. Following that, it can take up to an additional 24 months for customers to ‘‘believe’’ in the brand. After 5 years, assuming a good, memorable positioning statement has been chosen and the company maintains its advertising profile, a brand is ‘‘owned’’, meaning it has become synonymous with its product (e.g., KFC for fried chicken and Jell-O for desert gelatin). Survey research has shown that the first brand to gain customer recognition, on average, wins twice the long-term market share as compared with its nearest competitor’s brand. During a branding campaign’s multiyear incubation period, executives must resist the temptation to change the new positioning statement. Staying the course is a necessity: Modifying the positioning statement would be akin to digging up and replanting a crop before the harvest. The corporate positioning statement must be given time to grow. As the energy industry (gas and other utilities) approaches deregulation, this means that their products become a commodity with customers gravitating toward the absolute low-cost provider. In this Millennium branding for service, reliability and other added value is essential to gain market share and boost earnings, even— or especially—when selling commodities.

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12.6 Case Study 12: Branding Apache Apache was formed in 1954 with the simple concept of becoming a significant and profitable oil company. Raymond Plank, founded Apache in 1954 with two partners, to produce profits that first year: he earned $12,500 on revenues of $190,000. Plank, still chairman in his eighties, appointed CEO Steven Farris to manage the company. Meanwhile, Apache has grown to become one of the world’s top independent oil and gas exploration and development companies with nearly $50 billion in assets in 2010. Apache’s stated goal is to grow a profitable oil and gas company for the long-term benefit of its shareholders. The Apache strategy is to build a portfolio of core areas, which provide growth opportunities through both grass-roots drilling and acquisition activity. Apache seeks to grow profitably while building critical mass that supports sustainable, lower-risk, repeatable drilling opportunities, balanced by higher-risk, and higher-reward exploration. Their project portfolio seeks a balance in terms of gas versus oil, geologic risk, reserve life and political risk. Apache, a Houston-based company, is expected to earn $3.5 billion in 2010 on revenues of $14 billion, more than six times its earnings since 2000. Its net margin is one of the highest among its exploration-company peers. Numbers like that landed it the No. 10 spot on the Business Week 50 list of top corporate performers. Apache is emblematic of the so-called independent oil companies. Larger, more cautious majors, such as Exxon Mobil look for huge fields that can take a long time to develop but will then go on to produce steady returns for years. By contrast, independents often drill smaller prospects in mature fields that produce the fastest possible payback. Exxon is interested in assets that last a decade-plus, while Apache is interested in near real-time returns. Apache has been able to outperform its peers by creating a culture that values quick decision-making and risk-taking. It starts with new hires: The company looks for people who have shown initiative in getting projects done at other companies. And its employees are amply rewarded. Field managers can earn bonuses equal to 50% of their annual salaries by meeting yearly profit and production goals. And every worker, from the mailroom up, shares in a stock award program pegged to aggressive share price targets. Says CEO G. Steven Farris: ‘‘Everybody is a part of the action’’. For years, Apache followed an ‘‘acquire and exploit’’ strategy, buying older fields from larger companies and drilling the heck out of them. By mid-2004, though, Farris decided that the acquisition market had gotten too pricey. So that year he orchestrated a novel deal with ExxonMobil. Apache traded access to some deep, hard-to-drill prospects in Louisiana for the right to drill on 1.2 million acres of shallower ExxonMobil property in central Canada. The transaction lets Apache focus only on the prospects it finds the most attractive. And rather than acquire the Canadian property outright, which would have cost hundreds of millions of dollars, Apache is giving ExxonMobil a royalty of 37%.

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Once the pact was signed, Apache’s unique approach to drilling let it hit the ground running. Many energy producers focus on the largest fields first. Once they strike oil or gas, they start building the pipelines and compressor stations to bring it to market. Apache takes the opposite approach–first looking for the nearest infrastructure, then drilling the prospects closest to it. Apache has also devised a variety of strategies to speed up oil recovery. ‘‘We often start drilling before finishing the seismic work on a particular field—as many as four wells at a time’’. Brian Schmidt, president of Apache’s Canadian operations, says his average well takes 61 days to bring online—twice as fast as others on similar terrain. Schmidt originally planned to drill 125 wells on the Exxon land in the first year of the deal. Instead, Apache drilled 260. It used flexible drilling pipe rather than the rigid sections of pipe many operators still use. Not having to stop to attach the pipe sections makes Apache’s drilling process more continuous. Apache’s drilling budget increased from $890 million in 2002 to $3.4 billion in 2006 to take advantage of rising prices. Of course, drilling like crazy has its risks. ‘‘One of the problems with prices where they are today’’, Farris concedes, ‘‘is the tendency to do things you might otherwise not do because you have a lot of cash’’. Apache has managed to communicate to the market the image of an independent oil company with an aggressive growth policy. They continue to deliver value to meet the expectations of shareholders.

12.7 Actions You Can Take… Review your corporate communication plan: Take the knowledge pyramid of Fig. 12.8 (and revisit Fig. 12.6) and determine whether you operate at corporate level of ‘‘Grand Concepts’’ and visionary leadership. Reduce communication gaps between different levels of the corporate hierarchy by stimulating knowledge sharing across decision gates. Identify new trends in your business landscape. Formulate your unique vision and focus on language and concepts that emphasize how your organization plans to integrate its people, technology, processes and workflow to meet your future challenges. Include efforts to sell the vision, providing leadership and opportunities for Vision Sharing with all echelons in the organization. Define strategies for improving individual and group communication in your organization.

12.8 Things to Think About… • Getting data, information and knowledge from others requires communication—How many times did you ask others for data, information, or knowledge today?

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• Communication is also a unique instrument to share ideas with others. How often did you transfer knowledge or information today? • Are you mostly a knowledge provider or a knowledge receiver? • What are the principal barriers to communication in your organization? • What makes sharing ideas difficult? • What makes it hard to give constructive feedback? • What makes getting good information and knowledge difficult?

12.9 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) 1. When there are changes in my work or in my unit that affect us, I always understand the reason for those changes. 2. Organizational changes in our organization are poorly communicated. 3. Our sense of community and positive work environment are supported by the actions of our leadership. 4. Although our organization sets ambitious targets in its internal and external communications, I do feel that our integrity values are preserved. 5. Our leadership inspires employees to pursue and achieve the vision it has set forth. 6. Our organization is governed by controlling managers while workers deliver without a voice. 7. Our leadership communicates inadequately about the programs that are designed to meet our environmental objectives and targets. 8. Our leaders set, communicate and integrate our organization’s values, performance expectations, and client focus throughout the management system. 9. Our organization is doing too little to establish a positive work environment (e.g. communication of purpose and vision, employee participation in key decisions). 10. Important decision-making processes are concisely explained and communicated to all echelons in our organization. For IQ Scorecard assembly move to Gate Stops 4 and 5 Statement 1 2 3 4 5 6 7

8

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Bibliography Barker A (2000) Improving your communication skills. Kogan Page, London Blundel R (1998) Effective business communication. Prentice Hall, London Foster T (2002) Better business writing. Kogan Page, London Quirke B (1995) Communicating change. McGraw-Hill, Maidenhead Taylor S (1999) Communication for business, 3rd edn. Longman, London Woolcott L, Unwin W (1983) Mastering business communication. Palgrave, London

Chapter 13

Aiming for Intelligent Negotiations and Effective Agreements

When people within intelligent organizations, or from different organizations, exchange their viewpoints, there is almost never unanimity about objectives. In order to reach agreement between positions, opinions, and insights, some form of negotiation and bargaining for terms and conditions is required. Obviously, intelligent organizations not only foster good communication skills but also provide adequate support and training for reaching effective agreements in negotiations.

13.1 Why Is Negotiation Part of the Job? Many complex decisions in organizations are made by groups of people. Bargaining among coalitions produces agreements that serve the best interests of your organization. Choice in the short-run is driven by standard operating procedures. Choice in the long-run is driven by organizational goals. Here decision-making is a personalized bargaining process among organizational units. Power and influence often influence the outcome of any situation. The players act in terms of sometimes diverging sets of strategic objectives, or even according to their personal goals, stakes and interests. Organizational choice based on negotiation is the result of the pulling and hauling that is part of common organizational politics (Fig. 13.1). But intelligent organizations set expectations such that choices emerge in a structured process using the best alternatives that are acceptable in terms of their stated policy and goals. In situations like these, assess the options. Match organizational strategy and style to the situation. Weigh the various stakeholders’ objectives and try to look at a given situation from the various parties’ viewpoints. Develop a strategic plan and formulate your own objectives with alternative courses of action. Is a negotiated agreement possible? Know what you want and start building the professional

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_13,  Springer-Verlag London Limited 2011

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Party B Party A Time X+1 Time X+1

Party A’s Resistance Point Time X

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Fig. 13.1 Two parties (internal or external) that strive for different targets must exchange viewpoints. Selective information is shared to find out the spread of the settlement range between them. In fact, truly creative negotiations may lead to new insights, which add more value to the combined products and services (win–win solutions) than possible by each party alone

Fig. 13.2 Six stages (or steps) toward successful negotiations: 1 information gathering, 2 exploring interests, 3 information sharing, 4 validation, 5 establishing the settlement range, and 6 consolidating the agreement. Persuasion does not mean one party needs to submit to the other party’s wishes. Best is to settle at concessions that both parties are willing to sacrifice for a better common result in a win–win agreement

STEP 1: PREPARATION

STEP 2: BUILD THE RELATIONSHIP STEP 3: EXCHANGE INFORMATION STEP 4: PERSUASION

STEP 5: CONCESSIONS

STEP 6: AGREEMENT

relationship (Fig. 13.2). Exchange information, negotiate (sometimes persuasive— but not always) and make concessions where needed. Close the case with widely supported and well-formulated agreements and gain commitment for the implementation of your results. You are at the negotiation ‘table’ more for the purpose of learning what is possible rather than for the purpose of persuading others—Terry Daniel, Professor, University of Alberta.

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Fig. 13.3 Negotiation should be about building better products and services by sharing resources rather than assuming to end up with less by giving away something you already had in its entirety

Rather than dividing the pie, Parties work together to build a bigger pie!

Reiterative back-and-forth communication is often needed to reach agreement, when some interests are shared and some are opposed. Interests are the needs, capabilities and liabilities, concerns and desires that underlie a position. Work together to solve the problem. Proceed on the basis of common interests. Consider making the first offering of private information. This helps building trust. Accommodate and collaborate rather than compete and compromise: Why is this important to you? What concerns do you have? What’s the real problem? Why not this? Put yourself in your opponents’ shoes. Do not blame anybody and, instead, argue intelligently. Recognize, understand, and make explicit everyone’s viewpoints and avoid undue emotions. If necessary, allow the other side to let off steam. Never react to emotional outbursts—even consider apologizing.

13.2 What Tactics Can You Use? Negotiation is a problem-solving process in which two or more people voluntarily discuss their differences and attempt to reach a joint decision on their common concerns. It is one of the most common approaches used to make decisions and manage disputes. Invent before you judge. Invent a wide range of options—by considering various options that improve value of your negotiation outcome. Prepare openings for various such possible agreements and do not preclude other possibilities. Do not let past success get in your way. And do not assume a ‘‘fixed pie’’ (Fig. 13.3). Ask questions. For example, systematic analysis may assist your thinking for a specific negotiation by asking the following questions: What is the discussion about? When did the issue come up? What is the relevance of our discussion? Do not take what is said at face value. Pause—but be aware that you do not have to answer every question. Involve others. Listening well may be more important than speaking well—practice both!

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Fig. 13.4 Make sure that in your negotiations the sum of agreed projects and actions is more than the individual parts. Apparently successful settlements may combine elements, which are insufficiently validated for overall integrity. Such situations must be avoided as they prompt for renegotiation or even lead to business disputes and libel suits

Know how and when to terminate a meeting. Keep complete notes on all points of agreement—both parties should sign or initial. Analyze, afterwards, and in realtime iterations at the negotiation table, what happened and why.

13.3 Which Psychological Traps Must Be Avoided? Our mind sometimes plays tricks on us. Psychological traps are hardwired into our thinking process. We commonly fail to recognize them, even when falling right into them. By being aware of mind traps, we can learn to understand and compensate for them. We are psychologically biased in many bargaining situations. By being aware of these biases, we can build tests and disciplines to uncover and counter errors in thinking before they become errors in judgment. Make sure all items are covered in the final agreement (Fig. 13.4). The mind gives disproportionate weight to the first information it receives; this data ‘anchors’ subsequent thought. Always try to view the problem from different perspectives. Try alternative starting points rather than sticking with your first line of thought. Think about problems on your own before consulting others to avoid being anchored by their ideas. Seek information and opinions from many people. Preparing well before negotiating will make you less susceptible to anchoring tactics. Avoid anchoring the very people from whom you are trying to seek information and counsel. Tell them as little as possible in such cases to avoid undue bias in their assessment and advice. In seeking such advice, do not ask leading questions that invite confirming evidence. Ultimately, remember that maintaining the status quo may indeed be your best choice. You should never ‘lose’ a negotiation (Fig. 13.5). Remind yourself of your objectives and examine how they will be served by the status quo. On the other hand, never think of the status quo as your only option. Identify other options and evaluate them. Ask yourself if you would choose the status quo alternative if, in fact, it were not the status quo. Avoid exaggerating the effort or cost of switching.

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Avoid Hurting Pride Fig. 13.5 Intelligent knowledge sharing and teamwork are essential in negotiations that build from preparations to effective agreements. Never ‘‘lose’’ a negotiation by first building the relationship (step 2 in Fig. 13.2) and then subsequently destroying the gained respect by mutual misunderstanding in the persuasion stage or unexplained inflexibility in the concession stage (steps 4 and 5 in Fig. 13.2). Hurt pride is a fatal barrier for any future prospects between the negotiating parties and therefore must be avoided universally

If there are several clearly superior alternatives, do not default to the status quo simply because it is easy to choose.

13.4 Can Agreements Be Intelligent? Remind yourself that even smart choices can have bad consequences. Seek out and listen carefully to the views and arguments of people who were not involved with the earlier decisions and hence are unlikely to have a commitment to them. Examine why admitting to an earlier mistake distresses you. Remember the practical wisdom in the words of the experienced investor Warren Buffett: ‘‘When you find yourself in a hole, the best thing you can do is stop digging.’’ Consider the impact of your negotiations on the hierarchical responsibilities in your organization and determine which decision gates and which resources are relevant to support you in these negotiations (Fig. 13.6). Remind yourself of your fundamental objectives and make sure the way you frame your problem gains support in your organization. Try to reframe problems in different ways and look for distortions caused by your frames. Alternative descriptions of the negotiation challenges often give rise to different preferences. Pose solutions in a neutral way that combine gains and losses or embrace different reference points. If possible, get the statistics from your organization—do not rely on memory if you do not have to. When you do not have direct statistics,

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Fig. 13.6 Knowledge and expertise of aggregated ‘best practice’ value gives a competitive advantage in negotiations. You should highlight your strength and improve the balance between your resource needs and offering at the negotiation table. What you can give away—and must bargain for—to obtain will affect the resource allocation process in your organization. Therefore, any agreement must be supported and understood across all decision gates involved (see also Fig. 12.8). Remember that it would require huge resources to establish the expertise of your negotiation partner from scratch at grass-root level (Layer 1). Unique technology or process knowledge at level 1 may be the very reason to negotiate a deal to acquire access to the venture partner’s expertise

take apart the event and consult with the relevant departments. They should help you build up an assessment piece by piece. Document your information and reasoning so that others can understand how you arrive at your estimates and choices. Emphasize to anyone supplying information to you the need for honest input. Vary each of the estimates over a range to assess its impact on the final decision. Think twice about the more sensitive estimates. Personal knowledge prejudices not only how we collect evidence but also how we interpret it. We tend to be more critical towards arguments that disagree with our views while automatically accepting those that agree with them. What to do? Get someone you respect to play devil’s advocate, to argue against the decision you are contemplating. Be honest with yourself about your motives. Are you gathering information to make a smart choice or just looking for evidence to confirm what you think you would like to do? Always make sure you examine all evidence with equal rigor and that the implications are understood. When people recommend decisions, examine the way they frame the problem and challenge them with different frames. Each time you make a forecast or estimation, examine your assumptions so that you are not being unduly swayed by mnemonic distortions.

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Finally, your decisions and actions are needed to give intelligent direction toward your organizational goals. You must not be afraid to take decisions and avoid postponing them without good reason.

13.5 Case Study 13: Eurogas—Negotiating to Help Solve Europe’s Future Gas Supply Gap Eurogas, an international non-profit association based in Brussels, represents the European natural gas industry towards the European Union. Eurogas promotes co-operation within the gas industry and with other global players in the gas business. Over 1,400,000 km of pipeline extend across Europe. Thousands of kilometers of new pipeline inter-connections and extensions are being built or planned, to ensure a secure and reliable supply of energy. Europe, in addition to North America and the Asian Pacific region, is one of the world’s three major markets for natural gas. But rapidly growing volumes of liquefied natural gas (LNG), exported by the Middle East, Russia and North Africa provide an alternative to regional pipelines and help to globalize the market for natural gas. Physical goods such as oil and gas have still very low transport costs for bulk volumes, but the building of pipelines, storage facilities, and tankers are capital intensive projects that require decades for payback schedules. LNG terminals and jetties as well as transnational pipelines need to expand in order to meet the growing, global demand for gas. Unlike the natural gas itself, the knowledge of Eurogas partners about gas can be shared and transported almost for free, especially within their strategic alliance to develop joint policies and actions. There is almost no transportation cost to knowledge and even the cost of knowledge storage is low. Just as the nineteenth and twentieth centuries were dominated by knowledge about—and production of—coal and oil energy resources, the twenty-first century will see natural gas make its greatest contribution to meet Europe’s energy requirements. Eurogas focuses on the important challenge of attracting diversified gas supplies to Europe (Fig. 13.7) and on the measures needed to improve implementation of the EU’s liberalized gas market. Natural gas has become a very important source of energy for the European Union, currently meeting more than 24% of primary energy needs. Eurogas forecasts that this will rise to over 28% by 2020, because of the numerous advantages of natural gas as a fuel. Eurogas considers that European consumers will be best placed to enjoy the benefits gas brings in a competitive gas market, only if security of supply to the market is assured. New trends in the natural gas business, like liberalization, unbundling and competitive markets, have introduced major investment risks and the need for new skills; and gas trading emerges at a global scale. Reliance on Russian gas supplies feature centrally in Europe’s energy security for the next decade.

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Fig. 13.7 All nations compete for energy resources. Allied nations share knowledge: on the global distribution of reserves, on the potential of new technology to discover more reserves and enhance production, and on the geopolitical tensions that may influence the global energy business. Projections on currently expected gas supply in Europe (right, courtesy International Energy Agency) do not match industry estimates (left, courtesy RWE Group) of future gas demand. There is a so-called Gas Supply Gap (GSG). Eurogas needs to negotiate with all parties, foremost Russia, to help solve this GSG

Naturally, Eurogas perspectives on the long-term development of the gas market are presented in the context of wider global strategy considerations. Companies must now compete and expand vertically integrated, and they need physical assets with leverage (production facilities, storage facilities, LNG fleets, etc.) in order to have a sound basis for meeting contractual obligations in their gas deliveries. Eurogas analyzed that tough EU regulations are now almost prohibitive for growth in the European gas market. Therefore, having EU regulations on one side and competitive markets on the other side does not work well, says Eurogas: ‘‘Who will invest in infrastructure if markets are nontransparently governed?’’ An integrated and intelligent strategy planning, a coordinated negotiation process, and sound decision-making are all needed to solve the European Gas Supply Gap. Eurogas tries to co-ordinate gas business strategies toward EU policymakers and others to influence strategic decisions and negotiations such as to avoid tension between national, regional and multilateral approaches.

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13.6 Actions You Can Take… Prepare for your upcoming negotiation: Organize a role-play. Take some of your ideas generated in Chap. 7. Form three parties: the idea vendor(s), and the negotiator(s) of two competing companies that might want to buy your idea. Negotiate about all expectations, conditions, deliverables and liabilities—for mutual benefit. Before you start the negotiations, discuss your objectives and prepare what can be negotiated. Agree on tactics and skills needed and who is the lead negotiator in your team. Make sure you analyze the result of your negotiations with all involved and outline the strengths and weaknesses of your approach, including skills and methods used in the negotiation process.

13.7 Things to Think About… • Does your organization provide enough opportunity to explore new ideas by internal negotiations or among coalition partners? • Can you suggest ways to improve the situation?

13.8 Input for Corporate IQ Scorecard (See Chap. 15 and Appendix A) 1. Our senior management maintains contact with and consistently emphasizes the need to profess appropriate flexibility in accepting new work assignments to operating personnel. 2. Our performance goals are constantly moving upwards and employees respond well to this. 3. Senior management is known to expect seeing project validation plans before providing support to our actions, projects and programs. 4. The management guidelines for the bargaining zone with the aspiration range and settlement range for accepting a project are inadequate in my organization. 5. I have no real influence over decisions in our organization even though these decisions set targets that profoundly affect my professional duties. 6. Strategy develops in our organization through a process of bargaining and negotiation between groups or individuals. 7. I am unable to negotiate sufficient resources and support necessary for my professional performance in our organization. 8. I am allowed to renegotiate staffing or project scope and goals if I find that my project teams are understaffed during the course of a project.

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9. Business negotiations for new projects in our organization are supported by best practice outcomes from connected projects. 10. There is a significant probability that resources required for our projects will be re-allocated for other work. For IQ Scorecard assembly move to Gate Stops 4 and 5 Statement 1 2 3 4 5 6 7

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Input for IQ Scorecard from Chap. 13: Total True and False

Bibliography Lewicki RJ, Saunders DM, Minton JW (2000) Essentials of negotiation. McGraw-Hill, New York McCredie C, Weijermars R (2011) Gas trading—the rising power of gas traders. Petroleum Review 65(773):18–20 McCredie C, Weijermars R (2011) Gas forecasting—Russian gas key to 2020 targets. Petroleum Review 65(774):30–34 Weijermars R (2010) Value chain analysis of the natural gas industry–lessons from the US regulatory success and opportunities for Europe. J Natural Gas Sci Eng 2:86–104 Weijermars R, McCredie C (2011) Gas Gas pricing–lifting the price. Petroleum Review 65(770):14–17 Weijermars R, De Jong V, Van der Kooi K (2008) Cultural challenges in oil and gas industry management. World Oil 229(4):223–228 Williams JM, Colomb GG (2002) Craft of argument. Addison-Wesley, Reading

Chapter 14

Leading in Organizational Learning

Organizational Intelligence aims to speed up the unlocking and transfer of tacit knowledge, recognize opportunities and solve business problems faster. This intellectual capital must ensure that your new business solutions quickly reach the market, meet the client needs, and fit the desired result. Integration of all system components in your operations (products and services) requires active Organizational Learning in order to do things ‘‘deeper, broader, and faster.’’ This can be achieved by clarifying roles, responsibilities, and accountabilities within your organization. Enable Organizational Learning and Knowledge Management by stimulating collaboration among employees. Deploy the most appropriate technologies. Measure by business results and personal outcomes. Revaluate organizational relationships.

14.1 How Can You Stimulate the Development of Organizational Intelligence? Organizations like IBM have long recognized that global and strategic competition demand the most advanced approach in the development of Organizational Intelligence. Most modern business leaders now agree that Organizational Learning contributes to the development of Corporate IQ that will improve business performance. Enhancing your Organizational Intelligence demands innovative solutions and investment in the growth or development of intellectual capital (Fig. 14.1). And you need fast implementation, faster than your competitors, to stay ahead of the market. The following questions may help you in keeping Organizational Intelligence in focus:

R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_14,  Springer-Verlag London Limited 2011

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Fig. 14.1 Physical strength dominated survival techniques in our past. Survival of the fittest is now all about intellectual supremacy. Supreme communication skills and knowledge sharing have secured the winning strategies for our species. Modern network power now transfers data, information and knowledge at the speed of light. Being a leader rather than a follower at knowledge creation and innovation is what counts

• Leadership: ‘‘Is the leadership for skills and learning visible within the operational units and how can we increase its visibility?’’ • Alignment: ‘‘Are we quick enough in anticipating and capturing new skills and learning requirements based on changes in business environment and strategy?’’ • Speed: ‘‘Are we sufficiently leveraging our current investment in skills and learning and how can we improve this?’’ • Effectiveness: ‘‘Are we becoming a Learning Organization? What can we do to better leverage the experimental ‘learning’ we have in our business operations?’’ If good leadership fails, poor leadership results in overlooking everything, everywhere. Effective learning will be jeopardized and impeded. What do you think will happen to organizations under such a lack of leadership?

14.2 Can Organizational Learning Be Fun? Learning is the key to promoting human happiness and well-being. Learning is as natural and needed for human life as growing is for a plant. It is part of human nature. Given the right conditions, each person will be enabled to develop his or her innate potential (Fig. 14.2). The more we are attracted to, understand and are able and willing to work for our goals, the more likely we are to achieve them. Organizational training programs can assist learners develop goals, high resolve, sense of purpose, self-esteem, sense of personal capability and an internal locus of control. Goals give meaning to life. They direct energy towards

14.2

Can Organizational Learning Be Fun?

Fig. 14.2 Organizational Learning is inversely proportional to leadership control. Leadership remains important for vision sharing and providing boundary conditions and resources (see Chap. 5). But professionals disengage when subjected to a ‘controller’ leadership style

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Think Head Mind Truth Logic/Epistemology Truth Cognitive Domain Cognitive Psychology Reason

Feel & Heart Soul Unity Ethics/Aesthetics Beauty Affective Humanistic Compassion

Act Hand Body Justice Metaphysics Good Psychomotor Behavioral Courage

Fig. 14.3 Thinking, as a rational process, is not detached from emotional motivations. We commonly think about something because we feel some form of passion for the issue deliberated and then act after thinking about all rational elements that bear on the issue

the things valued. Each person has unique endowments, powers, responsibilities, talents, interests and capabilities based on innate, inherited and acquired characteristics for which they are ultimately responsible to develop (Fig. 14.3). Intelligent organizations help you in discovering, enjoying and actualizing your unique capacities. Thinking, or knowledge getting, is far from being the armchair thing it is often supposed to be. The reason it is not an armchair thing is that it is not an event going on exclusively

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Fig. 14.4 Climbing up the Corporate IQ scale requires the full integration of people skills, workflow, processes and technology tools. You must provide leadership and share the vision of Organizational Learning across all hierarchical layers in your organization to maintain support for building Corporate IQ and make the right decisions every time

within the cortex or cortex and vocal organs… Hands and feet, apparatus and appliances of all kinds are as much a part of it as changes within the brain—John Dewey (1916, pp. 13–14, Essays in experimental logic, University of Chicago.)

14.3 Are There Good Alternatives to Organizational Learning? The simple answer is: ‘No!’ And: ‘Why should you avoid the challenge?’ Direct your resources to act wisely with your company resources. Organizational Learning and Knowledge Management in your organization must cross the functional boundaries, engage the entire community, link to the broadest knowledge base and improve your business processes to develop Organizational Intelligence (Fig. 14.4). For individuals, Organizational Learning must be practice grounded and motivate continued participation in the learning process. Overcome the barriers to the sharing of knowledge and foster a spirit of innovation. Training is most effective when consultation, reasoning, independent investigation of the truth, meditation, parables,

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story telling, metaphors, and critical reflection are based on concurrent examples from your line of business. Ensure that Knowledge Management is aligned with specific business processes. And remember that technology best enables people when knowledge-sharing activities are embedded within familiar tools. Tacit knowledge is difficult to share. If you do not know what you are trying to manage, you cannot manage it effectively. The failure of some Knowledge Management efforts results from the absence of an explicit knowledge inventory. This inventory should list what must be known to improve each value producing activity. Creating such an inventory can be tedious and time-consuming, but mechanically it is pretty simple. For the core value-producing activities, take the understanding of how knowledge leads to value, and then list what must be known to create that value and who must know this to realize the value. Understanding how much time and effort is required to extract and verify tacit knowledge is key to estimating the cost of a structured Knowledge Management program. Understanding how explicit knowledge might be leveraged by replicating its use is key to understanding its value. When the inventory is complete, you will have explicitly identified your organization’s most valuable knowledge assets. You can then begin to manage it. You may well be surprised by realizing how much knowledge people need to do their work, and the clear ideas they have on which knowledge adds the most value. You can then begin to understand what is necessary to further develop Organizational Intelligence—your most valuable business asset. Just like trying to manage activities at a warehouse, you need a detailed understanding of what you are trying to manage in order to be able to manage it. Provide immediate, significant and on-going management support for the development of your Organizational Intelligence. Invest in tools, staff and training. Publicize major contributions and show improvements in quality, cost, and time. Keep monitoring the progress of your Organizational Learning program for a sustained period. The key questions executives have today are on whether Organizational Learning is embedded in the business strategy?—IBM, 2004.

Do not go for quick successes. Skipping steps creates the illusion of speed but never produces the desired results. Concentrate on strategic priorities and identify major clients needs.

14.4 Who Pays the Bill? ‘‘What is the economic impact of Organizational Learning? Can the connection between your cash flow and your Organizational Intelligence be demonstrated?’’ Some will argue that Organizational Learning should be evaluated using full-cycle economic criteria such as: investment, time lag, profit, and product life.

High

Net Cash Flow

Fig. 14.5 Organizational Learning adds to your corporate value aceptional capacity in real cash flow terms. Continuous improvement of performance keeps shifting the arrows away from the cash flow curve for the base case product lifecycle. The result is more net cash flow in shorter time (improved business case), meaning higher return on overall investment

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Higher Return Earlier Roll out

Extended Product Life

Less Investment

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For example, you could consider the impact that your Organizational Learning efforts will have on each of the following (Fig. 14.5): • Investment: ‘‘How will an up-to-date online Organizational Learning system reduce the cost of training new associates?’’ • Time lag: ‘‘How will access to global best practices reduce product development time?’’ • Product life: ‘‘How might a better understanding of the market help to lengthen your product life?’’ • Positive return: ‘‘How will faster dissemination of the latest technology make your operation more productive?’’ Management literature increasingly recognizes that a company’s assets as they appear on balance sheets do not represent the majority of its actual assets. The intangible assets, which normally go unmeasured and unmanaged, far outweigh the tangible assets. The concept of ‘‘intellectual capital’’ attempts to quantify the value of knowledge assets by calculating the difference between the organization’s market value and the replacement value of its hard assets. This idea has flaws (e.g. ‘‘How do you measure replacement value? What is the real market value of the organization?’’), but it points out that for almost every organization with any kind of a future, most of the value (commonly 80%) is resident in something other than hard assets: it is in your company’s intellectual capital. Intellectual capital also can be seen as Knowledge Networks with knowledge assets and professionals that understand what to do in order to optimize the company’s Organizational Intelligence. Workflow optimization is commonly required, with three aims (Fig. 14.6): (1) speeding up the workflow for decision-making, (2) mitigating uncertainty by quantifying uncertainty, risk and opportunity in the workflow, and (3) adding

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Who Pays the Bill?

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Fig. 14.6 The efficiency of workflow process remains under pressure to improve in three dimensions: X speeding up the development lifecycle, Z enhancing quality of uncertainty control, and Y optimizing the value adding capacity. The improvement of ‘best practice’ helps to move a sub-optimum solution 1 to an improved solution 2 in pursuit of the optimized solution 3

optimum value to the asset(s)—at project level and portfolio level—during the execution of the workflow. An additional challenge is the actual realization of the optimization method and the implementation of such concepts by continual Organizational Learning.

14.5 Who Leads in Organizational Learning? In theory, the asset value of your organization should rise proportionally with its Organizational IQ. Even if your organization is operating in a less sophisticated business environment, selecting the right people for the right job must lead to a better return on investment. Increased profits may be interpreted as a demonstration of high Organizational IQ. But we have to be careful to equate high profit margins with high Organizational IQs. Sustainable profits and business performance certainly come to mind as measures of Corporate IQ, especially in the light of the bad experience of investors with the bubble economy of the late twentieth century. But Harvard Business School’s Professor John Kotter thinks the qualities of leadership hinge on the following key elements:

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Industry

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Academia

Academia Industry

NGO

Government

Academia NGO

Industry

Industry

NGO

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Number of IQ Scores

Fig. 14.7 The four major societal partners need to work together in developing Organizational Intelligence by encouraging joint Organizational Learning and Knowledge Management. In each country and at a global scale, one group of organizations may dominate the learning landscape. Development of higher Planetary IQ (see Chap. 15, Fig. 15.10) will depend on the successful growth of Corporate IQ in all four categories of potential partner organizations

Industry

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Fig. 14.8 Bell curves of averaged Corporate IQs for the societal partners (industry, academia, government, NGOs) will reveal which group of organizations leads in the development of Organizational Intelligence at anyone time. Such compilations can be compared on regional, national and worldwide scales. The order shown is just an example, future IQ ratings must reveal which order exists

14.5

Who Leads in Organizational Learning?

Fig. 14.9 Governments have fiduciary plight to uphold high moral values, ensure civil rights and respect the international rules of diplomacy. The impact of neo-conservatism in doctrines like USA’s New World Order places a high priority on military intervention, and a lower priority on vision sharing with diplomatic institutions (United Nations) or economic institutions (IMF, World Bank)

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American Internationalism

Fix It yourself

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• Ability to strategize. • Ability to inspire confidence and enthusiasm. • Ability to motivate all workers. Organizational Learning clearly is no exception and needs brilliant leadership to bring out the best of any organization. There is enormous pressure on all product and services operators. Industry, academia, government, and NGOs are challenged to perform better, often with fewer resources. In such challenging times, visionary and competent leadership is key to survival. The societal partners (industry, academia, government, and NGOs) jointly face a challenge to learn together for a better positioning of their individual products and services (Fig. 14.7). You may ask whether each of the societal partners have similar bearing and impact on the promotion and development of Organizational IQ. The assessment of Corporate IQ builds onto proven Quality Assurance Systems IQ (see Chap. 15), and these are most diligently applied in industry. This leads to the expectation that the average Corporate IQ for industry will commonly be higher than that of government, academia, or NGOs (Fig. 14.8). But these latter organizations are increasingly adopting corporate business certification standards and any suggested sectarian differences in Corporate IQ ratings remain to be investigated. Again, you may ask yourself: ‘‘Do all societal partners have similar impact on the development of Organizational Intelligence?’’ For example, do governments have more power over our destiny than say industry or academia? Or does globalization mean that a handful of multinational market leaders determine what our world will look like say 25 years from now? Can academia and NGOs provide enough moral support and influence policy-making? Can they safeguard our civil rights and ensure that our moral values remain noble and just? If we listen to visionaries of our time like Francis Fukuyama, author of the ‘‘The End of History and the Last Man,’’ Superpowers bear the greatest responsibility of all to spread old world values like ‘democracy’ and ‘free trade’. Fukuyama advocates soft-diplomacy, even-handed dialog with the United Nations, demilitarization and respect for civil rights in the homeland and abroad.

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The Learning Organization YOU

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Me

Fig. 14.10 Improved Organizational Learning secures a sustainable basis for socio-economic progress. Better Corporate IQ performance in all nations is what we all should strive in order to optimize global resource utilization. NGOs encourage cross-border cooperation for development (World Bank, IMF, UN, etc.). Ultimately, your personal contributions (by you and me) to develop new knowledge and insights is what fuels Corporate IQs growth

In fact, these policies are very different from those of the neo-conservatism of former President George W. Bush, who established the doctrine of the New World Order (Fig. 14.9). The New World Order projected the USA as the Sole Superpower based on military superiority. The political agenda was dominated by first strike policies, limitations by the government on personal and civil rights—based on anti-terrorism intelligence gathering, and disregard for the international opinion about some of its more controversial foreign policies and war activities. Fukuyama expresses concern about the degree of political accountability and the fiduciary plight of the USA as a Superpower. This Executive Guide can not claim solutions for political conflicts and dilemmas. But genuine transparency of government, respectful negotiations with global partners, truly democratic decisions and accountability should be expected from all nations. The dialog led by Superpowers is dominated by unilateral decision-making styles. Russia, India and China are emergent Superpowers, whose policies and decisions will influence our future to great extent. One major concern of all these nations is energy security and the global competition for access to fossil fuels. At a national level, faster joint Organizational Learning by the societal partners leads to an improved competitive position in the global environment. At an international level, faster global Organizational Learning avoids the wasting of scarce resources (Fig. 14.10). The result would be a better world where more funds are available for new initiatives, such as preserving our planet, keeping our water clean and helping the poor.

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What Are the Societal Effects?

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Fig. 14.11 Individuals in learning organizations are knowledge workers that must be adaptive and fast-moving professionals. They must know how to avoid information overload and info-glut, while still using all knowledge resources in the decision-making process. It is our societal plight to ensure that everybody receives an education. That creates opportunities to match each person’s innate talents best to a professional niche (vocational, intellectual, or elsewhere … say politics!)

14.6 What Are the Societal Effects? In our modern, fast-moving society, organizations that cannot learn fast enough simply perish through buy-out by a smarter company, forced merger, or outright business failure. The current life expectancy of a standard & Poor 500 (S&P 500) company stands at 15 years. For generations, it stood at nearly 50 years, but the rates of take-over, mergers and bankruptcies have risen fast. The corporate winners provide us with better and more affordable products. People working in smart organizations need to be adaptive and prepared to learn with the speed their organizations require (Fig. 14.11). They should be rewarded in turn by job satisfaction and career growth opportunities. Individuals fail to catch up if there is lack of incentives and rewards. Also, poor understanding of the strategy and the role of Organizational Intelligence in the business model is detrimental to adaptive behavior. Management must keep signaling the importance of Organizational Learning. Organizational Intelligence as concept is here. So let us all enjoy it for the better. Quote from the past: ‘‘An immense and ever-increasing wealth of knowledge is scattered about the world today—knowledge that would probably suffice to solve all the mighty difficulties of our age—but it is dispersed and unorganized. We need a sort of mental clearinghouse for the mind; a depot where knowledge and ideas are received, sorted, summarized, digested, clarified and compared’’—H.G. Wells, 1940.

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14.7 Case Study 14: Exxon—Sharing Knowledge and Physical Assets While Averting Global Tension Rex W. Tillerson, President of Exxon Mobil Corporation, addressed the United States-Saudi Business Council and Center for Strategic and International Studies at Washington, DC on April 27, 2004. His words reflect well how we do business today in a global environment where governments must cooperate: ‘‘The petroleum industry is a long-term business in which risk, investment decisions, and reward or failure are evaluated over years or even decades. Yet despite this—or as some would have it, because of this—the oil market is remarkably responsive to the shifts in the balance of supply and demand.’’ ‘‘As you would expect, at ExxonMobil, we devote considerable time and attention to understanding these dynamics. And while we never lay claim to being able to predict the future, we regularly conduct a comprehensive analysis of the oil and gas business and develop a planning framework based on what we see as the outlook for energy.’’ ‘‘We project that the world’s demand for energy will reach close to 290 million oil-equivalent barrels per day by 2020—or about 40% more than today. The petroleum industry may need to add about 100 million oil-equivalent barrels per day of new supply over the next decade to meet projected demand—an amount close to 80% of today’s production levels….’’ ‘‘These potential developments inevitably raise security concerns about longerterm oil supply. Import independence is not realistic in most cases, nor is it necessary if supply risks are managed effectively. The answer to concerns about nearer-term and long-term access to petroleum resources is supply diversity.’’ ‘‘When allowed to work, the free market is exceptionally efficient as a means of communicating information between producers and consumers to the benefit of all. Fortunately, […] a growing number of forward-looking governments around the world are embracing free-enterprise economic policies and addressing their economic priorities with market solutions. Reducing or eliminating harmful economic barriers such as import tariffs, confiscatory tax schemes, quotas, price controls, and competitor restrictions are actions, which further promote confidence in the marketplace…’’ ‘‘Resource-rich host countries can encourage energy development by fostering an environment that gives access to new areas of hydrocarbon potential and encourages the large, long-term investments needed by our industry to find and develop new supplies for the United States and other consuming countries. Such an environment is based on respect for the rule of law, a stable legal framework and predictable tax structure, commitment to the principle of sanctity of contracts, an impartial court system, elimination of duties, and other fundamental safeguards that encourage business investment.’’ ‘‘Because major energy projects are often very expensive undertakings lasting for decades, establishing solid, long-term relationships is essential for all parties involved. ExxonMobil has worked to build and strengthen such relationships for

14.7

Case Study 14: Exxon—Sharing Knowledge and Physical Assets

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more than a century. And today, we conduct business in more than 200 countries and territories. Our approach is straightforward: invest in projects that take full advantage of our global capabilities and our accumulated experience in energy development as well as our substantial financial, technical, environmental, and management expertise.’’ ‘‘Safeguarding the security and stability of the world oil market must be more than a goal—it is an urgent task that demands our all. In fulfilling this mission to provide those vital supplies, the oil and gas industry will play a central role in helping to sustain economic growth. I have every confidence that together we will be equal to that responsibility.’’

14.8 Actions You Can Take… Evaluate your Organizational Learning program: Describe two bottlenecks in your Organization Learning program and suggest remedial action. Alternatively, identify which improved Knowledge Management practices could enhance the value of your business operations.

14.9 Things to Think About… • How can the cost of an Organizational Learning program be offset by, or even contribute to, your corporate net profit? • Can you list five examples of your personal understanding about Organizational Intelligence that became enhanced by reading this Executive Guide?

14.10 Input for Corporate IQ Scorecard (see Chap. 15 and Appendix A) 1. Employees support and believe our organizations’ strategy and understand their roles in executing it. 2. Our strategic planning process consists of discrete steps completed by the professionals who understand and know how to execute the organization’s strategic objectives. 3. The impact of new business ventures on our organization’s processes during development and implementation of changes is professionally communicated to us and understood at all management levels.

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4. Our management monitors the major economic drivers of our business operations. 5. Our internal business drivers relate to cost reduction and performance improvement; Externally, the message of our organization is one of value for money. 6. Lifecycle costing is rarely applied to the full asset lifetime projection such as to include the cost of facility abandonment. 7. All our staff is aware of the societal relevance of our operations and the impact of their individual contribution on our business performance. 8. Our organization has defined the roles, responsibilities, and authorities of its employees with respect to the Knowledge Management system. 9. Our organization’s performance and capabilities are regularly reviewed and translated into priorities for performance improvement and innovation. 10. Our management information systems enable the organization’s senior management team to assess their progress towards meeting goals and targets. For IQ Scorecard assembly move Statement 1 2 3 True 1 1 1 False 0 0 0

to Gate 4 1 0

Stops 5 1 0

4 and 6 0 1

5 7 1 0

8 1 0

9 1 0

10 1 0

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Input for IQ Scorecard from Chap. 14: Total True and False

Bibliography Brett F, Kessler F, Dressler D (2000) Organizational learning—the 24 keys to high performance. Frontline Group Organizational Learning division

Gate Stop 4: Emotional IQ Assessment—Effectiveness in Communicating Why the Organizations Excels

The inputs from the questionnaire statements at the end of Chaps. 11–14 can be inserted into the Emotional IQ Scorecard given below. The outcome is your individual rating of your organization’s Emotional IQ. Remember that this result is not free from individual bias. A representative response group provides a less biased basis for assessing the IQ components of your Corporate IQ. This more advanced procedure is outlined in Appendix A.

Scorecard for Emotional IQ (Take Inputs from Chaps. 11–4) The Emotional IQ Scorecard below uses your individual ratings from the questionnaire statements of Chaps. 11–14. These questionnaires sample your scores for the organization’s effectiveness in communicating why your organization excels. The internalization of dedication to sustainable development and good Corporate Governance was assessed in Chap. 11. The effectiveness and level of

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Gate Stop 4: Emotional IQ Assessment

attention for multi-resolution communication was rated in Chap. 12. The success and comprehension of the importance of intelligent negotiations and effective agreements was evaluated in Chap. 13. Finally, your upper management’s dedication to improve the company’s Corporate IQ is rated in Chap. 14. Your results can be inserted here for a review of your company’s Emotional IQ rating. The ultimate aim is to use these results to improve the weaknesses that contribute to the impairment of your overall, Corporate IQ. Areas that need attention in the targeted interventions to improve your Emotional IQ can be identified as follows: Low scores for Chaps. 11–14 (i.e. Emotional IQ\ 30): Your organization is not so good at communicating its unique strategic position in the market. This may alienate workers, shareholders and undervalues your organization’s true business potential. Return to Chaps. 11–14 and remediate the weaknesses pinpointed in your assessment. Your overall, Corporate IQ Score can be assembled at Gate Stop 5, upon completion of your IQ component scores in Gate Stops 1 to 4.

Part V

Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ

Focus Area I: Stimulate Knowledge Development—Building Experiential IQ Chapter 1: Developing Organizational IQ—A Corporate Necessity Chapter 2: Utilizing Value Chains and Knowledge Nets Chapter 3: Stimulating Organizational Learning Chapter 4: Managing Knowledge Resources â Gate Stop 1: Experiential IQ Assessment—Effectiveness in Stimulating Knowledge Development Focus Area II: Apply Knowledge Goal-Oriented—Building Contextual IQ Chapter 5: Vision Sharing and Leadership Succession Chapter 6: Building Teams—Bridging Knowledge and Culture Gaps

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Integration of Focus Areas I to IV: Estimate Your Organizational IQ

Chapter 7: Aspiring Innovation and Creativity â Gate Stop 2: Contextual IQ Assessment—Effectiveness in Applying Knowledge Goal-Oriented Focus Area III: Build the Assets—Building Componential IQ Chapter 8: Smart Decision-Making Chapter 9: Strategy Planning and Scenario Thinking Chapter 10: Optimizing Portfolio Management â Gate Stop 3: Componential IQ Assessment—Effectiveness in Building the Assets Focus Area IV: Communicate Why Your Organization Excels—Building Emotional IQ Chapter 11: Championing Sustainable Development and Corporate Governance Chapter 12: Overcoming Communication Barriers Chapter 13: Aiming for Intelligent Negotiations and Effective Agreements Chapter 14: Leading in Organizational Learning â Gate Stop 4: Emotional IQ Assessment—Effectiveness in Communicating Why the Organization Excels Integration of Focus Areas I to IV: Estimate Your Organizational IQ—Building Planetary IQ Chapter 15: Maximizing Your Organizational IQ â Gate Stop 5: Combining IQ Component Scores in an Overall Corporate IQ Score

Chapter 15

Maximizing Your Organizational IQ

Assessing your organizational or Corporate IQ to discover your deficiencies and acting to remedy these in order to enhance your business performance is intelligent. Designing an IQ assessment tool is likely to be met with criticism. But it will be extremely helpful for monitoring growth or decline in your Corporate IQ. In fact, there is a great need for an objective standard in a ready template or scorecard that uses a consistent set of logic and parameters to express and compare Corporate IQs. The IQ Scorecard introduced in this Executive Guide enables competitive comparisons and can be utilized to support the advice of business analysts. Practical guidelines for sizing up your Organizational Intelligence are given here.

15.1 What is a Good Assessment Mechanism? Smart organizations want to conclude the decision-making process with the highest possible accuracy and efficiency. And precisely the efficiency of the information aggregation process occurs within the systematic framework of Organizational Intelligence. The effectiveness of your knowledge processes can be measured only when an objective standard in a ready template (or scorecard) is provided that uses a consistent set of logic and parameters to express and compare Corporate IQs. The measure of Organizational Intelligence—elaborated in this Executive Guide—serves that need with a Corporate IQ scale, comprehensive questionnaire statements, and cumulative Scorecard. These groundbreaking tools provide a solid basis for targeted interventions to boost your Corporate IQ. The scale for Corporate IQ scores proposed in this Executive Guide (Fig. 15.1) assumes the following: companies that have performed successfully for one or more decades have done so on the basis of skillful application of their Organizational Learning and Knowledge Management strategies. The median Corporate IQs for their collective Organizational Intelligence may therefore be equated to a R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5_15,  Springer-Verlag London Limited 2011

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Fig. 15.1 Corporate IQ scale proposed in this Executive Guide. Rating is based on input from the IQ questionnaire statements and the cumulative Corporate IQ Scorecard in Gate Stop 5 (see pp. 261–263)

Maximizing Your Organizational IQ

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Value Adding Capacity

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numeric fair value of 100. Organizations that rank as corporate winners and out-performers do so on the basis of a corporate brain that is well above median. Their IQ levels may therefore range from Advanced Experimentation to Genius Corporate IQ of 140. Proposing an IQ scale is one thing, but defining the IQ assessment criteria, in fact, is what truly calibrates the scale. For example, you may seek answers to the following questions: ‘‘How do people work together? What incentives are there to motivate people? Is there an overall culture in which knowledge sharing is facilitated? Are there ways to channel, select and capture the communication output?’’ Any evaluation of your Organizational Intelligence should pay attention to: • • • • •

Calibrating the IQ scale. Definition of the IQ assessment criteria. Determination of their relative importance. Reporting the results in a ‘snapshot’ profile or IQ Scorecard. Recommendations for targeted intervention.

15.2 Which Key Areas Should You Focus On? The major themes that are important for Corporate IQ acquisition have been covered in the chapters of this Executive Guide. A comprehensive assessment of your Organizational Intelligence takes into account all these themes and the actions that accelerate Organizational Learning. Where corporate learning and

15.2

Which Key Areas Should You Focus On?

Responsibility Layer 5 Corporate Governance

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Quality Assurance Governance Rules, SOX, SEC, ISO 14001

Chief Executives

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Accountancy Rules, Reserves Estimates (GAAP)

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ISO9001, EFQM, OFGEM’s ARM, PAS 55, HSE

Layer 2 Functional Unit

Six Sigma, Lean, TQM, Software Certification

Program Managers

Layer 1 Specialist Unit Project Managers & Engineers

Skills & Competency Certification (Balanced Score Cards, EVM, PEO, PMI, SUMMIT, Prince)

Fig. 15.2 Well-established quality assurance (QA) systems exist for each corporate layer and area of business responsibility. The IQ questionnaire statements used in this Executive Guide for assessing your Corporate IQ are based on these existing QA systems. The IQ assessment is designed to test vertical integration of the knowledge aggregation processes in your organization (see also Figs. 2.5, and 2.6)

knowledge are not managed or renewed effectively, positive growth of your Organizational Intelligence is endangered. The assessment of your Corporate IQ in this Executive Guide builds onto proven Quality Assurance (QA) systems (Fig. 15.2). Such systems exist for each layer of the hierarchical learning and development pyramid. CEOs, Business Managers, Asset Managers, Program Managers, and Project Managers each are subject to certain QA benchmarking, often on a periodic basis. As organizations become more complex, they are subject to numerous regulatory assessments. The Corporate IQ assessment advocated here is no replacement for such specialized QA systems and recognizes their merits. Rather, one purpose of the Corporate IQ test is to reveal weaknesses in the vertical interconnectedness between, and integration of, specialized QA systems. The questionnaire statements at the end of the preceding chapters have assessed how well your organization performs in four specific focus areas which jointly reflect the intelligence of your corporate brain: Organizational Intelligence. Performance is measured in terms of your Corporate IQ and ability to (Fig. 15.3): 1. Stimulate knowledge development and exchange (Chaps. 1–4), 2. Apply this knowledge in a goal-oriented fashion (Chaps. 5–7),

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Fig. 15.3 Four Focus areas of Corporate IQ performance correspond to cognitive and social abilities distinguished in personal IQ test as shown here. Each of these focus areas are scored in the cumulative IQ Scorecard in Gate Stop 5 (see pp. 261–263)

3. Use this knowledge to build successful business assets (Chaps. 8–10), and 4. Communicate to all how and why specifically your organization excels in this business—and therefore should be responsible for developing these assets (Chaps. 11–14). In fact, three of these four IQ performance focus areas correspond to those distinguished in Personal IQ tests: 1. Stimulating knowledge exchange is the Experiential IQ aptitude, which focuses on creative processes, 2. Goal-oriented application of this knowledge is the Contextual IQ aptitude, focusing on practical processes, 3. Building the business assets with this knowledge is the Componential IQ focusing on analytical processes, 4. Communicating such as to make everybody understand why you are unique is not covered in personal IQ tests, but corresponds closely to the Emotional IQ or EQ factor.

15.2

Which Key Areas Should You Focus On?

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Smart individuals prefer to work in high IQ organizations

Fig. 15.4 Most high IQ individuals thrive in high IQ organizations and shun low IQ environments. But concluding that having high IQ individuals in your organization automatically leads to high Corporate IQ scores is wrong. In fact, the ability to successfully cooperate in teams is key in achieving deeper, broader, and faster knowledge exchange. ‘Star’ teams face their own interpersonal challenges. Experienced team workers know that teams composed of professionals of highly diverse focus (i.e. practical, creative, investigative, controlling etc.) are the most successful

The Scorecard for Corporate IQ assessments at the end of this chapter uses input from the questionnaire statements that have been included at the end of previous chapters under the section ‘Input for Corporate IQ Scorecard’. These statements provide a broad and balanced basis for your Corporate IQ assessment. In order to minimize individual bias, it is very important to collect a representative number of individual assessments so that the responses can be aggregated into statistically representative Corporate IQ scores (see Appendix A).

15.3 How Does Individual IQ Relate to the Building of Corporate IQ? An important point to address is that a team of high IQ individuals working together not necessarily contributes to a high Organizational IQ score. Their effective interaction hinges on the quality of the team focus, communication skills, and collective bargaining power in the larger business environment. Also, high IQ individuals commonly find ways to work rapidly around problems in low IQ organizations and this tends to lead to islands of tacit knowledge or only partially uncovered explicit knowledge. Smart individuals surely prefer to work in high IQ organizations (Fig. 15.4) and will join your smarter competitors if your Corporate IQ shows no aptitude to learn and improve. Positive IQ growth can be achieved by the critical appraisal of your

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140 IQ growth

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High 120 100

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75 50 25

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Fig. 15.5 Periodic assessment of your Corporate IQ allows you to track its temporal changes (growth, decline or steady-state). Such periodic monitoring provides early warning for negative impact and threats to your Corporate IQ development program (Organizational Learning)

Corporate IQ and by the formulation of targeted interventions. Periodic review of your Corporate IQ enhancement program is essential and worthwhile—something you cannot afford to skip. This Executive Guide arms you with a practical tool to support you in achieving your Corporate IQ targets. It also helps in the retention and attraction of smart, effective and motivated workers.

15.4 How Can Growth or Decline in Corporate IQ be Recognized? The periodic assessment of Corporate IQ enables you to recognize temporal changes in Organizational Intelligence. The basic trends are growth, decline, steady-state or oscillation in Corporate IQ over time (Fig. 15.5). Of all key issues, corruption of corporate governance has the most detrimental effect on the Corporate IQ. The Sarbanes-Oxley principles should be closely followed. The demise of major corporations at the turn of the millennium (e.g. Enron, Arthur Anderson and WorldCom) has clearly demonstrated the lethal effect of poor governance. Certain events, misjudgements, cover-ups and fraud may result in a catastrophic decline of Corporate IQ (Fig. 15.6). The imminent consequence is business failure. The lesson is that management efforts should not only focus on operational efficiency, but also on all the processes required to maintain and develop Organizational Intelligence and Learning to morph the company into new business opportunities without disruptive paradigm shifts.

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Fig. 15.6 Catastrophic IQ decline may occur when corporate knowledge is falsified or frauded. Immediate restoration of integrity in the organizational learning process and knowledge management system is needed to prevent total collapse of your organization

Fig. 15.7 Climbing up to Corporate IQ scale means enhanced value-adding capacity. The terms used here are ‘slang’ synonyms for those used in Fig. 15.1. Ignorance leads to (or is) Deep Guano and Genius corresponds to Nirvana

Celebrate Success! • Nirvana

140

• Flying High • Looking Good • OK, But . . . • Getting Better • Serious Concerns • Deep Guano

0

15.5 Why Evaluate Your Organizational Intelligence? The outcome of your IQ assessment may help to improve organizational knowledge-based processes. It provides data and incentives for the improvement of your Corporate IQ by targeted interventions. Your assessment is a sure opportunity to promote Organizational Learning in your organization. It can accelerate the use and sharing of knowledge for strategic advantage. Modern business development is all about achieving a Corporate IQ higher and faster than your nearest competitors (Fig. 15.7). You want to come out well in the Corporate IQ assessment procedure. Failure to do so leads to flagging business performance. Deep Guano is for dummies and Nirvana for smarties. Low Corporate IQ companies must learn rapidly to become smarter than their competitors before long. Failure to achieve a Corporate IQ above median implies a lagging

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Check

Periodic IQ Reviews

Fig. 15.8 The outcome of the IQ assessment (1) provides diagnostics (2) for improvement in targeted interventions (3) that enhance the organizational learning capacity (4). Periodic IQ assessments will reveal whether the targeted interventions were effective and thus lead to positive growth of the Corporate IQ.

performance. This also will translate to slower value-adding capacity and leads to a less competitive business position. The IQ appraisal will predictably bring to the surface that your organization’s single most valuable asset is the workforce. Learning organizations pay attention to the tracking of employees’ skills and competencies, facilitate performance reviews, deliver training, provide up-to-date company information, manage benefits, and improve employee knowledge and morale. The cumulative score of the set of questions for each chapter is inserted into the Scorecard of Gate Stop 5. The overall IQ score is the weighted average of the 14 chapter scores. An equal weight is given to all input criteria for simplicity. Naturally, scoring high for Knowledge Management and low for Vision Sharing is not ideal for leveling out at a median Corporate IQ. Clearly, the cumulative IQ Scorecard will reveal strengths and weaknesses at a glance. It is therefore effective to supplement this Scorecard method for estimating Corporate IQ with a workshop to formulate the recommendations for targeted interventions (Fig. 15.8). These interventions are specific actions aimed at enhancing your Organizational Learning capacity and thus improve your Corporate IQ (Fig. 15.9). Examples of targeted interventions are: • Remove obstructions to knowledge access or transfer, and stimulate professional communication and the sharing of information. • Strengthen certain knowledge and competency areas to position your organization better in the market place. • Provide support for Organizational Learning and implement an Organizational Learning System.

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Fig. 15.9 The purpose of your Corporate IQ assessment program is to maximize growth of your Corporate IQ. Your periodic IQ assessment and the associated targeted interventions should pay off in terms of higher IQ score. That translates to higher value-adding capacity

• Ensure that your corporate goals are know to every employee and that your business vision is shared and supported by all echelons. • Build a mechanism to encourage innovation of your Organizational Learning program. • Provide for early warning systems and low-threshold whistle blowing for infringements of good corporate governance and fraud. • Have a sustainability policy in place, which everybody knows and incorporates into a set of shared values. Encourage and provide professional support, including rewards in the annual performance review system, for individuals that participate in Communities of Practice.

15.6 What is Planetary IQ? Our planet will continue to evolve, but our Planetary IQ will determine what place our descendants will live in (Fig. 15.10). Here, Planetary IQ is defined as the globally aggregated measure of our Organizational Intelligence. It is the arithmetic average of a representative population of Corporate IQs at anyone time. Threats to the growth of our Planetary IQ are:

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Fig. 15.10 The higher aim of developing enhanced Corporate IQ is to end up with higher scores for all societal organizations (industry, academia, government, and NGOs) and in all regions and nations. Ultimately, that aggregates into Corporate IQ growth for the entire planet. A planet managed by its inhabitants with high Planetary IQ is a world where inhabitants make intelligent and sustainable use of their natural resources and with respect for all species in the ecosystem

• Geopolitical: Geopolitical tension and war may lead to the enhancement of some business operations but mostly cause massive collapse in war torn areas as local business failure spreads, communication is impeded, and knowledge is lost. • Strategic: Strategic embargo’s lead to deprival of state-of-the-art knowledge and technology in the embargo countries. Innovation is partly encouraged but mostly as an inferior solution constrained by the lack of access to substrate ingredients, technology and knowledge. • Natural hazards: Geo hazards (earthquakes, tsunamis, volcanic explosions, meteoritic impacts, landslides, floods), epidemics and pests lead to instant disruption of the regional framework for effective communication between people and businesses and loss of knowledge repositories. • Sustainability problems: Overpopulation, depletion of natural resources, and pollution of our environment triggers innovative solutions but may reach or overrun the limits of our planetary resources and natural recovery systems. • Corporate governance: Corruption of good governance in nations, regions and organizations is lethal to the development of Organizational Intelligence. Violations and fraud in corporate governance commonly result in catastrophic decline of Corporate IQ and, if persisting or prevailing on the scale of regions and nations, will contribute to the temporal decline of our Planetary IQ.

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What is Planetary IQ?

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Fig. 15.11 Portrait and quotation of Dutch humanist and philosopher Erasmus of Rotterdam

“If we want truth, every man ought to be free to say what he thinks without fear. If advocates on one side are to be rewarded with miters, and the advocates on the other with rope or stake, truth will not be heard.” - Desiderius Erasmus, December 6, 1520.

• Extremism: Terrorism, fanatic nationalism, and religious fundamentalism all have organizational networks characterized by extreme manifestation of groupthink (see Chap. 8). Their actions are disruptive to our Planetary IQ growth, as knowledge flow is shrouded in secrecy and the rule of law is violated on the basis of ideologies that have abandoned some - if not all forms - of transparent and faithful communication. It may take us well into the first half of the third Millennium before we have overcome the major setbacks (among others geopolitical tension, sustainability problems, and extremism) that threaten to corrupt our Planetary IQ. And the relationship between individual Corporate IQs and our overall, Planetary IQ is a delicate and precious one: even in a stable world, without war and other catastrophes, individual leaders—and the professionals that support them—face a daunting task in creating smarter organizations to help build a better world. Leaders who enjoy staying competitive in a fast-moving world may find this Executive Guide indispensable. Compliance with sustainable development rules, corporate governance principles, and to act as intelligent organizations are essential for sustainable corporate success. Let us hope that we will be able to overcome the fore mentioned recurrent impediments to our Planetary IQ growth. Our society and environment are both served with the highest possible Organizational Intelligence of all stakeholders in Earth’s sustainable development. In fact, it is our plight as individuals to accept our responsibility to contribute to the development of Corporate IQ where possible. Only then can our Planetary IQ evolve in the right direction. The Planetary IQ ideology here provided by the Organizational Intelligence framework is not in competition with religion or theological viewpoints. God or a supernatural power has given us our planet, and thus provided us with a home for our ancestors and ourselves. Now it is upto us to make the right decisions (Fig. 15.11) for making the best and the most out of it, for ourselves and for future generations.

258 Table 15.1 Selected operators in the upstream Oil & Gas Business

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NOCs ‘State Oils’ and Natural Gas Operators

PPPs ‘Transitional Oils’

IOCs ‘Private Oils’ and Service Companies

Aramco Petronas Pertamina Staatsolie PDVSA Gasunie

Statoil ENI OMV Petrobras ONGC Gazprom

Exxon Chevron Shell BP Baker Hughes Schlumberger

Books, Literature, and Writing—‘‘Books are the quietest and most constant of friends; they are the most accessible and wisest of counselors, and the most patient of teachers’’ —Charles Eliot When you sell a man a book, you don’t sell him 12 ounces of paper and glue, you sell him a whole new life—Christopher Morley

15.7 Case Study 15: Corporate IQ Tests in Energy Business The Corporate IQ test developed for this book has been completed by several groups of petroleum engineers that attended the executive Master of Petroleum Business Engineering program developed by Delft University of Technology. Additional IQ scores were sampled while conducting a major change management program at a Dutch natural gas transmission operator, preparing for a strategy shift toward internationalization. All data were collected over the period 2007–2009. To protect the identity of the respondee companies, Table 15.1 provides a peer group panel. The results of the IQ test are summarized for the peer groups in Fig. 15.12. The test results confirm the general notion: the building of enhanced Corporate IQ by organizational learning has now been taken up successfully by several former national oil companies (NOCs) that have moved toward internationalization (e.g., Statoil, ENI, OMV, etc.). Privatization of over a dozen NOCs in the past decade has created an emergent, third major group of oil and gas players: Public-PrivatePartnership oil companies (or PPP Oils, see Table 15.1). The PPP Oils have rapidly learned to take on more risk, and developed entrepreneurial strategies that in the past kept the business tactics of Private Oils and State Oils distinctly apart. Moving from NOC to IOC (International Oil Company) status means such companies enter into a much more competitive business climate. IOCs are smart to respond to changes in the business environment, and have become agile as they have no protective legislation and monopolistic rights such as the NOCs enjoy. Privatization means more risk exposure and more organizational intelligence is needed in order to survive under faster competition.

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Case Study 15: Corporate IQ Tests in Energy Business

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Fig. 15.12 Corporate IQ scores for peer group panel. Number of respondents are: NOCs (30), PPP Oils (7), and IOCs (4)

Most PPP oils did not voluntarily privatize and internationalize, but were forced to take on more risk when easy oil reserves started to dwindle in their home countries (e.g. Statoil, OMV, and ENI). This required such former NOCs to develop entrepreneurial strategies, previously only championed by IOCs. By mastering the technology and the strategy viewpoints of both sides (i.e., of NOCs and IOCs), PPP Oils have steadily gained in competitive power. This applies to emergent PPP oils that completed their transition from NOCs over the past decade, but they have been preceded by many former NOCs (such as Total, Repsol, YPF, PetroCanada, BP) that followed the evolutionary path via PPP oil status and subsequently transformed into fully privatized IOCs. The proactive development of in-house knowledge featured at the core of all of these emergent PPP oils; knowledge development by organizational learning brought them the skills and competencies required for their new competitive business roles. In-house knowledge development develops hand-in-hand with the broader international outlook of such former NOCs.

15.8 Actions You Can Take… Assess your Corporate IQ: In Chap. 1, you made an attempt to rate your organization’s IQ numerically by simply estimating it intuitively on a scale of 1–140. Compare the outcome of your intuitive IQ rating with your formal Corporate IQ rating based on completion of the questionnaire aggregated in Gate Stop 5 (see

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pp. 261–263). Study Appendix A and plan an annual IQ assessment for your organization. Suggest a time path for acquiring improved Organizational Intelligence and list specific actions to realize your Organizational IQ target. Develop your vision on Planetary IQ: Decide whether you support the contention that development of Corporate IQ may boost our Planetary IQ. What can your company contribute?

15.9 Things to Think About… • Do you think your company’s Organizational Intelligence is adequate? • What, if any, are the review or assessment procedures in your organization to monitor the Corporate IQ? • Has there been growth or decline in your Organizational Intelligence over the past three years? • Can you identify the actions that have led to the largest net change (i.e., either decrease or increase) in your Corporate IQ? • Does independent quality evaluation of your Organizational Learning programs indicate that these programs are effective and achieving results? • How many colleagues in your organization are aware that Organizational Intelligence is a key business driver?

Bibliography Berkhout AJ, Bos CFM, Currie PK, Weijermars R (2008) Executive Education for Oil and Gas Professionals. SPE Talent & Technology 2(1):6–9 Bos CFM, Berkhout AJ, Currie PK, Weijermars R (2010) Intelligent Energy concepts in executive education for Oil & Gas professionals. SPE Paper 127911 Eysenck HJ (1971) The IQ argument: race, intelligence, and education. Library Press Fraser S (1995) The bell curve wars: race basic books intelligence, and the future of america. Basic Books, New York Gardner H (1983) Frames of mind: the theory of multiple intelligences. Basic Books, New York Goleman D (1985) Emotional intelligence. Bantam, New York Herrnstein RJ, Murray C (1994) The bell curve: intelligence and class structure in American life. Free Press, New York Kline P (1991) Intelligence: the psychometric view. Routledge, London Sternberg RJ (1985) Beyond IQ: a triarchic theory of human intelligence. Cambridge University Press, Cambridge Weijermars R (2011) Moving the Energy Business from Smart to Genius by Building Corporate IQ. SPE Economics & Management 3(3) SPE-EM_144490

Gate Stop 5: Combining IQ Component Scores into an Overall Corporate IQ Score

The inputs from the questionnaire statements of Chaps. 1–14 can be inserted into the cumulative IQ Scorecard given below. The outcome is your individual rating of your organization’s Corporate or Organizational IQ. Remember that this result is not free from individual bias. A representative response group provides a less biased basis for assessing your Corporate IQ. This more advanced procedure is outlined in Appendix A.

Cumulative Scorecard for Corporate IQ (Take Inputs of Gate Stops 1–4) The Corporate IQ Scorecard below uses your individual ratings from the questionnaire statements of Chaps. 1–14 . Your results can be inserted here for an overall assessment.

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Your overall Corporate IQ Score can be qualified as follows: 0 to 20: Ignorance 20 to 30: Awareness 30 to 60: Basic Understanding 60 to 90: Practical Knowledge 90 to 110: Skilful Application 110 to 130: Advanced Experimentation 130 to 140: Genius The ultimate aim is to use these results to improve the weaknesses that impair your Corporate IQ. Red flags for areas that need attention in the targeted interventions to improve your Corporate IQ can be grouped as follows: • Low scores for Chaps. 1–14 (i.e. Experiential IQ \ 30): Your organization does not effectively stimulate the development of new knowledge and puts too little effort in Knowledge Management and Organizational Learning. Henceforth your organization does not benefit optimally from its knowledge potential. Targeted intervention will boost your Corporate IQ. Return to Chaps. 1–4 and remediate the weaknesses pinpointed in your assessment. • Low scores for Chaps. 5–7 (i.e. Contextual IQ \ 20): Your organization’s vision of goal-oriented knowledge development is poorly supported. The company’s focus on team building and leadership succession is weak. Your organization is poor at innovation. Return to Chaps. 5–7 and remedy the weaknesses pinpointed in your assessment. • Low scores for Chaps. 8–10 (i.e. Componential IQ\20): The business culture in your organization does not revolve about optimizing knowledge transfer and decision-making targets for the benefit of the business. Your organization is poor at Scenario Thinking, Strategy Planning, and/or Portfolio Management. This indicates a low capacity for sustainable value adding and asset building may be suboptimal in your organization. Return to Chaps. 8–10 and remediate the weaknesses pinpointed in your assessment. • Low scores for Chaps. 11–14 (i.e. Emotional IQ \ 30): Your organization is not so good at communicating its unique strategic position in the market. This may alienate workers, shareholders and undervalues your organization’s true business potential. Return to Chaps. 11–14 and remediate the weaknesses pinpointed in your assessment. For a graphic display of your Corporate IQ strengths and weaknesses you may color code your results on the palette of Fig. GS5-1. Color coding (green for high scores, red for low scores) quickly reveals where the strengths and weaknesses lie in your organization (preferably based on a representative response group for the questionnaire statements.) The red zones in the graph can be a powerful incentive to substantiate certain weaknesses in your Corporate IQ that need targeted intervention for remediation. Such interventions are best formulated and followed up by an expert review team (as explained in Appendix A). The conceptual foundation of Corporate IQ assessments and need for future indepth studies have been outlined in this Executive Guide. Periodic IQ tests and targeted interventions are necessary not only for building Organizational • • • • • • •

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Fig. GS5-1 Organizational Intelligence can be measured using the questionnaire statements provided at the end of each Chapter in this Executive Guide and is scored in the cumulative IQ Scorecard of Gate Stop 5. Key skills, competencies and processes involved are included on this view graph. Color coding (green for high scores, red for low scores) quickly reveals the strengths and weaknesses in your company’s Organizational IQ (based on the questionnaire statements.) Can you identify your company’s most relevant improvement topics?

Intelligence in your company, but also for the future optimization of our Planetary IQ (as defined in Chap. 15). Building forward on the need to develop Corporate IQ as demonstrated in the Case Studies, this Executive Guide advocates national and international comparisons of aggregated Corporate IQs for a range of organizations (Industry, Academia, Public Services, and NGOs). Emperical data still need to be gathered—and some questions in the questionnaire may need revision when the need arises—but the foundation for Corporate IQ assessments as a basis for Planetary IQ aggregation is laid out in this work.

Appendix A Procedure for Assessment of Your Corporate IQ

This appendix provides a practical description of the Corporate IQ assessment procedure connected to the questionnaire statements that measure your Corporate IQ. This procedure also outlines the necessity to involve a representative response group in a dedicated review process. Upon completion of each IQ assessment cycle, the assigned IQ review team should formulate targeted interventions and be provided with support and resources to implement these interventions successfully.

A.1 Corporate IQ Assessment Procedure IQ assessment tools identify certain current states as a baseline to formulate specific improvement efforts in your organization. The present approach for tracking Corporate IQ growth is based on an integrated philosophy as explained in this Executive Guide. Concise instructions on the sampling tools and methods are given here. In any IQ assessment procedure the crucial steps are: • • • •

Formulation of the questionnaire statements (Sect. A.2). Selection of the review team (Sect. A.3). Determination of the business units and the response group (Sect. A.4). Administering the questionnaire statements, statistical testing and plotting the bell curve (Sect. A.5). • Formulation of the targeted interventions and periodic repeats of the Corporate IQ assessment (Sect. A.6). • Comparison to previous results (Sect. A.7). These steps are outlined below. Section A.8 briefly highlights the bell curve mathematics that underlies the central limit theorem for frequency distributions of the response group’s output. R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5,  Springer-Verlag London Limited 2011

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A.2 Questionnaire Statements The questionnaire that serves as a basis for the IQ Scorecard in this Executive Guide is comprised of 140 questions. These questions probe whether managers understand the skills and competencies required for effective Organizational Learning and whether they see bottlenecks in their companies that could slow down Organizational Learning. The Corporate IQ test measures to which degree your organization knows: • How to stimulate creative knowledge exchanges. • How to apply this knowledge in a goal-oriented fashion to improve business and decision-making processes. • How to translate this knowledge into tangible business assets and in tune with opportunities offered by the changing business environment. • How to communicate the organization’s unique capacities and corporate values. The test is modeled on questions used in proven certification methods (SarbanesOxley Governance rules, SEC guidelines, GAAP accountancy rules, ISO 9001, ISO 14001, ISO 17799, OHSAS 18001, EFQM, OFGEM’s ARM, PAS 55, Six Sigma, Lean, TQM, Balanced Score Cards, EVM, PEO, PMI, SUMMIT and Prince).

A.3 The Review Team Starting a Corporate IQ review in a particular organization must be the responsibility of the management of that organization. The concept of Organizational Intelligence presented in this Executive Guide is generic and strategic and becomes specific when applied in your organization with its particular management vision, company procedures, culture, resources and competitive situation. The management (e.g., CEO and Board of Governors) should appoint the review team. An external consultant with experience in Corporate IQ testing can assist the management team in the formation of the Corporate IQ review team. The Corporate IQ test developed here has been adopted by Alboran Energy Consultants, who can facilitate your IQ assessment (for details see http://Alboran.com). The coach can assist the management in selecting three to five company professionals to form the review team. Team members could be: the Chief Knowledge Officer, Head of Human Resources, Chief Strategy Officer, Head of Research & Product Development and the Head of Marketing & Communication. The review team sets out the time path for the IQ assessment, determines the sample units and response group(s), and oversees the IQ assessment as a team of auditors. They review the IQ test results and, most importantly, formulate the targeted interventions that should boost the Organizational Intelligence. Their aim is to establish periodic IQ assessments, for example on an annual basis, which allows the review team to monitor the temporal development of Corporate IQ.

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A.4 The Sample Units and Response Group The individual persons who will be part of the response group(s) must be a representative part of a business hierarchy. As the processes that connect people are nested or concatenated, averages of their test results allow comparison of organizational IQ results between business units within the same organization. Therefore, it is practical to first determine the smallest functional business unit suitable for the IQ assessment. The procedural description given below is suitable for the IQ assessment of an entire organization or parts of it. The determination of the sample units and response group in any type of organization (company, government agency, NGO) can use the template provided in Fig. A.1. The value network in your organization is comprised of a central Board of Governors and Central Services, which support a variety of Business units and/or Departments. The review team is selected from the central Board of Governors and the Central Services. The review team first decides which business entities are sampled in the response group that receives the questionnaire statements. For example, they may decide to sample all departments in the organization. However, the IQ assessment process needs to remain manageable. The individuals selected to participate in the questionnaire statement are termed here the response group. Their input for the IQ Scorecard should represent a fair cross-section of the organization’s value network. The questionnaire is best administered to include five individuals of each value network cluster. That means, five members of the management team, five departmental managers, five project managers or individual experts, five support staff heads (Fig. A.1). They are all asked to complete the questionnaire statements.

A.5 Administering Questionnaire The IQ questionnaire should be provided in a practical format (Fig. A.2), which can be completed in a minimum of time. In order to get the proper focus in the response group a concise workshop is advisable, so everyone understands the context of the IQ test. This will also improve acceptance of the outcome and builds support for any necessary remediation’s afterwards. The results of all individual IQ tests are incorporated into a frequency plot of the individual Corporate IQ scores (Fig. A.3). The supporting histograms provide a sound basis for the interpretations and targeted interventions formulated by the review team. A growing database can thus be made available at the central website to build a database for organizational IQ scores.

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Fig. A.1 The review team is composed of a chairman chosen from the Board of Governors and five senior managers of central services. The response groups are selected from Layers 1 to 5 as indicated

A.6 Formulating Targeted Interventions and Periodic Assessments The review team is provided with the IQ Scorecards, histograms of IQ score per response group unit. The team members, top managers themselves, are responsible for overseeing the integrity of the IQ assessment. They also are responsible for formulating targeted interventions to further the development of their Organizational Intelligence. Implementing the suggested interventions is also their concern, after approval by the CEO, who is not a regular member of the review team. The periodic assessment of your company’s IQ allows the tracking or temporal plotting of Corporate IQ development (growth, steady or decline) as outlined in Chap. 15. Targeted interventions make this assessment a powerful tool for IQ improvement. Monitoring your targeted interventions helps to implement the necessary changes.

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Fig. A.2 Screenshot of Corporate IQ scorecard as developed by Alboran Energy Strategy Consultants. This is a dynamic template that shows outcomes of underlying questionnaire, and aggregates the results of the response group into frequency plot of Fig. A.3

A.7 Comparison to Previous Work The IQ Scorecard, questionnaire and assessment procedure advocated in this Executive Guide aims to be better, faster and cheaper than any previous tools for assessing organizational IQ. Clear instructions for the assessment procedure make this assessment tool more practical and more comprehensive. The targeted interventions based on a fundamental understanding of the concept of Corporate IQ make this assessment tool also more reliable and efficient. Any IQ questionnaire must stand up to: • Reliability: The ability of a test to yield nearly the same score when the same organizations are tested or when repeated on the same test or an alternative form of the test. • Validity: The ability of a test to measure what it is intended to measure. Test items that are valid in one cultural context may lose their validity in a different context. Intelligence tests must undergo continuous revision to maintain their validity. • Standardization: Establishing norms for comparing the scores of organizations, which will take a test in the future.

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Fig. A.3 Frequency plot of Corporate IQ spread. Such graphs could be made available for different response groups

This Executive Guide lays the foundation for further Corporate IQ assessments and future in-depth studies. If such research includes a provision for repeated assessment, then the effect of periodic IQ tests and targeted interventions on the development of Organizational Intelligence can be monitored and studied. The method for assessing Corporate IQ presented in this Executive Guide is unique in its approach, but builds onto the trends, concepts and needs set forth in previous work. For example, Thomas Koulopoulos distinguished between higher and lower IQ companies in ‘‘Corporate Instinct’’ of 1997. His Delphi Group has surveyed the Corporate IQ of 350 companies. The results showed that high IQ organizations focus on innovation, external responsiveness, adapt to changes and encourage learning and process innovation by employees. There has been no follow up to track temporal changes in Corporate IQ. ‘‘Survival of the Smartest’’ by Mendelson and Ziegler (1999) included an assessment tool of an organization’s future health, which they call organizational IQ. The assessment has been applied to 164 organizations worldwide in a McKinsey & Company sponsored study. But there has been no attempt to continue this work into an extended effort to track changes in organizational IQ. Matheson and Matheson (2001) used an ‘‘Organizational IQ Indicator Scoresheet’’ and accumulated about 1,000 responses from individuals in several hundred organizations. This work is an extension of their study in ‘‘The Smart Organization’’ of 1998. These results are interesting but mixing several hundred organizations with a total of only 1,000 respondees means it is impossible to determine the precise reflection of the scoresheets on individual organizations. Underwood (2004) presents the results of a study of 15 global competitors and determined that high-corporate-IQ companies consistently ranked among the top performers of their industries. Likewise, low-IQ companies ranked at the bottom of their industries. Underwood describes Corporate IQ as the interrelationship between a firm’s strategy, organization, character, and competitors.

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Fig. A.4 Standard normal ‘‘bell’’ curve plot (l = 0 and r = 1)

A.8 Bell Curve Mathematics The distribution of independent random observations of specific variables commonly takes on a normal distribution as the number of observations becomes large. The central limit theorem states that any set of variables has a distribution with a finite mean and variance that tends to the normal distribution. While statisticians and mathematicians uniformly use the term ‘‘normal distribution’’ for this distribution, physicists sometimes call it a Gaussian distribution and, because of its curved flaring shape, social scientists refer to it as the ‘‘bell curve.’’ The bell curve (Fig. A.4) can be graphed using the following normal probability function f(x): 1 1 xl 2 f ðxÞ ¼ pffiffiffiffiffiffi e 2 ð r Þ r 2p The parameters used in X and Y space coordinates are: e, the transcendental number 2.71828…, p, the more familiar, but also transcendental number 3.14159…, l, the mean score on the X-axis, and r, the standard deviation, which becomes the variance r2 when squared. The bell curve formula serves to normalize the probability function such that the total area under the curve represents 100% certainty (probability is unity or 1) that the measurements are somewhere on the curve. The height of the curve represents the probability of the measurement density at that given distance away from the mean. Technically, this is the standard normal curve which has l at the origin (l = 0 and r = 1). Other applications of the normal curve are not

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Appendix A: Procedure for Assessment of Your Corporate IQ

Fig. A.5 Bell curve plot of IQ spread (l = 100 and r = 15)

symmetric about the Y-axis but shift the peak of the bell-curve away from the origin by choosing l larger than zero (l [ 0). For example, IQ plots fix l at 100 and r at 15 curve (Fig. A.5). For a normally distributed data set, the empirical rule states that 68% of the data elements are within one standard deviation of the mean, and 95% are within two standard deviations. Graphically, this corresponds to the area under the curve as shown in Fig. A.3 for 1 and 2 standard deviations. The empirical rule is that 95% of the data falls within two standard deviations of the mean.

References Koulopoulos T, Spinello RA, Forms W (1997) Corporate instinct. Wiley, New York Matheson D, Matheson J (1998) The smart organization. Harvard Business School Press, Boston Matheson D, Matheson J (2001) Smart organizations perform better. Res Technol Manag 44(4):49–54 Mendelson H, Ziegler J (1999) Survival of the smartest: managing information for rapid action and world-class performance. Wiley, New York Underwood J (2004) What’s your corporate IQ?-how the smartest companies learn, transform, lead. Kaplan Publishing, New York

Appendix B Competency Matrix

Boosting your personal knowledge about Organizational Intelligence as a guiding business principle through continuing education helps you and your company to stay abreast of the competition. You can be instrumental in causing a positive IQ turnaround in your company. There is a vast suite of resources available to deepen your personal knowledge on the broad theme of Organizational Intelligence (short video clips, Powerpoint presentations, academic textbooks, executive summaries, online inventories, PDF and text files, dedicated specialist journals, conference proceedings, resource sites, courses (both traditional and online) for professionals, as well as consultancy services). This appendix provides a Competency Matrix to check your mastery of the subject matter.

Competency matrix for leadership in organizational intelligence Level of Awareness-Basic Practical-Skillful mastery ?

Advanced-Genius

Characterized Recognition and by ? understanding

Application, feedback Experimentation and and best practice innovation

Key skill ;

Which competency level? Ability to:

Which competency level? Ability to:

Chap. 1

Corporate Necessity

Explain the relevance of acquiring Corporate IQ

Develop opportunities for acquiring Corporate IQ

Chap. 2

Knowledge nets

Share knowledge on the value chain and knowledge networks

Which competency level? Ability to:

Develop new knowledge sharing options within Societal Trinity and NGOs Establish Build competitive communities of advantage by practice, knowledge expanding networks and maps knowledge and value networks (continued)

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(continued) Level of mastery ?

Chap. 3

Chap. 4 Chap. 5

Chap. 6

Chap. 7

Awareness-Basic

Practical-Skillful

Advanced-Genius

Characterized Recognition and by ? understanding

Application, feedback Experimentation and and best practice innovation

Key skill ;

Which competency level? Ability to: Lead with a shared vision of organizational intelligence

Which competency level? Ability to: Organizational Promote learning as learning corporate strategy

Knowledge Access explicit Unlock tacit management knowledge knowledge Leadership Promote lifelong Align individual vision learning and market and corporate the organizational learning, develop learning program competency profiles Create experiential Team Promote leadership learning learning and teamwork opportunities processes Innovation and creativity Decisionmaking

Stimulate business innovation

Validate new ideas

Which competency level? Ability to: Develop new approaches to speedup organizational learning Accelerate knowledge flow and sharing Develop new ways to increase the speed of multi-resolution communication Innovate networked learning and introduce new learning modes Speed up the innovation cycle

Enhance the efficiency Merge knowledge flows in uncertainty of knowledge transfer in decisionanalysis and making decision-making Facilitate Chap. 9 Strategy and Develop strategy Apply scenarios to breakthroughs in scenarios options choose between technology, strategy options workflow or people integration Chap. 10 Portfolio Manage risk and Balance portfolios Optimize portfolio management opportunities value by developing new methods Improve life-cycle Practice good Chap. 11 Governance Understand role of planning using full corporate sustainable life-cycle costing governance and development for support NGOs role societal stability, in sustainable poverty reduction globalization creates new markets Chap. 12 CommuniShare vision, beliefs Remove Improve cation and knowledge communication communication barriers methods, depth and speed of information transfer Chap. 8

Framing the problem and deal with uncertainties

(continued)

Appendix B: Competency Matrix (continued) Level of mastery ?

Awareness-Basic

Characterized Recognition and by ? understanding Key skill ;

Which competency level? Ability to: Understand tactics and psychological traps, anchoring versus problem framing

275

Practical-Skillful

Advanced-Genius

Application, feedback Experimentation and and best practice innovation

Which competency level? Ability to: Chap. 13 Negotiation Use negotiation as a problem solving technique, share information in win–win agreements Chap. 14 IQ challenges Add opportunities for Demonstrate effect acquiring new tacit on cash flow knowledge; reduce its and value of extraction time organizational learning Chap. 15 Maximizing Share vision of Assess Corporate IQ Corporate IQ organizational and develop intelligence assessment mechanisms

Which competency level? Ability to: Expand stakeholder group and establish novel methods for reaching successful business cooperation Provide leadership in organizational learning

Initiate targeted interventions to boost organizational IQ

Appendix C Illustration Credits

Individuals who, and organizations that, provided illustrative matter reproduced or adapted in this book, are gratefully acknowledged. The author has endeavored to observe legal requirements with regard to the rights of the suppliers of graphic and photographic materials. Care has been taken to make the following credit list accurate. However, incomplete referencing in some of the sources used may have obscured the true origin of some of the illustrations used here.

Credits Executive Summary Asset Management Link-Pin Alboran Media Group Corporate Knowledge Spiral Alboran Media Group Organizational Learning Cycle Alboran Media Group Organizational Learning and Corporate IQ Alboran Media Group Efficiency Gap Alboran Media Group The Target Audience Life-Long Learning Anonymous Cartoon Objectives of this Executive Guide The Vision—An Integrated digital Oil & Gas business etc. Herb Yuan, Shell R. Weijermars, Building Corporate IQ: Moving the Energy Business from Smart to Genius, DOI: 10.1007/978-0-85729-679-5,  Springer-Verlag London Limited 2011

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Bookmarks 1 to 5 Organizational Intelligence Focus Areas Alboran Media Group Chapter 1: Developing Organizational IQ: A Societal Learning Experience Organizational Learning Alboran Media Group The Societal Trinity of Organizational Intelligence Alboran Media Group What are their Stakes? Alboran Media Group What are their Challenges? Alboran Media Group Business Cycles Alboran Media Group Learning organizations Re(define) Themselves Alboran Media Group Chameleon Analogy Alboran Media Group Corporate IQ Hierarchical Motor Alboran Media Group Decision Gate Space Alboran Media Group Competitive Advantage of Organizational Intelligence Alboran Media Group Cycle Learning Organizations Alboran Media Group Scaled Learning Curve Alboran Media Group Normal IQ distribution Alboran Media Group Probable Corporate IQ distribution Alboran Media Group IQ Performance Categories Alboran Media Group Organizational Intelligence Focus Areas Alboran Media Group Stakeholders Energy Resources Alboran Media Group

Chapter 2: Value Chains and Knowledge Nets Organizations as Goal-Seeking Entities Alboran Media Group

Appendix C: Illustration Credits

Future Value Targets Alboran Media Group Information Feedback—Traditional Value Chain Alboran Media Group Knowledge is Chaotic David Skyrme Associates Limited Value Cycle Verna Allee Value & Knowledge Networks Verna Allee Many Connections to Deliver Value Salwana Ali, Microsoft Knowledge Capital Center Knowledge Aggregation Layers Alboran Media Group Vertical Migration of Knowledge Alboran Media Group Workflow Field Development Alboran Media Group Workflow Switches at Decision Gates Alboran Media Group Communities of Practice Alboran Media Group Building Dutch Roundabout for Gas Alboran Media Group Chapter 3: Organizational Learning Organizational Learning Road Map Reid Smith Organizational Learning is Teamwork Alboran Media Group How can individuals deal with… George Kondrach Communicating the Vision Alboran Media Group Multi-resolution Communication Alboran Media Group Technology Enablers Joseph Busch Corporate Knowledge Spiral Alboran Media Group Skill Gap Alboran Media Group Technology Gaps Alboran Media Group

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Efficiency Gaps Alboran Media Group GIS-Integrated Data Alboran Media Group Real-Time Data Integration Alboran Media Group Chapter 4: Knowledge Management Knowledge Harvesting Simon Chester, McMillan Binch Stacked Nature of Organizational IQ David Skyrme Associates Limited What is Knowledge? Nermien Al-Ali, Franklin Pierce Law Center Tacit Vs Explicit Knowledge… Ralph Clevenger Is Your Company after Tacit Knowledge? Imagestate Externalization of Tacit Knowledge Alboran Media Group Knowledge Transfer Alboran Media Group Employee Engagement Adapted from Jaleel Al Khalifal SPE Chapter 5: Shared Vision and Leadership Intelligent Solution Positioning George Kondrach Corporate Learning Loop Alfons Lansink, IBM Bridging the Interaction Gap Alboran Media Group Career Planning Tool Alboran Media Group Competency Acquisition Alboran Media Group Leadership in innovation Alboran Media Group Personal Skills, Strategy & Leadership Alboran Media Group Vision Sharing Challenges Alboran Media Group Will You Join Us? Chevron

Appendix C: Illustration Credits

Appendix C: Illustration Credits

Chapter 6: Team Learning and Learning Systems Team Building Model Delft TopTech Emphazie On-the-Job Learning Alboran Media Group Experiential Learning Model Alboran Media Group Dale’s Cone of Learning Edgar Dale Networked Learning Alboran Media Group Modern Learning Modes Alfons Lansink, IBM Embedded, Enabled & Formal Learning Alfons Lansink, IBM Use-Inspired Knowledge Developement Alboran Media Group Leadership Skills Ken Graham Knowledge Exchange Alboran Media Group Chapter 7: Innovation and Creativity External Environment Delft TopTech Formula for Success? Alboran Media Group Innovation Pipeline Worldbank System Life Cycle Delft TopTech New Business Development Alboran Media Group Three Phases in Conventional Oil Business EXXON data Energy Life Cycle Replacement Alboran Media Group Risk & Opportunity Identification Alboran Media Group North Sea Oil Production Alboran Media Group

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Chapter 8: Smart Decision-Making Intelligent Decision-Making Alexander Meystel & Edward Dawidowicz The Ames Room Adelbert Ames Knowledge & Perception Alboran Media Group Uncertainty in Decision-Making Delft TopTech Certainty Vs Uncertainty Delft TopTech Organizational Decision-Making Loop Claire McInerney, SCILS Data Analysis & Decision Making Alboran Media Group Quality Function Deployment Alboran Media Group Decision-Making Support Package Alboran Media Group Decision-Making Styles Alboran Media Group OPEC Supply Quest Adapted from PFC Energy Workflow Field Development under Uncertainty Alboran Media Group Chapter 9: Strategy Planning and Scenario Thinking Strategy Development Alboran Media Group Scenarios and Forecasting Alboran Media Group Strategy Planning Alboran Media Group Develop Time Lines Alboran Media Group Technology & Vision US Army People & Technology Alboran Media Group Strategic Options Generation Alboran Media Group Hello, I’m Brad… S. Mantel World’s Oil Reserves

Appendix C: Illustration Credits

PFC Energy Strategy Drivers for NOCs PFC Energy Company Value SuperMajors Alboran Media Group Chapter 10: Intelligent Portfolio Management What is Portfolio Management? Alboran Media Group Asset Value Realization Alboran Media Group Portfolio Management Cycle Alboran Media Group Without Portfolio Management Alboran Media Group Balancing Portfolios Alboran Media Group Product Lifecycle Alboran Media Group Risk Matrix Alboran Media Group Benchmarking Project Vs Strategic Scenarios Alboran Media Group Project Portfolio in a Matrix Organization Alboran Media Group Traditional Portfolio Diversification Alboran Media Group Web-enabled Portfolio Management Alboran Media Group Global Energy Portfolio Alboran Media Group Chapter 11: Sustainable Development and Corporate Governance Stakeholders in Earth’s Sustainable Development Alboran Media Group Linear vs Cyclic—Sink Model Alboran Media Group Sustainability & Poverty Reduction World Bank Which Future do you want? Alboran Media Group Population growth needs Natural Resources Alboran Media Group

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Energy Consumption Unesco Ok Let’s review what you didn’t know Anonymous Cartoon Corporate Governance Alboran Media Group How would you price a light bulb that never burns out? Alboran Media Group Systems Compliance Alboran Media Group Sustainable Development Alboran Media Group Simplified World Map Alboran Media Group Cost Matrix for Environmental Remediation Alboran Media Group Decision Tree for Prisoner’s Dilemma Alboran Media Group Chapter 12: Communication in Intelligent Organizations Evolution of Organizational Learning Culture Melinda Bickerstaff Eye-tracking Experiment http://www.eyelinkinfo.com/ Getting it Across Karl Roeser Communication Gaps in Organizational Learning Alboran Media Group Missed Communication Delft TopTech Choice of Communication Channel Alboran Media Group Organizational Communication & Knowledge Aggregation Alboran Media Group

Chapter 13: Intelligent Negotiations and Effective Agreements The Bargaining Zone Delft TopTech Negotiation Flow Chart Alboran Media Group Intelligent Negotiations Alboran Media Group Keep a Critical View of your Progress

Appendix C: Illustration Credits

Alboran Media Group Intelligent Teamwork should be the Key Delft TopTech/Microsoft Shareware Competition for Resources at Knowledge Aggregation Levels Alboran Media Group European Gas Demand and Supply IEA & RWE Chapter 14: Challenges to Organizational Intelligence Stages of Intelligent Evolution Delft TopTech Organizational Learning Participation Model Alboran Media Group Human Thinking & Learning Alboran Media Group Organizational Intelligence Acquisition Alboran Media Group Effect of Organizational Learning on Cash Flow Ford Brett, Frontline Group Organizational Learning Process Alboran Media Group Who leads in Organizational Learning? Alboran Media Group Who is Smartest? Alboran Media Group USA New World Order Alboran Media Group World Economy Alboran Media Group Information Overload Simon Chester, McMillan Binch

Chapter 15: Maximizing Your Corporate IQ Scale for Corporate IQ Alboran Media Group Quality Assurance Systems Alboran Media Group Performance Measurements Alboran Media Group Smart individuals prefer to work in high IQ organizations Alboran Media Group Temporal changes in Corporate IQ Alboran Media Group

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Catastrophic decline in Corporate IQ Alboran Media Group Tracking corporate IQ changes Alboran Media Group Enhancing Organizational Intelligence Jane Davidson, Western Michigan University Growth of Corporate IQ Alboran Media Group Future Planetary IQ? Alboran Media Group Woodcarving Erasmus Alboran Media Group Gate Stop 5 Organizational Intelligence Focus Areas Alboran Media Group Appendix A: Procedure for Assessment of Your corporate IQ Sample Units & Response Group Alboran Media Group Scorecard for Corporate IQ Alboran Media Group Sample of Corporate IQ scores Alboran Media Group Standard normal ‘‘bell’’ curve Alboran Media Group Bell curve plot of IQ spread Alboran Media Group

Epilogue Historical World Population Growth Unesco An Inconvenient Truth Al Gore Cartoons Gerard ‘t Hooft

Appendix D Glossary of Terms

Organizational Intelligence as a discipline uses a large number of acronyms, terms and tools—some of which have been introduced and employed in this book. These basic terms are compiled into a concise glossary for quick reference. Definitions are in accordance with common usage but are formulated in a concise fashion that may ease understanding. Neither attempts nor claims should be made that the below definitions could be used to settle arguments or differences in the variety of descriptions available from existing dictionaries or other sources.

Acronyms ARM ‘‘Asset Risk Management’’, as a method launched by OFGEM. See OFGEM’s ARM. BANANA ‘‘Build Absolutely Nothing Anywhere Near Anything’’ or ‘‘Build Absolutely Nothing Anywhere Near Anyone’’. CAVE ‘‘Citizens Against Virtually Everything’’. CSD ‘‘UN Commission on Sustainable Development’’ that has the UNDSD as a secretariat, see UNDSD. EFMQ ‘‘European Foundation for Quality Management’’, developed the EFMQ Excellence Model for organizational excellence and is for most organizations, a self-assessment tool intended to encourage and promote good management practice. EVM ‘‘Earned Value Management’’ is a program management technique that integrates technical performance requirements, resource planning, with schedules, while taking risk into consideration. The major objectives of applying EVM to a contract are to encourage contractors to use effective internal

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technical, cost and schedule management control systems, and to permit the customer to rely on timely data produced by those systems for better management insight. EVM also allows better and more effective management decision making to minimize adverse impacts to the project. GAAP ‘‘Generally Accepted Accounting Principles’’ is the USA standard framework of guidelines for financial accounting, which includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements. ICC ‘‘International Chamber of Commerce’’ strives to be the voice of world business championing the global economy as a force for economic growth, job creation and prosperity. IISD ‘‘International Institute for Sustainable Development,’’ with a vision to better living for all—in sustainable fashion, and its mission is to champion innovation, enabling societies to live sustainable. ISO 9001 A Quality Assurance Model made up of quality system requirements for organizations that design, produce, install and service products. ISO standards are developed and maintained by the International Organization for Standardization, a network of the national standards institutes of some 150 countries, with a central office in Geneva, Switzerland, that coordinates the system and publishes the finished standards. ISO 14001 ISO Standards relating to environmental management systems, which are specific tools for realizing environmental policy and achieving objectives and targets. JIT ‘‘Just-In-Time’’ learning. System providing information available for the user at the exact time the user needs it. LEAN means ‘‘manufacturing without waste.’’ LCMS ‘‘Learning Content Management System.’’ Multi-user enterprise software that allows organizations to author, store, assemble, personalize and maintain learning content in the form of reusable learning objects. LMS ‘‘Learning Management System.’’ Enterprise software used to manage learning activities through the ability to catalog, register, deliver and track learners and learning. LULU ‘‘Locally Unwanted Land Use,’’ used to describe land use disputes often involving pollution. NIABY ‘‘Not In Anyone’s Back Yard,’’ a variant of NIMBY, which implies a more general and intellectually consistent objection to a proposed human activity. NIMBY ‘‘Not In My Back Yard,’’ a term for expressing resistance to unwanted developments, such as manufacturing plants, prisons, power companies or chemical companies in a neighborhood or town.

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NOPE ‘‘Neighbors Organized to Protect the Environment,’’ founded as a legal corporation in the State of Texas. OFGEM’s ARM ‘‘Office of Gas and Electricity Markets’’ ARM—is what is traditionally known in the IT solution industry as Business Process Management (BPM) for an asset-intensive industry such as utilities, with a focus on Enterprise Asset and Risk Management (ERM/EAM). Asset Risk Management (ARM) takes a holistic view of all risks and integrates corporate risk and regulatory decisions with plant level AM/Supply Chain decisions. PAS 55 a specification for asset management developed in cooperation with Lloyds insurance ltd by the Institute of Asset Management to set a common framework for compliance in asset management. PDA ‘‘Personal Digital Assistant.’’ Small computing device generally capable of being held comfortably in your hand used to record and retrieve selected data. PEO STRI U.S. Army Program Executive Office Simulation, Training and Instrumentation provides life-cycle management of training, testing and simulation solutions for soldier readiness. PEO STRI PM Field Operations needed the ability to collect information on technology-driven training device maintenance, installation, de-installation, relocation, repair, supply support and site operational support—as well as the development, production and installation of on-site concurrency modifications and system host kits. EDS partnered with Computer Sciences Corporation to meet these virtual training requirements by delivering new hardware, software, communications systems, information technology and collaboration tools. PMI ‘‘Project Management Institute’’ encourages the continued exploration, discovery and definition of project management knowledge. Moreover, it seeks to identify venues in which this knowledge can be shared with all practitioners so that it may be reduced to practice and enhance the specific skills of all those practicing the profession. PRINCE ‘‘Projects in Controlled Environments,’’ a project management method covering the organization, management and control of projects. PRINCE was first developed, in 1989, as a UK Government standard for IT project management by the Central Computer and Telecommunications Agency, now part of the Office of Government Commerce. ROI ‘‘Return on Investment’’ is how much profit or cost saving is realized. An ROI calculation is sometimes used along with other approaches to develop a business case for a given proposal. The overall ROI for an enterprise is sometimes used as a way to grade how well a company is managed. SOX ‘‘Sarbanes–Oxley’’ provides a complete cross-referenced index of SEC filers, audit firms, offices, CPAs, services, fees, compliance/enforcement actions and other critical disclosure information.

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SEC ‘‘US Securities and Exchange Commission’’ is the agency responsible for administering federal securities laws in the US. TQM ‘‘Total Quality Management’’ is a set of management practices throughout the organization, geared to ensure the organization consistently meets or exceeds customer requirements. TQM places strong focus on process measurement and controls as means of continuous improvement. UNDSD ‘‘United Nations Division for Sustainable Development’’ provides leadership and is an authoritative source of expertise within the United Nations system on sustainable development. It promotes sustainable development as the substantive secretariat to the UN Commission on Sustainable Development (CSD) and through technical cooperation and capacity building at international, regional and national levels. The context for the Division’s work is the implementation of Agenda 21, the Johannesburg Plan of Implementation and the Barbados Program of Action for Sustainable Development of Small Island Developing States. WBCSD ‘‘World Business Council for Sustainable Development,’’ brings together some 180 international companies in a shared commitment to sustainable development. The mission is to provide business leadership as a catalyst for change toward sustainable development, and to support the business license to operate, innovate and grow in a world increasingly shaped by sustainable development issues. WICE ‘‘World Industry Council for the Environment,’’ has been founded to initiate, develop, promote and actively participate in activities that contribute to the conservation of nature and the improvement of the environment. WICE is a highly specialized bio-diversity conservation planning and management institution with its own in-house software for conservation prioritization modeling. It has a cost-effective GIS headquarter-based GIS laboratory and as well as mobile GIS field laboratories with user friendly software applications. WWF ‘‘World Wild Life Fund,’’ wants to build a future where people live in harmony with nature.

Tools and Definitions @RISK A popular risk analysis add-in to Excel that helps you identify hidden opportunities and avoid pitfalls. Add the power of Monte Carlo simulation to any Excel spreadsheet. Replace uncertain values in your spreadsheet with @RISK distribution functions and simulations. Use historical data to select your @RISK functions. The result is a distribution of possible outcomes and the probabilities of those outcomes occurring. Use presentation–quality graphs and charts to explain your findings to others.

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Activity-Based Learning Learning where a student physically and mentally explores subjects by simulation of the work environment, manipulation of tools and materials associated with the world of work, or performance of a real work task. Asynchronous Learning Asynchronous capabilities give learners access to course materials (including readings, embedded and streamed multimedia and external websites) with time delay between steps in the dialog, allowing participants to respond at their own convenience. Axiology Philosophical investigation of the nature of value(s) and of the foundations of value judgments. Balanced Score Cards A management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. Bayesian Belief Networks Bayesian Network for a knowledge domain is an encoding of the joint probability density for all of the variables which are considered. Given a list variables, and a sufficient understanding of the interrelationships between these variables, it would be possible to model the system mathematically by a large list of probabilities. Best Practice Method or process to accomplish a task or to achieve an outcome that is recognized as the best way to do so. Blended Learning Combination of class room instruction and one or more learning technologies, for self-study and to deliver the content to students. British Standard Defined as the British Standard xxxx where xxxx is the number of the standard. British Standards currently has over 17,000 active standards. Products are commonly specified as meeting a particular British Standard, and in general this can be done without any certification or independent testing. The standard simply provides a shorthand way of claiming that certain specifications are met, while encouraging manufacturers to adhere to a common method for such a specification. Business Intelligence Systematic process of acquiring, synthesizing and sharing information to achieve organizational goals. Contextual IQ A measure of your organization’s ability to effectively apply its knowledge in goal-oriented fashion, focusing on developing practical business processes in its area of operation. Communication Defined as the interchange of thoughts or opinions through shared symbols; e.g., language, words and phrases. Competency Demonstrated ability to perform some skill.

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Componential IQ A measure of your organization’s ability to build successful business assets using newly uncovered tacit knowledge and analytical processes. Conceptual Knowledge Knowledge of sensible domain concepts. Corporate IQ Measure if organizational Intelligence that is made up of four components: Experiential IQ, Contextual IQ, Componential IQ and Emotional IQ. Creativity Complex product of a person’s behavior in a given situation—the ability to bring something new into existence. Crystal Ball A Microsoft Excel Add-in forecasting tool that uses Monte Carlo simulation to help you analyze risks and uncertainties with the simulation output in a probabilistic approach of uncertainty analysis. Decision Gate Point along the path in a decision-making process at which the team or team leader must decide to stop, delay, modify or accept the outcome of the decision-making process. Decision Gatekeeper Executive along the path in a decision-making process who must decide to stop, delay, modify or accept the outcome of the decisionmaking process. Decision-Making Strategy choice or problem-solving process (remediation) preceded by a separate problem-finding process (examination & diagnosis). Distance Learning System and process that connects learners and instructors who are in different locations, presently with global servers allowing around the clock learning access. Distributed Learning System and process that uses variety of technologies, learning methodologies, online collaboration, and instructor facilitation to achieve applied learning results not possible from traditional education in a truly flexible, anytime/anywhere fashion. Emotional IQ A measure of your organization’s ability to effectively communicate to all concerned how and why specifically your organization is uniquely placed to develop certain products and services. Epistemology Philosophical investigation of knowledge and truth, of the differences between knowledge and opinion, and between truth and falsehood. E-learning Technology-based learning focusing on web-based delivery methods. Experiential IQ A measure of your organization’s aptitude to effectively stimulate knowledge exchanges between all individuals that add value to your organization’s products and services, with a focus on creative processes and innovation.

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Explicit Knowledge Knowledge efficiently connecting those who know with those who need to know, and converted from personal knowledge into organizational knowledge. Innovation Reforming or reworking of old ideas to come up with something new. Knowledge Acquaintance with facts, truths, or principles, as from study or investigation. Knowledge Management Organizational adaption, survival and competency development of individuals to cope better with changes in the (business) environment. Lean Six Sigma Combines the strengths of Lean Manufacturing and Six Sigma as a management doctrine. Linguistic Knowledge Knowing how to express concepts in given language. Metaphysics Philosophical investigation of the nature of reality, being or existence. Negotiation Problem-solving process in which two or more people voluntarily discuss their differences and attempt to reach a joint decision on their common concerns. It is one of the most common approaches used to make decisions and manage disputes. Neural Nets Neural Network is an interconnected assembly of simple processing elements, units or nodes, whose functionality is loosely based on the animal neuron. The processing ability of the network is stored in the inter-unit connection strengths, or weights, obtained by a process of adaptation to, or learning from, a set of training patterns. Ontology Branch of philosophy that deals with being, and divides human knowledge or a subset of human knowledge into a clean set of categories and taxonomies, e.g., the Decimal System. Organizational Intelligence Concept of organizational smartness that is measured by the corporate IQ. Organizational IQ Synonymous with corporate IQ, see Corporate IQ Organizational Learning Capturing, sharing and using an organization’s experience to accelerate performance improvement. Planetary IQ The globally aggregated measure of Organizational Intelligence taken as the arithmetic average of a representative population of corporate IQs at anyone time. Pragmatic Knowledge Knowing about topics what users usually say or think, what they consider important, and often acquired by doing the activity.

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Processes Naturally occurring or designed sequence of changes of properties or features of an object or system. In business, this may be a transformation of physical state, a chemical reaction, or an assembly by humans and machines—it commonly involves capital, time and space. Scientific Method Gathering information through careful observation to validate hypotheses and theories. Sierra Club An environmental grass root organization (in USA and Canada) that works on issues ranging from climate change and energy to toxic chemical contamination and loss of biological diversity. Six Sigma A disciplined, data-driven approach and methodology for eliminating defects (driving toward six standard deviations between the mean and the nearest specification limit) in any process—from manufacturing to transactional and from product to service. Stakeholders Those parties that have an interest or stake in the outcome of a specific situation. Strategy Deliberate choice of method and manner in which a goal will be achieved. SUMMIT An integrated software system to manage your entire business process. Synchronous Two-way communication with virtually no time delay, allowing all participants to respond in real-time. Tacit Knowledge Personal knowledge rooted in individual experience and involving personal belief, perspective and values. Value Chain System that categorizes the generic value-adding activities of an organization. The main activities are: outbound logistics, production, inbound logistics, sales and marketing and maintenance. These activities are supported by: administrative infrastructure management, human resources management, R&D and procurement. The costs and value drivers are identified for each value activity. Web-Based Training (WBT) Computer-based training in which training materials (online courses) reside on pages accessible through the world wide web. Whiteboard Learning materials on ‘‘shared whiteboard,’’ enabling the use of ‘‘colored pens’’ and ‘‘erasers’’ to mark up the electronic whiteboard. Workflow Organized sequence of actions that efficiently links people, technology and processes. Workflow includes critical decision gates that prompt for the compilation of new and old knowledge needed for making the right decisions at the right time—for adding optimum value to products, projects and the corporate portfolio.