Entrepreneurial strategies and organizational renewal within the offshore service vessel industry Professor Odd Jarl Borch University of Nordland. Lecture University of Stavanger, February 10, 2011
CV professor Odd Jarl Borch Bodo Graduate School of Business Master of Science Norwegian School of Economics and Business Administration, Bergen Doctoral studies and PhD, Umeå university, Sweden Post doc studies Indiana University, USA Master Mariner studies, Bodin tekniske fagskole, Bodø University of Nordland since 1979 Research Coordinator Nordland Research Institute Professor II, University of Tromsø Research Coordinator Norwegian Research Council Research on several industries Advisor government institutions at different levels Approx 150 publications
Focus in lecture 1. More resource exploration in cold climate (Arctic) environments 2. Increased complexity and uncertainty a challenge for firms expanding into this area 3. Show results from an action research study within a ship owner company on management of change 4. Discuss barriers to change 5. Emphasis on entrepreneurial strategies, business model change and (open) innovation at business process level
Oil activity in the High North Oil and gas a significant source of energy for the next decenniums. Present resources will run out in 30-40 years period Rising prices will stimulate increased efforts towards resource exploration 20-25% of the unexplored resources expected to be localized in the Arctic Increased activity towards both research, construction and field support in Arctic waters Demand for vessels with high operational stability in polar waters, icebreaking capacity and clean design Axis Greenland to Kara Sea natural home market for Norwegian OSV companies
Important to understand that you are moving into a very different context: -North Sea -Arctic Low Region -Arctic High Region
ARCTIC COUNCIL AMAP DEFINITIONS
IMO GUIDELINES IN ARCTIC ICE-COVERED WATERS
Low Arctic (sub-arctic) region New Foundland Greenland South Jan Mayen Barents Sea South Lofoten to Barents Sea South
High Arctic Region 1. Alaska-region Beaufort Sea Chukchi 2. Newfoundland to Baffin Bay 3. Nuuk to Thule West Greenland 4. Denmark Strait to the Greenland Sea (West Ice) 5. North-east Greenland to Spitsbergen East (North Ice) 6. White Sea to Novaya Zemlya (East Ice) 7. Kara Sea
Operational challenges Turbulence/ dynamism Lack of predictability -weather, -darkness -ice, -security Greenland North East Barents Sea East and North Barents Sea South/ Greenland SW Lofoten region Norwegian Sea North Sea Mexican Gulf Complexity: (no of stakeholders, size of expedition, interlinks, rules, regulations)
Differences operational environment The North The Low The High Sea Arctic Arctic Polar lows ++ +++ ++++ Visibility (fog, darkness) + ++ ++++ Icing and sea ice - ++ ++++ Distances to base + ++ ++++ Lack of infrastructure - ++ +++++ -navigation, SAR, communication Lack of research - ++ ++++ Interest groups + ++++ +++++ Political risk + +++ +++++
Factors contributing to increased complexity Distances Lack of infrastructure Broader set of activities that each vessel has to perform Teaming different types of new technology vessels Drilling ships/rigs Stand by vessels AHTS PSV Broad set of government rules on safety and environment More ISO notations More external links to sub-suppliers, interest groups
EXAMPLE: COMPLEXITY EXPLORATION WEST-GREENLAND SUMMER 2010 Troms Vision VS 495 Kleven 2010 Troms Pollux/Artemis VS 485 Hellesøy 2009 Stena Forth/ Stena Don Esvagt Don/Challenger 2000 Fennica STX 1993 Balder/Vidar Viking KMAR808 Havyard 2000 Loke Viking VS4622 Spain 2010 (ICE 1A)
EXAMPLE 2 The Shtokman project Field context Large production volumes New technology Long project period Long distances to base (600 km) Poor infrastructure Winter ice of various thickness (dimensioning for up to 2m first year ice) Ice bergs in Summer time Subject to harsh and unpredictable polar storms Extreme HME-challenges Broader range of offshore service operations Subsea installation support Inspections and interventions All year stand-by in ice All year supply in ice Towing of ice bergs De-coupling and towing of installations due to ice threats fighting of pollution and rescue in icy waters
POSSIBLE CONTEXT FOR THE SHTOKMAN FIELD
Factors contributing to increased dynamism/turbulence Weather polar lows Ice (first year, growlers and ice bergs) Emergency-search and rescue Several companies involved - Interorganizational dependency Human factors -limited skills/fatique Endogenous people local government Security threats- terrorism, piracy, action environmental interest groups
GREENPEACE HAS BOARDED A SCOTTISH COMPANY'S DRILLING RIG OFF GREENLAND AND FORCED WORK TO STOP!
How to cope with increased complexity and dynamism? =>Owner-manager action
Has to consider entrepreneurial strategies, innovative business models and business processes that unite exploration and efficiency in implementation (exploitation)
Entrepreneurial strategies 1. Improvements in products and technology 2. Introducing new products and new technology 3. Reconstruction of competitive tools 4. Added business and society relations 5. New business as well as social platform (both business and social entrepreneur)
The entrepreneurial barriers of SMEs in a mature industry Over-emphasis on cost-cuts A small strategic apex Primary value chain efficiency focus Capabilities locked to the present strategy Lack of R&D experience Hierarchical business model Conservative business culture Stick to rules-no leverage for entrepreneurial action
How to create Business Process Management Tools for the High Arctic: -has to start with the business model and dig into the business process framework
Business model -organizational configuration Need for a more innovative approach with bottom-up experimentation and managerial commitment related to coordinating innovations Consider a reconfiguration of the value chain internally and its cooperative links to other parts of the value system The strategic potential may be enhanced through developing inter-firm links in several directions (e.g. value network configuration)
The business model (BM) Sequential value chain configuration Value shop configuration Value netchain configuration Hierarchical, down structure top + Vertical buyer-seller relations Horizontal relations to competitors Reciprocal interaction Multiple layer interaction Diagonal relations to other industries + ++ +++ + ++ +++ + ++ +++ + ++ +++ + +++
Postulate In a mature industry external pressure is critical to achieve dramatic change in BM (reconfiguration of the value chain) New owners-board members may loosen up the organization Pressure from important customers important ex.: oil companies Entrepreneurship and innovation researchers may build trust through understanding basic business processes and take it from there
Business process management The business process management is aimed at: new business processes removal or reconfiguration of existing business processes (reengineering) added tasks within existing business process Linking up each business process internally and to customers, subcontractors and interest groups Empowerment to provide (dynamic) capabilities for innovation within each business process
High Arctic addition to the present and new business processes i. Charter- extra insurance, manning and certificates, investment needs and compensation for extra equipment and manning ii. Operation/technical- planning under uncertainty, risk management extra capacities, limits of vessels iii. Crewing Arctic competence, extra familiarization iv. Navigation vessel to/from operational area rough weather, ice v. Loading/discharging - dialogue and training base personnel vi. Transport to platform extra time and nav. resources vii. DP positioning correct signals, safety margins viii. SAR extra capacity and competence- special risk assessments ix. Fi-Fi/pollution prevention ice, icing -extra tools, routines, training x. Towing extra winch and engine capacity and competence xi. Ice management extra ice breaker capacity and competence xii. Maintenance/ repairs extra spare parts, yards, transporters xiii. Communication - other vessels and companies xiv. Dialogue/PR local government and interest groups
Management principles ship owners Management approach: Business model: Capability : Value chain integration: Quality perspective: North Sea Low Arctic High Arctic Safety Management Necessary Certificates Management of change Hierarchicfunctional Hierarchicstaff support Adding staff Business process management Entrepreneurial, Horizontal ad hoc Business process empowerment Sequential Work shop Reciprocal Quality control Quality improvement Change focus: Revisions Incremental innovations Risk focus: Stick to established rules and regulations Risk assessment/change work plan Total quality approach Open innovation Risk management total operation and value chain
Conclusion Change in environment puts heavy strains on the organization More turbulent and complex environment implies an entrepreneurial strategy Has to work both top down and bottom up to adapt business model and business processes Demanding task to secure both exploration and implementation (exploitation) simultaneously Empowerment of staff and management through R&D partnership is important
Thank you!