Sail, not rail: Dynamic, capabilities-driven strategies for oil and gas companies

January 21, 2015

Executive summary

The oil and gas sector is undergoing a profound, once-in-a-lifetime transformation. For international and national oil companies, making investment choices has never been so challenging. In an industry facing increased volatility and intensifying skills shortages, oil and gas companies can no longer win across an ever-broadening spectrum of operating environments. Few companies have the technical, operational, and commercial capabilities required for activities that can range from exploring onshore to ultra-deepwater, all the way through to development and/or production of both conventional and unconventional oil and gas resources.

Therefore, oil and gas companies need to focus on a small number of differentiating capabilities — this is the combination of individual knowledge, skills and behaviors, processes, tools, and systems — that allow them to outcompete their peers. Moreover, they need to reorient their portfolio and investment decisions around these differentiating capabilities. This is Strategy&’s capabilities-driven strategic approach to winning.

Although the right combination of capabilities and assets will vary from one company to another, there is a common thread. Critically, the strategy must be flexible enough to adapt to changes in the operating environment. In the past, oil and gas companies had the luxury of investing in attractive, long-term opportunities, and then focusing on execution. This was a linear and inflexible approach akin to how a railway determines where to “lay the rails” and then moves ahead with little scope for adjustment. Today, by contrast, success lies in flexibility, through a dynamic strategy in which capabilities set the broad direction of travel, yet companies can still adapt, as sailors do in response to changes in the prevailing wind. In the current environment for oil and gas companies, this approach — sail, not rail — gives them the greatest chances of winning.

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Conclusion

In an industry beset with increasing volatility and uncertainty, diverse technological and operational environments, and intensifying industryspecific skills shortages, oil and gas companies will need to focus on a few differentiating capabilities required to win in their chosen areas of operations. Yet they must also remain flexible and agile enough to respond to changes in both internal and external factors.

Focusing on an overly narrow defined set of capabilities may lock a company into a niche that does not provide sufficient growth opportunities. In contrast, insufficient clarity on differentiating capabilities may lead a company to overextend itself and thus underperform. For each company, achieving this balance will be different. Smaller companies may be able to rely on one predominant capabilities system to meet their aspirations. Larger companies may be able to leverage a number of complementary capabilities systems (while remaining aware of how these systems interact).

Yet for virtually all oil and gas companies, a dynamic, capabilitiesdriven strategy will help them win in a turbulent market. The capabilities set the broad direction of travel, and as conditions change, the flexible company will be positioned to respond efficiently, and sail ahead of the competition.

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Sail, not rail: Dynamic, capabilities-driven strategies for oil and gas companies

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