What is your competitive advantage?
What gave you an advantage once may no longer be helping you. Fortresses just aren't relevant today. Surami Fortress, Georgia.I've been thinking a lot about openness recently. Open-source software, open publishing, and open data are important themes in science today, but not really in business. I think this is going to change in the coming decade, as open-minded young professionals with openness in their blood infiltrate management. I hope Agile* is part of this shift.
Years ago, oil companies were closed systems. They had secrets. They had large research divisions, rivalling universities in size and scope. They developed their own technology, wrote their own software. The people who worked in these companies were trained in-house, and had long careers. These companies competed with each other on an every-man-for-himself basis, with little regulatory intervention, and little more than admiration and awe from the general public, just glad for its precious petroleum.
Today's industry, however, does not look like this. The typical medium to large oil company...
- has a small research division, if it has one at all;
- lets service companies and universities do its innovation, usually as part of a consortium;
- does little in-house training, relying instead on universities and external trainers;
- buys dated, off-the-shelf software;
- has staff attrition and loyalty problems, with most people staying only a few years;
- is under substantial regulatory and public scrutiny;
- has customers who don't want or like their product, but are simply addicted to it.
In this environment the research is shared with competitors, the technology is the same as everyone else's, the employees switch companies regularly, and everything is done under the public's disapproving gaze. It is clear that competitive advantage ain't what it used to be. Yet oil companies are stuck in yesterday's mindset, hiding all their data, software, technology, and ideas, even (especially?) the ones that are generic, or useless, or just wrong. What a waste of energy.
So what is your competitive advantage? In the next post, I'll take a look at what I think sets companies apart, and what I think we can safely share. In the mean time, let us know what you think.
Matt Hall
The follow-up post came two weeks later...
ideas, technology in Business, Software 
Reader Comments (6)
I'm not sure how this fits in, but I've always found it fascinating in our industry how much data, analysis, evaluation methods, etc are publically published. Companies willingly share (now and in the past) how they do their technical work, how they develop their assets, how to evaluate their economics, how they assess their risk, and the list goes on and on. While companies may have been structured to have a lot of proprietary knowledge, it seems the temptation to brag how smart they are through publishing their secrets was too strong.
@j: Ha -- I love how you always have a different perspective. I mean, I agree, it's true -- there is a lot in the magazines and journals about data, methods, even business processes, etc. But remember there's often something missing, for example some critical piece of data (like location, or depth), and certainly the entire dataset is rarely released and available for download. BP's or ConocoPhillips' open source geophysics projects are an exception, not a rule. Business papers might discuss ideas and approaches, but don't generally reveal details or anything practical (think of papers on knowledge sharing, which might mention Microsoft SharePoint as a tool, but not explain exactly how it has been customized or implemented).
Another aspect is patenting technology, which some companies are rather keen on. This is odd, because it reveals the secret, but of course also tries to protect it. Massively expensive, I think the unintended consequence of patents is driving innovation in your peers, as they go around your intellectual fence-post, and solve a more general problem in a more elegant way, leaving you with your pointless patent.
Thanks for the comment as always, you help me think more clearly.
Interesting. My family has been in the business for three generations. I do know my uncle had to fight along with colleagues many times to keep their research budget going because the higher-ups (in the major oil company) constantly were smacking it down.
I don't think you have a very accurate picture of how things used to be, nor how they are now. I am a strong believer that oil and gas companies have extraordinary data challenges and that they bring extraordinary resources to bear on the problem both in the past and currently. An exploration company is basically intellectual property so you shouldn't be surprised that they are proprietary about where they are exploring or about their geological ideas. I can see them being less proprietary about publishing methods - and that's not a surprise.
I also take issue with the "dated, off the shelf software comment". While in the past they did invent a lot of software in-house (what choice did they have), it's my experience some of the most amazing innovative software products are pushed to their limits currently in the oil and gas industry. I attend technology conferences on oil and gas data and technology frequently, and find the topics to be quite cutting edge.
I also take issue with your view that employees switch companies all the time. I am in a position to know about this as I have a database of about 6,000 contacts in the industry and was just talking yesterday about how few people switched jobs over the years. Of course there have been downturns and at $40/bbl it hurt the industry and forced a lot of old timers into retirement. That's good and bad as it makes room for younger people in the business, but we lose a lot of experience. As for open source in o&g it's definitely in increasing use. I think our primary weaknesses are around data, data quality, and interoperability standards because of the shere volume of data.
@Robert: Thanks very much taking the trouble to comment. I'm sorry you disagree with so much of it, but I am glad I provoked such a thoughtful comment and am grateful for the challenge to my thinking.
I agree with all of your second paragraph. None of it is at odds with what I wrote, unless I'm missing something. Oil companies definitely have data challenges. For sure exploration and production companies thrive on their intellectual strength. Active exploration areas and geological concepts are competitive information, and worth keeping secret or at least vague.
As for the 'dated software' comment, I'll concede that was maybe a little harsh. But don't forget that a substantial piece of the software market belongs to tools that are more than 20 years old (IESX or Landmark, for example). Not necessarily a bad thing, but software development velocities seem to me to be low, compared to other industries; maybe this is just 'grass is greener' bias.
I stand by the 'off the shelf' part of my remark. The software you mention may well be amazing, but it is for sale to anyone who will buy it. If anyone can buy it, then it can't offer a competitive advantage, not on its own. The advantage has to come from what you do with it, or from proprietary customization. Maybe some of the 'extraordinary data challenges' stem from the chaos of software many companies have, and the fact that they no longer have enough technologists or developers to manage their tech portfolios or do anything about the mess.
Lastly -- my assertion that people switch companies a lot. I guess I was thinking about this in relative terms, comparing to 20 or 30 years ago. But I think you're the first person I've heard say there's no problem with attrition in our sector. Never mind retirements -- I have been through several brutal rounds of redundancies, in each of which lots of friends and colleagues were thrown back into the job market. Again, I may be biased by my experience in Calgary, where the market is very fluid, but from what I gather attrition rates in the industry are about 20%.
Thanks again for reading!
@j and @Matt: What always suprises me is the level to which published papers go to obfuscate data, but leave it obvious to anyone who really cared to find out. For example, we might be presented with a map with all well locations posted, but the name of the well we are concerned with is the mysterious Well X. Anyone who is interested can look at another basemap and work out what Well X is, and anyone who isn't interested doesn't care anyway.
@Richie B: So true. Or the coordinates, or coastlines, or other giveaways, are on the map (as they should be). It's a bit of a farce. And a double irony, because the people you're worried about probably (a) know it well enough to recognize it, and (b) have the data anyway. Not always though, and I guess the trick --- the advantage --- comes from knowing when you have a real secret.
Mind you, it's also weird to see a completely sanitized dataset being used for research --- I think the student, maybe the prof too, often has no clue where the data are from, or what the regional context is. I just reviewed a paper like this.