Performance Impro Canada-oil&Gas

8/12/2019 Performance Impro Canada-oil&Gas

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Performance

improvementPositioning Canadian oil and gas companiesfor success from the inside out


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ContentsThe business case for performance improvement ........................1

Blending tools to achieve greater results ..................................... 4

Facing performance improvement challenges...............................6

Limited awareness of performance improvement programs ........ 8

Reduced understanding of potential bene ts ..........................10Inadequate support from upper management .........................12

Improper governance during implementation ..........................14

Insuf cient sustainability of achieved bene ts ........................16

Reaping the bene ts ................................................................17

Setting the stage for success ....................................................18

How EY can help ..................................................................... 20


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Performance improvement | 1

The business casefor performanceimprovementUnderstanding the impact ofprograms on oil and gas companies

Oil and gas companies are now more global, and some are becoming moreprocessed-based. Cross-functional stakeholders are increasingly demandingresults that are more dif cult to achieve given the ongoing economicuncertainty and challenging market conditions. Low natural gas prices, oilprice uncertainty, WTI-Brent differential and heavy oil differentials are forcingupstream companies to focus on improving ef ciency and reducing costs.The capital and operating costs for deepwater wells offshore, unconventional

resources such as oil sands and horizontal drilling techniques are alsocompounding the industrys cost challenge. Thats where performanceimprovement comes in.

Performance improvement is an operational philosophy ofmanagement that can bene t customers, shareholders, employeesand suppliers alike. Companies facing capital and operational costconstraints within the oil and gas sector are employing performanceimprovement programs and tools to help drive down costs and

improve their bottom line. These programs include Lean, Six Sigma,Kaizen, Just in Time and Continuous Improvement. They provide tool sets tocapture and drive ef ciencies and maximize value within organizations andtheyre rising in popularity. The number of oil and gas companies employingperformance management programs has increased since 2005. Researchshows that this sector had only 5%25% saturation compared with 40% today.Further, research indicates that 266 Fortune 500 companies employ these toolsets within their businesses. A large opportunity remains, however, for growingcompanies to move the needle and continue to grow and adopt performanceimprovement philosophies.

266 Fortune 500 companiesemploy performancemanagement program toolsets within their businesses


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2 | Performance improvement

These programs can address ongoing problems andinef ciencies within a company that enable teams torefocus on innovation and strategic initiatives. They canstimulate a culture of improvement among all levels ofthe workforce. And, perhaps most importantly, unitingemployees under a common goal that sheds light on howeach of their individual actions impact the companysvalue chain. In the oil and gas space, these programs cando even more. Performance improvement programs canreduce drilling and completion costs by evaluating themovement on pad sites and rigs, downtime, maintenanceand reliability of the operations, as well as effective

operations mobilization throughout the sites. Theycan also reduce cycle times of approvals, planning andconstruction by reducing non-value-add time as well asrework that commonly occurs in project planning anddevelopment stages of well, pad and oil sands sites.

Performance improvement programs also have a directbene t to the bottom line and provide a competitiveadvantage that cant be ignored. Companies thatundertake these programs save anywhere from US$24mto US$100m and beyond, based on interviews withNorth American-based oil and gas companies. Six Sigmaand operations management projects average 1.7%savings in revenue over the period of implementation forthe programs. Six Sigma initiatives also typically return

2%4% of sales to the bottom line in the second and thirdyears of implementation for small companies and 1%2%of sales in the second and third years for large companies.Average Black Belt projects save organizations US$175kand, when dedicating 100% of their time, can executeve to six projects over a 12-month period, addingapproximately US$1m in bene ts. Yet, statistics showthat the energy sector lags behind other global industrieswhen it comes to realizing the potential of performanceimprovement programs. Many do not understand all of thenecessary elements prior to and while implementing thesetypes of programs.

Many companies in the energy sector grapple with howto remain low-cost, ef cient and effective while pursuinggrowth. Concern revolves around whether short-term cutswill impair long-term growth. This is especially challengingfor companies that have undertaken signi cantimprovement efforts during previous oil and gas cycles.Whats important to recognize is that theres alwaysperformance improvement work to be done, and it mustnot be forgotten when gas and oil prices rise and lessfocus is on the bottom line. Oil and gas companies thattake a long-term approach to continuous improvementwithin their rm will be even better positionedto pursue growth, sustain improvement and reapthe year-over-year rewards.

Average operations management program savings as a %of the corporations revenue by sector

Savings as a %of revenue

4%

3%

2%

1%

0%

L o g

i s t i c s

A e r o s p a c e

C h e m

i c a

l s

M a n u

f a c

t u r i n g

T r a n s p o r t a

t i o n

E n e r g y

H e a

l t h c a r e

I n f o r m a

t i o n

M a n a g e m e n

t

Source: Cost and Savings of Six SigmaPrograms: An Empirical Study, QualityManagement Journal, www.emeraldin-sight.com, 2012.

Companies that undertake theseprograms save anywhere fromUS$24m to US$100m and beyond


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Key questionsCompanies considering performanceimprovement should ask themselvesthe following:

Are there gaps in our performance?

Has cost reduction led to lost opportunities?

Do our improvement efforts continue to repayour investments?

Am I satis ed with how quickly I seemeasurable results?

Am I looking at cost reduction opportunitiesto mitigate headcount reductions?

How can I emerge as a low-cost leader in a high-cost environment?

Have I managed to sustain improvementsin the past?

Have I managed to drive cultural and behavioralchange in the organization?

How am I looking to increase effectivenessand achieve ef ciencies in your organization?

Have I applied multiple performance improvementtools in the past without success?


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Whether blending a series of performance improvementprograms or homing in on one, its important forcompanies to spend time understanding each tool set,what they have to offer and how they may be applied totheir business.

Performance improvement is not one size ts all.Companies must identify the speci c tools that canbring value to their rm. Culture plays a substantialrole here. Finding the best program t is as much about

understanding how the program will engage employeesas it is about aligning business needs.

Equally important is the ability to measure the successand performance of these programs. This measurementshould tie to companies ongoing scorecard andkey performance indicators. Terminology, metricsand calculations not only need to be rooted in theperformance improvement methodology but must alsobe tailored in order to be understood and accuratelyapplied within the sector.

I have seen many performance managementprograms come and go since my career startedin aerospace manufacturing in 1989: TQM,process reengineering and self-directed workteams, to name a few. The trouble I see, evenmore evidently today, is that most programsare not designed to succeed under our current

traditional management style. The challengeis not to implement or add on some newtechniques, practices or even principles the task should be to develop consistentbehavior patterns across the organization.My conclusion is that it is best to reframethe question of inadequate support to thatof creating awareness. By showing seniorleadership what is possible, and have themtrained in the Plan-Do-Check-Act coaching

process with an advance group, only then willwe see superior results.Jim Pascual, Subsurface Integration LeadTalisman Energy


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Performance improvement programs are not withoutchallenges. Implementing a performance improvement programdoes not guarantee improved performance. There are severalfactors that can determine whether a program is effective orineffective. While many may seem simple in nature they carrya big punch and can have detrimental effects on a performanceimprovement programs success. Thats why identifying andaddressing these challenges head-on is so important. Wevehoned in on the top ve challenges preventing oil and gascompanies success below.

Limited awareness of performance improvement programs.Increasing awareness of what performance improvement canaccomplish and the tools that can be used is the rst step informing a strong culture of improvement.

Reduced understanding of the potential bene ts.Implementing a tracking or validation process to capture resultsrealized from performance improvement programs is essentialto understanding how the program bene ts the companythrough cost savings or productivity gains.

FacingperformanceimprovementchallengesIdentifying challengesin the oil and gassector before theytake place


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Inadequate support from upper management. Leadershipteams are responsible for setting the strategic directionfor a company, and if they fail to understand the value ofan improvement program, there is reduced likelihood itwill move forward. Providing the capabilities and resourcesfor management support is important for any project, andperformance improvement is no exception.

Improper governance during development andimplementation . Because of the multitude of projectsthat can be part of an improvement program, the programmanagers must diligently ensure all the pieces areworking toward a common goal in terms of coordination,measurement and monitoring, decision-makingand prioritization.

Insuf cient sustainability of achieved bene ts. Its common for company personnel to revert to previoushabits or behaviors once the fanfare surrounding animprovement program dissipates. The bene ts realizedby an improvement program must be maintained andintegrated into the working processes and culture ofthe company over the long term.

Without a doubt, the successof any business excellence orimprovement program is directlylinked to adequate support fromtop management. Any system ofimprovement that does not complywith at least the following elementswould not have a solid foundationfor its full adoption and deploymentand eventually will reduce thelevel of success by the company. The executive team should be achampion and provide directionwith high visibility, leadershipengagement, participation andsupport. A clear governancestructure and guidelines are neededto drive adoption. Dedicatedresources are also required tomanage the process and train.Metrics should be established with a

clear communication of the currentand desired state. The process mustt the culture, and opting out is notan option.Gabriela Rico Gamino, Group Lead,Continuous Improvement, Encana Corporation


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The success of any program depends on awareness and buy-in from employees. That means spreading the wordon what the program is, how it will help the company and how it will be executed is crucial to achieve adoption andawareness from the front lines to the executive level.

Limited awarenessof performanceimprovement programs

Challenge Description Recommendations

Performanceimprovement is notincluded in strategy

Performance improvement is frequently omittedfrom corporate strategy, and executives havebeen known to downplay the importance of

these programs. This is primarily due to a lack ofawareness and understanding of the programsthemselves.

Management must take a detailed look at itsstrategic objectives, vision and goals to clearlyidentify how a performance improvement program

will contribute to the companys strategy.

Limited knowledgeof the performanceimprovement programby management andemployees

A lack of knowledge or understanding aroundperformance improvement inhibits the ability ofemployees to engage and contribute to the overallsuccess of the program.

Providing management and all employees withnecessary information about performanceimprovement is an essential part of ensuringteams are engaged and contribute to theprograms objectives.

Inadequate translation tothe oil and gas industry

Many of the statistical terms and concepts withinperformance improvement programs such as Leanand Six Sigma are not easily transferred to energysector companies.

Performance improvement teams must adaptterminology and tool sets to their respectivecompanies and industries without undermining thekey methodology and concepts.

Its important to have a strong awareness ofterminology and tools applicable and appropriatefor the oil and gas sector. Time must be takento thoroughly evaluate terminology and changewhen appropriate.

Inconsistentcommunicationregarding performanceimprovement

Companies that do not communicate performanceimprovement program information risk creatingconfusion among teams who may not understandhow the program relates to their job or how theycan contribute.

Consistent communication is required to ensureemployees remain a part of the process and theprograms success. This communication is not onlya requirement of executives and corporate teams,but also the middle-management individuals whommany employees look to for guidance and direction.

Unsupportive culturefor performanceimprovement

A limited awareness of performance improvementcan produce an unsupportive culture.

Culture is the subconscious backbone that helpsmodel behaviors, processes and decision-making.It is a key element that helps or hinders the successof a companys strategic initiatives.Management should strive to build a culture thatenables performance improvement programs. Thisbegins with a strategy and communication of thecultural transformational process.Creating a culture of performance managementhas been shown to be successful in enabling furthercost savings and improvements.


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Lack of coordination withonboarding and trainingprograms

Many rms do not include the culture and themethodologies that employees may see throughouttheir career in the onboarding program. There

can also be competing tool sets, such as projectmanagement and problem-solving training,that needs to be tied in to the performanceimprovement program.

Performance improvement teams must workwith human resources teams to incorporateperformance improvement information in

onboarding programs.All training programs that involve elements ofprocess improvement, root cause analysis, problemsolving or innovation need to be reviewed by theperformance improvement team to help ensurethat there is not any competing informationor methodologies that could lead to confusionamong employees.

Not includedin strategy

Not seen as acritical component

Tools not adaptedfor O&G

Behaviors andactions nottranslated

Limitedawareness

Unknownapplicability

Downplayimportance

Differentapproaches

Competingtool sets

Inconsistent Lack ofknowledge

Unaware

Knowledge of processmanagement by

employees

Communicationof performance

management

Limitedawareness

Not includedin training and

onboarding

Unsupportiveculture

Inadequatetranslation for

employees

Most leaders today expect change to be a rapid event; a one-time occurrence.They grow impatient when told change goes through a series of phases that, intotal, require a considerable length of time. A change conversion requires profoundchanges in thinking and deeply established habits. I have found the successfulleaders are those that behave daily in particular ways. In other words, successis based on what you do, not on who you are. These leaders recognized that themethods they insist on others using are ones they themselves adopt.Mike Bonine, Continuous Improvement, Devon USA


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Reduced understandingof potential bene ts

The second most common challenge to overcome when implementing performance improvement programs is ensuringeach and every employee, at all levels, understands the program and the potential bene ts. Its not enough for acompanys workforce to be aware of the program. To contribute to the programs success they rst must understandthe objectives and process.


Limited knowledge ofsavings as the mediansavings reportedfrom performance

improvement is US$180kper project

Research from iSixSigma shows that the averagedollar amount saved from Fortune 500 companiesemploying performance improvement tools isapproximately 2% of total revenue. The median

savings reported from performance improvementis US$180k per project. But while cost saving isa signi cant measure of success for performanceimprovement programs, many companies neglectto track this information.

Performance improvement program success canbe measured as cost savings, cultural integration,customer satisfaction, reduction in cycle times,or a number of other metric factors that can be

translated back to a de ned dollar value.Managers must increase their awareness ofthe potential savings to ensure the bene ts ofa performance improvement program can befully realized. Having this understanding will alsoallow them to question values outside of anyexpected ranges.Potential soft savings must also be discussed andoutlined to management in advance as it is notalways possible to measure soft savings, and someof these savings can support strong improvementsthat create value similar to that of a hard saving.

Inadequate measurement

tools

Tools used to measure performance improvement

savings are frequently inadequate. Tracking andmeasuring bene ts is usually not standardized,leading to inconsistency in how these bene tsare reported.

A process or documented approach to measuring

performance improvement bene ts should bein place in order for companies to adequatelycalculate the value of items saved within theproject. The framework should be establishedto validate the savings seen to ensure accuracyand credibility.

Incorrect personnelusage for savingsmeasurement

Having the right people in place to validate costsavings information is extremely important andmany times overlooked. Companies often deferthese responsibilities to nancial or accountingpersonnel who may not be integrated into theperformance improvement business unit.

Validation requires dedicated personnel. Companiesmust involve accounting and nancial personnelwithin performance improvement divisions to tracknancial bene ts in addition to operational peoplewith the proper technical knowledge to determineaccurate savings.Management should take an active role de ning

how and when to validate savings, including whodoes the validation. Auditing validation techniqueswill help establish consistent and repeatablemethods.

Responsible, proactive and innovative decision making can keep the focus onsustaining achieved bene ts. Continuous improvement must be diverse andproductive over time as conditions change.Andy Brooks, CEO, Flint Transeld Services


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Inconsistent reporting ofcost savings

External communications, such as corporateannual reports, are known to describe performanceimprovement programs but do not report savingsadequately. This may be due to inconsistent

support for the tracking and reporting of savingsand limited resources or capabilities in place,leading to confusion internally in what theperformance improvement program has actuallyachieved. Differences in what is tracked betweenteams or areas can also create internal confusion.

Management should ensure that externalcommunications are a direct re ection of thecurrent state of a performance improvementprogram. Accurate reporting of the savings will

help foster a stronger culture and understandingof the program.A developed process for communication andreporting can also deter dishonest behaviorcommunicating unfair or untrue results.Consistent reporting and communications ofsavings should be seen both internally, as well ascommunicated through annual reports and investorpresentations to ensure and establish consistency.

Credit for savings Identifying the appropriate person or individualto report performance improvement programsavings is also a challenge. Without addressingthis issue head-on, resistance against the program

can develop.

Challenges and resistance can be developed withinteams around who should report savings. A clearunderstanding of who captures and reports thesavings must be clearly articulated in advance.

Outlining the governance around reporting,whether owned by the team that completed theimprovement or a centralized team that compilesall improvement information and reports for theentire rm, is necessary to make sure teams do notfeel as if they are not receiving the proper credit orawareness for the hard work and signi cant gainsthey have made.

Performance management can bring bene ts throughout the project

lifecycle from design through to construction and operations. Realizing thepotential of these bene ts represents the added value which rms can captureincrementally throughout the delivery model. The improvements in results thatare possible supports leadership with greater likelihood of success in terms ofrisk, cost and time management.

Robert J. Beekhuizen, VP Construction, Fluor Canada Limited


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Inadequate support fromupper management

A major obstacle in ensuring a workforce is both aware and up-to-speed on their companys performance improvementprogram is a lack of support from all levels of management. Upper management must set the tone from the top, andthis must trickle down throughout the layers. Leading by example goes a long way in motivating employees.


Performanceimprovement is notemphasized in company

strategy

Tying performance improvement to companystrategy is surprisingly uncommon despite thedirect correlation between a successful strategy

and performance improvement program results.If performance improvement is not tied to strategy,upper management is more likely to halt theprogram as it may not align with business goals.

Given that performance improvement programsare generally adopted companywide, theyrequire a direct link to the strategic objectives

of the company.Inclusion of performance improvement as a keystrategic item can help build support for theprogram itself and acknowledge it as a key strategyfor the organization moving forward.

Insuf cient guidanceon managementinvolvement andrequirements

There is insuf cient guidance on how managersshould interact with a performance improvementteam and when they should be present throughoutthe program process. In what capacity to involvemiddle management is also unclear but necessaryto resolve to avoid roadblocks to decision-makingand change management throughout the program.

Clear expectations for management involvementmust be established before a performanceimprovement program begins, including what theprogram will mean for managers and how theyshould interact with project teams.

Confusion at theemployee level dueto managementmisunderstanding

Limited support for performance improvement atthe management level can lead to challenges atthe employee level. Employees to be affected by aperformance improvement program need strongguidance and leadership in order for the programto be successful.

Employees must be engaged and managedthroughout performance improvement programsin order for them to reach their full potential andcreate cost savings. Effective guidance also helpsalleviate misunderstandings.To avoid this challenge, companies can implementmanagement and leadership training to betterunderstand how they can lead teams throughoutthe process.

Limited or insuf cientincentives

There are few incentive programs in place tomotivate the successful application of performanceimprovement program results, yet rms thatemploy a reward system demonstrate greatersuccess rates.

Management needs to consciously provide positivefeedback so the workforce feels it is recognizedfor good performance.Tying employee rewards to performance

improvement projects can lead to more successfulcompletion rates and savings. It also providespositive reinforcement for employees whounderstand the value they bring to the rm and itsstakeholders.Companies communicate successes throughoutthe project that engage teams and maintainmomentum.


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Constant management commitmentis the number one lever to enable

delivery of top-quartile performancevia continuous performanceimprovement projects from myexperience. It is analogous to safetyperformance improvement wherelack of management commitmentequates to substandard safetyperformance.Charlie Malone, Kurdistan Development Manager,Talisman Energy Inc.


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Improper governanceduring implementation

Leadershipcommitment

Qualitycouncil

Cross-functionalprocess

managementteam


managementteam


managementteam

Businessprocess

redesign team

Businessprocess

reengineeringteam

CIteam

Process

Process

Process

Process

BU/Divisionbusiness process

champion


champion


champion

GPE

Executivechampions

Day-to-dayperformancemanagement

Project-basedimprovement

activities

Improper governance of key projects can be devastating to midsize and juniorcompanies because the impact of higher costs or delayed cash ows is ordersof magnitude greater than that for major companies. However, the key forsmaller companies is to nd t for purpose processes that provide the rightbalance of control and governance without sti ing speed and exibility typically an advantage of smaller organizations.Shane OLeary, COO, Gran Tierra Energy Inc.


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A governance structure needs to be established and rolled out with the program and each level of the governancestructure has speci c roles, responsibilities and authority levels. There also needs to be a linkage on how this relates tothe rms organizational hierarchy governance structure to tie each element in and ensure employees are not confused.The interaction points at each level need to be understood and aligned. Failure to provide proper governance can causea series of unwanted challenges.


Undeveloped and uncleargovernance structure

Many projects are built without a governancestructure or one that does not enable effectiveproject success. Its often the case thatmanagement does not have a comprehensiveunderstanding of the policies and guidelines thatshould be put in place, as well as the resources andauthority levels that should be developed.

Management must develop and articulate agovernance structure that clari es who will makedecisions throughout a performance improvementprogram, along with when and how. This must becommunicated to individuals at the executive andfront-line level who each have a role to play.

Misunderstanding ofgovernance

Many projects span across several companyareas with multidisciplinary project teams, andyet governance is not well understood by all thenecessary individuals.There is a limited understanding acrossorganizations that performance improvementgovernance is distinct from organizationalgovernance. This can lead to miscommunicationsthat cause project delays.

Members of performance improvement teamsmust understand that project governance maynot directly tie to organizational governance.Companies should develop a set of governancepolicies over how to pick and prioritize performanceimprovement implementation activities and theallocation of resources. This may be tied to a

functional team or a steering committee.

Empowerment to makedecisions

Individuals involved with performance improvementprojects may have limited empowerment to makedecisions related to their project. Involvement ofsenior management as a decision maker in all casescan have a dramatic effect on the project.

Decision-making authority should be clearly statedin the roles and responsibilities for a project,including how employees are empowered.Empowerment can be as simple as having a websiteor email address that enables everyone across theorganization to submit ideas and suggestions forimprovement. Teams can develop an executiveand leader guide on project decision making anddeployment that shows where they t, necessaryleadership training and important items.

Governance causesincreased cycle timesand waiting

Decision-making, if not made at the correct level orclearly understood by the decision-making party,can increase the time it takes to receive approvals.

Establishing an escalation process along withmeasures to monitor and track approval timescan help to mitigate delays or identify wherethey may be occurring. Clarifying approvalprocesses, guidelines, standard documentationand timelines can ultimately help create a morestreamlined process.


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Even if a performance improvement project has full awareness and support, the bene ts are understood and theimplementation is properly governed, the positive results from the project must be sustained. Too often projects areimplemented with good intentions, but a company falls back into old habits, thereby negating the intended bene ts.

Insuf cient sustainabilityof achieved bene ts


Limited culture ofsustainability

Sustainability is a mindset that requires disciplineat both the management and employee levels.Neglecting to sustain a program wastes a largeamount of resources, time and cost.

Performance improvement programs mustbe sustainable and repeatable. Managementmust understand that it needs to have a directinvolvement in building a culture, guiding,communicating and providing the project teamswith tools to help build a culture of sustainability.

Insuf cient tools to

maintain sustainability

Sustaining performance improvement program

bene ts takes work and persistence. But toooften companies are not equipped with tools ortechniques to aid in the sustainment process.

Companies can take steps toward reinforcing

and maintaining a culture of sustainability bycommunicating how the program is evolving andwhat it can mean now or a year later. Creating anemployee suggestion program is another methodcompanies can undertake by designating anindividual that will be responsible for providingimmediate feedback to the employee whosubmitted a suggestion.

Inadequatecommunication of projectresults

There can be little incentive to continuecommunicating the results or bene ts ofperformance improvement once the program iscomplete. As a result, employees may becomeunaware of what their work or the work of theircolleagues accomplished. This can have severeconsequences on buy-in for future projects.

Communication is integral to building a cultureof sustainability over the long term. Internalcommunications is an effective tool to motivateongoing change throughout an organization.Managers must translate their programs successinto meaningful, and easily understood, metricsthat resonate at all levels of their workforce.

Limited incorporation ofchange management

Change management is important before, duringand after a PI program is in place. There are bestpractices around change management, but theseare often de-emphasized in favor of pushing aheadwith project activities.

The company needs to support and put in place theresources, tools and communications to supportstrong change management for PI projects. Thisincludes support for innovative and out-of-the-boxthinking, which can be developed with these typesof programs.

Performance management is crucial to any organization and valuable to not only measureperformance but establish governance, and ensure the right outcomes are achieved throughdesired actions and behaviors. Applying performance management will enable us to understandopportunities for enhancement and effectiveness; while empowering staff to execute on these,building a culture of excellence and increasing our stakeholder con dence. On the other side ofthe coin, it provides con dence to the regulator, in rms when they themselves have performancemanagement programs.Tristan Goodman, VP Strategy & Regulatory Development, Alberta Energy Regulator


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Developing a continuous improvement program is a journey and one that takes time. Though wins maybe captured along the way, its important to rememberthat performance improvement is a timely step-by-stepprocess. Companies must remain focused until the end.That means to not lose sight of long-term goals andstrategies in exchange for short-term payoff, especially ina uctuating market and oil and gas price environment.Sustainable changes lead to long-term savings.

Many of the key successes for performance improvementprograms evolve in their nature as companies workthrough each of the levels of program development. Bearin mind where your company started from and whereyou want to be in the future. Companies should considerwhere they fall on the performance improvement maturitymodel referenced below. The model outlines each of theve levels of program implementation and describes theexpected evolution of an organization as it progressesthrough the levels. Understanding your objective can helpfocus teams on what they need to accomplish.

In todays increasingly complex and global world, oiland gas companies face a variety of new challengesstemming from tighter regulations, growing sustainability

and environmental awareness, complex operations,geopolitical risks, and partnerships and joint ventures.High-performing companies will be those that canmanage the complexity of all these forces by simplifying,streamlining and continually improving their processes.Performance improvement comes down to supportingef ciency, cost-effectiveness and shareholder value.

Reaping the bene tsUsing performance improvementfor long-term gain

How leaders decide to executecontinuous improvement withintheir organization is a criticaldecision. Mandating use of a singlemethodology is an option and willcertainly deliver results. Anotherstrategy is to consistently and visiblysupport an improvement mindset

and to support employees with atforpurpose suite of methodologiesand tools to help develop and executetheir improvements. Suncor isnding that sustainable improvementcan be achieved through mindsetversus mandate.Pat Stevens, Director Manufacturing & ProductionAnalysis, Suncor Energy

Culture change

Beyond DMAIC

Strategy maturing

Software

Reporting

Financial impact

Project selection

People

Training

Leadership support

Anecdotal

Ad hoc

Running platform

Driven few

Champion, exec.

1 or 2 visionaries

Excel stats

Aggregate, average

Cost reduction

Low hanging

More believers

External

Validated

Maps, goals

Project tracking

Aggregate, average

Consistency, EP

Copy success

Career development

External, custom

Across company

DNA of org.

IT, product dev.

Full closed-loop

Strategy + portfolio

Multi-year history

General ledger

Formalized eval.

Majority

Internal, specialty

Ingrained

Launch

Level 1

39 months 618 months 1236 months 2448+ months

Level 2 Level 3 Level 4 Level 5

Earlysuccess

Scalereplication

Institution-alization

Culturetransformation

DFS Lean

Project roll-up

Portfolio mgmt.

Cross-org. comps.

Validation

Idea pipeline

Repatriated

Internal, eLearning

Expected

Source: Maturity Model Describes Stages of Six Sigma Evolution, iSixSigma, www.isixsigma.com, 2010.

Developing a continuousimprovement program isa journey and one thattakes time


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A successful performance improvement program requires companies to understand and overcome commonchallenges by thinking thoughtfully and employing a variety of tactics. Though many tactics are problem-speci c,we have also identi ed a set of common critical success factors that companies should keep in mind.

1. Strategy integrationLinking performance improvement programs to an organizations business strategy is an important step inhelping employees understand how the programs objectives support the companys vision. If leadership and,consequently, strategy do not align with performance improvement, a lack of support or priority placed onthe program will follow.

2. Management involvementManagement must understand the value, concept, tools and their responsibility within any performanceimprovement initiative, whether through training, leading by example or clearly communicating governancestructures, to support the programs success.

3. CommunicationDeveloping a communications plan and process that distributes essential information relating to aperformance improvement program throughout a companys workforce is an important factor in ensuringsuccess. Equally important is a companys ability to communicate necessary information about the programto external stakeholders, such as vendors, suppliers and joint venture partners.

4. Industry-speci c trainingMaterials and communications should be created in a way that the business can relate to them (i.e., by usingoil and gas examples) for employee and leadership training. Using language that employees can relate towill support faster understanding, adoption and buy-in.

5. Simple and exible conceptsConcepts described in the materials should be kept simple to support adoption by the business and changingneeds. Avoiding jargon and focusing on concepts and messaging that are easily understood are importantconsiderations to avoid employee confusion when developing new materials.

Setting the stage for successTop 10 success factors


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6. Tracking and monitoring Tracking, monitoring and validating performance improvement efforts ensures companies are receivingan up-to-date and accurate measure of their programs success. Having this information on hand meanscompanies can take action and focus on areas that are less successful within their program.

7. Transferable material Material should be created in a way that can be easily shared throughout an organization. Making content

accessible enables employees to better educate themselves on the program.

8. Oil and gas experience

Teams undertaking a performance improvement program in the energy sector require a necessary set ofskills and experience, as well as a thorough understanding of the sector. Understanding issues speci c tothe sector better equips teams to create viable solutions.

9. Local teams Hand-in-hand with developing teams with oil and gas experience is ensuring that the team includes

individuals with on-the-ground experience in that market who can provide local context.

10. Employee development Certi cation is tied to employee development and promotion throughout the company. Its important to

build a structure whereby employees understand the performance improvement development ladder,are recognized for reaching certain capability levels, and have a structured skills development approach.


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Our robust methodologyWith our deep understanding of the oil and gassector, we offer a complete end-to-end performanceimprovement transformation approach that spans boththe up-front identi cation and diagnoses of opportunitiesthrough to design delivery and sustainment ofthose opportunities.

Our approach can support oil and gas clients in theoverall program and program deployment or speci cone-off initiatives in particular business areas. Weoffer process-led transformation programs; fulsomeprogram development and improvement; stand-aloneprocess projects focusing on a particular process,function or issue identi ed; and process work streamswithin a program. We recognize that one size doesnot t all and customizing our approach in the earlystages of an engagement is critical to success. Wealso support the building of internal client capabilitiesthrough coaching and employee developmentprograms and the monitoring, reporting and controlof programs overall.

How EY can helpOur approach to performanceimprovement success

Creation of theprocess enterprise

Process improvementaccelerators

Capability build

Program andchange management


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Identify

Enterprise architecture diagnostic

Rapid operational assessment

Structure, control and govern the program

Integrate and accelerate

Stewardship and capability excellence

L e v e

l s e

t t i n g a n

d b u y - i n

U n

l o c

k t h e v a

l u e s

i g n - o

f f

Foundations for long term value

Inspirational design Unlock the value

Diagnose Design Deliver Sustain

Internal current-state validation Processes Systems People Performancemanagement

Validate strategy and op-model alignment Operating model and strategy validation Process and enterprise maturity, value chain analysis Hypothesis-based approach High-level quick wins identi cation

Investigate current initiatives Identify and validate historical and ongoing improvement initiatives Assess business alignment and new prioritization of initiatives Design quick wins

Program management and validation Address consistent process controls and program governance,and monitor timeline and budget

Monitor process performance and identify non-realized bene ts Validate bene t realization through monitoring and trackingChange management Facilitate stakeholder management, commitment and communication

External andinternalbenchmark Peer group

GAP analysis Baseline De ned KPIs Processes(core/standard) Systems People andgovernance

Perf. mgmt. Business case

Detail design Processes Systems Governance Performance mgmtframework

Capability build/readiness assessment

Risks and control Future-state processmaps (level 1-4)

Prioritized road mapfor delivery phase

Detailed business case

Implementation Implement the integrated processtransformation design

Re ne and stabilize implementation Initiate continuous improvement Extend program to the wider enterprise Assess business case after project

Quick wins process/perf. improvement Resulting from detailed design identi cation Resulting from initiatives listRepair and x work stream Alignment with integrated design Point solution (Six Sigma, etc.)

Enable and create sustainability Knowledge transfer and capability to self-improve Extensive deployment of new tools and techniques

Accelerate initiatives Fallout of diagnosephase quick wins

Newly prioritizedinitiatives


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EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services.The insights and quality services we deliver help build trust and confidence in thecapital markets and in economies the world over. We develop outstanding leaderswho team to deliver on our promises to all of our stakeholders. In so doing, we playa critical role in building a better working world for our people, for our clients andfor our communities.

EY refers to the global organization, and may refer to one or more, of the memberfirms of Ernst & Young Global Limited, each of which is a separate legal entity.Ernst & Young Global Limited, a UK company limited by guarantee, does not provideservices to clients.

How EYs Global Oil & Gas Center can help your businessThe oil and gas sector is constantly changing. Increasingly uncertain energypolicies, geopolitical complexities, cost management and climate change all presentsignificant challenges. EYs Global Oil & Gas Center supports a global network ofmore than 9,600 oil and gas professionals with extensive experience in providingassurance, tax, transaction and advisory services across the upstream, midstream,downstream and oilfield service sub-sectors. The Center works to anticipatemarket trends, execute the mobility of our global resources and articulate pointsof view on relevant key sector issues. With our deep sector focus, we can helpyour organization drive down costs and compete more effectively.

For more information about our organization, please visit ey.com.

2013 EYGM LimitedSCORE DW0294 CSG 1126867 ED 0114The views of third parties set out in this publication are not necessarily the views of the global EY organizationor its member firms. Moreover, they should be seen in the context of the time they were made.

This material has been prepared for general informational purposes only and is not intended to be relied uponas accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

ey.com

You can also connect with us using social media:

@EY_OilGas Ernst & YoungGlobal

Ernst & Young GlobalOil & Gas Center

Lance Mortlock+1 403 206 [email protected]

Jil Macdonald+1 403 206 5271

[email protected]

Steve Demers+1 403 206 [email protected]

Contact us

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