Entrepreneurial strategies and organizational renewal within the offshore service vessel industry

Professor Odd Jarl BorchUniversity of Nordland.

LectureUniversity of Stavanger,

February 10, 2011

CV professor Odd Jarl BorchBodo 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 lecture1. More resource exploration in cold climate

(Arctic) environments 2. Increased complexity and uncertainty a

challenge for firms expanding into this area3. Show results from an action research study

within a ship owner company on management of change

4. Discuss barriers to change5. 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 Region1. Alaska-region Beaufort Sea – Chukchi2. Newfoundland to Baffin Bay3. Nuuk to Thule –West Greenland4. 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

Complexity:(no of stakeholders, size ofexpedition, interlinks, rules, regulations)

Turbulence/dynamismLack of predicta-bility-weather,-darkness-ice,-security

Mexican Gulf

North Sea

Norwegian Sea

Barents Sea South/ Greenland SW

Barents Sea East and North

Greenland North East

Lofoten region

Differences operational environmentThe North Sea

The Low Arctic

The High 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

Troms Vision VS 495 Kleven 2010 Troms Pollux/Artemis VS 485 Hellesøy 2009

EXAMPLE: COMPLEXITY EXPLORATION WEST-GREENLAND SUMMER 2010

Fennica STX 1993

Balder/Vidar Viking KMAR808 Havyard 2000

Loke Viking VS4622 Spain 2010 (ICE 1A)

Stena Forth/ Stena Don

Esvagt Don/Challenger 2000

EXAMPLE 2The 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 - Inter-

organizational 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 strategies1. Improvements in products and technology2. Introducing new products and new

technology3. Reconstruction of competitive tools4. Added business and society relations5. 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, topdown structure

+

Vertical buyer-sellerrelations

+ ++ +++

Horizontal relationsto competitors

+ ++ +++

Reciprocalinteraction

+ ++ +++

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 familiarizationiv. Navigation vessel to/from operational area – rough weather, icev. Loading/discharging - dialogue and training base personnel vi. Transport to platform – extra time and nav. resourcesvii. DP positioning – correct signals, safety marginsviii. SAR – extra capacity and competence- special risk assessments ix. Fi-Fi/pollution prevention–ice, icing -extra tools, routines, trainingx. Towing – extra winch and engine capacity and competencexi. Ice management – extra ice breaker capacity and competencexii. Maintenance/ repairs –extra spare parts, yards, transportersxiii. Communication - other vessels and companiesxiv. Dialogue/PR – local government and interest groups

Management principles ship ownersNorth Sea Low Arctic High Arctic

Managementapproach:

Safety Management

Management of change

Business process management

Business model: Hierarchic-functional

Hierarchic-staff support

Entrepreneurial,Horizontal ad hoc

Capability : NecessaryCertificates

Adding staff Business processempowerment

Value chainintegration:

Sequential Work shop Reciprocal

Quality perspective:

Quality control Qualityimprovement

Total quality approach

Change focus: Revisions Incremental innovations

Open innovation

Risk focus: Stick to establishedrules and regulations

Risk assess-ment/changework plan

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!