The Key to Enhanced Shareholder Value - The Virtual Future Enterprise Model
Authors: Whiteside M.W. 
Published: June 2014

This Managementarticle is an edited version of SPE 71423 prepared for presentation at the 2001 SPE Annual Technical Conference and Exhibition held in New Orleans, Louisiana, 30 September–3 October 2001.

Since the 1986-87 oil price crash, the oil industry has made great technological advances that have enabled significant and continuing decreases in unit development and operating costs. But these technological advances, which include horizontal wells and deepwater technology, have come against the background of a decreasing resource base in the oil companies' home markets and an increasing sophistication of host governments in negotiating contracts and fiscal terms.

In the face of these pressures, many enterprises have been unable to deliver acceptable shareholder returns, and this has led to the recent spate of consolidations on both sides of the Atlantic. These consolidations have been justified on the basis of synergies that result mainly from manpower cost savings primarily derived from the more efficient deployment of knowledge workers.

But with technology now allowing us to exploit the harshest environments, and further major industry consolidation unlikely to meet regulatory barriers, future advances from the same sources will not provide the returns demanded by shareholders. Successful oil companies must look to alternative mechanisms for increasing efficiency, and this will have to occur against a background of an aging workforce, a declining experience base, and severe competition for knowledge workers.

These changes have resulted from an essentially conservative approach of technological development and cost cutting without a major restructuring of the way that enterprises make decisions and organize themselves to take account of future opportunities. The industry is trapped in static processes that are unsuited to the current business environment. Shareholders, partners, and host governments will demand increased performance, but significant gains are unlikely to come from the same means as in the past.

The enterprises that succeed will radically alter the way they operate. These enterprises will embrace uncertainty rather than avoid it, and they will learn to use it to their advantage in designing adaptive and integrated physical, contractual, and financial systems that are structured to dynamically adjust to changing conditions. These systems will provide the basis for making dynamic decisions at all levels of the organization. These decisions will be founded on the full knowledge base of the enterprise and full analysis of all alternative future courses of action.

Enterprises will recognize that to achieve this they must start from the edge of the organization. The knowledge and sensors of the organization are those workers and executives who actively interact with the environment. In a devolved organization, these workers are in the best place to provide knowledge to the rest of the organization and to act on opportunities as and when they occur.

Traditionally, the industry has dealt with issues relating to complexity by compartmentalizing processes. Apart from exploration risk, it has dealt with uncertainty and options by ignoring them in the planning process and dealing with them as they arise. The result is that the business is suboptimum and that many decisions are made by management intuition rather than by measured analytical decision processes.