Organizational Flexibility in the Digital Age: The Stakes are Higher Than You Think
Authors: Perrons Robert K. 
Published: February 2015

Guest editorial

It is not uncommon for today’s reservoirs to be modeled in three or four dimensions with high-end computers such as those used by NASA, and a modern production system can be monitored by “smart” sensors that allow engineers to observe almost any aspect of its performance in real time. Indeed, few people would argue that the dawn of the digital oil field has arrived.

It therefore follows that this exciting new chapter in the history of the industry will give rise to a new breed of oil and gas professional. A large and increasingly loud chorus of voices in the industry is calling for the training of more “digital petroleum engineers” (Mahdavi 2008) who are familiar with both petroleum engineering fundamentals and information technology (IT) systems. To meet this demand, the University of Southern California is now offering post-graduate programs that link more traditional petroleum engineering curriculum elements with “smart” oilfield technologies and the IT skills that underpin them. And as reservoirs and production systems become ever more data-intensive, it is clear that this integrated approach to developing oil and gas curricula will almost certainly become more widespread.

But it is not enough. The oil and gas companies of the future will not only need armies of multiskilled employees but they will also need to adapt their organizational structures. Several groups within the industry—most conspicuously, the “digital oil field of the future” community—have made similar kinds of observations, and some have suggested that companies in the oil patch can more fully reap the rewards of the data revolution if they undergo some kind of organizational transformation that unleashes the true potential of the newly minted digital petroleum engineers (Jacobs and Ward 2006).

More at Stake

There might, however, be far more at stake for these firms than just modest improvements in efficiency. Several other industries have experienced organizational growing pains on account of new technologies, and their stories suggest that these kinds of organizational issues are often much more serious than they seem at the outset. In fact, some new technologies carry with them profound organizational implications that can have disastrous effects on industry incumbents. Far more alarming, however, is the fact that these threats are often virtually invisible to these companies until it is too late.

The technology-management community noticed several years ago that longstanding categorizations of innovations such as “radical” or “incremental” were no longer sufficient to explain what was happening in some situations. A different type of technological dislocation had emerged: architectural innovation. Whereas incremental or radical innovations are typically diagnosed according to the new-ness of the engineering and scientific principles that go into a product’s key components, architectural innovation occurs when there are major changes in how the components are linked together while leaving the core design concepts—and thus the basic knowledge behind the components—more or less untouched (Henderson and Clark 1990).