The New Role of Leadership in a Changing Energy ArenaBy Amanda Duhon | Tue, 05/17/2022 - 11:00
All cultures evolve over time. Although many cultural participants resist change to protect and preserve the greatness of the past, the energy industry has historically not been subject to such fast-paced change and transformation as has been experienced most recently. Today, the main drivers of cultural change for the energy industry – modification of an organization through innovation and best-practice exchange, in this context – are climate change, competition, and the principle of people. At the heart is the need for leaders to accept a new culture, be agile, and act quickly.
Let’s talk about culture for a moment, specifically as it pertains to organizations such as medium-to-large energy companies. Organizations are complex; they may be considered as social groups, or systems, comprising individuals working together to meet a set of goals and objectives. Just as culture changes and adapts to its environment, so do organizations. To maintain a current environment, managers keep tight grips on those they manage, act swiftly in times of crises, mentor employees, enforce policies regarding bonus incentives and promotions, and encourage the pomp and circumstance of ceremonial rites.
Just as cultures change over time, so do the inner workings of organizations. It is a form of Darwinism: both the organizations and the cultures that encompass them are organic. Those that encompass values and beliefs, people, policies, and behavior conducive to success will survive. Through an organization’s life, its culture provides for longevity within every aspect of its operation. Culture is a survival mechanism; however, it may also precipitate organizational doom.
Organizations must deal with contingencies and have set plans for the same. Those that seek growth will gain competitive advantages – such as the capacity to create more value from resources and the ability to outperform other companies – and find success in dealing with such events. Organizations do this through skills and abilities in value creation or core competences. Strategic management is also required where a pattern of decisions and actions involving the organization’s core competences provide for competitive advantage.
Growing organizations must also manage diversity. Differences in members’ race, gender, and ethnicity have important implications for organizational culture and effectiveness. Diversity within an organization promotes efficiency, speed, and innovation – effectively creating value and enhancing the organization’s function. Change becomes a continuum where cultural re-design becomes a fact of life; the successful organization will learn to create flexible designs to leverage competitive strengths. When organizations are averse to change, they decline. Talented employees leave to take positions in growing organizations and resources become more difficult to acquire.
An example of a “perfect storm” for an organization is the COVID pandemic, which hit like a Gulf of Mexico hurricane. Each gust of wind impacted the energy sector, from company closures, lay-offs, the new “work from home” environment, and an industry downturn, with project cancellations or postponed final investment decisions (FIDs), to the urgent need to save humankind from climate change. Leaders have had a tough road traveled, with many flat tires along the way. This was a “shock” moment; or in this context, the experience of uncertainty or confusion within leadership when external or internal factors force cultural change within an organization and/or specific industry.
The trigger may be anything, from a merger to crises, that requires the organization to change its practices.
Two years later, the COVID “shock” is still prevalent, with impacts causing a domino effect: rising interest rates, price volatility, supply chain bottlenecks, 30-year high inflation, green conditionality on financing, net-zero scopes, and the Great Resignation. The winners will continue to be those leaders who accept that they cannot control a changing culture but they can control how they react to the shock.
Following COP26, the energy sector is racing to bring to fruition carbon-free and carbon-mitigation technologies to transform oil and gas operations; scale wind, solar and other renewable energies; and adopt technologies, such as hydrogen and Carbon Capture, Utilization and Storage (CCUS). The winning leaders will be those who embrace the paradigm shift of energy transition and net zero. Whether via the electrification of oil and gas operations, bringing a wind vertical to the business, or diversifying into other industries, companies with leaders who create an offering based on commercially viable, at-scale technologies will prevail. While addressing climate change and integrating sustainability within the business, leaders ensure their organizations remain competitive.
Furthermore, leaders who consider the human factor when leading may find shock moments to be less chaotic. This holds true when discussing the pandemic, industry downturn, or the Great Resignation and its ultimate consequence of substantial labor demand and low employment rates. Considering the extensive amount of literature discussing the reasons for the Great Resignation, such as low wages, dreary positions, and the need for flexibility, leadership is one of the main drivers. With companies developing and implementing new technologies around the energy transition and net zero – as well as taking on new verticals or entering new sectors –leaders need a team with the skills necessary to carry forward new alignment. These change agents should not be necessarily from traditional backgrounds, either; innovation happens when unlike minds come together. Finally, flexibility is now a demand of employees. A hybrid work environment must be supported by leaders. In turn, leaders are able to reap the rewards of more sustainable operations, such as the reduction in travel emissions and expenditure; filling resource shortages without the constraint of an applicant’s residence; and less expenditure toward infrastructure.
The tally sheet of winners and losers is still out. However, the winners are those leaders who have leveraged – and continue to leverage – the enabling roles COVID, the energy downturn and climate change provide for proactive cultural change in our industry.