Juan Carlos Zepeda
President
CNH
/
Insight

Stuck Between Operating Structures

Wed, 01/25/2012 - 10:12

Pemex Exploration & Production is going through an internal organizational change that will transform it from being an organization based on assets and regions into a functional organization based on processes. The success of this new organizational model depends on having a clear definition of objectives and performance metrics which until now, are still pending.

The organizational change taking place at Pemex Exploration & Production is in line with international trends. At the global level, oil companies continue to move towards functional structures, aligning their organizations with the value chain of the industry and creating structures based on exploration, development and production activities. Naturally, this is accompanied by a decline of the predominance of asset-based operational structures, where the organization is divided by project.

Pemex e&p

The functional model is not by definition superior to the asset-based model; it is simply a form of organizational structure that facilitates a dierent strategy to achieve the same objectives. In the end, the eectiveness of an organizational model depends on its alignment with the objectives and strategy of the company.

The asset-based model is particularly suitable for performance assessment and accountability at the asset level, based on performance indicators in the production stage such as daily production and profitability. Performance on these indicators is typically driven by short-term objectives. This model is also geared towards the development of management skills aimed at generating results at the asset level, usually based on the indicators mentioned before. Depending on the objectives of the company, the asset-based model generally facilitates the achievement of objectives with regional impact, such as regional economic development, community integration, and attention to environmental performance.

One of the main strengths of the process-based model is its ability to drive the implementation of value-creation objectives in the medium and long-term, such as the discovery of new reserves, the development of new reserves and the development of proprietary technology. To implement this new organizational structure eectively, the performance indicators used by Pemex Exploration & Production should be aligned with the pursuit of more longterm oriented objectives that this model facilitates. The new performance indicators should facilitate performance assessment and accountability for each activity in the value chain. Moreover, a clear definition of responsibilities in the hand-over process of assets from the exploration division to the development division, and afterwards from the development to the production division, is essential for the operational eectiveness of this model. The functional organizational structure encourages the development of specialized technical skills that are particularly relevant in the face of technologically demanding challenges, such as the development of deepwater areas and unconventional fields.

Pemex e&p

In reality, oil companies never adopt a clear-cut solution. Experience shows the most common outcome is the implementation of a hybrid model that combines the functional model with the asset-based model.