A COSIA Newsletter
Issue 05 - June 2015
Enabling Innovation: Insight from the Innovation Summit
COSIA’s Innovation Summit took place at the Banff Springs Hotel, March 31 to April 2. The conference consisted of five streams, focused on the work being conducted by member companies in each of the four Environmental Priority Areas (EPA) and Monitoring. The second and third day of the conference featured a sixth stream, focused purely on the concept of Innovation and how it can be fostered at both an individual and corporate level.
Each issue of Collaborator features the work one of our members has done to integrate COSIA as a tool for innovation into their organization, in order to inspire our members and organizations outside of COSIA – and the oil and gas industry – to enable innovation within their own organizations. Andrew Swart of Monitor Deloitte’s presentation, entitled Enabling Innovation in Oil and Gas, focused on 10 types of innovation and how to enable innovation within an organization. It touches on a number of the principles our members are implementing to make themselves and COSIA better innovators.
According to Andrew, “Innovation is the creation of a new viable business offering.” He says innovation in oil and gas is currently being driven by increases in technical challenges, community or board activism, and/or environmental concerns. The industry is also facing an environment of falling prices, rising costs and increasing operational complexity.
“The only way to achieve a step change is by doing things differently,” says Andrew: “through innovation.”
He explains many organizations are hesitant about innovation because they confuse it with invention. Invention often involves putting large amounts of time, money and effort into developing completely transformational technologies, usually in the form of products.
“Innovation encompasses invention, but it also encompasses much more. Innovation also involves the adoption of technologies new to an industry or an organization. It’s about more than just products. It can be about how you configure as an organization or how you create a new customer or stakeholder experience.
Innovation requires companies to add or develop new assets and capabilities by definition; they must build them, buy them or partner for them,” says Andrew. In order for companies to use their innovation budgets wisely and become “serial innovators,” they have to do three things:
- Be explicit about your innovation ambition.
- Look beyond product and technology innovations.
- Build an innovation discipline.
Be explicit about your innovation ambition
Innovation doesn’t have to be transformational either; in fact, Andrew says it’s important for organizations to manage a portfolio of innovations in three areas:
- Core: Optimizing existing products for existing customers.
- Adjacent: Expanding from existing business into new-to-the-company business.
- Transformational: Developing breakthroughs and inventions for markets that don’t yet exist.
Each organization will require a different ratio of innovations in each of these areas, based on their level of ambition. However according to Andrew, most successful industrial companies tend to manage their portfolio with 70 per cent of their focus on Core, 20 per cent on the Adjacent and 10 per cent on Transformational innovation.
Look beyond product and technology innovations
Deloitte has identified 10 types of innovation that can occur within these broader areas. They fit into three groupings, as can be seen from the image below:
The most common types of innovation are related to an offering. They focus on core products and technologies. For upstream oil and gas operators, this means how the core product (hydrocarbons) is extracted. The second grouping of innovations focuses on the configuration of the systems and structures in place within an organization or business. The final four types of innovation fit into the experience grouping, which focuses on the relationship an organization has with its customers and stakeholders.
While innovations in the middle category are the most common, they are easy for competitors to replicate, which means they have lower financial returns. According to Andrew, innovating in areas further from the centre, which are harder to replicate, generates higher rates of return.
“The top innovators also integrate multiple types of innovation, which delivers superior financial return,” Andrew explains.
Build an innovation discipline
So, now that we know what innovation is and the types of innovation that can be pursued, how do you ensure an organization can innovate effectively and sustainably?
According to Andrew, successful innovators build a “rigorous” discipline into their organizations to realize their innovation ambitions. Creating a business environment with breakthrough innovation capabilities requires four building blocks:
- Approach: Establishing clear definitions and processes for generating innovations, including phases, activities, deliverables and decision rights.
- Organization: Creating innovation teams, divisions, leadership and interfaces that house innovation and connect it to the rest of the organization – and the world.
- Resources and Competencies: Hiring the right individuals with the right skills to perform the work of innovation and giving them the tools, training, time and funding they need to do it effectively.
- Metrics and Incentives: Developing targets to guide performance, measures to evaluate progress, and monetary and non-monetary incentives to drive the right behaviours.
“All four components must work as an integrated system to drive innovation reliably and repeatedly,” Andrew says. “It’s also important to have an integrated external innovation ecosystem made up of government, educational institutions and think-tanks, incubators, and organized networks like COSIA to drive collaboration with experts outside of the organization.”
Many of COSIA’s member companies, including Canadian Natural Resources Limited, Imperial Oil and Shell have begun to implement some of these key building blocks into their organizations to integrate COSIA into their day-to-day operations. This ensures the innovative ideas, technologies and projects being pursued by one member are fed back into COSIA, allowing other members to build on that work and look for further opportunities for future collaboration.