allowing a more agile shift in investment across
units based on results.
Motive and context will likely determine how
Chinese oil and gas companies respond to lower
prices and new technology disruptions. Drawing
on the postal and power cases, four archetypes of
potential strategy response arise:
• Supply security focused harvesters: These
companies ensure supply security or
near-term employment, and harvest value
from legacy assets during the transition period. However, as was the case with USPS,
they face the risk of shrinking considerably as
the market changes around them.
• Constrained niche growers: These companies
have aspirations for growth, but regulation or
capital constraints prevent them from moving
beyond conventional oil and gas business
areas. They focus on streamlining their core
functions and growing within niche markets
such as chemicals.
• Dividing conquerors: Acknowledging the
potential for misaligned internal incentives,
these companies split into two with one
focused on harvesting value from legacy
hydrocarbon assets to deliver near-term supply security, dividends or employment, and
the other focused on delivering long-term
growth by developing new technologies or
wider energy sector diversification.
• Transformative diversifiers: In contrast to the
above, these companies move quickly to a
new energy service model, catalysing change
and gradually selling off their least profitable
legacy assets to finance the transition. They
have the potential to deliver long-term growth
but are riskier; supply security, employment
and profitability outcomes are uncertain.
The different archetypes for oil and gas
company strategy will be accompanied by several organisational considerations. Supply security focused harvesters will likely maintain a
top-down approach with central control of big
decisions. In contrast, constrained growers will
have to enable agile decentralised units to
efficiently capture niche markets. Their central
functions will be focused on portfolio optimisation, as well as asset management and organisational efficiency. Companies that face significant
internal cannibalisation between old and new
business units will likely become dividing conquerors. Like Royal Mail and DONG Energy,
these companies will strategically and operationally split, but could be managed as a conglomerate
that
carries
over
existing
organisational strengths. Finally, transformative
diversifiers will likely adopt more horizontal
organisations structured around energy services
rather than production. Like Deutsche Post, their
organisations will likely be flatter with a series of
relatively autonomous units supported by service
divisions that leverage synergies across the
group.
Motive and context are not set in stone but
controlled by stakeholders, and the Chinese government can therefore shape strategic and organisational outcomes in its oil and gas industry. As
the owner of national oil companies, the Chinese
government can shift the motive driving strategic
and organisational change. Supply security
requirements could be lifted by reducing fixed
reserve targets; incentives to maintain unproductive workers could be minimised by reducing local
political oversight; and near-term profitability
motives could be eased by adopting longer-term
key performance indicators for managers. Furthermore, as a regulator and key stakeholder, the
Chinese government influences the context in
which oil and gas companies will respond to
structurally lower prices and technology disruptions. For example, capacity development could
be supported through public-private R&D
schemes, regulatory constraints could be reduced
by lifting natural monopolies, and capital limitations could be minimised by providing policy
clarity (this would allow rents from legacy assets
to be channelled sooner towards financing new
investments). An important lesson from both the
postal and power sectors is that the government is
key in setting the conditions that determine
strategic and organisational change. Policymakers
who recognise this will be able to directly or
Special Report 1: A Study of China’s Energy Supply Revolution
51
units based on results.
Motive and context will likely determine how
Chinese oil and gas companies respond to lower
prices and new technology disruptions. Drawing
on the postal and power cases, four archetypes of
potential strategy response arise:
• Supply security focused harvesters: These
companies ensure supply security or
near-term employment, and harvest value
from legacy assets during the transition period. However, as was the case with USPS,
they face the risk of shrinking considerably as
the market changes around them.
• Constrained niche growers: These companies
have aspirations for growth, but regulation or
capital constraints prevent them from moving
beyond conventional oil and gas business
areas. They focus on streamlining their core
functions and growing within niche markets
such as chemicals.
• Dividing conquerors: Acknowledging the
potential for misaligned internal incentives,
these companies split into two with one
focused on harvesting value from legacy
hydrocarbon assets to deliver near-term supply security, dividends or employment, and
the other focused on delivering long-term
growth by developing new technologies or
wider energy sector diversification.
• Transformative diversifiers: In contrast to the
above, these companies move quickly to a
new energy service model, catalysing change
and gradually selling off their least profitable
legacy assets to finance the transition. They
have the potential to deliver long-term growth
but are riskier; supply security, employment
and profitability outcomes are uncertain.
The different archetypes for oil and gas
company strategy will be accompanied by several organisational considerations. Supply security focused harvesters will likely maintain a
top-down approach with central control of big
decisions. In contrast, constrained growers will
have to enable agile decentralised units to
efficiently capture niche markets. Their central
functions will be focused on portfolio optimisation, as well as asset management and organisational efficiency. Companies that face significant
internal cannibalisation between old and new
business units will likely become dividing conquerors. Like Royal Mail and DONG Energy,
these companies will strategically and operationally split, but could be managed as a conglomerate
that
carries
over
existing
organisational strengths. Finally, transformative
diversifiers will likely adopt more horizontal
organisations structured around energy services
rather than production. Like Deutsche Post, their
organisations will likely be flatter with a series of
relatively autonomous units supported by service
divisions that leverage synergies across the
group.
Motive and context are not set in stone but
controlled by stakeholders, and the Chinese government can therefore shape strategic and organisational outcomes in its oil and gas industry. As
the owner of national oil companies, the Chinese
government can shift the motive driving strategic
and organisational change. Supply security
requirements could be lifted by reducing fixed
reserve targets; incentives to maintain unproductive workers could be minimised by reducing local
political oversight; and near-term profitability
motives could be eased by adopting longer-term
key performance indicators for managers. Furthermore, as a regulator and key stakeholder, the
Chinese government influences the context in
which oil and gas companies will respond to
structurally lower prices and technology disruptions. For example, capacity development could
be supported through public-private R&D
schemes, regulatory constraints could be reduced
by lifting natural monopolies, and capital limitations could be minimised by providing policy
clarity (this would allow rents from legacy assets
to be channelled sooner towards financing new
investments). An important lesson from both the
postal and power sectors is that the government is
key in setting the conditions that determine
strategic and organisational change. Policymakers
who recognise this will be able to directly or
Special Report 1: A Study of China’s Energy Supply Revolution
51