OPERATIONAL EXCELLENCE IN HIGH RISK INDUSTRIESsphera.com/app/uploads/2016/09/Operational-Excellence-Survey-Rep… · OPERATIONAL EXCELLENCE IN HIGH RISK INDUSTRIES Key trends Affecting

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OPERATIONAL EXCELLENCEIN HIGH RISK INDUSTRIES

Key trends Affecting safety, Environmental, Asset and Financial performance

Sphera Special Report: The Future of Operational Excellence in High Risk Industries P a g e | 2


EU 18%

North America

57%

South America

5%

Middle East 10%

APAC 10%

Chart 1: Geographies of survey respondents

Operations 27%

EHS 12%

Operational Excellence

26%

Engineering 14%

Supply Chain 4%

Information Technology

4%

Other 13%

Chart 2: Functional Areas of respondents

Chemicals 9%

Metals & Mining

2% Power

Generation 1%

Oil & Gas 66%

Other (please specify)

22%

Chart 3: Industries represented by survey rspondents

EXECUTIVE SUMMARY Over the past 18 months, plunging crude oil prices have set off a series of rapid cost-cutting measures across

the oil and gas industry, including large-scale layoffs and delayed capital project delivery. While these

measures may reduce costs in the short-term, it’s not a long-term, sustainable strategy for improving business

performance. The oil and gas industry is not alone: commodity prices are at historically low levels across

mining, chemicals and other industrial sectors.

In order to maintain a competitive edge, companies operating in high-risk, asset intensive industries must

focus on creating more agile, cost-efficient and effective operations in spite of volatile market conditions.

Whether they specialise in energy, resources or chemicals, companies need new approaches to drive efficiency

and reduce risk in this rapidly changing landscape.

Recently Sphera Solutions and IQPC teamed up to survey more than 150 operations leaders across high-risk

industries to understand how leaders are responding to the current market conditions and setting themselves

on a more sustainable path. Are companies cutting Operational Excellence (OE) programs – or investing in

them? How is the current market volatility affecting how they approach operations management? What areas

of the business are they investing in over the next 12-24 months to reduce operational risk? How are they

using their operational data? We conducted this research over a period of six weeks to better understand

how companies are adapting and adjusting their operational excellence efforts in this environment of unprecedented complexity and volatility.

The majority of participants in this survey were

from North America (more than 57% of the

total). However, Europe and the Middle East

also represented a relatively large and growing

percentage of respondents.

More than 63% of our survey respondents

have an OE program, with 25% planning to

start one soon and only 10% indicating that

they had no plans to launch an OE program.

Operations, Operational Excellence, EHS and

Corporate Strategy topped the list for

functional areas surveyed.

66% of survey respondents were from the oil and gas industry, with the balance being split across

other high risk industries including mining, chemicals, power generation, engineering and

construction_and_transportation.



Other

Performance

Discipline

Execution of critical processes

Safety

Asset integrity

Cost efficiencies

7.4%

61.8%

4.4%

23.5%

35.3%

20.6%

42.6%

Chart 6: Area of the business our company sought to improve by implementing an Operational Excellence program

53% 27%

16%

4%

Chart 5: How long has your current operational excellence program been

operating?

Just started(1 - 4 years)

5 - 9 years

Longer than10 years

Don't know

Other

Board of Directors

Customers

Market competition

Financial lending

Public / communities

Internal leadership to drive financial performance…

23.5%

42.6%

36.8%

45.6%

4.4%

7.4%

83.8%

. Chart 4: Top three catalysts for creating an Operational Excellence program

..

TREND #1: OPERATIONAL EXCELLENCE PROGRAMS ARE ON THE RISE - AND FOR GOOD REASON IMPROVING FINANCIAL PERFORMANCE THE NUMBER ONE CATALYST FOR OPERATIONAL EXCELLENCE

The reasons for implementing an Operational Excellence program in a high risk indsutry like oil and gas may

seem obvious: OE should – when it’s done right - improve operational efficiency and standarization across the

business, thus reducing cost and risk and improving business performance. Our survey respondents all

seemed to agree on this point, with two most common drivers for implementing an OE program being

performance and cost efficiency. We also asked what the top three catalysts were for creating their OE

program and an overwhelming number – over 83% - indicated their number one catalyst was internal

leadership to drive financial performance improvements. Other strong catalysts for an OE program included

market competition, customers, and board of directors.

The fact is that OE has never been more critical to the high risk industries – while the reasons for having a

program remain the same, the impact that operational excellence can have on financial performance is greater

than ever. Historically low commodity prices, geopolitical events, disruptive technologies and increased

regulation means that the pressure to innovate – while simultaneously reducing cost and risk – is greater than

ever. Tough market conditions place operational excellence top of mind for most company executives, board

members, and shareholders.



66%

15%

13%

6%

Chart 7: Does your company have an integrated Management System to support your Operational Excellence Program?

Yes, we currently have an integratedOE Management System

No, but we plan to have an integratedsystem in the near future (1 - 3 years)

No, our company doesn't think it'snecessary

No, but I hope to start soon

31.9%

31.9%

24.6%

24.6%

17.4%

30.4%

23.2%

Other

Lack of budget

Lack of executive buy-in

Lack of alignment in expectations

Lack of infrastructure support

Lack of business justification

Business profile is too diverse for an integrated OE…

Chart 8: Barriers that are currently preventing respondent companies from adopting a management system for their Operational Excellence program

TREND #2: AN EFFECTIVE MANAGEMENT SYSTEM DRIVES OPERATIONAL EXCELLENCECOMPANIES THAT SYSTEMATICALLY MANAGE THEIR OPERATIONS WITH A SINGLE, INTEGRATED OPERATIONAL MANAGEMENT SYSTEM (OMS) ARE ON THE RISE

Many companies have formal management systems as a means to implement controls and set targets for

safety, quality, environmental and reliability performance. But, all too often the OMS is too complex and

bureaucratic, or is a “window dressing” that is driven more by compliance than performance. 66% of those we

surveyed indicated that they had an integrated OE management system with an additional 20% indicating they

planned to have one in the next 1-3 years. It is worth noting that of those surveyed, only 34% indicated they

were “very satisfied” with their OMS. So, we asked our survey respondents “what barriers are currently

preventing you from adopting a management system for your operational excellence program?” The top

barriers identified included lack of budget; lack of business justification; lack of executive buy-in and lack of

alignment_in_expectations.



54.7% 25.6%

17.4%

2.3%

Chart 9: Do you have an integrated process safety program that links your safety events, management of change (MOC) and risk assessment processes?

Yes, we have an integrated Process SafetyManagement program

We have a process safety managementprogram but it does not link our safetyevents, MOCs and risk assessment processes

No

Not sure

TREND #3: COMPETING PRIORITIES – AND SYSTEMS –IMPEDE SAFETY PERFORMANCE ONLY 24% OF THOSE SURVEYED ARE USING PROCESS & OCCUPATIONAL SAFETY DATA AND ANALYTICS TO IMPROVE PROCESSES

An integrated process safety management program that links safety events, management of change and risk

assessment processes reduces risk, prevents losses and increases shareholder value. But all too often

competing priorities and information silos exist that can significantly impede safety performance. Of the

operations leaders we surveyed, 42% indicated that “competing priorities” were the biggest impediment to

their company’s safety performance, with 22% indicating “decentralized information management systems” as

the second biggest impediment. Overwhelmingly, those we surveyed responded that they assess process

hazard risk at the asset / facility level versus on an enterprise-level, and close to 20% indicated that they are

using their process safety data primarily to capture lagging indicators and produce corporate reports. While

many innovators in high risk operations are embracing the use of data and analytics to drive risk management

from the operational frontlines to the executive offices, many companies are too bogged down by complexity

and_a_lack_of_a_programmatic_management_system_approach_to_operational_excellence.



Competing priorities

Decentralized information management systems

Poor leadership

Limited authority of HSE function/department

Employee turnover/ and changing workforce

Lack of employee awareness

None, my company exceeds its efforts

41.9%

22.1%

17.4%

11.6%

20.9%

22.1%

24.4%

Chart 10: Which of the following most impedes your company’s safety performance efforts?

24%

28% 9%

7%

19% 13%

Chart 11: How are you using data and analytics to improve your process safety and/or occupational safety performance?

We use metrics from critical riskprocesses to measure andcontinuously improve thoseprocesses

We derive leading indicators fromour own data and use them onscorecards

We mine our incident data forlearnings, thematic root causes,and other trends.

We apply metrics fromconsultants or other externalagencies to our monitoringactivities



Other

Asset performance

Incident management

Compliance assurance

Supply resilience and optimization

Environmental management

Management of change

Product stewardship

Process safety

Risk assessment

Quality risk management

Talent readiness and people development

1.2%

34.9%

8.1%

14.0%

11.6%

9.3%

30.2%

5.8%

12.8%

14.0%

9.3%

44.2%

Chart 12: Which top two areas do you feel need the biggest investment in your company in thenext 12-24 months?

TREND #4: LOOKING INTO THE FUTURE - BIG DATA AND ANALYTICS ARE ESSENTIAL IN DETERMINING LEADING INDICATORS OF SAFETY PERFORMANCE HARNESSING DATA AND ANALYTICS BOOSTS EFFICIENCY AND SAFETY PERFORMANCE - BOTH

CRITICAL MANDATES FOR HAZARDOUS INDUSTRIES GLOBALLY

We asked our survey participants about the top areas they felt needed investment in the next 12-24 months

and the responses were overwhelmingly “people development”, “asset performance” and “management of

change”. In the face of uncertain long-term forecasts in many high risk industries like mining and oil and gas,

executives that are reducing headcount and capital investments, and are looking to solutions that can create

additional profits from existing capacity. Improving productivity safely means having the right people in the

right roles and managing change effectively. Poor management of change practices increase the risk of

catastrophic events occurring. The consistency of executing the MOC process and operator awareness is the

key: the organization must follow the process every time and the operators must understand the change to

ensure they protect themselves appropriately.. With the need to invest in talent development ranking so high

on the list of future investments, effective knowledge management will be critical to sustaining performance

improvements.

Finally, we asked our respondents how they are using data and analytics to improve safety - surprisingly, more

than 30% responded that they were not sure or that they simply used data to show lagging indicators. Data

and analytics have the potential to transform operations in high risk industries: advanced analytics can give

executives granular views into operations that can drive performance, streamline compliance and reduce

safety_risk.



29%

28%

17%

25%

1%

Chart 13: Do you currently have a formalized way to capture and apply lessons learned? Choose all that apply.

Yes, we create lessons-learned casestudies and place them in a knowledgelibrary

Yes, we user incident alerts to notifythe workforce of lessons-learned

Yes, and we monitor and hold receivingsites accountable for implementinglessons-learned that are distributed tothem

No, this is a gap in our currentenvironment

24%

28% 9%

7%

19% 13%

Chart 14: How are you using data and analytics to improve your process safety and/or occupational safety performance?

We use metrics from critical riskprocesses to measure and continuouslyimprove those processes

We derive leading indicators from ourown data and use them on scorecards

We mine our incident data forlearnings, thematic root causes, andother trends.

We apply metrics from consultants orother external agencies to ourmonitoring activities

Our data primarily consists of laggingindicators and is used to producecorporate reports

Not sure



CONCLUSIONS Many high risk industries today – including oil and gas, mining and chemicals - are facing increasing mandates

for compliance and safety while also being pressed to improve production and increase operational efficiency.

The results of our survey have pointed to emerging trends and clear actions that hazardous industries needs to

implement to survive and thrive in the future upturn. Here are the six we think to be the most telling:

The major drivers for companies in a world where revenues have been slashed by more than 30% are

performance and cost efficiency.

Effective leadership that supports operational excellence will be critical for those facing an uncertain

future. With two out of five professionals citing “competing priorities” as their major barrier to safety

performance, it will increasingly be the duty of corporate leadership to provide the systems and

create a culture that supports an environment of operational excellence.

At the present time, 55% of companies have an integrated process safety management (PSM)

program. The 26% that have a PSM program which not yet links their safety events, MOCs and risk

assessment should consider uniting systems in the coming months.

Leveraging big data and analytics to enhance safety, compliance and environmental performance

continues to be a major gap that needs closing for the companies we surveyed. The technology is

available and ready to be implemented: will a prolonged oil price plateau expedite the move towards

this? We think so.

As well as investing in technology, two in five industry leaders are counting talent development as a

prime impetus for their organizations in the coming months. Technology can only be effective if

companies put in place the right team, talent, processes, and culture.

As an added bonus, we asked Operational Excellence expert, Todd Lunsford, Director of Process Improvement

at Sphera Solutions to provide his perspective on these key trends and how he helps customers address

challenges for improving safety performance and process discipline in their quest to achieve operational

excellence. Here are his perspectives: I’m encouraged by the survey responses, and -- while some of the

themes surprise me -- many are in line with explicit actions our large, asset-intensive customers are taking.

While recent commodity prices are indeed affecting oil & gas and peripheral industries, the companies in these

industries recognize that Operational Excellence can be the key to finding innovative ways to improve and

sustain both operational and safety performance. Where we see a lot of variation is, of course, is in the way

companies define and implement Operational Excellence. The survey results provide insights into the

approaches, priorities, and best practices of the participant organizations, and validate developments we at

Sphera Solutions are observing in the market.

The survey results strongly support our understanding that companies are maturing, especially in the areas of

Management System execution, risk management, and learning. Over 12 years ago, we -- almost

simultaneously -- implemented global information systems to underpin the Management Systems of 4 super-

major oil and gas companies. These early adopters improved the execution of their Management Systems,

which in turn improved their safety and operations performance over the years, and since then we’ve helped

many others that have followed their examples. However, it has also been frustrating to see organizations lag

behind by being slow to adopt an Operational Excellence Management System, or to see them implement

their Management Systems in a superficial or unsustainable manner. While the maturation of some has been

slow, the evidence now shows that correct, consistent, universal execution of Management System elements

is required for all organizations who strive for excellence – not just the “big and bad” ones.

In addition to revealing this progress in maturity, the survey highlights the priorities that organizations have for

their Management Systems, and how they are identifying and addressing gaps. One of the interesting

takeaways is that many companies are attempting to make improvements to their Management Systems, but

competing priorities, disparate systems, employee turnover, and other issues are getting in the way. We’ve

seen companies address some of these issues by taking a risk-based approach. That is, they view day-to-day

events and activities through the lens of their potential risk to the organization, and insert risk identification

and assessment into business processes such as incident and near miss reporting, management of change,

asset management, and many more. This allows the organization to apply their focus, time, and resources to

the highest-magnitude risks and the activities that will mitigate them.

I also found it encouraging that many respondents not only embrace the concept of leading indicators, but

they are using them on scorecards alongside lagging indicators. However, in the urgency to put leading

indicators into practice, I’d like to share that we’ve seen many companies make the mistake of tracking KPIs

that may be good ideas, but that are not leading indicators of performance. For example, numbers of training

activities, safety observations, safety audits, safety meetings, and the like are good, proactive activities, but

they are not necessarily indicators, nor have they statistically proven to be predictors of safety performance.

My caution to companies charging down the path to leading indicators would be to carefully define the leading

indicators for your organization. You might be surprised to know that leading indicators can be derived from

your existing processes – both unplanned events and proactive activities, and that some factors do correlate

statistically to safety performance. You should also be prepared for an uphill battle in getting leading

indicators to be held in the same regard as lagging indicators. Before leadership will accept and use leading

indicators to hold the workforce accountable, the correlation to safety performance should be proven, and the

indicators should be actionable and routinely measureable.

The final observation I’d like to highlight pertains to learning. Learning is an undeniably hot topic, and it’s

exciting to see that 17% of respondents monitor learning activities and hold people accountable for

implementing preventive actions from lessons learned. However, we work with very mature organizations

every day that still struggle with their journeys to become learning-minded organizations. They have lots of

data, but feel like they do not exploit it enough or maximize its learning potential. They have lots of smart,

experienced people, but feel like they are not institutionalizing or effectively transferring their knowledge.

They have good learning practices, but are over-reliant on specialized personnel and/or manual processes to

execute them. If you find yourself in this or a similar situation, take heart that again, early adopters are

tackling these issues. They are designing learning processes from sources both internal and external to the

company, and automating them in a manner where learning activities become embedded in the organization,

and can be measured and improved. Learning is the end game for these organizations, and by beginning with

that in mind (thank you, Stephen Covey1), then learning feeds the continuous improvement cycle that

strengthens the core elements of the Management Systems.



1 7 Habits of Highly Effective People, Powerful Lessons in Personal Change by Stephen Covey.



REPORT SPONSOR

Find out more about Sphera at www.sphera.com.

Sphera is the largest global provider of Integrated Risk Management software and information services with a focus on Environmental Health & Safety (EHS), Operational Risk and Product Stewardship. For more than 30 years, Sphera has advanced Operational Excellence by serving more than 3,000 customers and over 1 million individual users across 70-plus countries to create a safer, more sustainable and productive world.

For more information contact Sphera at: https://sphera.com/contact-us

http://www.spherasolutions.com/

https://sphera.com/contact-us

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OPERATIONAL EXCELLENCE IN HIGH RISK INDUSTRIESsphera.com/app/uploads/2016/09/Operational-Excellence-Survey-Rep… · OPERATIONAL EXCELLENCE IN HIGH RISK INDUSTRIES Key trends Affecting