Differences between Management and Leadership in Oil and Gas

From time to time the discussion in a course will turn towards the differences between management and leadership in oil and gas. This is an important question because many delegates will have aspirations in one direction or the other, and in oil and gas we often see an individual carrying out both roles at the same time.

A good starting point is to note that management and leadership are frequently complementary. In oil and gas many managers are also leaders, while in many organisations people are encouraged to show leadership at every opportunity and at every level.

That said, there are important differences between the two, and in a global industry such as E&P these differences are impacted by specific company, regional and cultural factors.

Broadly we see the following differences between management and leadership in the world of upstream oil and gas.

Management in E&P typically involves the following activities:

Strategy: managers will ideally play a role in setting strategy, but their main contribution is the implementation of strategy through planning performance management.

Planning and performance: management is all about getting results; managers achieve this through setting objectives and allocating resources. Performance is reviewed and people are held accountable. Activity is controlled, and measurements and interventions made.

Coordination: the activities of individuals, departments and functions are coordinated towards a common goal. Consider the field development process with an iterative approach with input from sub-surface, surface, commercial and corporate functions towards the optimum production rate.

Decision making: E&P is a decision rich industry. E&P companies recycle a large proportion of their cash flow into new projects and this generates a huge number of decisions that must be addressed by the manager on a daily basis.

Risk and uncertainty: We make decisions, but of course we do not know the outcome with certainty. A key feature of the upstream business is the range and scale of risks and uncertainties faced. Managers must firstly analyse and understand risk and then put in place interventions to manage it.

People: the manager is tasked with ensuring that the organisation has the capabilities it needs to achieve its chosen strategy. This will include hiring individuals; training and development of staff; and design of compensation and incentive schemes. In upstream this is a complex task as much activity is outsourced.

Leadership in the E&P world on the other hand is characterised as follows:

Vision: leaders develop and communicate a vision for the organisation and a sense of purpose. They are adept at defining a strategy to achieve their vision and in the E&P world this this often means moving to new geographies, geologies, markets or technologies. They focus on the long-term.

Change: leaders initiate and effect change. This change is often strategic in nature and there are numerous examples in upstream. These include opening up Alaska and the North Sea after the oil embargo of the 1970s; the development of new technologies in response to low oil prices in the 1980s; the outsourcing initiatives of the 1990s; and unconventional resource exploitation in the 2000s.

Team: the leader’s focus on the team is more to do with ensuring a fit with the vision than worrying about functional capabilities. They build a team to carry the vision forward and spend a lot of time creating buy-in to the vision and strategy.

Motivation and inspiration: leaders create an environment that inspires people to achieve their goals and realise their potential. Leaders serve as role models and act with determination and initiative to get things done. They help others understand the big picture.

Behaviours: leaders have a strong self-awareness and a concern for the impact of their actions on others. While they may have preferred behavioural styles, they are flexible enough to adjust their approach to the given situation, remaining constantly aware of others. They have a clear set of values that drive their behaviour, and will do the “right thing” even if it is not popular.

People: the focus here is on coaching, mentoring and on developing staff to realise their potential. Good leaders will set boundaries and give their people space to deliver success.

Cross-functional awareness: As David Finlayson pointed out last month, all functions have a crucial role to play in the success of an E&P organisation. A great leader will have a breadth of experience, understand the importance of cross functional awareness and actively encourage and facilitate cross-functional communications.

Innovation: leaders not only initiate change but also encourage innovation, allowing teams to challenge the usual way of doing things and supporting creative thinking.

External focus: good leaders engage with a variety of stakeholders outside the organisation. In the E&P world this is characterised by a strong network across JV partners, relevant government ministries, regulators, NOCs, IOCS and service companies.

Risk and uncertainty: good leaders tolerate ambiguity and are comfortable dealing with risk and uncertainty. They see it as an opportunity and are creative in finding ways to capture opportunity. They are less involved in the numerous day to day decisions facing E&P organisations, but exercise good judgment and are comfortable making good decisions with incomplete information.

But of course at the company level, there can only be one ‘leader’. This is generally the CEO. They will have undoubtedly carried out many management responsibilities over their careers and may have demonstrated the ‘leadership’ qualities described in this blog from an early age. Leadership qualities are indeed required at all levels of successful management.

These are my thoughts on the differences between management and leadership in the world of upstream oil and gas. Please share your experiences and insights in the comments section.

Comments

  1. This is a pretty comprehensive list of management and leadership functions for the upstream Oil & Gas business. However, there is one issue that that has not been mentioned, is more important than all the rest of them together and is a shared management/leadership responsibility. I am talking about Safety and Environmental culture and practices. I need only point to the $42 billion that BP has had to pay out, to date, as a result of the Macondo incident in April of 2010, to make my point. This is way more money than BP would have ever contemplated being associated with a well control problem in deep water. It is not over yet and BP and stands on the brink of extinction because of this horrific catastrophe. This incident was caused not by a lack of process and authorities to cover the situation, but because they were ignored in the interest of expediency. The well was behind schedule and over expended and middle management had been putting heavy pressure on the well team to get this well plugged. This kind of pressure was not unprecedented in the BP culture. It is Leadership responsibility to convince the organization that the company is absolutely serious about this subject and the management needs to develop and administer the systems and procedures required to prevent poor decision making. How many fiascoes do we need like this to convince us that we are not taking this seriously? It is many times more important than any other strategic or management issue. How many Piper Alpha’s or Exxon Valdez spills do we need in order to hammer this into our heads?

  2. Zahir Irani says:

    I think collective responsibility is important but you need to ensure that this does not stop people speaking their mind as equality is also about recognising that we are all different and think/react differently. Therefore, we need to feed these rich and sometimes diverse views into decision making processes. I think the other interesting point to add is that quitting is also leading – just don’t do it too often otherwise you will lose the trust and confidence of your followers.

  3. The difference between “management” and “leadership” has cropped up throughout my career both as an organisational imperative and via developmental training courses. For me, the distinction is pretty clear. “Management” is against a clear set of procedures or corporate dictates to maintain standards, profits etc. and to input into formulation of strategies to achieve these. “Leadership” is something totally different and is about people and thinking/ innovation. Angus, for me, has got most of them right in the above ………….. plus that undefinable something, possibly charisma. Lord Browne was a recognised O&G “leader” but I wouldn’t put him him in the “management” box. A very, very few are both but this is generally a transient thing as leaders move quickly up … or out.

  4. Organizational culture trumps all work processes, and culture is often viewed as “soft work.” However, “soft is hard” in this case, and the behavior work is so difficult to do that many execs shy away from it. For reasons that vary from arrogance to ignorance to trivialization, the culture question is often ignored in the race to explore and produce. Luckily, more firms are learning the lessons of the past. However, on the flip side of the argument, the next generation of leaders may not yet have the intuition and tacit knowledge to fully understand culture as the softer side of risk, so we are, sadly, on the road to repeat lessons.

  5. Angus Warren says:

    Thank you for all your comments, well made. We will follow up on the issues raised in future blogs.

  6. Fred Akalamudo says:

    Managers do the work. Leaders create the work.

Speak Your Mind

Do NOT follow this link or you will be banned from the site!