The Rapid Response Institute

Tag: framework

  • ESG Explained

    ESG Explained

    According to Investopedia, “Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.”  Definitions of the three components are pretty straightforward:

    • Environmental–Generally refers to the stewardship of the planet and how organizations facilitate that responsibility.
    • Social–Facilitating organizational responsibility to the global society, at all levels from the globe to the local communities firms operate in.
    • (Corporate) Governance–Typically, the umbrella organizations put in place to assure issues such as transparency, fraud, safety culture and ethics are in compliance with social norms and local regulations.

    Since the Deepwater Horizon incident of April 2020, operators (oil and gas companies) have extended and enhanced the above criteria to their supply chain ecosystem and in some cases even customers with a Safety and Environmental Management System (SEMS).  This is true of most other Critical Infrastructure sectors as well.

    Likewise, the Sarbanes-Oxley Act of 2002 enhanced transparency and increased fraud protection after the Enron (and other) scandals.  Other incidents have triggered governance changes as well and some are referred to in linked materials.

    Why Is ESG Important?

    By one account, approximately $12 trillion in investments made in 2018 were driven by those who consider themselves socially responsible.  According to Forbes, in 2019 this accounted for almost 25% of total investments and are seen through the lens of sustainability.  Moreover, between 2016 to 2018, the growth rate in such firms grew at 38 percent.

    These numbers confirm our research going back to the turn of the century and perhaps earlier.  In 1993 we controversially posited that the Principles of Scientific Management were applicable to software development by Knowledge Workers.  Developed by Frederick Taylor, his monograph was published circa 1911.

    In other words, owners (investors) have always demanded top notch, legal and ethical performance.  Activist investors, i.e. Carl Icahn are not new.  As always, they have a very important role to play in the current markets.

    Asset/Equipment Integrity Governance

    There is a buzz of newness to ESG; however, from a contrarian perspective, this is not necessarily the case.  After the Deepwater Horizon failure with significant loss of live and many billions in economic losses to many parties including BP, it became clear that traditional Governance models did not have a focus on operations and the management of capital assets, i.e., manufacturing plants, marine vessels and other revenue producing sources.

    In our book we addressed a New Risk Environment from large corporate operations in which ‘failure is really not an option.”  We stated as a risk element, “Escalation of Consequences: The level of consequences of a disaster in the energy industry can now be larger than from the accidental release of a multi-megaton nuclear weapon.”

    Still governance models continued to struggle.  We believe that in the critical infrastructure sectors there is a lack of strong bonding, in other words top management is still hands off and operating from historical ‘control’ models that are no longer relevant or applicable.

    We do not believe this will change until a Strong Bond (tightly coupled) model is adopted.  We define the term as, “A strong model is used by High Reliability Organizations (HRO) and as part of that model, trained; knowledgeable personnel are empowered to make the right decisions in the field.  The strong model provides an organization with the capability to become and remain and HRO.”

    In 2011, we released our monograph, Asset/Equipment Integrity Governance: Operations–Enterprise Alignment; A Case for Board Oversight (AEIG).  In addition to developing a financial model documenting the Return on Investment (ROI) from strong governance, a Compliance Model, as well as a robust AEIG Matrix which incorporates an Asset Maturity Model are part of the solution.

    The AEIG extends the enterprise governance model to include the full ecosystem including subcontractors to its primary supply chain partners.  While not directly addressed at the time, Diversity, Equity and Inclusion (DEI) is implicit in the model.

    This roadmap is comprehensive and is a good starting point for developing and implementing a vigorous ESG initiative.  Other monographs in our Changing the Dialogue series (exploring our New Business Dynamics) include Structural Dynamics and Rapid Response Management are available online.

    Relationships, Behaviors, Conditions

    Scroll down on The Rapid Response Institute, Operational Excellence Platform page and you will find our R B C Framework Cultural Transformation model.  Shown below for ease of readership.

    The R B C model was originally developed to research international (cross cultural) negotiations.  We have extended it to support the transformation process to a robust and model organization culture such discussed herein.  Readers should note that this model is focused on Operational Excellence and is comprised on Processes & Methods supported by Enabling Tools.

    Built on Structural Dynamics which was developed as part of Dr. Shemwell’s doctoral dissertation in 1996.  It is defined as, “The morphology or patterns of motion towards process equilibrium of interpersonal systems.”

    This proven Framework is grounded in Management Science yet is a useful tool (Roadmap) that real originations can successfully and cost effectively implement.  We believe it is the best approach for attaining ESG.

    Summary

    One can view the current ESG status as part of a continuum to hold organizations accountable as appropriate and frankly, increase their Operational Excellence.  We have long known that firm’s that are well managed command superior stock market multiples and greater equity value.

    Many ‘self-serving’ consultants and pundit would have us believe ESG is breakthrough Thought Leadership in need of their help.  Nothing could be further from the truth.

    In the early 1990s, we document the history and evolution of Management Science/Thinking.   It is not written in stone, like most human endeavors it evolves and has for thousands of years.  ESG is a step in this continuum.

    How is Your Organization Addressing the Requirements of Active Investors?

    For More Information

    Please note, RRI does not endorse or advocate the links to any third-party materials.  They are provided for education and entertainment only.

    For more information on Cross Cultural Engagement, check out our Cross Cultural Serious Game.  Two current online games; Safety Culture and Diverse Teams specifically address issues raised by ESG Criteria.  If you have any questions, please contact this author as well.

    Graphic Source: The Rapid Response Institute derived from a Storyblocks image under license.

  • Going Green? Or NOT!

    Going Green? Or NOT!

    The total or lifecycle carbon footprint for any energy source is a function of the manufacturing, commissioning, operation (including maintenance) and decommissioning of that asset.  Moreover, the value of an electric powered vehicles (EV) is seen as a function of the amount of fossil fuel no longer used by the vehicle.  However, this is only a sub-model of the to carbon footprint of any component in the Basket of (Energy) Goods, aka Energy Basket.

    All energy resources in the basket must be held to the same set of metrics.  These include Human Resources (including diversity and inclusion), Safety Culture, communities as well as the bottom line performance against governance standards (ESG).

    Risk Governance

    A governance framework that exceeds these standards follows.  Evolving over several decades, it reflects a comprehensive approach to operational risk that is often overlooked.  It addresses the entire life of a revenue producing asset.

    Lifecycle risk mitigation of an energy resource must include the end of the asset life processes.  What governance driven processes are in place to prevent the accumulation of wind turbine blades or spent solar panels stacked and abandoned?  Just like the tires stacked for decades.

    Turns out the answer is few.  Long life assets such as factories, skyscrapers, fossil fuel production systems, etc. are built to the engineering, industry and local regulatory standards of that day.  Ongoing operations, maintenance, upgrades and so forth keep them performing at acceptable levels.  However, governance models are often focused on the present.  End of asset life risk does not fit into the four quarter management mindset as the event may be sometime in the future.

    The above graphic represents a governance model built around operations and associated risks.  The archetype recognizes that many risk mitigation processes are inadequate for today’s complex organizations with multi-faceted global processes.

    Its framework is built upon the work done by the Treadwell Commission several decades ago to detect financial fraud.  This structure supports the extension into field operations and provides a structure for attaining and sustaining Operational Excellence.

    Risk mitigation is both quantitative and qualitative.  The risk associate with the use of any industrial energy source must be thoroughly assessed as a function of its lifecycle, not just its initial CAPEX and ongoing operations.

    Dumping v Decommissioning

    Illegal industrial dumping has long been a problem.  Today, some in the wind turbine sector appear to be following the decades long vehicle tire disposal process (or lack thereof).

    Lady Bird Johnson at least tried to hide the piles of tire debris but no one has found a way of completely dealing with this growing and massive problem.  As of 2017, some 17% were still disposed of in landfills.  In 2003, the EPA reports that almost 300 million tires are scraped each year.  Flash forward to today and this is likely a very conservative number.  That said, 17% equals approximately 50 million tires headed to landfills as opposed to recycling.

    Moreover, there is a long history of industrial dumping trash so as not to have to pay the disposal fees.  One wonders how many millions of tires destined for landfills (and other recycling) are just dumped?

    The decommissioning process is the responsible end-of-asset-life shutdown and removal.  The intent is to return the site to a condition similar to its initial environment and properly remove and dispose of equipment and materials.  It should not include stacking wind turbine blades next to a pile of discarded vehicle tires.

    Total Carbon Lifecycle Model

    Daily, we hear about the need to reduce carbon output to (net) zero.  Promises are made by many that by such and such a time this metric will be met.  Caveat: usually the time period is beyond the expected tenure of those making the statements.  Often lost in the discussion is the carbon cost of manufacturing and decommissioning.

    Carbon output should include the mineral extraction process, recycling of older materials if appropriate, transportation, manufacturing, installation, operations and decommissioning.  It also must include the carbon cost of the supply chain necessary to support the asset across its lifecycle.  For example, the carbon cost of an EV is not just the vehicle’s operation but the lifecycle of the vehicle as well as the electric power generation and distribution necessary to operate the automobile.  Do not forget the carbon cost of manufacturing a battery and disposing of it at end of life.

    Scrap

    Materials are often staged for recycling.  They feed a process that results in new useful product(s) that may add new value.  This is a useful recycling process that makes a lot of sense.  However, sometimes this is not as economical as new manufacturing.  These economics lead to dumping as the low-cost-solution.  Fields of discarded materials may or may not be awaiting recycling.

    Defining Green

    Being green is not simply using renewable electricity instead of gasoline.  If the carbon footprint is no different or even worse, then the problem is not solved and may even be made greater.

    Keep in mind that coal is still a major fuel in the generation of electricity.  According to the US Energy Information Administration (EIA), in 2020 over 60% of power is generated using fossil fuels of which over 19% is from coal.  This does not include the carbon footprint of materials and products imported to the US.

    So if the carbon footprint of a wind turbine is defined as its lifecycle and if at the end result is abandonment in a field, is the green value of that product positive?  Or is it just dumping not unlike the pollution of a nation’s river systems?

    Being green is not just plugging in your car overnight.  Like most things in life, it is systemic.

    Is Your Organization’s Green Plan Systemic or Myopic?

    For More Information

    Please note, RRI does not endorse or advocate the links to any third-party materials.  They are provided for education and entertainment only.

    For more information on Cross Cultural Engagement, check out our Cross Cultural Serious Game

    We presented, Should Cross Cultural Serious Games Be Included in Your Diversity Program: Best Practices and Lessons Learned at the Online Conference, New Diversity Summit 2020 the week of September 14, 2020.  Check Out this timely event and contact the organizer for access to the presentations!!

    For more on DEI Standards, see the newly released ISO-30415.

    You can contact this author as well.

  • Roadmap to Decision Making In the ‘Smart’ Era

    Roadmap to Decision Making In the ‘Smart’ Era

    “Nothing is more difficult, and therefore more precious, than to be able to decide.”

    — Napoleon Bonaparte

    Volumes have been written on decision-making and this pundit has offered his share of insight and comment on the subject as well.  Some of our comments regard the appropriateness of the human intercession in electronic decision making.  Others raise questions regarding algorithm fallibility.  Moreover, Human Factors must be considered for any technology initiative which are becoming increasingly important.

    If one unpacks the previous paragraph a substantial level of complexity emerges.  As complexity increases so does risk and the need from proper governance.  However, many still see this potential transformation through the lens of just another IT initiative.

    Roadmap

    The oil and gas industry faced a similar dilemma at the dawn of the 21st Century.  At the time, referred to as DOFF or Digital Oilfield of the Future, a plethora of technologies became available.  The task was to transform 100 plus years of traditional operation to what is now referred to as the Digital Oilfield, aka Integrated Operations and a number or synonyms.  While this processes continues to evolve as new solutions emerge, i.e., Cloud, at the time much was trial and error.

    In conjunction with industry leadership, we released our Roadmap to Enterprise Optimization: A Guide to the Impact of Information Driven Field Operations on the Petroleum Corporation in the fall of 2004.  We believe it was the first industry (POSC) supported effort that was not simply research but a ‘bona fide’ action plan or roadmap to success based on industry/other knowledge, standards, economic value and best practices.

    Click for full size Integrated Operations Framework or graphic

    Since then, we have updated this roadmap into an Operational Excellence Platform.  Note that Integrated Operations is a key component.  The platform is a robust detailed solution that is available not just to the energy sector but all sectors identified by Homeland Security as Critical Infrastructure.  These sectors were recently identified as susceptible to hacking by the US government.

    Getting Smart

    Enormous corporate (shareholder) wealth has been destroyed implementing ‘game changing’ technology enabled transformation efforts.  Are we about to do that again, getting smart?  The easy answer is yes, but it does not have to be.

    Roadmap constructs are well understood and provide guidance.  In some models the step by step process provide practitioners with well defined models that can lead to success–defined as on time and under budget performance against Key Performance Indicators (KPIs).

    We are in the process of writing a book, to be released in 2022.  One chapter will define a roadmap for the transformation to ‘Smart’ for a major industrial segment.  As with earlier works, it will focus on the human element aligned with a technology assessment process.

    Get Smart was a comedic TV show spoofing the Cold War ‘spy’ environment of the 1960s.  Getting Smart today may not be a lot different.  The goal under a ‘Cone of Silence‘ was to attain and sustain competitive advantaged achieving superior stakeholder returns.

    Getting smart in 2021 will require a ‘Roadmap to Smart.’  A set of ‘to do’ processes that assures success.

    What is your Organization’s Plan to put Smart Decisioning Making Processes in Place?

     

    For More Information

    Please note, RRI does not endorse or advocate the links to any third-party materials.  They are provided for education and entertainment only.

    For more information on Cross Cultural Engagement, check out our Cross Cultural Serious Game

    We presented, Should Cross Cultural Serious Games Be Included in Your Diversity Program: Best Practices and Lessons Learned at the Online Conference, New Diversity Summit 2020 the week of September 14, 2020.  Check Out this timely event and contact the organizer for access to the presentations!!

    You can contact this author as well.