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Confused Goals Lead To Unsatisfactory Outcomes

May 12, 2010

The decision by the Obama administration to split the responsibilities of the Minerals Management Service is just one more acknowledgement that organizations need clarity and compatibility in their goals. In this instance, creating a single organization that oversaw both revenue generation and compliance led to inherent weaknesses in oversight (see New York Times article for details).

In acknowledging that Federal authorities were to some extent lacking in their management of the industry, it seems unfair to also contemplate retroactive legislation to increase the liabilities that BP may face as a result of the oil rig explosion in the Gulf of Mexico. These threats are also potentially quite counter-productive – surely the issue right now is for all parties to collaborate in fixing the problem, rather than spending time on allocating blame? Yet that is exactly what is happening, with politicians leading the way. Once more, this illustrates how politics seems far more about finding fault in others, rather than acting in the public interest. What purpsoe was served by an inqisition of BP, Transocean and Halliburton executives at this stage? Clearly, such action was a distraction from the real issue and can only result in mutual finger-pointing by each party, none of which wants to face the potential for massive liability associated with this incident.

The break-up of the Minerals Management Service will ensure that one arm is working to maximize revenue, while the other is ensuring proper levels of compliance and quality control. The need to manage these tensions is well understood within the business world, with the pursuit of growth always needing to be tempered by the potential exposures and risks that growth entails. Certainly not all managements get it right – and at times of economic stress, the presures to cut corners can be extreme.  In addition, the BP incident is just one more reminder of the complex web of relationships on which performance depends. It highlights the major significance of choosing the right trading partners, providing effective on-going oversight, and reconciling the pressures for innovation and growth with the need for proper business control and judgment.

Organizations have changed and the speed with which decisions must be made has increased. This has placed many of the ‘check and balance’ processes under great strain, sometimes because of resource levels, but also because of the scarcity of relevant skills or the lack of clarity in precise roles and responsibilities. IACCM has long focused on some of these uncomfortable questions and challenged its members and their management to address them. For example, we have opposed the idea of contracts professionals being motivated by deal-based incentives (because we believe that will impact their core role of good business judgment); we have questioned whether the skills profiles required for deal-making are the same as those in implementation and on-going management; we have highlighted the problems that arise when commercial staff are introduced too late into a business requirement or opportunity.  We have also emphasized the urgency of developing commercial competence and the need for this to be supported by consistent professional standards.

The Obama administration’s move raises questions over the division of responsibilities that shoud be given careful thought by lawyers, contracts and procurement executives. To give just two examples:

  • Is it right to have Procurement staff measured on savings, while at the same time having them make judgments over supplier quality and reliability?
  • Should a commercial or contracts group charged with deal negotiation and management be part of a legal group which has responsibility for regulatory and risk compliance?

In both cases, this duality of role may create precisely the tensions that have been recognized within the Minerals Management Agency. By clear division of roles, we do not eliminate the tension, but we ensure it is visible and, where relevant, that issues are escalated to senior management for resolution. Through collaborative organizational models, designed around key business processes, we can also ensure joint and several accountability for outcomes, to drive cooperation in anticipating and fixing problems, rather than a culture of finger-pointing and blame.

One Comment
  1. Tim, This post leads nicely into the next question of what is sales side commercial management accountable for? This is a question being asked by management of my group currently. Any articles you can point me towards on accountabilities that can be tracked, measured and reported on would be greatly appreciated. We operate in an environment whereby we in the commercial management group are looked at as the faciltators across business silos and bring commercial acumen and sense tis anything but common! Our role will vary from opportunity to opportunity and be dictated very much by what issues are presented. How can we track, measure and report on that value and demosntarte it to the business?

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