moving the energy business from smart to genius by ...ing the business. a corporate iq of 130 means...
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186 July2011SPEEconomics&Management
Moving the Energy Business From Smart to Genius by Building Corporate IQ
Ruud Weijermars, Alboran Energy Strategy Consultants and Delft University of Technology
Copyright © 2011 Society of Petroleum Engineers
Original SPE manuscript received for review 31 March 2010. Paper (SPE 144490) peer approved 22 November 2010.
SummaryMovingtheenergybusinessfromsmartassetdeveloperstogeniusorganizations by building corporate intelligence quotient (IQ)is advocated in this study.A company’s overall effectiveness increating primary business value from the available knowledgeresources(internallyandexternally)canbeexpressedasacorpo-rateIQscoreintheframeworkdefinedhere,usinganewquestion-nairecomprising140questions.Thisquestionnairehasnowbeenappliedtosevenenergycompanies:fiveoiloperators,oneservicecompany,andonenatural-gas transmission-serviceoperator.Thesample groups are still small, but an interesting pattern emergesthat confirms the general notion that internationally operatingcompaniesarebestatdevelopingorganizationalintelligence.Theirhigher corporate IQ is essential to enable them tooperate effec-tivelyinahighlycompetitivemarket.Thenewdatareportedheremayprovideusefulinsightfornationaloilcompanies(NOCs)thatwishtoimprovetheirorganizationalintelligenceifrequiredbyanambitiontointernationalizetheiroperations.Companiesthatexcelatorganizational learningarebetterprepared tooutperformtheircompetitors.Internationaloilcompanies(IOCs)alsocanstrivetofurthertheenhancementoftheircorporateIQbyuseoftheperiodicassessmentsandinterventionsoutlinedinthisstudy.
IntroductionMostoilcompaniesrealizethatthedevelopmentofuniqueknowl-edge can be a powerful competitive instrument, particularly sowhensuchknowledgeenablestheoptimizationofvalueacrosstheenergy value chain.A landmark step toward prominent strategicuse of unique knowledge in the oil industry was made around2005withtheintroductionofSmartFields(Shell),I-fields(Chev-ron),andFieldof theFuture (BP),allofwhichare trademarkedconcepts built around competitive knowledge of workflow pro-cessesandnewtechnologytools.Real-timeassetmanagementindigital (rather thanmechanical/analog) oil fields allows the con-tinualgatheringofdataandmonitoringoftheproductionsystem(Unneland and Hauser 2005). Failed equipment can be detectedandreplacedrapidly,whichreducesdowntimeinproduction.Real-timeassetmanagementoptimizesworkflowefficiencyandtherebyalsoimprovesthenetcashflow.
Although perceived as slow by some because of large assetinvestmentswithlifecyclesrangingfromadecade(smallfield),toseveraldecades[liquefied-natural-gas(LNG)liquefactionplant]tohalfacenturyormore(majorfield),theenergybusinessremainsextremelycompetitive.Improvedcompetitiveperformancecanbeachievedbyacceleratingclockspeed (Weijermars2009a,2009b).Firmspeedintime-basedcompetition,asdocumentedfortheoiland gas industry, may vary considerably (Pacheco-de-Almeidaet al. 2008). If the execution speedof investmentprojects is tooslow,substantialrevenuelossesareincurred.Companiesthatbestexploit their project-execution speed (such as ExxonMobil andChina Petroleum Corporation) are able to do so because of thequality of their dynamic capabilities (Pacheco-de-Almeida et al.2008),whichisrelatedtoorganizationalintelligence.
The 2008/2009 financial crisis has put oil companies furtherto the test:Their response to rapidchanges in thebusinessenvi-ronment must be fast and decisive (Weijermars 2010). Investors
scrutinizetheprofitabilityofanoilcompany,whereasconsumerswant theiroildeliveredeconomically inasecuresupply tomeettheirincreasingenergydemandandinanenvironmentallyfriendlyfashion. The oil industry, therefore, is continually challenged todevelopnewtechnologyandnewconceptsthatimprovetheirvaluechaintokeepupwithsociety’srisingexpectations.Optimumper-formanceofcompaniesrequiresimprovementofthecorporateIQbyorganizationallearning,andimprovingthecorporateIQhelpstospeeduptheperformance(McKelvey2004,2007).
This paper lays a foundation for further corporate IQ assess-ments and future in-depth studies. Early results from a newlydesigned corporate IQ test are reported; the test was completedby41professionalsofsevenmajorenergycompanies.Theresultsconfirm that NOCs that have moved toward privatization andinternationalization were enabled to do so by optimizing theirknowledge resources—as can be inferred from their relativelyhighcorporateIQscores.PrivatizedNOCslearnrapidlyandhavebecome intelligent rivalsof IOCs that alreadyexcel atorganiza-tionallearning.
Organizational IntelligenceTheconceptoforganizationallearningwasfirstlaunchedbyPeterSenge in his book The Fifth Discipline (1990) and has maturedthroughworkthathighlightedtheimportanceofnetworkedintel-ligence development in organizations (Allee 1997;Argote 1999;Skyrme 1999; Gilley and Maycunich 2000). Companies cancapitalize on organizational learning programs by focusing suchlearningontothedevelopmentofcorporateIQ.PreviousworkbyKoulopoulos et al. (1998), Mendelson and Ziegler (1999), andMathesonandMatheson(2001)usedbriefquestionnairestoassessorganizationalintelligence(seeAppendixA).
A new framework for organizational learning distinguishesfour knowledge performance categories (knowledge focus areas,Fig. 1).Thesefocusareasrefertoacompany’seffectivenessin(1)stimulatingnewknowledgedevelopment,(2)applyingthisknowl-edgeingoal-orientedways,(3)buildingnewassetswiththisgoal-orientedknowledge,and(4)communicatingwhytheorganizationhasuniqueknowledgecapacitiesthatallowittoleadtheindustry.IfcompaniesbegintomakeprovisionsforperiodicIQassessments,then the effect of the associated targeted interventions on thedevelopmentoftheirorganizationalintelligencecanbemonitoredandstudied.TheinitiationanddevelopmentofsuchresearchareimportantforthefutureoptimizationofcorporateIQs.
High-corporate-IQ organizations stand out in their IQ ratingbecausetheyhavesharperperceptiveantennae,noticenewoppor-tunities and new risks more quickly, and spot patterns, trends,anddangersthatothersdonotsee—orseeonlylater.Suchsmartorganizations make more-insightful inferences and learn quickerso that theyadapt faster tochanges in thebusinessenvironment.“Burning-platform”-type crisis situations (Conner 1992; Rog-ers 1995) or “melting-iceberg” situations (Kotter and Rathgeber2006)areinstantlyrecognizedbyproactivemanagersatalllevelsinsmartorganizations.Theywillbeabletoactandremediatethesituationwithoutunduedelays.Theclockspeed(Fine1996,1998;Weijermars2009a, 2009b) is commonly fast for smart organiza-tions,andtheneedforchangeisrecognizedwithasenseofurgencyand—as advised by Kotter (1978)—is acted upon swiftly whenneeded.Consequently,organizationallearningsimplyissofastinsmart organizations thatmajor crises are anticipated longbeforealethalnonalignmentofthecompanyanditsenvironmentwouldoccur.Amendmentstothecompanystrategycanbemadequickly
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and are implemented by managerial learning at all levels in theorganizationtosteer thecompanyawayfromthedangerzoneofburningplatformsormeltingicebergs.
The broad development of organizational intelligence alsoeffectivelyhelpsacompanytoensurethatits operationalandfinan-cial valuechainsremaincloselyintegrated(Fig. 2).Thecompanycaneithergrowor contractover time, in response to changes inthebusinessenvironment.Thedevelopmentofsmartorganizationsthroughintensifiedorganizationallearning(directedatoptimizingtheintegrationoftheoperationalandfinancialvaluechains)isnotutopia;companies thatexcelatorganizational learningarebetterprepared to outperform their competitors. Their organizationalintelligencewillbesuperior;andtosubstantiatethat,acorporate-IQscaleisneeded.
AworkbookforBuilding Corporate IQ (Weijermars2008)—nowrevisedandgloballyreleased(Weijermars2011)—proposesacomprehensiveprocedureforassessingcorporateIQsintheenergyindustry.Thecorporate-IQscaleintroducedisbasedonthecentral-limit-theoremassumptionthathalfthetotalnumberofcompaniesscoreabovetheaverageandtheotherhalfscorebelowtheaverage.Themeanforthecorporate-IQscaleisprobabilisticallysetat100(Fig. 3).ThebellcurveofcorporateIQs(relyinguponthecentral-limit theorem and stochastic calibration of the IQ scale) impliesthataquarteroftheworld’scompaniesarelikelytohavecorporateIQslargerthan110andanotherquarteroftheworld’scompanieswillhaveIQsbelow90.Themajorityofcompanies(50%of thetotalsample)haveIQsrangingbetween90and110.
Applyingthisapproach,therealcompetitiveedgeisthenheldby less than15%oforganizations(normalized in thebellcurve)(i.e., those that have IQs higher than 115). These organizationsoutsmart 85% of their competitors. Still better, if a company’scorporateIQrates120,itwillbeintheleading10%andamongthesmartest organizations.Oncea company isgetting smarter, eventhesmallestincrementalincreaseofitscorporateIQmovesitintoaprogressivelymoreselectgroupofthesmartestcompanieslead-ingthebusiness.AcorporateIQof130meansatopIQmatchedonlyby2.5%ofallcompanies;or,alternatively,suchcompanieshaveariskofonly1in40ofbeingoutsmartedbycompetitorsatanyonetime.
Corporate-IQ FrameworkOrganizations must use their integrated resources—their people,technology,andprocesses—effectivelyandsmartly tocreatepri-marybusinessvalue.Thispromptsforanorganizationallearningframeworkandtoolsthatallowthemonitoringofanorganization’sefficiencyintheprimaryprocessofvaluecreation.Fig.1proposessucha framework,where thebusinessandproduct lifecyclesofthecompanyareintegratedbyknowledgeexchangesinfourmajorsteps,termedhereasactivityfocusareas.
Thesefourfocusareasofcorporate-IQperformancecorrespondtocognitiveandsocialabilitiesdistinguishedinpersonal-IQtests,asshowninFig. 4.Three of these four IQ focus areas (performancehreeofthesefourIQfocusareas(performancemeasurecategories)directlycorrespondto thosedistinguishedinpersonal-IQtests:
‘deeper, broader, faster’
LearningOrganization
3Build
Assets
2Apply Goal-
oriented
4Communicate
Why
1Stimulate
Knowledge
LearningManager
ProposeNewConcepts
WriteBusinessPlan
ImplementConcept
Evaluate&
Learn
Fig. 1—The organizational learning cycle and business value loop are modeled here into four value-adding focus areas: (1) stimulating knowledge development, aggregation, and ex-change; (2) goal-oriented application of acquired knowledge; (3) building of tangible business assets in step with the chang-ing business environment; and (4) communicating the unique values and mission. The role of asset manager in smaller organizations coincides with that of the learning manager. In larger corporations, roles may be split, but this requires seam-less feedback between the learning and asset managers.
Intergration1. Know market, Product, Process & Technology
2. Apply Goal-oriented
3. Build Assets
4. Communicate why
Consumer needs (‘market pull’ or ‘product push’)
Meetmarket demand
Buildsales volume
Enhanceprofit margin
Increasemarket capitalization
Create & Selectproject
Launch project Manage project Optimize portfolio
Stragey analysis & implementation
Appraise project & Plan facilities Execute project
Engineer production Balance portfolio
Operational excellence in Product Value Chain
Raise funds Allocate investment Generate returnson investment
Realize NPV
Performance in Financial Value Chain
Fig. 2—Product life cycle under constraints of the competitive business environment; constraints must be met by a fitting business strategy that matches the operational product value chain and the financial value chain. All steps must remain integrated optimally at all times. That integration requires knowledge exchange and tools and concepts that optimize organizational learning.
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188 July2011SPEEconomics&Management
1.Stimulatingknowledgeexchangeistheexperiential IQapti-tude,whichfocusesoncreativeprocesses.
2.Goal-orientedapplicationofthisknowledgeisthe contextual IQaptitude,focusingonpracticalprocesses.
3.Buildingthebusinessassetswiththisknowledgeisthecom-ponential IQ aptitude,focusingonanalyticalprocesses.
4.Communicatinginsuchawayastomakeeverybodyunder-standwhyyouareuniqueisnotcoveredinpersonalIQtests,butcorrespondscloselytotheEmotional IQ,orEQfactor,publicizedbyGoleman(1997,2000)andDruskatandWolff(2001).
Each of the four focus areas must be scored for a particularcompany,herebasedon140questionsintotal.The questionnaireThequestionnairerequires that the 140 concise statements be answered as true orfalse.Anoutlineofthecorporate-IQtestisgiveninAppendix A.Questions are designed to test to which degree the organizationknowsthefollowing:
• Howto stimulate creative knowledge exchanges—for exam-stimulatecreativeknowledgeexchanges—forexam-ple, is the company recruiting new professionals to improve thecorporateknowledgebaseordoeseverynewhireonlyadopt thecompany’sbestpracticeratherthanimprovingit?
• How to apply this knowledge in a goal-oriented fashion toimprovebusinessanddecision-makingprocesses—forexample,isthevisionforthefutureclearandareallmanagersaligned?
• Howtotranslatethisknowledgeintotangiblebusinessassetsand tap intonewopportunitiesofferedby the changingbusinessenvironment—forexample,isthecompany’sstrategyclearandisthereanauditabledecision-makingprocessinplace?
• How to communicate the organization’s unique knowledgecapacities—forexample,hasthecompanyalienatedanysharehold-ers or stakeholders? Is the company’s price-to-book value (P/Bratio)undervalued?
Results of Corporate-IQ Tests in Energy BusinessThe corporate-IQ test has been completed by several groups ofpetroleumengineers thatattended theexecutiveMasterofPetro-leumBusinessEngineeringprogramdevelopedbyDelftUniver-sityofTechnology(Weijermars2004;Berkhoutetal.2008;Bosetal.2008;Currieetal.2010).AdditionalIQscoresweresampledwhileconductingamajorchange-managementprogramataDutchnatural-gas-transmission operator, preparing for a strategy shifttowardinternationalization.Alldatawerecollectedovertheperiod2007–09. To protect the identity of the respondee companies,Table 1 provides a peer-group panel. The results of the IQ-testdataforthepeergroupsaresummarizedinFig. 5.
Thetestresultsconfirmthegeneralnotionthatthebuildingofenhanced corporate IQ by organizational learning has now been
taken up successfully by several former NOCs that have movedtowardinternationalization(e.g.,Statoil,Eni,OMV).Suchpublic/private-partnership(PPP)oilsweretraditionallydividedfromIOCs(privateoils),butprivatizationofmorethanadozenNOCsinthepastdecadehascreatedanemergent thirdmajorgroupofexplo-ration and production players: PPP oil companies (seeTable 1).ThePPPoilshaverapidlylearnedtotakeonmoreriskandhavedevelopedentrepreneurialstrategiesthatinthepastkeptthebusi-ness tacticsofprivateoilsandstateoilsdistinctlyapart.MovingfromNOCtoIOCstatusmeanssuchcompaniesenterintoamuchmorecompetitivebusinessclimate.IOCsaresmart torespondtochanges in the business environment and have become agile astheyhavenoprotectivelegislationandmonopolisticrightssuchasthosethattheNOCsenjoy.Privatizationmeansmoreriskexposure,andgreaterorganizationalintelligenceisneededtosurviveunderfastercompetition.
The impact of privatization on firm performance has beenreviewedindetailpreviously(Wolf2009;WolfandPollitt2008).EconometricanalysisbyWolf(2009)oftheperformanceandeffi-ciencyofstateoils(23NOCs,100%state-owned)vs.privateoils(21IOCs,fullyprivatefirms)overa20-yearperiod(1987–2006)showedthattheNOCsstudiedemployupto71%morepersonnelfor a comparable asset base andgenerate up to18% less outputfrom these assets than their private counterparts. The differenceinperformancebetweentheOrganizationofPetroleumExportingCountries (OPEC) NOCs and non-OPEC NOCs is particularlystriking:Acrossthe20-yearsample,non-OPECfirmsonaveragehave a 2.3 times higher labor-intensity ratio (employees/assets)than OPEC firms, and their output per employee is 66% lowerthan thatof theOPECbenchmark.Table 2 highlights themajordifferencesinworkfloweffectivenessforIOCsandNOCs.
Co
rpo
rate
IQV
alu
e A
dd
ing
Cap
acit
y
Freq
uen
cy of IQ
Sco
res
Range of Corporate IQ Scores
25
50
75
100120 140
Time
High
Low
AwarenessRecognition
BasicUnderstanding
Practical Assessment& Feedback
Skillful Application& Best Practice
AdvancedExperimentation
GeniusContinualInnovation
50 75 100 120 140
Fig. 3—Corporate-IQ scale and organizational learning curve. The median IQ score for all companies is normalized at 100, in analogy to personal-IQ tests. Acquisition of corporate IQ over time passes through typical stages of enhanced IQ and value-adding capacity.
Corporate IQ Personal IQFocus area 1 - Stimulate Knowledge
Focus area 2 - Apply Goal-oriented
Focus area 3 - Build Assests
Focus area 4 - Explain Why
1. Expertiential IQ
2. Contextual IQ
3. Componential IQ
4. Emotional IQ
• Societal Experience (Ch. 1)• Knowledge Nets (Ch. 2)• Organizational Learning (Ch. 3)• Knowledge Management (Ch. 4)
• Leadership’s Vision (Ch. 5)• Team Building (Ch. 6)• Innovation & Creativity (Ch. 7)
• Decision Making (Ch. 8)• Strategy & Scenarios (Ch. 9)• Portfolio Management (Ch. 10)
• Governance (Ch. 11)• Communication (Ch. 12)• Negotiation (Ch. 13)• Leading IQ Development (Ch. 14)
Focus on CreativeProcesses
Focus on PracticalProcesses
Focus on AnalyticalProcesses
Focus on CommunicationProcesses
Fig. 4—Four focus areas of corporate-IQ performance corre-spond to cognitive and social abilities distinguished in person-al-IQ tests, as shown here. Each of these focus areas is scored in a cumulative IQ scorecard (see Table A-1 in Appendix A).
TABLE 1—SELECTED OPERATORS IN THE UPSTREAM OIL AND GAS BUSINESS
NOCs State Oils and Natural Gas
Operators PPS Transitional
Oils
IOCs Private Oils and Service Companies
Aramco Statoil Exxon
Petronas Eni Chevron
Pertamina OMV Shell
Staatsolie Petrobras BP
PDVSA ONGC Baker Hughes
Gasunie Gazprom Schlumberger
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July2011SPEEconomics&Management 189
ThephysicaloutputperformanceofthetopfiveNOCsvs.topfiveIOCs(seeTable2)ismostlyassumedtobeaneffectof“easyoil”vs.“complexoil”(Wolf2009).Thehydrocarbonreservesofthe top five state oils are trapped in huge geological reservoirsfromwhichtheycanbeproducedatlowcost:withnoorlittleflowstimulation,usingfacilitiesthatremainoperationalfordecades.Inotherwords,thereservoirsofthetopfiveNOCscanbeproducedwithfavorablecapitalandlaborrequirements.Inspiteoftheirhighphysicaloutput,revenueandnetincomeofthetopfiveNOCsaredepressedbysubsidizedsaleofoilproductsindomesticmarketsandheavyrelianceonexternalservicecompaniesandconsultan-cies(whichpushesoperationalexpenditureupandpushesearningsdown).Additionally,theNOCmajorssufferhugeworkingcapitaltieups(receivables,capitaladvancestotheState),andoperationalexpenditures and capital expenditures are often burdened withnoncore business responsibilities such as public health servicesand other community services, including regional infrastructuredevelopment.
MostPPPoilsdidnotvoluntarilyprivatizeand international-izebutwere forced to takeonmore riskwheneasyoil reservesstartedtodwindleintheirhomecountries(e.g.,Statoil,OMV,andEni).ThisrequiredsuchformerNOCstodevelopentrepreneurialstrategies,previouslyonlychampionedbyIOCs.Bymasteringthetechnologyandthestrategyviewpointsofbothsides(i.e.,ofNOCsandIOCs),PPPoils(e.g.,Statoil,Eni,OMV)havesteadilygainedincompetitivepower.ThisappliestoemergentPPPoilsthatcom-pleted their transition fromNOCsover thepastdecade,but theyhavebeenprecededbymanyformerNOCs(suchasTotal,Repsol,YPF,PetroCanada,andBP)thatfollowedtheevolutionarypathbymeansofPPPoil statusand subsequently transformed into fully
privatizedIOCs(Table 3).Theproactivedevelopmentofin-houseknowledgeisfeaturedatthecoreofalloftheseemergentPPPoils;knowledgedevelopmentbyorganizational learningbroughtthemthe skills and competencies required for their new competitivebusinessroles.AnindustrysurveyofNOCcapacitydevelopmentforbuildingLNGliquefactionplantsbyLedesma(2009)confirmsthatin-houseknowledgedevelopmentdevelopshandinhandwiththeinternationaloutlookofNOCs.
The findings reported here highlight how some NOCs thatmovetowardPPPoils(andeventuallytowardIOCs)havelearnedtooptimize their knowledge resourcesduring theirmove towardprivatizationand internationalization.Methodsfor improving theprobabilityofsuccessininternationalcorporationshavebeenmod-eledinearlierresearchbyWeijermarsetal.(2008).
Bringing About Change in Corporate IQItisextremelyimportantthattheuppermanagementofanenergycompany recognize the importance of organizational learning—theymustsupportadrivetoimprovethecorporateIQ.SuccessfulSuccessfulcompany leadershavebeendiscovered tooutperform their com-petitorsbytheirability toestablishaclimateforfasterorganiza-tionallearning.Withadedicatedorganizationallearningprogram,the corporate IQcan rise rather thandecline (Fig. 6).Dedicatedorganizational learning refers to a corporate learning programaimednotatthedevelopmentofindividualskillsandcompetenciesbut at a communal understanding of the organizational learningframework thatdetermines theeffectivenessandcompetitivenessoftheorganization.
Learning faster than thecompetitors isan intelligentprocess,whereby transformational change in the business environment isrecognized early and accommodated by the company’s strategicreadjustments. Every time a company stumbles, one may ask:Could this have been prevented by early foresight? Were theredevelopments inside the company or imminent changes in itsbusiness environment that predictably led to the failure of thecompany?Has thecompanyfailed toadapt to itschangingbusi-nessenvironment?Companiesthatfailtokeepupwiththespeedof transformational change in their industry will disconnect andruntheriskoffailure.Corporatefailures(e.g.,ENRONandthoseof recent financials) are a result of catastrophic IQ declines, inconnectionwitheventsthatcompromisedorganizationallearning(Fig. 7).
Also,NOCsthatwanttointernationalizecandososuccessfullyonlyby trulyopeningupand followingdedicatedorganizationallearning programs. Organizations can climb along the organiza-tional learningcurve(seealsoFig.3) to improve theircorporateIQsystematicallyovertime.Inessence,theIQcomponentscorescanbeusedtosupportanddirecttheorganizationallearningpro-cess.InterventionsrequiredtoremedyweaknessesincorporateIQcan be identified by periodic IQ assessments, as outlined in thescheduleofFig. 8.Thekeylessonisthattopmanagementshouldnot focusonoperational efficiencyalonebutmust safeguard thedevelopment of corporate IQ by organizational learning to shiftthecompanyintonewbusinessopportunitiesandensuregrowthorcautiontopreventcontractionwellaheadofsuchdisruptions.
Co
rpo
rate
IQ S
core
s
Nat
ion
al O
ils -
NO
Cs
Pri
vati
zed
NO
Cs
- P
PP
Oils
Pri
vate
Oils
- IO
Cs
NOCs PPP Oils IOCs
140
120
100
80
60
40
20
0
Fig. 5—Corporate-IQ scores for peer-group panel. Number of respondents are: NOCs (30), PPP oils (7), and IOCs (4).
TABLE 2—RELATIVE WORKFLOW EFFICIENCY OF IOCs VS. NOCs*
Companies
Output Per Employee (kilo-bbl)
Revenue Per Employee
(million USD)
Net Income Per Employee
(USD)
Top 5 IOCs** 51.5 1.36 80,300
Top 5 NOCs† 68.8 0.77 67,900
All Private Oils 37.9 0.80 64,400
All State Oils 31.7 0.44 40,000 *All numbers 20-year averages (1987–2006), data analyzed by Wolf (2008) **Top 5 IOCs: Exxon, Shell, BP, Chevron, and ConocoPhillips †Top 5 NOCs: Saudi Aramco, NIOC, KPC, Sonatrach, and PDVSA
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190 July2011SPEEconomics&Management
Ifacompanyscoresarelatively lowcorporateIQ,whatrem-ediesarepossible?Corporateweaknessescanbe identified fromthedetailedtestscores.Fig. 9ashowsanexampleoflaggingscoresforeachofthefocusareastestedinthecorporate-IQassessment.Fig.9bcompiles these results into subscores for (1)experientialIQ,(2)contextualIQ,(3)componentialIQ,and(4)emotionalIQ.TheseIQcomponentsrefertothecompany’srespectiveeffective-nessin(1)stimulatingnewknowledgedevelopment,(2)applyingthisknowledgeinagoal-orientedfashion,(3)buildingnewassetswith this goal-oriented knowledge, and (4) communicating whytheorganizationhasuniqueknowledgecapacitiesthatallowit toexcel.Suchdatacanbeusedtoimprovethecompany’sIQscoresovertimebydedicatedorganizationallearning.
Animportantpointtoaddressisthatalargeproportionofhigh-personal-IQindividualsinacompanydoesnotnecessarilytranslatetoahighcorporate-IQscore.Theireffectiveinteractionhingesonthequalityoftheteamfocus,communicationskills,andcollectivebargainingpowerinthelargerbusinessenvironment.Also,high-IQindividualscommonlyfindwaystoworkrapidlyaroundproblemsin low-IQorganizations,andthis tends to lead to islandsof tacitknowledgeoronlypartiallyuncoveredexplicitknowledge.Smartindividualssurelyprefertoworkinhigh-IQorganizations(Fig. 10)andwill join the smartercompetitors if theirowncompany’s IQshows no aptitude to learn and improve. Periodic review of thecorporate IQ and enhancement programs is therefore considered
essentialtoretainmotivated,smartprofessionalsandtoattractnewintelligentworkers.
Recommendations and ConclusionsFastdeploymentofnewknowledge,tools,andskillsprovideskeydrivers for enhanced business performance. Episodic paradigmshiftsareavoidedbyhigh-corporate-IQorganizations.Theymostlystayabreastofthechangingbusinesslandscape,asparadigmshiftsare sometimes necessary but can also be disruptive. Intelligentorganizationssteertowardnewbestpracticesandsolutions—wellaheadofthedisruptivephase.People, technology, and work pro-People,technology,andworkpro-cessesremaintheprincipalagentsforvaluecreationintheoilandgasindustry.Theproductioncontrolroomandreservoirsimulationand visualization centers are linked up or combined for greateroperating efficiency by integrating the work processes betweenproductionandreservoirengineers(UnnelandandHauser2005).Theeffectiveintegrationofnewandexistingtechnologiesrequiressimultaneous optimization with other resources across the valuechaininaneffectiveworkflow.
ChangingthecorporateIQtakestime;managersatlow-corpo-rate-IQcompaniestendtosufferfrom“groupthink”(Jannis1982),andthisprovidesaformidablechallengewhentheneedforchangearisesforNOCs.Suchcompaniesareperceivedbytheirmanagersas powerful, and they commonly assume that this power existsbecausetheircompanyis(already)bestinbusiness.However,thereisnocompetitionforsuchnationaloperatorsbecausethereareno
TABLE 3—PROGRESSION OF SELECTED OPERATORS FROM NOC TO PPP AND IOC STATUS (% SHOWS STATE PARTICIPATION)
NOCs State OilsBefore Privatization
Transition to PPPOil
Transition to FullyPrivatized IOC
BP—68% 1977—51% 1995—0%
Total—100% 1992—30% 1996-0%
Repsol—100% 1989—67% 1997—0%
YPF—100% 1993—41% 2000—0%
PetroCanada—100%
1991—81% 2004—0%
Eni—100% 1995—85% Not yet
%03—6991
OMV—100% 1987—85% Not yet
%53—6991
Petrobras—62% 2000—45% Not yet
%04—1002
Statoil—100% 2001—81% Not yet
%17—7002
IQ assessment &targeted interventions
Val
ue
Ad
din
g C
apac
ity
Co
rpo
rate
IQ
High
LowTime
Steady IQ
IQ growth
IQ growth
140
120
100
75
25
0
50
Fig. 6—The purpose of a corporate-IQ assessment program is to maximize growth of the IQ through targeted interventions that translate to higher value-adding capacity.
140
120
100
75
25
0
50
Val
ue
Ad
din
g C
apac
ity
Co
rpo
rate
IQ
High
Low
Time
Steady IQ
IQ growth
“Events” that caused Compromised IQ
CatastrophicIQ decline
Fig. 7—Catastrophic IQ decline may occur when corporate knowledge is falsified or frauded. Immediate restoration of integrity in the organizational learning process and knowledge management system must occur to prevent total collapse of such compromised organizations.
4
3
Corporate IQassessment
CheckImproved
intelligence &learning capacity
Find strengths,weaknesses, andleverage points
Targetedinterventions
1
2
Fig. 8—The outcome of the corporate IQ assessment (1) pro-vides diagnostics (2) for improvement in targeted interventions (3) that enhance the organizational learning capacity (4). The periodic IQ assessment will reveal whether the targeted inter-ventions were effective and thus lead to positive growth of the corporate IQ.
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peercompetitorswithwhomtocompareorcompete.Becauseoftheirperceivedexcellenceandthemonopolypositionthatensuresreasonable income from their operations, the need for change isseldomfeltwithinNOCs.
Whenthecorporate-IQtestindicatesthatthecompany’sorgani-zationallearningislagging,adedicatedprogramoforganizationallearning must be accompanied by an intensive change-manage-ment program (and vice versa). Resistance to change will befierce (Quirke 1995), and the corporate culture will be resilienttochange (CameronandQuinn1999;Ford2008).Resistance tochange needs to be overcome by a stepwise approach, as advo-cated by Kotter (1978). Recent work outlined the importance ofadjusting organizational structures to remove barriers to organi-zational learning (Sakalas andVenskus 2007). The corporate-IQtestoutlinedherecanmonitor theprogress insuchorganizationswhileorganizationallearningtakesplace,andwhilethecompanyis subjected to the changes that expose it to a more competitivebusinessenvironment.
ReferencesAllee,V.1997.The Knowledge Evolution: Expanding Organizational Intel-
ligence.Newton,Massachusetts:Butterworth-Heinemann.Argote,L.1999.Organizational Learning: Creating, Retaining and Transfer-
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tiveEducationforOilandGasProfessionals.SPE Talent & Technology2(1):6–9.
Bos, C.F.M., Berkhout, A.J., Currie, P.K., and Weijermars, R. 2008.AcceleratingtheBuildupofExperiencewithaViewtotheImminentBig Crew Change. Paper SPE 113671 presented at the Europec/EAGE Conference and Exhibition, Rome, 9–12 June. http://dx.doi.org/10.2118/113671-MS.
Cameron,K.S.,andQuinn,R.E.1999.Diagnosing and Changing Organi-zational Culture: Based on the Competing Values Framework. NewYork:Addison-Wesley.
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Jannis, I.L. 1982. Groupthink, second edition. Boston, Massachusetts:HoughtonMifflinHarcourt.
Kotter, J.P.1978.Organizational Dynamics: Diagnosis and Intervention.NewYork:Addison-Wesley.
Kotter,J.P.andRathgeber,H.2006.Our Iceberg Is Melting: Changing and Succeeding Under Any Conditions.NewYork:St.Martin’sPress.
Maximum Scores 10
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Fig. 9—(a) The outcome of the IQ assessment per chapter identifies the relative strengths and weaknesses of the company in each of the four focus areas and detailed performance categories. (b) Scores for these four IQ components provide further insight into strengths and weakness in the corporate IQ. This information directs targeted interventions to improve the corporate IQ.
Smart individualsprefer to work inhigh IQorganizations
Fig. 10—Most high-IQ individuals thrive in high-IQ organiza-tions and shun low-IQ environments. However, concluding that having high-IQ individuals in your organization automatically leads to high corporate-IQ scores is wrong. In fact, the ability to successfully cooperate in teams is key in achieving deeper, broader, and faster knowledge exchange. Star teams face their own interpersonal challenges. Experienced team workers know that teams composed of professionals of highly diverse focus (i.e., practical, creative, investigative, controlling) are the most successful.
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Koulopoulos,T.,Spinello,R.A.,andForms,W.1998.Corporate Instinct: Building a Knowing Enterprise for the 21st Century.NewYork:VanNostrandReinhold.
Ledesma,D.2009.TheChangingRelationshipbetweenNPCsandIOCsintheLNGChain.TechnicalReportNG32,OxfordInstituteforEnergyStudies,Oxford,UK(July2009).
Matheson,D.andMatheson,J.1998.TheSmartOrganization:CreatingValue throughStrategicR&D.Boston,Massachusetts:HarvardBusi-nessSchoolPress.ISBN-10:087584765X.
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McKelvey,B.2007.EmergentStrategyviaComplexityLeadership:UsingComplexityScienceandAdaptiveTension toBuildDistributed Intel-ligence.InComplexity Leadership: Part I: Conceptual Foundations,ed.M.Uhl-Bien&R.Marion,Vol.1,225–268.Charlotte,northCarolina:LeadershipHorizons,InformationAgePublishing.
Mendelson,H.andZiegler, J.1999.Survival of the Smartest: Managing Information for Rapid Action and World-Class Performance.NewYork:JohnWiley&Sons.
Pacheco-de-Almeida, G., Hawk, A., and Yeung, B.Y. 2008. Speed andTobin’sQ.ResearchPaper,NYUSternSchoolofBusiness,http://ssrn.com/abstract=1095492(15April2008).
Quirke, B. 1995. Communicating Change. Columbus, Ohio: Quality inAction,McGraw-Hill.
Rogers, E.M. 1995. Diffusion of Innovations, fourth edition. NewYork:TheFreePress.
Sakalas,A.andVenskus,R.2007. InteractionofLearningOrganizationsandOrganizationalStructure.Engineering Economics53(3):65–70.
Senge,P.M.1990.The Fifth Discipline, The Art and Practice of the Learn-ing Organization.NewYork:Doubleday.
Skyrme, D.J. 1999. Knowledge Networking: Creating the Collaborative Enterprise.Oxford,UK:Butterworth-Heinemann.
Underwood, J. 2004. What’s Your Corporate IQ?: How the Smartest Companies Learn, Transform, Lead.Chicago,Illinois:DearbornTradePublishing.
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Weijermars,R.2004. Intelligentdecision-making in thepetroleumvaluecycle.Petroleum Africa(October):70–72.
Weijermars,R.2008.Building Corporate IQ—Executive Guide: An Illus-trated Toolkit for Intelligent Managers and Aspiring Leaders.Amster-dam:AlboranSciencePublishing.
Weijermars, R. 2009a. Competitive advantage from applying an E&Pclockspeedaccelerator.First Break27(6):87–94.
Weijermars,R. 2009b.Accelerating the threedimensionsofE&Pclock-speed—AnovelstrategyforoptimizingutilityintheOil&Gasindus-try. Applied Energy 86 (10): 2222–2243. http://dx.doi.org/10.1016/j.apenergy.2009.01.019.
Weijermars,R.2010.Trackingtheimpactofrecessiononoilindustrysuper-majorsandtimingofsustainedrecovery.First Break28(1):33–39.
Weijermars,R.2011.Building Corporate IQ: Moving the Energy Business from Smart to Genius.London:Springer.ISBN:0857296787.
Weijermars,R.,deJong,V.,andvanderKooi,K.2008.Culturalchallengesinoilandgasindustrymanagement.World Oil229(4):223–228.
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Wolf, C.O.H. and Pollitt, M.G. 2008. Privatising National Oil Compa-nies:Assessing theImpactonFirmPerformance.WorkingPaperNo.02/2008,JudgeBusinessSchool,UniversityofCambridge,Cambridge,UK(29February2008).
Appendix A: Background of Corporate-IQ TestsComparison With Previous Work. The questions for assessingcorporate IQ in this study have been modeled on those used inproven certification methods and management methodologies.
Such certifications and methodologies include Sarbanes-OxleyGovernance rules, US Securities and Exchange Commissionguidelines,generallyacceptedaccounting-principlesaccountancyrules, International Organization for Standardization 14001, and9001, European Foundation for Quality Management, the OfficeofGas andElectricityMarkets’ asset riskmanagement,PubliclyAvailable Specification 55, Six Sigma, lean, total quality man-agement, balanced score cards, earned value management, pro-fessional engineering operations, Project Management Institute,SUMMIT,andPrince.
The questionnaire also carefully builds onto the trends, con-cepts,andneedssetforthinpreviouswork.Forexample,Koulo-poulos et al. (1998)distinguishedbetweenhigher- and lower-IQcompanies.Theresultsshowedthathigh-IQorganizationsfocusoninnovation,externalresponsiveness,adapttochanges,andencour-agelearningandprocessinnovationbyemployees.Therehasbeennofollow-uptotracktemporalchangesincorporateIQ.
MendelsonandZiegler(1999) includesanassessment toolofanorganization’sfuturehealth,whichtheycallorganizationalIQ.Theassessmenthasbeenappliedto164organizationsworldwideinaMcKinseyandCompanysponsoredstudy.Buttherehasbeennoattempt tocontinue thiswork intoanextendedeffort to trackchangesinorganizationalIQ.
Cisco’sInternetBusinessSolutionsforsometimeusedanonlineIQself-assessmenttoolcomprisinga20-questionIQexpertisetest.Thistoolprovidedaqualitativemeasurefordeterminingyourcom-pany’sbusinesspotentialintheInternetEconomybasedonHartmanetal.(2000).Obviously,thistoolisofverylimitedscope.
Matheson and Matheson (2001) used an “Organizational IQIndicator Scoresheet” and accumulated approximately 1,000responsesfromindividualsinseveralhundredorganizations.Thatwork was an extension of their 1998 study described in The Smart Organization (MathesonandMatheson1998).Theirresultsare interesting, but the mixing of several hundred organizationswith a total of 1,000 respondees means it became impossible todeterminetheprecisereflectionof thescoresheetsonindividualorganizations.
Underwood(2004)presentstheresultsofastudyof15globalcompetitorsanddeterminedthathigh-corporate-IQcompaniescon-sistentlyrankedamongthetopperformersoftheirindustries.Like-wise, low-IQcompanies ranked at thebottomof their industries.UnderwooddescribescorporateIQastheinterrelationshipbetweenafirm’sstrategy,organization,character,andcompetitors.
Test Scope.Thescopeofcompetitivecorporate-IQtestingadvo-cated here envisions national and international comparisons toeventuallyjoinanaggregatedcorporate-IQdatabase.Clear instruc-Clearinstruc-tionsfortheassessmentprocedure(Weijermars2008,2011)makethis assessment tool for corporate IQ more practical and morecomprehensive than previous tools. The targeted interventionsbasedonafundamentalunderstandingoftheconceptofcorporateIQmakethisassessmenttoolalsomoreefficient.ThecumulativeIQscorecardaimsatperiodicIQreviews.
AnyIQquestionnairemuststandupto• Reliability:Theabilityofatesttoyieldnearlythesamescore
when the sameorganizationsare testedorwhen repeatedon thesametestoranalternativeformofthetest.
• Validity:Theabilityofatesttomeasurewhatitisintendedtomeasure.Test items thatarevalid inoneculturalcontextmaylosetheirvalidityinadifferentcontext.
• Standardization:Establishingnormsforcomparingthescoresoforganizationsthatwilltakeatestinthefuture.
Thepreliminaryresultsreportedinthisstudysuggestthatthecorporate-IQ test is reliable,providesvalidoutcomes, and sets aclearstandard.
Bell-Curve Mathematics. The distribution of the questionnaireresults represents a set of specific variables. The central-limittheorem states that any set of variables has a distribution witha finite mean and variance that tends to the normal distribution.While statisticians and mathematicians uniformly use the termnormaldistributionforthisdistribution,physicistssometimescall
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itaGaussiandistribution;andbecauseofitscurvedflaringshape,socialscientistsrefertoitasthebellcurve.
Thebellcurve(Fig. A-1)canbegraphedusingthefollowingnormalprobabilityfunctionf(x):
f x ex
( ) =− −
1
2
12
2
s p
m
s .. . . . . . . . . . . . . . . . . . . . . . . . . . . (A-1)
The parameters used in the x- and y-coordinate system are e(the transcendentalnumber2.71828...),p (themorefamiliar,butalsotranscendentalnumber3.14159....),m(themeanscoreonthex-axis),ands(thestandarddeviation,whichbecomesthevariances2whensquared).
Thebell-curveformulaservestonormalizetheprobabilityfunc-tionsuchthatthetotalareaunderthecurverepresents100%cer-tainty(probabilityisunity)thatthemeasurementsaresomewhereunderthecurve.Theheightofthecurverepresentstheprobabilityof themeasurementdensity at thatgivendistanceaway from themean.Technically,thisisthestandardnormalcurvethathasmattheorigin(m=0ands=1).Otherapplicationsofthenormalcurvearenotsymmetricaboutthey-axisbutshiftthepeakofthebellcurveawayfromtheoriginbychoosingmlargerthanzero(m>0).
Forexample,IQplotsfixmat100andsat15(Fig. A-2).Foranormallydistributeddataset,theempiricalrulestatesthat68%ofthedataelementsarewithinonestandarddeviationofthemean,and95%arewithintwostandarddeviations.Graphically,thiscor-respondstotheareaunderthecurve,asshowninFig. A-3foroneandtwostandarddeviations.Theempiricalruleisthat95%ofthedatamustfallwithintwostandarddeviationsofthemean.
Corporate-IQ Assessment Output. Thecorporate-IQassessmenttool(Weijermars2011)canbeusedformonitoringtheefficiencyof knowledge development through organizational learning. Theorganization’s effectiveness in creating primary business valuefrom this knowledge is subdivided into four focus areas, as fol-lows:
• Focus Area I: Effectiveness in stimulating new knowledgedevelopment
• Focus Area II:Effectivenessinapplyingthisknowledgeinagoal-orientedfashion
• Focus Area III:Effectivenessinbuildingnewassetswiththisgoal-orientedknowledge
• Focus Area IV: Effectiveness in communicating why theorganizationhasuniqueknowledgethatallowsittoexcel
The questionnaire scores are compiled in Table A-1 for thefocusareaclustersoutlinedstepwiseinthechaptersofWeijermars(2008,2011).TheexperientialIQcomponentismeasuredinFocus
TABLE A-1—CUMULATIVE SCORECARD FOR CORPORATE-IQ ASSESSMENT
Chapter 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Individual Scores
Block Scores
Focus Area 1: Experiential IQ
Focus Area 2: Contextual IQ
Focus Area 3: Componential IQ
Focus Area 4: Emotional IQ
Total Score: Ch. 1 to 4 (max. 40 points)
Total Score Ch. 5 to 7 (max. 30
points)
Total Score Ch. 8 to 10 (max. 30
points)
Total Score Ch. 11 to 14 (max. 40 points)
Total Score
Overall Organizational or Corporate IQ
Total Score Chapters 1 to 14 (max. 140 points, see IQ scale)
1
0.8
0.6
0.4
0.2
0-3 -2 -1 1 2 3
x
Fig. A-1—Standard normal bell-curve plot (m = 0 and s = 1).
60 80 100 120 140
0.025
0.02
0.015
0.01
0.005
0
x
Fig. A-2—Bell-curve plot of IQ spread (m = 100 and s = 15).
Samples of Corporate IQscores
50%
68%
95%
Nu
mb
er o
f IQ
Sco
res
Range of Corporate IQ Scores50 75 100 120 140
Fig. A-3—Bell-curve plot of hypothetical corporate-IQ spread.
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Area1,contextualIQcomponentinFocusArea2,componentialIQcomponent inFocusArea3,andemotional IQcomponent inFocusArea4 (seeFig.4inmaintext).TheresultsofFocusAreas1through4arethensummedtoarriveatanoverallcorporate-IQscore(TableA-1).To minimize individual bias, it remains impor-ominimizeindividualbias,itremainsimpor-tant tocollect a representativenumberof individual assessmentsso that the responsescanbeaggregated intostatisticalorcollec-tive IQ scores. Remedial suggestions are given in WeijermarsRemedial suggestions are given in Weijermars(2008) together with options for targeted interventions that can
be applied after the identification of the corporate strengths andweaknesses—orrisksandopportunities.
Ruud Weijermars is strategy consultant at Alboran Energy Strategy Consultants and principal investigator for a gas research program in the department of geotechnology, Delft University of Technology. He is the chief editor for Energy Strategy Reviews, a quarterly journal preparing for first publica-tion in 2012.