Guest Editorial: Sometimes Bigger Is Better: Big Oil as Radical Innovators in E&P
- Robert K. Perrons (Shell Intl. E&P)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- August 2006
- Document Type
- Journal Paper
- 30 - 34
- 2006. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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The 20th century economist Joseph Schumpeter famously aspired to be the greatest economist in the world, the greatest horseman in Austria, and the greatest lover in Vienna. He would therefore be quite pleased to discover that the first and most public of these objectives was at least partially achieved: One of his more famous economic predictions is apparently true. In the latter part of his career, Schumpeter postulated that large firms have many advantages over smaller ones in the development of radical new technologies. Whereas small and medium-sized enterprises frequently have to pay an undue amount of attention to their short-term balance sheets, large companies with deep pockets do not have to be nearly as sensitive to immediate profit constraints. Schumpeter accordingly reasoned that larger firms have both the resources and the time to pursue new ideas, and they are better positioned to explore the implications for their business of technological discontinuities before deciding whether to bring these technologies into the folds of the company’s core activities and operations.
This is not to say that smaller firms will not have an important role to play in the development of new technologies within the E&P industry. Product and process life cycles are steadily growing shorter, and it is becoming increasingly difficult for any one company to support an aggressive R&D agenda single-handedly. Robert Z. Gussin, former Vice President for Science and Technology at Johnson & Johnson, once drove this point home by musing that technology in his industry “has become so sophisticated, broad, and expensive that even the largest companies cannot afford to do it all themselves.” Responding to these same forces in the E&P industry, many large integrated majors have turned to their supply networks as a source of innovation.
Hit and Miss
To be sure, there is evidence from other industries that it is quite healthy for companies to rely to some degree on collaborative suppliers for new ideas. History has shown on many occasions that even the most focused R&D programs fail to guarantee results consistently. Many of the significant and commercially celebrated innovations that have emerged over the years have not been the result of tightly managed research agendas, but instead were brought about by a convoluted process of serendipity and unique circumstances. The hit-and-miss nature of R&D is such that managing science has been compared to herding cats: It is usually not done well, but one is surprised to find it done at all. Realizing that it is almost impossible to forecast where their next “new big thing” will come from, many companies across a wide variety of sectors are starting to broaden the radius of ideas that they might tap into by turning to their supplier base.
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