- - Monday, May 1, 2017

Cyclical market volatility will continue to be standard in the energy industry. An impending market rebound has many feeling cautiously optimistic, but the extended cycle of the current downturn — now being characterized as “lower for longer” — has revealed a new reality in the energy sector that will change leadership imperatives for the foreseeable future.

Energy leaders are realizing that lower prices, unpredictable market dynamics and hyper competition for talent, resources and capital are driving a need to rebuild and adapt businesses, or risk being left behind. In this new reality, it’s critical to strike a balance between disruption and discipline — understanding how to best lead innovation while still adhering to long-standing best practices that will ensure longevity regardless of future market fluctuations.

These were the leadership imperatives on the agenda at our sixth annual CEO Breakfast Panel at IHS CERAWeek this year, where we had candid discussions about disruption and digital transformation with CEOs and chairpersons from across the energy value chain.

It’s time to move past survival mode. Although it would be premature to prepare for a true market rebound, there has been enough momentum that leaders are rightly thinking about growth and innovation. Whether this comes in the form of technology adoption, new business models or refreshing boards to ensure effectiveness, forward-thinking leaders will seize this time of downturn and poise their companies for success as the industry continues to evolve.

This means thinking differently about how to invest incoming capital. Applying lessons from Silicon Valley and the VC community, leaders must invest in organization-wide innovation. The industry is ready to move beyond operational technology, to embrace software, Big Data, machine learning and predictive analytics.

Perhaps most importantly, new innovations mean new talent. Human capital is the linchpin to effectively leveraging innovation. In particular, there is a significant need for new data analytics skillsets within energy companies — leaders must consider how to effectively usher in this new work force to build the right foundation for executing against innovations. While preparing for the future, leaders must also consider how to reflect these work force shifts at the highest levels, including introducing Chief Digital and Strategy Officer roles onto energy C-suites, as well as board members with data analytics skillsets.

Leading innovation. Creating something new and useful is hard — it takes teamwork, it is time consuming and often results in significant culture and workflow shifts within organizations. Leaders must learn to be the stage setters and champions of innovative thinking, trumpeting milestones and encouraging widespread momentum through accountability, empowerment and rewarding successes both big and small.

Energy boards must set the tone. Boards must lead in identifying avenues for innovation, and they can only do so if they are composed of the right experiences, skillsets, genders and nationalities in line with business needs. Directors with digital expertise including data analytics and those with experience in other sectors that have undergone rapid transformation are critically important to the organization’s digital strategy. Board effectiveness reviews and succession planning should be evergreen according to the pace and area of change demanded by the industry.

Innovation is only possible if the business is prepared to embrace it. The period of downturn presents an opportunity for organizations to focus on developing the talent they will need to drive future transformation and growth, but leaders must be disciplined when the market picks up and remain proactive about embedding ongoing and sustainable transformation into the organization.

Trent S. Aulbaugh is a senior leader in Egon Zehnder’s Energy Practice, focused on CEO and Board leadership. Steven V. Goodman leads Egon Zehnder’s North American Energy Practice, and is the leader of the firm’s Houston office. Carol SingletonSlade leads Egon Zehnder’s U.S. Board Practice and Global Energy Practice, and serves on the firm’s Executive Committee.

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