Innovation is in the Mind – Shell Innovation Summit 2013

Bismillahirrahmanirrahim
Assalamua’alaikum warahmatullahi wabarakatuh
Salam Sejahtera
A very good afternoon,
And Salam 1Malaysia
Yang Berusaha Encik Iain Lo,
Chairman of Shell Malaysia,
Mr Matthias Bichsel, Director, Projects & Technology, Royal Dutch Shell
Members of the Media, Ladies and Gentlemen,

Firstly, I would like to thank the organisers for inviting me to be a member in this panel and share my thoughts on the subject of innovation.

2. Too often we hear that ‘nowadays’ we must innovate to survive. The old saying ‘failing to plan is planning to fail’ has changed to ‘failing to innovate is to plan to fail’. It is quite a scary scenario being painted that many organisations, especially the SMEs, start to break a sweat every time the word innovation is mentioned. How do we become innovative? What do I need to do? And for those in a hurry, the question is, “Is there a consultant who specialises in innovation?”

3. Sure we can invest in expensive labs and sophisticated softwares, pinch some superstar talent from the industry and dedicate a few pages to ‘innovation’ in our annual reports. But if that is the way to innovation, then the Fortune 500 ranking and the Fastcompany’s ‘Most Innovative Companies’ ranking should be almost identical. Well, they are not. Neither would the largest company by market capitalisation rely on third party start-ups to create all those amazing apps.

4. It is most apt that Shell is organising this Summit. Shell has consistently been at the forefront when it comes to innovation. And I believe Shell has been able to sustain this because it has the ‘innovation’ mindset. MIT Technology Review lists Shell as among the 50 most disruptive companies in the world. Disruptive in a good sense, of course.

5. And Shell’s innovation is not just in technologies. It is also about people. In fact, I think it is mostly about people. If we are innovative in how we recruit and develop our people, our people will then ensure the same innovation is applied throughout the organisation. However, if our people management is straight-jacketed with archaic rules, that is a recipe to kill innovation in the company.

6. As I understand, Shell currently has more than 13% women representation in the Senior Management and has a target of 20%. I am sure that requires innovative people-management practices. I am also very familiar with the collaboration between Shell and the Singapore Civil Service where the latter has adopted Shell’s practices. Why would an O&G company and the Singapore Civil Service work together? What’s the value? That’s innovation. Seeing value where others don’t. The Malaysian Government also had a cross-fertilisation programme with Shell.

7. I am also very pleased to see the same innovative approach has resulted in a relatively younger generation of leaders helming the Management of Shell here. And, Malaysians leading the Malaysian operations.

8. Going back to the women representation, we definitely have a challenge on our hands in addressing this. Although 68% of Malaysian university intake is female, Malaysia has the lowest labour force women participation in ASEAN at only 48%. This drops further to only 7% at Board level of Bursa Listed companies. If we were to achieve the Government’s aspirational target of 55% women labour force participation and 30% at decision making level by 2016, we cannot afford incremental changes to our people management policies. We need to innovate. And we need commitment. That commitment could be championed by CEOs, and by men. I believe Shell can share its best practices with Corporate Malaysia to help us get there.

9. Same goes for increasing the retirement age. The new reality is people live longer. That means they also need to work longer. We now need to balance between tapping the expertise and experience of the older generation who will stay longer and, motivate and develop the younger generation who may not be so patient waiting for promotion. Then there is the cost to balancing. But how do we do it? I don’t know. Innovation in medicine increased our life expectancy and brought us this ‘problem’. The answer may also lie in innovation.

Ladies and Gentlemen,

10. Innovation is a state-of-mind. A mind that is constantly rearranging the world around to see new patterns and solutions for old problems. But therein lies the challenge to innovate. The ability to consistently and constantly see things differently, and to continuously explore new solutions is not what large organisations are used to. It comes more naturally to smaller establishments who do not carry the baggage of ‘that’s not how we do it here’. There are not many status-quos to challenge. Or that there is no precedent. Many fail to understand that precedents were set by people before them. People who perhaps were more junior than them in organisational hierarchy! Neither do the smaller, newer organisations have much fear of failing the legacy of previous accomplishments. Especially when your history is short and successes have been few and far in between.

11. For the larger players amongst us, the responsibility starts at the top. Besides talking about it, the Senior Management needs to apply it. At meetings and discussion, be supportive of new ideas, and be less enthusiastic with the old ones. For innovation to flourish, we need more smaller units where more voices can be heard, and more ideas can be surfaced. 3M has a famous goal to generate 30% of revenue from new products introduced in the past five years. That has to be one of the best proxy goal to innovation.

Ladies and Gentlemen,

12. In my previous life as the Chief Secretary to the Government, I used to be closely involved with the National Blue Ocean Strategy Initiatives. One of the first projects under this was with Polis Diraja Malaysia. There was a need to increase the number of police patrol personnel. Normally, that would have meant increasing the intake and the training capacity of PDRM, potentially involving a few hundred million ringgit to build new training facilities. What we actually did was quite different.

13. First, we had to take stock of the personnel we already had in the system. There were trained police personnel who could not do patrolling because they had other work to do – they were desk-bound to do administrative work. So, the first solution was to redeploy existing officials from other agencies into PDRM to do administrative work and free-up the police personnel to do what they do best, policing. Seven thousand four hundred of them. So police do the policing, and civilians do the administrative work. Something unheard of at that time, but sounds like a very natural thing to do now.

14. But that was not enough. The requirement for patrolling was much higher than that. It seemed investing in additional training facilities was inevitable. The Government approved refurbishment of an old complex at a cost of RM159 million. It took about three years to complete and yet, it could only train 300 personnel at a time, with each batch requiring six months training. If we had stuck to that model, we can never put enough personnel on the streets. We will always be playing catch-up.

15. So we brought the Military and the Police together. Two groups who seemingly had their own show to run and had little to do with each other. We asked, “Why don’t we train the police at the army camps?” Four months and RM1 million later, the first batch of 1,600 personnel started their training at Port Dickson and Tanjong Pengeleh camps.

16. In this case, innovation was about removing the mental barrier about being ‘police’ and ‘military’ and seeing themselves as the security forces of the country. Now the sharing of training facilities go beyond the military and police. It includes Prisons Department, Fire Services and others. But why do we limit the sharing to only training facilities? I suppose the larger the mental circle we draw around us, the greater the potential for innovation.

Ladies and Gentlemen,

17. Now coming to my current life in PETRONAS, I would like to expound on our positioning, ‘reimagining energy’.

18. We are not in business only to make money and meet our current energy needs, but to do so sustainably to meet future needs too. As a National Oil Company, PETRONAS cannot emphasise enough the importance of sustainability, as we carry the amanah and the hopes of the people. We need to explore in a way that not only addresses our needs today, but also develop a portfolio for the long-term well-being of the Nation. Not only bring the resources out but do so in a manner that is environmentally responsible and ethical. And in our industry, the long lead time and the long-term impact of our actions means innovation is not just seeing new solutions for old problems, but also seeing long term impact of current actions. We need ethical innovation. It is easy to be caught in the euphoria of seeing unorthodox solutions bringing additional revenue and reducing cost. But we need to rise beyond the euphoria and ethically evaluate the impact of our innovation. Here, the innovative mind also needs to be ethical and responsible. We do not want to repeat the innovation of plastic grocery bags and mortgage-backed securities!

19. As a company established during an oil crisis, PETRONAS has not done too bad. But for the next phase of growth, we need to be bolder, do things differently, constantly challenge accepted norms and find new solutions. We need to perpetually reinvent ourselves. We need to stay ahead and for that, we need to forget the status quo. We need to reimagine. The front wind-shield is where the focus is, not the rear view mirror. We are drumming this into our culture and mindset. And to that of our partners and associates.

Ladies and Gentlemen,

20. In recent years, we have had to address issues relating to new play types like shale and Coal-Bed-Methane or CBM, ways to mitigate high-pressure high-temperature prospects and explore the deep-water and ultra-deep-water. As the cost gets higher, the economic returns are suspect. Although the typical steps of exploration and development are pretty much the same, the environment has changed drastically. In a more geologically complex locale, the data acquisition and processing, seismic interpretation, prospect maturation and well drilling requires much more sophisticated technologies in modelling and reservoir evaluation. Hyper spectral satellite remote sensing is already here. Arctic is now open for business. Essentially, it is a new environment. We need to acknowledge it is different and admit innovation is not a choice, but a necessity. Rather than trying very hard to see similarities with the past and continuing status quo, our mind needs to seek minute differences and construct the new reality.

21. It is this mindset that led to the establishment of Vestigo Petroleum Sdn Bhd, a subsidiary of PETRONAS Carigali. Small, marginal and mature fields require a different set of operational and technical skills compared to developing large fields. A separate, smaller entity can develop niche technical and executional capabilities in the Development and Production of these fields faster than the parent. By seeking and acknowledging the difference, we seized the new reality and established Vestigo.

Ladies and Gentlemen,

22. The Oil & Gas industry is considered among the world’s most important. It assumes a critical role in driving the global economy. Notwithstanding the current economic uncertainties in the West and sluggish growth in Asia, there are billions being lifted out of poverty in emerging economies. Worldwide middle class is expected to increase from 1.8 billion in 2009 to 3.2 billion in 2020 and 4.9 billion in 2030. A key assumption to these projections is steady economic growth, fuelled by affordable and accessible energy supply. That affordability and accessibility relies much on our ability, as an industry, to consistently and continuously innovate, and do so in a manner that we can all be proud of – sustainable and ethical.

23. On that note, I thank you for your attention.

Wabillahi taufiq Walhidayah Wassalamualaikum warahmatullahi wabarakatuh.