The Wisdom Embedded in Organizations - A Personal Story
Ryan Avent of the Economist states in his book, The Wealth of Humans that in Standard & Poor’s 500 firms, 80% of their value is in the form of “dark matter” or their intangible secret sauce to success. This implies that the physical stuff companies own and their bill wage accounts for a mere 20%. I would go so far as to argue that this applies to even asset intensive industries, such as oil and gas.
I have found tremendous wisdom in every company I have had the privilege to work with. A large portion of this “dark matter” is an amorphous “know-how”. This would include the culture, the incentives and the tacit knowledge that makes a modern company tick. The problem with this “dark matter” is that this wisdom is seldom articulated and/or utilized.
“An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.”
- Jack Welch, former CEO of General Electric
I was just 36 years old when I was asked to turn around a large refinery that had been acquired through privatization from state ownership. Times could not have been worse in the refining industry. Refining margins were negative, the entire industry was contracting and quite honestly the future looked bleak. This particular refinery had been a public company and largely state owned, we took it private at a $7m market cap.
At that time, I had had only one year of experience turning around a mini refinery, 10 times smaller than this one. It was an industry tradition that one would not even be considered for a CEO position unless you were 50+ years old, a graduate in Petroleum Engineering and had worked in a refinery for 20+ years.
I possessed none of these qualities. I am a Power Electronics Engineer by profession who hated Chemistry classes. I was 36 years old and I had a one year turnaround experience in a “pocket” refinery. Needless to say, current management received me with the utmost skepticism and I was given 90 days to crash and burn.
However, under my leadership, within two and a half years, the refinery became the most efficient in South Eastern Europe. It went public again at a $450m market cap, a tremendous gain from the $7m market cap we started at when it went private.
So, without much experience in this specific position, how did I know what to do? The truth is, there was absolutely no need for me to be a Petroleum Refining Engineer. There was already plenty of technical knowledge in the company. What was missing was a culture of transparency and efficiency, a clear focus on the right priorities, and leadership that would not panic under the current circumstances.
The culture I had inherited was one of silos and secrecy, of competing agendas and at times straight-up sabotage. This company’s “dark matter”, the fabric of knowledge they possessed was buried under layers of hierarchical management. There was little motivation to excel and risk taking was not encouraged and so the team was silenced.
What follows is the story of the near-demise of this company and how through proper leadership we were able to utilize it’s internal wisdom, all enabled by a culture of transparency. This approach saved and eventually allowed the company to prosper again despite all odds.
It was the end of 2001. I had been CEO for only nine months when we had to stop the refinery for a major revamp. Technical maintenance was something that previously had been severely neglected and most of the technology had permits close to expiry. One Saturday morning, I got a call that one of our most important units, the one extracting sulfur out of gasoline, had cracked under water testing pressure.
We rushed to the refinery only to see a huge hole in the 10 story-high tower. This unit was the only one allowing us to produce gasoline on spec. There were no words to describe the desperation on our technicians’ faces. Every option we had was worse than the next.
Purchasing a new unit would take 12 months to manufacture and another 4 months to commission; we would be bankrupt way before that. Another alternative was to buy second hand units, but we couldn’t find anybody to sell to us because they weren’t able to give any risk-free guarantees.
After a few days of agonizing meetings, late one evening an older engineer knocked at my door. He had a crazy idea that none of us could have imagined.
He had remembered that on the other side of the country there was a formerly state owned Petrochemical plant which had been sold for scrap. He believed that there was a stainless steel tower which may fit the specifications we required. The problem was that the tower was already in the possession of the people who controlled the scrap metal trade — the gypsies. We would have to speak with the head of the gypsy tribe and negotiate the purchase of this tower with no guarantees that the metal would still be valid.
What ensued would be a story for the history books! In the process of bargaining for the scrap metal we discovered that the tower was not exactly what we needed. This did not deter our engineers, who were able to come up with a brilliant idea of how to re-engineer it. The tower was twice the size of our previous one, however if we could make this work it would provide us with double the desulfurization capacity. To top it off, the gypsies didn’t have just one, they had two.
To make a long story short, the next day we made an offer to buy both towers for 20% of what we would have paid for a single new one. We were able to commission them in three months and in the end had four times more desulfurization capacity than before. This allowed us to produce very high quality gasoline ahead of the market.
This capability and a significant investment in advanced automation lead us to receive the award for the best refinery in the region in 2003. Through a culture of transparency, initiative and unwavering resolve we were able to take this opportunity and utilize the “dark matter” held by the people within our company. Had I not applied the technical knowledge my team possessed I would have presided over a refinery that would not have been worth the value of the scrap metal it contained.
Eric Kish is the author of Everyday Turnaround — The Science of Daily Business Transformation. This post was originally published here.
