University of Groningen – Faculty of Economics and Business
Master Thesis
Happiness in a Forced Marriage: Harmonizing Strategic
Goals of Alliance Partners in the Energy Transition.
MSc Business Administration – Strategic Innovation Management
by
M.C. VAN DIJK S1976850
January 21st,2019
Word-count, excluding references and appendices: 16.161 Supervisor: dr. Florian Noseleit
TABLE OF CONTENT
ABSTRACT ... 2
1. INTRODUCTION ... 3
2. THEORETICAL FRAMEWORK ... 5
2.1 Why O&G Incumbents Fall Outside the Existing Framework ... 6
2.2 Attaining the Ideal Balance – Where to Begin? ... 8
3. METHODOLOGY ... 10
3.1 Research Design ... 10
3.2 Case Selection ... 11
3.3 Data Collection and Analysis ... 12
3.4 Research Quality ... 15
4. FINDINGS ... 16
4.1 OGcorp – A Brief Description ... 16
4.2 NewSZ Alliance ... 18
4.3 RePurp Alliance ... 25
4.3 Concluding Case Remarks and Summary ... 30
5. DISCUSSION ... 31
6. CONCLUDING REMARKS ... 34
6.1 Limitations and Future Research Suggestions ... 35
ACKNOWLEDGEMENTS ... 36
REFERENCES ... 37
APPENDIX A – INTERVIEW PROTOCOL ... 41
ABSTRACT
The energy transition has come to a point where large incumbents in the oil and gas sector are exploring niches of renewable energy technologies (RET). This way, incumbents hope to find technologies with which they can sustain their societal and economical license-to-operate as energy suppliers in an age where fossil fuels are losing importance. This paper theorizes that incumbents and RET niche players are forced into alliances, where their respective exploratory and exploitative strategic goals collide. Existing strategy literature does not provide answers to the question how managers balance these opposing strategic goals within organizations. To address this gap, an in-depth nested-approach case study was conducted, analysing two alliances with RET niche firms, initiated by a large oil and gas incumbent. Results propose that alliance partners in the energy transition indeed face challenges regarding alignment of their strategic goals. Depending on the rationale on which an incumbent explores, either technological or commercial, tensions are found to be respectively high and low. Tensions between organizations are proposed to be mitigated by both procedural and relational alliance governance mechanisms, depending on the rationale. A high degree of alliance governance management is proposed to soften tensions between exploration and exploitation between alliance partners. However, because of alliance championing, tensions are proposed to be higher within the incumbent’s boundaries and consequently require managerial intervention. These results are relevant for managers as it helps them make better informed decisions when deciding on exploration strategies.
1. INTRODUCTION
“Ice in the Antarctic is melting at a record-breaking rate and the subsequent sea rises could have catastrophic consequences for cities around the world” (The Guardian, 2018)
The consequences of climate change are becoming ever more real. In order to adequately address this, and to prevent worse from happening, all sectors need to collaborate towards sustainability (Veugelers, 2012). Hockerts and Wüstenhagen (2010) investigated the role of large and small firms in transforming industries towards sustainable development. They formulated an industry level model in which the market interplay between emerging innovative firms and incumbents pushes an industry towards sustainability. Indeed, when looking at the energy sector, it has recently been shown that in the Oil & Gas (O&G) sector both societal and market forces pressured incumbents to strategically reorient towards sustainable technologies (Steen & Weaver, 2017). This is positive for sustainability in the energy sector, as incumbents in the O&G sector possess the resources to steer future directions of their industry. Moreover, it can also be a catalyst beyond the energy industry by re-allocation of resources to deploy new technologies and by providing legitimacy (Geels, 2014; Geels & Schot, 2007; Hockerts & Wüstenhagen, 2010; Steen & Weaver, 2017).
Previous research has hinted that O&G incumbents are now moving into renewable energy technologies (RET), mostly because of proactive reasons (such as asset repurposing and firm survival), rather than reactive reasons (following the market or competition). Nevertheless, actor-level analysis is required to gain more insight in incumbents’ strategic motivations and their effects on emerging sectors (Steen & Weaver, 2017). However, contrary to the ideas of Hockerts & Wüstenhagen (2010), O&G incumbents are not developing their own sustainable technologies. Instead they are seeking alliances with emerging firms which often develop more radical innovations (Rothaermel, 2001; Steen & Weaver, 2017). This makes sense, as incumbents often display a strategy of allying when faced with radical technological change (Rothaermel, 2001), which is also the case in RET. The high uncertainty of the environment makes it more attractive to cooperate than to integrate, because in this way, incumbents can maximize the value of their investment options portfolio (Rothaermel, 2001).
legitimacy to successfully scale up their businesses. Therefore, many RET start-ups opt for joint ventures and strategic alliances when facing a commercialization strategy decision (Halme & Korpela, 2014; Katila, Rosenberger, & Eisenhardt, 2008; Walsh, 2012).
Recapitulating, both incumbents and emerging firms have their own different reasons to engage in an alliance that resembles a forced marriage. Incumbents tend to go for strategic alliances to explore RET for which they are not well equipped to competitively develop internally (Rothaermel, 2001; Steen & Weaver, 2017). Emerging RET firms have developed technologies, yet are unable to get funding to scale-up their activities and become competitive in the energy market (Halme & Korpela, 2014; Katila et al., 2008; Teece, 1992; Walsh, 2012). Emerging firms may just have the technology that incumbents look for to in order to survive in a future where fossil fuels are losing relevance (Hockerts & Wüstenhagen, 2010; Steen & Weaver, 2017). Conversely, incumbents may just provide the legitimacy and industry knowledge that a RET firm needs in order to convince investors to invest, or incumbents might even prove to be investors themselves (Halme & Korpela, 2014; Katila et al., 2008; Teece, 1992; Walsh, 2012).
This is the puzzle that the energy transition provides to existing literature on strategic alliance management. Previous research has mostly assumed that a firm has the option to select an alliance partner to explore with, and yet another to exploit with, thus aiming for ambidexterity on an alliance portfolio level (e.g. Rothaermel & Deeds, 2004). However, the energy transition provides new rules to the game by forcing incumbents and emergent firms, with their opposing strategic goals, into marriage. Therefore, it is relevant to answer the call for a more in-depth analysis of what managing for ambidexterity looks like within a single alliance (Lavie, Stettner, & Tushman, 2010; Mathias et al., 2018; Nielsen, 2010; O’Reilly & Tushman, 2013). And to add to the overall, still limited, sustainability literature on strategic behaviour of incumbent firms in a transition context (Erlinghagen & Markard, 2012; Steen & Weaver, 2017; Wesseling, Niesten, Faber, & Hekkert, 2015).
To this end, this paper aims to answer the following research question:
“How do emerging and incumbent firms partnering for sustainability cope with their contradictive strategic goals of exploration and exploitation which compete within their alliance?”
To answer this question, this paper is structured as follows. First, an overview of the literature on ambidexterity is given. Then, the methodology is explained, and the findings are presented. Based on the findings, propositions are developed in the discussion section, after which theoretical and managerial implications are discussed in the conclusion. Finally, limitations and future research suggestions are discussed.
2. THEORETICAL FRAMEWORK
Following the Schumpeterian (1934) concept, early scholars’ perception has revolved around exploration and exploitation as two irreconcilable strategic goals, pertaining that any organization may only pursue one (Raisch & Birkinshaw, 2008). March (1991) was the first to contradict this perception by proposing that it is imperative to the long-term survival of the firm to pursue both. However, because exploration and exploitation compete for the same scarce resources within an organization, they are fundamentally incompatible, and these incompatibilities need to be managed (Gupta et al., 2006; March, 1991; Tushman & O’Reilly, 1996). Therefore, organizations constrained by scarce resources are forced to explore at the cost of exploitation or vice versa (Gupta et al., 2006). Additionally, exploration and exploitation are self-reinforcing, meaning that a one-sided focus on either one will lock an organization in on that strategy. For example: a focus on exploitation often leads to early financial success, due to efficiency wins, promoting more exploitation in a so called “success trap” where firms lose their ability to aptly respond to change (Ahuja & Lampert, 2001). Conversely, a focus on exploration often leads to a “failure trap”, where disappointing returns on research promote further investigation of even newer or more radical ideas (Gupta et al., 2006). Therefore, the crux in managing for exploration and exploitation on a firm level is balance, or ‘ambidexterity’ (Gupta et al., 2006; Uotila, Maula, Keil, & Zahra, 2009; Wang & Li, 2008).
Empirical research has found support for the notion that ambidexterity leads to superior firm performance, highlighting that managing for ambidexterity is a fundamental part of strategic decision making. (O’Reilly & Tushman, 2013; Raisch et al., 2009). Because ambidexterity is commonly defined as a continuum, the actual and ideal position of any given firm depends on both environmental-, and organization specific contextual factors (Uotila et al., 2009; Wang & Li, 2008). However, sudden and unexpected environmental jolts may redefine the ideal balance for a firm on this continuum (Lavie et al., 2010).
2.1 Why O&G Incumbents Fall Outside the Existing Framework
strategic motivations, however, is suboptimal in the pursuit of knowledge-based outcomes, and is even expected to cause alliance failure (Nielsen, 2010).
In the existing alliance ambidexterity literature, this is not necessarily a problem. Rothaermel and Deeds (2004) show that pharmaceutical firms explored new drugs with small biotechnology research firms, in a setting where the firms’ focus on exploitation and exploration becomes complementary. Pharmaceutical firms are exploitation-oriented with superior marketing, production, and distribution capabilities, where biotechnology firms are exploration-oriented with specific research capabilities. The O&G sector differs in that new RET cannot be directly exploited by O&G firms, as O&G exploitation still yields higher financial results over RET exploitation, resulting in a success trap (Ahuja & Lampert, 2001; Steen & Weaver, 2017). Moreover, even if a project were to be finished and brought to full exploitation from the perspective of a niche player, it would still be considered exploration for the O&G firm. Technology can thus not easily be transferred from an emergent RET firm to an O&G firm for exploitation, partly due to a mismatch in current scale. Neither can it be further developed, as incumbents must explore the potential of the technology first. The existing ambidexterity literature does not address this problem, as it assumes that firms are able to find alliance partners that fit either their exploratory or their exploitative needs in order to develop a product (Rothaermel & Deeds, 2004). However, in an environment that contains competitive fossil fuels and semi-mature niches that are driven by technology push, this might not be the case (Dan & Zondag, 2016; Steen & Weaver, 2017; Walsh, 2012).
So far, the literature offers little insight in why O&G incumbents choose to diversify via alliance, or how they manage those alliances (Dan & Zondag, 2016; Steen & Weaver, 2017). In general, there is a call for more research in alliances in the context of sustainability transitions (Steen & Weaver, 2017; Wesseling et al., 2015) Therefore, it is relevant to further investigate how O&G incumbents diversify in RET via alliances, and how they manage those alliances. This paper approaches the problem through the exploration and exploitation lens by March (1991). Based on his juxtaposition of exploration and exploitation, I will investigate if O&G incumbents and emergent RET firms face this tension when both strategic goals meet in an alliance. Specifically, this paper looks at how this tension is subsequently managed within alliances. In order to provide theoretical background to answer this question, the following section explores how exploration and exploitation may be balanced.
2.2 Attaining the Ideal Balance – Where to Begin?
In the past decades, two main views on ambidexterity have emerged, although they are somewhat conflicting. Nonetheless, both are the result of the same logic. Both views start with the idea that exploration and exploitation compete for resources, but also require distinctive sets of skills and capabilities. Therefore, they are inherently inversely related at all times (Lavie et al., 2010). The conflicting literature streams result from two types of separation proposed by scholars in order to deal with this idea of mutual exclusivity. One stream proposes to separate exploration from exploration in the scope of time, so that organizations oscillate between short periods of exploitation and longer periods of exploitation (Brown & Eisenhardt, 1997). The other proposes separation by means of structural design. Structural separation entails that organizations are designed in a way that exploration and exploitation are contained within the organizational boundaries, but divided across different departments (Tushman & O’Reilly, 1996). In this situation, these departments will be highly differentiated from one another. Exploitation departments are geared towards efficiency, scale, and tight processes, whereas exploitation departments are typically smaller, with loose cultures and flexible processes (Benner & Tushman, 2003; Lavie et al., 2010). A loose coupling of these departments then subsequently solves the problem of opposing cultural factors of exploitation and exploration within one department, but leaves the challenge of balancing them to the senior management level (Jansen, Tempelaar, van den Bosch, & Volberda, 2009).
from being explorative to exploitative. Taking an alliance portfolio perspective, a firm with alliances in various stages of evolution from exploration to exploitation, is on average balancing both (Lavie & Rosenkopf, 2006). A similar approach, but without external partners, is the use of new corporate business ventures, where a firm creates its own exploratory partner in a new business venture (NBV) that grows to be exploitative over time (Raisch & Tushman, 2016). Although technically not an alliance, it is possible that alliances face similar challenges as NBV’s when looking for opportunities with the parent firm to scale-up their activities. Reverting to alliances, previous scholars have expanded on what is meant by balancing exploration and exploitation in the alliance literature, by using the same terms for alliance formation factors. Lavie and Rosenkopf (2006) have applied the exploration and exploitation lens to separate domains of an alliance. This results in an abstraction where working with known partners is considered exploitation, whereas collaborations with new, unfamiliar partners are considered a form of exploration.
Finally, there is research that promotes the idea that a supportive organizational context enables individual employees to balance exploration and exploitation as they deem appropriate (Birkinshaw & Gibson, 2004). An often-cited example of this is Toyota, which is perceived to have been balancing exploration and exploitation across all domains for decades. However, scholars opposing this idea argue that when zoomed in at a team or individual level, there still has to be some temporal or structural division between the two (Adler et al., 2009). Same as for structural ambidexterity, this brings the choice between exploration and exploitation back to managers to decide which of the two prevails over the other at any given time (Lavie et al., 2010). However, research on how ambidexterity is actually managed within organizations is rare (O’Reilly & Tushman, 2011, 2013; Zimmermann et al., 2015), and especially case studies could shed a light on how senior-management teams intentionally balance exploration and exploitation (Lavie et al., 2010).
3. METHODOLOGY
The energy transition shows that there are several gaps in the existing strategic literature. Furthermore, the transition literature has considerable gaps itself. The following section elaborates on the research method that is deployed in order to address these gaps and to answer the research question.
3.1 Research Design
Strategic alliances are generally identified as either explorative or exploitative, but they are expected to be hybrid in the context of the energy transition (Steen & Weaver, 2017; Walsh, 2012). However, since hybrid alliances are considered to be instable by nature, much is to be discovered about how firms cope with this previously avoided tension. (Dan & Zondag, 2016; Kumar, 2014; Rothaermel & Deeds, 2004; Steen & Weaver, 2017; Walsh, 2012). To match the exploratory nature of the research field, an exploratory design is most suitable. To this end, I conducted an in-depth nested-approach case study (Eisenhardt, 1989; Yin, 1984). Contrary to the initial research design, which consisted of a single-case in-depth study, a second single-case was added during research after it became clear that the investigated O&G firm had multiple reasons for, and modes of selecting alliance partners. This addition during the course of research enabled a more extensive analysis of how the exploring O&G firm approached, and cooperated with the exploitative-oriented emergent RET firms (Eisenhardt, 1989). Where the first alliance of the O&G firm was selected by an independent jury out of a competition or challenge, the second emerged from a consortium when the O&G firm was exploring how it might re-purpose a large asset. Furthermore, the different strategic motivations of repurposing an asset versus aiming for a new technology can provide a richer understanding of why and how O&G firms diversify into RET.
3.2 Case Selection
In the final analysis of this research, two exploratory alliances of one O&G firm were used. In order to provide an assurance of confidentiality, the names of all businesses, places, and persons have been substituted by pseudonyms (Lofland, Snow, Anderson, & Lofland, 2006). Therefore, the incumbent O&G firm has been dubbed OGcorp and its two alliance partners NewSZ and RePurp. Based on theoretical sampling (Eisenhardt, 1989), I selected OGcorp because they were involved in multiple exploratory alliances in different stages with emerging RET firms. OGcorp is a large incumbent in O&G extraction and its specific branch investigated is active in Europe. In 2017, they started a department exploring external opportunities of RET. This department consists of ten individuals who explore different categories of RET and who work closely together with the Commercial and New Business Development departments at OGcorp. The latter two both have a mixed O&G and RET portfolio.
The two cases investigated in this paper were selected from OGcorp’s alliance portfolio, based on: (i) the fact that they both explored towards RET with an existing niche-player and thus fit the theoretical gap (Glaser & Strauss, 1967); (ii) the method of how they were initiated; (iii) the fact that both alliance partners are new to OGcorp; and (iv) the fact that they were both past the partner assessment and selection phase, and in the negotiation phase of the alliance (Dyer, Kale, & Singh, 2001). Due to the limited number of cases that can be studied, it makes sense to choose cases which are exemplary situations of the lack of theory (Pettigrew, 1990). However, in order to be complementary, the two cases should not be too different (Eisenhardt, 1989). Both cases are thus exploratory initiatives of OGcorp with RET firms that are past the start-up phase, seeking exploitation, and are ready to scale-up their technologies, but the reasons for which they were initiated differ. Both cases are described below, but for a short overview, see table 1.
NewSZ is a very small project-management company with pending patent rights on a specific technology related to an energy storage system. NewSZ was selected as an alliance partner through a RET challenge set out by OGcorps parting CEO. An independent jury of industry experts selected NewSZ’s technology as potentially the most impactful. No official letter-of-intent has been signed yet, but OGcorp is bound by its promise to explore the opportunity, which has also been covered by the media. Currently they are negotiating for NewSZ to do a thorough feasibility study for OGcorp, and the possibility of bringing in third parties.
letter-of-intent is already signed, and the collaboration has been announced to the media. No other partners can join in the re-purposing of the strategic asset. Currently, land-option agreements are being negotiated, so that RePurp may start with the extensive legislation and permit applications for the deployment of their RET.
NewSZ RePurp
Alliance Partner selection process:
Winning the RET challenge set out by OGcorp’s managing director.
Proposed by a RET networking consortium, for having technology relevant for repurposing an old O&G
asset.
Type of firm: Small project management firm. One-man engineering firm. Time since first contact
with OGcorp 10 months 16 months
Type of (un)certainties involved in exploration:
Technology developed but not proven in practice. Market and legal implications for Europe are not clear.
Possible third partner required for assets. Core technology developed, but surrounding architecture is not.
Technology proven on a small scale for over 15 years. Know-how of technology specific legislation is key
in making the project a success.
Experience of alliance partner:
Little. One other pilot project outside of the alliance target market is in
development. CEO is.
15 years of experience in implementing the technology on a small decentralized scale. 2 years as
an independent engineer.
Main differentiator for OGcorp:
New market entry: electricity storage and trading. Technology somewhat matches existing O&G applications.
Legal framework to implement this technology commercially needs to be
discussed with local government.
New technology, but similar market dynamics. Different legislative implications than current O&G assets. Legal situation not ideal, but
permissible for this technology.
Type of IP-protection: Patent pending on core-technology.
Core technology licensed from a US-based patent holder. Competitive advantage stems from legislation and
specific project-development know-how.
Table 1: Short description of NewSZ and RePurp alliances.
3.3 Data Collection and Analysis
Phase 1: Investigating OGcorp and its alliances. In this phase, I worked closely together with an engineer from OGcorp, who explained the exploratory projects OGcorp was involved in. The aim of this interview was to identify if the NewSZ case that had caught my interest fit the theoretical gap. Furthermore, this interview served to deepen my understanding of some of the technical details of the collaboration with NewSZ, so I communicate more openly with stakeholders about difficulties they might be facing. After determining NewSZ fit the gap, we approached four relevant actors within OGcorp for an interview. After the case of RePurp was added, three more OGcorp actors were approached. Moreover, the CEOs of NewSZ and RePurp were approached via internal communications of OGcorp.
Phase 2: Data collection. I conducted nine semi-structured in-depth interviews in phase two, five regarding NewSZ and four regarding RePurp. All OGcorp interviews were conducted in a private conference room at their head-office, where all the respondents worked. According to OGcorp’s HQ security guidelines, my contact person at OGcorp always had to be present. To prevent this from influencing the interviews, the contact person was asked to wear headphones and continued normal working activities during the interviews. The RePurp interview was conducted at the CEO’s private office. With consent of the respondents, audio recordings were made of all interviews for later transcription, and extensive field notes were taken with pen and paper. For transparency, the transcripts were sent to the respondents individually to enable them to check for errors and confidentiality. One of them requested certain citations be omitted from the data. The amendment request was discussed via telephone, after which the omission request was dropped, but one clarifying sentence was added to the citation. The amendment request illustrates the strict confidentiality that should be observed. For this reason, all names, specific dates, technologies, and some company-specific function titles were anonymized in this paper. After the transcripts had been approved, relevant documentation was reviewed and compared to interview results to check for consistency.
Interview # Firm Role Description Interview Details
1 OGcorp Project Engineer for NewSZ
Contact person at OGcorp
Face to face 1h13m Dutch 2 OGcorp New Business Development for NewSZ Face to face 0h45m
Dutch 3 OGcorp Commercial Manager for NewSZ Face to face 1h01m
English, second language 4 OGcorp Energy Transition Manager /
Decision Executive
Face to face 0h59m Dutch 5 OGcorp Business Development Manager –
Energy Transition Taskforce
Face to face 0h56m Dutch 6 OGcorp New Business Development – RePurp Face to face 0h56m
Dutch
7 OGcorp Commercial Manager – RePurp Face to face 0h50m
Dutch 8 OGcorp Energy Transition Taskforce Engineer -
RePurp
Face to face 0h48m Dutch 9 RePurp Managing Director / Engineer Face to face 1h05m
Dutch 10 NewSZ Managing Director / Commercial Lead Skypecall 1h15m
English, first language
Document # Company Type of document Notions:
1 NewSZ Technology and Business proposal for
the OGcorp challenge Confidential
2 RePurp News articles regarding the letter of
intent between OGcorp and RePurp Publicly available
Table 2: Overview of interview respondents and data sources
Phase 3: Data analysis
Narratives of both cases were compared to see if there were relevant contextual factors that may have affected the course of both alliances. Especially management or actor decisions were investigated in order to be able to answer the research question: “How do emerging and incumbent firms
partnering for sustainability cope with their respective strategic goals of exploration and exploitation which compete within the scope of the alliance?” As a result, several propositions were formulated
which are presented in the discussion section.
3.4 Research Quality
4. FINDINGS
In this section, an overview of the results of both cases is provided. For clear comparison, both cases are discussed in two separate sections. But first an introduction to OGcorp is given, to understand more clearly what the firm’s main reasons are to move into RET, their rationale to form alliances and the way its employees feel about that. The sections after that zoom in on the alliances with NewSZ and RePurp respectively. The corresponding case descriptions zoom in on the process of forming and managing the alliances.
4.1 OGcorp – A Brief Description
OGcorp is an established O&G company with a number of employees in the thousands. For over half a century, they have been responsible for oil and natural gas extraction in Europe. They control oil and gas wells both on- and offshore and their main aim is to be a reliable energy supplier. Reliability and safety are two keywords that have echoed through almost all 8 interviews with respondents from OGcorp. OGcorp has a strong identity as a reliable energy supplier, and its main aim is to continue to be a reliable supplier of any form of energy in an age after fossil fuels. However, certain tensions arise from this, as the company tries to find ways to apply their knowledge and capabilities in a sustainable way. OGcorp realises that it has the capabilities and capital to have a large impact on the speed of the energy transition but is not sure yet how to get traction, which becomes apparent from some of the citations from OGcorp’s management:
A1: “We currently supply a large share of fossil energy, so we are a big player. We also want to continue in this role in the future, but then possibly with renewable energies, which we are exploring now. We have the intention to speed up the sustainability transition in this country. To this end, we have multiple projects running in the company in different phases. […] It is a misconception that we [as OGcorp] can develop RE ourselves. We know how to extract oil and gas. That has been our core business for decades. We believe that the energy transition is not something you can do on your own, but that it’s a project of national scale. […] So, all of our sustainable projects are basically with outside partners. They can be big, they can be small. They can be established, they can be new to the business.” (New business development manager)
C1: “A while ago, we celebrated more than half a century of OGcorp, and that makes you reminsce. We
In order to fulfil a role in the sustainability transition, a special department was set up a couple of years ago, called Energy Transition Taskforce, from now on referred to as ETT. Within ETT, employees mostly have a technical background, and they explore technologies outside of OGcorp to see if these technologies are commercially and technically viable and if OGcorp can possibly scale the technology to an industrial size. ETT is only a small taskforce of about ten employees who work together with daily operations departments at OGcorp. For example, although ETT has assessed and brought in a project, employees from commercial and new business development (NBD) also have a say in the project. Employees from commercial and new business development, however, also have regular oil and gas projects in their portfolios. The mix between the new and the old takes some adjustments, on a company and personal level:
C2: “OGcorp has been a very reliable supplier of energy for over half a century now. You don’t do that
by doing crazy things. For over 50 years, this company’s culture has been founded on reliability. Covering risks, thinking things through, that is the air we breathe as a company. This is a form of professionalism that translates into an ongoing risk mitigation. […] Is that bad? No, I don’t have an opinion on that. Or wait, I do, I think it’s very good, because it forms the backbone that keeps us standing straight in the context we are operating in right now. But having said that, if you try to get a cooperation agreement signed with a start up with that mind-set, you won’t get far.” (ETT manager)
A2: “OGcorp has a methodology of delivering projects, which has proven its worth in oil and gas
projects and works with a very structured way of making decisions. You question if this methodology is also the right one for sustainable initiatives. Especially because it is new, fast and subjective to change.
[…] What you do depends on the size of the project, what’s at stake, how much money are we talking? It
really is a quest, I think that’s the right word, how you approach projects in a proper way. […] If we do a project, we look at several aspects. Of course, we want a good return on investment, but we’re also scrutinizing risk. What are the risks in terms of safety, public opinion, reputation, and of course accountability? Possibly, you have to apply different weighing factors to those in sustainable projects.”
(NBD manager)
A3: “If you have a stock listed company and you have shareholders, I think it is very difficult to prefer
implementation of sustainability over profits. […] Of course, OGcorp is not some company that will go door-to-door selling solar panels. So, when we look for a project, it must be scalable. We’re not yet sure what kind of topic that will be, that’s what we’re looking for. But OGcorp will not jump in on any initiative, it must fit the idea that it’s scalable. And we could of course do a pilot somewhere, and then we use that pilot to bring it further.” (NBD Manager)
that although the exploration for renewables is vital for OGcorp’s future “licence to operate”, it is not legitimate to do so “at all costs”. The following sections explore the alliances with NewSZ and RePurp. They both come from the ETT portfolio and face similar management, but the reason and method the alliance was initiated differs.
4.2 NewSZ Alliance
NewSZ is a small European firm, consisting of four individuals, who have developed a large-scale energy storage solution. They were selected as an alliance partner by winning a competition. OGcorp’s managing director decided that in the light of the OGcorp’s anniversary, it was appropriate to think about OGcorps future outside of fossil fuels. Therefore, a challenge was devised for which companies from around the world could sign up. The challenge consisted of finding a solution for a specific RET-related problem, namely energy storage. The main criterium was that the solution should fit OGcorps knowledge and capabilities, so that they may implement it later to speed up the energy transition in the national market. The challenge was juried by an independent expert panel, in order to ensure a winner that was an opportunity fitting OGcorp’s competencies. Moreover, OGcorp chose for an independent jury, so it could select a partner that delivers a high-impact but proves a challenge for OGcorp’s traditional mindset. One commercial manager summarized the general idea of a challenge to look outside the organization for innovative ideas:
F1: “[…] OGcorp is a traditional oil and gas company, but OGcorp wants to get out of this identity of
being just an old-fashioned oil and gas company and turn into a company that provides a solution during the energy transition. An energy transition does not happen overnight, and even if you have all the money and resources, you wouldn’t be able to cope with it. Because you need the knowledge, you need the expertise, you need to understand how such things work. Hence, there was a challenge, because the previous managing director has told that we [OGcorp] are going to be around for longer. And the only way to be here longer is by being open to other ideas. In the energy transition, what kind of things do we miss? Do we miss anything? Do we look broad enough? And that’s why I think it was good that there was a challenge. […] It was also an opportunity for OGcorp to show that we put such a challenge at the table, that we are serious with this challenge, and that we will do something with the outcome. Awarding a prize is saying: ‘okay your idea is good, thanks.’ But saying: ‘okay, your idea is good and let’s see if we can work your idea’ is something different. And that’s what OGcorp is trying to do, or the intention is to do something with the idea.” (Commercial manager)
C3“if you want to play a role in the energy transition, then that means that you have to dare to take
action too. […] That was the intention: not just do an award show, but also link a promise to it to do something together, to develop this project. And especially the latter turned out to be really distinctive. Almost no other business does that. That’s also the feedback we got from contestants, but also from other parties involved with the challenge. They all said: this is really special. It’s also quite risky. Because you extend a promise beforehand to a party you don’t know yet, and a solution you don’t know yet. That is quite exciting, but it can be risky.” (ETT manager)
This contradicts with the risk-mitigating traditional culture that is otherwise perceived within OGcorp. Therefore, it is an indication that powerful key individuals in an organization are key in breaking through barriers of organization culture. NewSZ joined this competition because they believed that an O&G incumbent would have the right incentives to join forces with.
J4: “The main thing was, we’d already become fairly aware that electricity companies, generally
electricity suppliers, don’t really face a great deal of pressure to make a change. […] Because they are doing what they’re doing, and they get subsidies and they’re not in a position where their existence is affected. It is not an existential thing for them, they’ll keep going. But that’s not true for oil and gas companies, because of the change of the last 3 or 4 years. They had their oil prices come down, their gas prices come down. Efficiencies kicking in so people need less oil. There is a lot more environmental awareness than there was before. Their whole existence essentially is affected by what happens. So, we found there was a lot more traction on going in on the gas side, than there has been on the electricity side.” (CEO, NewSZ)
J1: “[…] I began to see a hesitancy, in the sense that they didn’t have the time during the challenge
process to really analyse the business case and the market and so on. And it was not necessarily their own decision; it was the decision of the full jury. They [the jury] recognized that they wouldn’t be able to choose based on the business credentials, whether or not this opportunity was the best one. It was a bit of a guess. But starting to investigate further, after the event. They [OGcorp] began to start asking the right questions. And that led internally to a lot of discussions, more than we were aware of. That is quite natural, normal. But then within large organizations it still takes time to get to a consensus. So, there are a lot of internal discussions and we saw that the technical guys were kind of supportive, but we saw that because of the commercial guys getting involved, it was delaying the whole thing. Sometimes it was just because of legal stuff, other times it was because of fairly legitimate business questions: does this make sense, are you sure we are going to make the IRR we want?” (CEO, NewSZ)
NewSZ and OGcorp began to understand each other’s situation. In the early stages after the challenge, both parties, but especially OGcorp’s managers stressed absolute transparency in order to keep a healthy working relationship. OGcorp is used to managing projects with many stakeholders in the O&G sector, where they learned that continuous transparent communication is key to keeping all parties on board. It became clear that for NewSZ, the most beneficial scenario would be an elaborate collaboration agreement, with long-term commitments from OGcorp. However, multiple employees OGcorp stressed that they “didn’t want to get married right away.”
B1: “Actually, we started defining goals for the alliance right after we finished the challenge. And then,
you notice that the interests of both parties are not easy to align. So, it might be that they want an initial investment, and then later do a project here, or after two years. It could also be that we don’t want a commercial agreement, but we do want a research study. So that’s when you start negotiating. Those things don’t necessarily align and that has all to do with the internal strategies of these companies, but also with the interests both have at that given time. That is the match you have to find, when does it fit, and when doesn’t it?” (ETT-employee)
The idea that there was a continued mismatch between alliance goals of NewSZ and OGcorp in terms of exploration and exploitation was also shared by OGcorps project engineer working on the case:
D1: “You know, you have to make a really clear distinction between that which you want to achieve in
a collaboration, and that which you’d wish you have. Ideally, they [NewSZ] would like to have 5 million euros for their domestic project, and a contract saying that we are best buddies with them and will never cheat on them with some other party that does energy storage. That’s all nice that they want that, but what we actually want to achieve with this project is to see if we can actually survive a first decision gate: does this technology make sense to us. […] So there’s some expectations management involved there. It’s kind of difficult, because on the one hand we said: you won our challenge, we think your technology is better than other technologies. Only to then say: ‘okay, now we’re really going to take a good look.’ That’s contradictive to them, confronting too, because they thought they had already won.
[…] Looking back, that process took a long time, to all agree on the fact that we were doing a feasibility
study first, while we said from the beginning that it has to be a stage-gate decision. We’re not going to commit to a big 100+ million euros when we haven’t even seen your Intellectual Property is. (Project
Engineer)
Because of the misaligned goals, and the other technological opportunities that OGcorp had found, the collaboration agreement was not signed. But that did not end the collaboration, as a non-disclosure agreement (NDA) was signed. OGcorp was looking at options to honour their promise to NewSZ and knew they had to show some support. The situation was described as follows by NewSZ’s managing director:
J2: “We’ve got less than we would like to have in writing, but having the name of OGcorp and the fact
summit]. Which is a really good thing. […] because we can publish that. And, when I mentioned that to [the NBV manager] and [ETT member] they said: look, those things that are in our power to do, we’ll
just do them. Don’t worry about that. And this was one of those things they could decide on. Other things, and I know that they’ve had a bit of… They’re restricted, they’ve had certain conditions that they were given in terms of engagement with us, which they have to obviously honour. […] But on the things they were not restricted, the guys were really supportive.” (CEO, NewSZ)
With gestures like this, OGcorp bought a lot of goodwill with NewSZ, as it provided NewSZ not directly what they wanted, but certainly what they needed: funds. This was also an opportunity to firmly align expectations of both partners. OGcorp’s support did not come for free, as one of the ETT members illustrated:
B2: “What we said was: we know that they want to see support to get funding. And to get funding, they
need something in writing (which OGcorp couldn’t deliver at that time). […] So, we joined them at a big investors summit to show: these guys are doing a good job. And that helps, it builds trust that we support this idea. But that also meant that we had some tough conversations about priorities. If we want to succeed in this project, we can’t be forced into a position which we are not ready to be in right now. Their expectations were completely off on that. We can’t just say: let’s do it. It’s just too large an investment to do that now, and the risk would be 100% ours. You can’t seriously expect that.”
B3: “Honestly, I think [NewSZ] could have shown more understanding and commercial thinking with
regards to [OGcorp’s strategic concerns]. […] For example, they gave priority to their domestic pilot project, while we operate in this country here. So, we could invest, but it’s in our interest that our country benefits. And if their answer keeps being: no, domestic project first. Well, what are we doing then? […] We won’t do nothing, we are going to take a step together, but not all by ourselves, and not at all costs. You must be assertive, and I mean that as an individual. That I dare to be assertive on behalf of OGcorp. Because that’s the weakness we have as a company. I’m dependent on my superior, and he on his superior. I’m not a decision maker. […] An that’s difficult, because you’re working with entrepreneurs who are decision makers. [NewSZ] are sitting there asking: what use is this to me? When do I get a yes or a no? […] What is important is that, while staying within our mandate, we try to reach them a helpful hand.” (ETT member)
After these conversations, it dawned on NewSZ’s CEO, as he described the situation it as follows:
J3: “Equally with the next stage, the people that I’m working with, are all great people to work with, I
The frustrations are clear, but it would not be fair to say that OGcorp did not make an effort. Because NewSZ was selected by an independent jury on its impact, it was also a project of scale. Various investment estimates were expressed by several of OGcorp’s candidates, but they all exceeded 100 million euros. This meant that the most of the NewSZ decision-making had to be done via OGcorp’s traditional means: a formalized, risk-averse, O&G-based stage-gate development plan in which decisions cannot be forced. One of OGcorp’s commercial managers described the situation as follows:
F2: “In terms of moving, one party wants to move fast, while the other one is sceptic. We want to do a
feasibility study first. While they already want to start maybe building, constructing, engineering, design this and that also. And for me it is still: okay, why should I invest in it? What is in it? Is it really a solution? Can it really provide what it’s supposed to provide? What is the benefit to the society? Because we don’t think that this solution will bring a lot more money for OGcorp, but it will definitely be good to take a look at it, because it is transition material. Energy transition material: energy storage. […] While the intention is there, we need to understand it first before we start saying yes and start setting up the organization. We need to understand it better.” (Com. Manager)
F4: “Yeah, things are developing suddenly, especially in this area. It’s like gold rush. Everybody is
searching for the solution. And if everyone is searching for the solution, you also need to be fast with finding the solution. […] That’s why I need the feasibility study.” (Com. Manager)
F3: “There is no legally binding situation. Hence, there is also no governance. I try not to go under any
governance, any legal construction yet. Because I don’t know what it will mean to us.” (Com. Manager) When asked about NewSZ’s chances in such a process, ETT’s manager and part, who is also part decision maker of the board, and responsible for the Energy Transition replied:
C4: I don’t want to be naïve, I see the imbalance. […] Sometimes, I have to intervene with the work team
(commercial/NBD) on the project. And that’s not because of malicious intent or mind-set, no, it has
Summarizing, it took significant alliance capabilities in terms of relationship management to get the parties to where they are now. Although NewSZ eventually never signed anything besides an NDA, they still have weekly discussions with OGcorp about how a collaboration might work. The most recent development is that NewSZ will be included in the talks with ChemCo, to pitch their technology and skills. This is an attempt of OGcorp’s commercial team to onboard them, thus fulfilling their initial promise to NewSZ to work together, but without any large commitments on OGcorp’s side. Strong concerns within OGcorp’s commercial team could not be countered with optimism, and the fact that NewSZ had other interests outside OGcorp did not help their case.
The description of this case has mostly focussed on the interactions between the two firms, but it is relevant to also understand some context. The project with NewSZ is new to OGcorp in many ways, the technical side being the easiest for OGcorp to understand. According to NewSZ’s CEO, the added value of NewSZ is found partly in technological, but mostly in its understanding of relevant legislation and market dynamics. But before NewSZ can disclose that sort of information an agreement needs to be signed. This resulted in what NewSZ’s CEO described as a chicken-and-egg problem. The selection of NewSZ was a risky one for OGcorp and involved exploration in almost every domain: technology, market, and legislation. This was made extra difficult by the fact that NewSZ was previously completely unknown to OGcorp. As a concluding remark, ETT’s manager said the following:
C5: “Your question was: would you do it differently in the future? That’s an element we need and want
4.3 RePurp Alliance
RePurp is a small engineering bureau, specialized in sustainable energy projects. Its owner and CEO has over 15 years of experience in designing, building, and optimizing sustainable projects, varying from biomass to biogas, but sometimes also solar and wind. After starting his own business, he became involved in a large-scale biogas consortium, where he introduced a technology RePurp exclusively licensed from a foreign partner. Through this consortium, he was later introduced to OGcorp, who was looking to repurpose one of their old O&G refinement plants and do something with biogas.
OGcorp, as a large-scale oil and gas producer has hundreds of Strategically Located Assets (SLA) nationwide, all connect through high-pressure gas pipelines and high voltage power lines. Many of these assets are nearing their end-of-life, meaning they must be demolished. Back when OGcorp acquired the land for these assets, they made commitments to local and regional governments to leave the sites equally as they found them, but preferably better. Besides being agreed with governmental institutions, cleaning up a production site is formal OGcorp policy. In the light of the energy transition, somebody from NBD was asked to look at re-use versus decommissioning possibilities for these SLA’s:
G1: “What my job is all about, is looking at all infrastructure that is nearing end-of-life within OGcorp.
Eventually all assets reach that point and that’s why we’re now looking at how we might continue operation with that location and infrastructure. You could simply clean everything up, sell the site and be gone, but that would mean that OGcorp is out of existence in 30 years. Or you can look at some re-use, in for example building a theme park or a swimming pool. Or better yet, use the site in the energy transition. I see myself as a bus driver with a bus, and then all the people of ETT can jump on board and we’ll jointly head towards development of their sustainable projects […] It’s important to combine the two (new and old projects) so that you: a) don’t clean up something you might need later, and b) get a clear overview of what is re-useable. This is important so we can identify what can or can’t be done at certain locations. This is the first location we have selected, to find that out. To find out what to do with the locations, all the cables, pipelines et cetera, to re-use them in the energy transition.”
G2: “Why we do this? It’s all about location, location, location. Because it is very difficult to find
locations in this country. These locations have a lot of value because they already have the zoning, permits and societal acceptation, and the infrastructure is already there so you wouldn’t have to build new connections to integrate it (RET) to the national grids. […] Therefore, we see value to continue on those locations in new energy themes, which can be anything: green gas, solar, wind, hydrogen, whatever, you name it. That’s why we’re looking at these locations. Because the boys of ETT can say that they want to do something with hydrogen for example, but then you’d still need a location, and a way to distribute your product.”
G3: “If I say: it’s gas, we’ve been doing this for decades, this should be easy. Well this is a whole new
In order to find suitable partners for the repurposing of OGcorp’s strategic asset, a new consortium was founded. A think tank of local governments, a university related energy networking club, infrastructure operators, and potential energy customers came together with all their partners in a meeting called ‘the acceleration room’. Representing several technological domains, new taskforces were founded. One of the taskforces focussed on biogas production, as OGcorp expected that there would be a continued usefulness in gas as an energy medium. Several industrial processes require an amount of heat that electricity is not capable of delivering. Moreover, gas is a means by which electricity infrastructure could be supported. The current electricity network has a maximum load that cannot support all energy demand to be fulfilled solely through electricity. Investing in sustainable alternatives to store or transport energy, such as hydrogen, or biogas is seen as a way to speed up the energy transition, by reducing the load on electricity networks.
Within the taskforce of green gas, conversations started with around ten companies. Three of these candidates were eventually selected to start developing plans for production at OGcorp’s site. The three ‘high-potentials’ were selected on their perceived ability to scale-up and roll-out their technology. Furthermore, they were selected because they all used a different type of biomass to create gas, so that they do not cannibalize on each other, or compete for the limited capacity of biomass in the region. The three firms usually considered each other as competitors, but OGcorp saw certain synergies, due to their use of different types of biomass. These findings emerged from joint meetings with all parties, which OGcorp hosts on a monthly basis to start learning the dynamics of the biogas industry. A letter-of-intent has been signed between the parties. The reason why it was quite easy to form alliances, is because all three parties had investors backing them, and were looking for opportunities for more projects, as biogas technology is on the rise as a more mature technology. When asked what OGcorp’s benefit was as a facilitator, OGcorp’s commercial manager said the following:
E1: “We’re already learning from this, because I have meetings with these parties every week. So: what
E2: “Imagine if we do ten of these SA’s, that would be a gigantic leap forward. And at that moment, when you start to get a different relationship with society, then conventional gas extraction can really help to speed up the energy transition. That’s the story that we’re trying to tell.” (Commercial manager) The three firms involved in developing the SLA are not all emergent firms. In fact, RePurp is the only emergent firm of the three. The biogas industry has matured over the past decade, and the other two firms can be considered as medium to large industrials. As a matter of fact, one of them is even a former competitor of OGcorp, who diversified by buying a small biogas technology firm. The three firms are all in an alliance with OGcorp, but not necessarily with each other. OGcorp assigned plots of land the size of a couple of hectares to each partner. Subsequently, the partners each develop a large biogas production facility with their own technologies. The combined result would be the largest biogas facility built in the country, delivering up to 50 million cubic meter of green gas. For comparison, the total installed base in the European Union in 2015 was 1.200 million cubic meter of green gas (Scarlat, Dallemand, & Fahl, 2018). This one facility would thus boost European production by a little over 4%. The main differentiator here is that OGcorp does not necessarily have to invest themselves, aside from any land they make available for these parties to develop on.
This land is a crucial part of the development of a biogas plant. When developing for such a plant, four main steps must be taken, the first of which is securing a plot of land. In a normal setting, biogas project developers need an option on a piece of land, which costs around 3% of the purchasing price of the land. That amounts up to 100.000 euros per year for a piece of land of this scale. Since permitting procedures are not yet suitable for this scale of innovative technology, they take years to get from application to issuing. This is a legislative flaw, as biogas projects are eligible for subsidies, but only after a permit has been granted. Private investors on the other hand, are often only willing to invest after a permit has been secured. Moreover, in order to be able to apply for a permit, a conceptual design must be drafted, costing many costly engineering hours. Without subsidies or private investors, this is a near impossible feat. Partly for this reason, many biogas initiatives have remained of small scale, and on private pieces of land. Another reason is that subsidy grants take up to 4 years to secure, with excesses taking up to 7 years. Biogas projects are sensitive to this lack of governmental vigour, because their economics currently rely heavily on subsidies. Many projects previously stranded over subsidy terms that changed over the course of application handling, or economic crises that forced private investors to pull the plug.
to be issued, there is the least possible amount of restrictions applicable. Moreover, local and regional governments have already joined OGcorp in the SLA repurposing consortium, giving the projects a favourable political support. However, the benefits are not one-sided. OGcorp’s attractive SLA brought many interested parties into the selection process. OGcorp thus had a luxury position where they could make demands for partners that agreed on OGcorp’s terms: that multiple partners had to work together on a project that is large, industrial, existing and utilizes proven technology. The commercial manager said the following:
E3: “We made our demands very clear. […] Eventually, these three partners were the only ones left we
had a match with and showed at least partly an overlap with our requirements. What drives these parties is something that I have grown to understand. Who are their investors? What is their business model? What motivates them to develop biogas projects in this country? Well, that’s really part of that learning experience we are in now, to gain more insight in these questions. Is this a business we want to be involved in on the long term? Or do we rather steer clear? That is all part of the plan, and in fact the whole strategy behind this.” (Commercial manager)
This is perceived all to clearly by RePurp’s CEO:
I1: Well, I think they would like to know: what does such a project take? What does it look like? What
I2: “These are the things we have to discuss openly. We have to, because we (RePurp) have to show
OGcorp that if we are going to work together on this, they must realise that we need more pressure behind this project. We need to move more quickly sometimes. I could force a decision in my workgroup in a day. With organizations like OGcorp, that isn’t always the case because they need some time to strategically think about this […]. If those things get in the way of progress, then it becomes a bit more difficult. You also see that they want to keep their options open regarding the land. In the sense that they want to be able to get rid of it when necessary. Those are things that cause tensions, because we’re not going to invest hundreds of thousands of euros in development only to hear: ‘sorry, we’re going to opt out.’ […] I’m sure we’ll find a solution, but these are things that come from different strains of thought, mind you. […] That’s why we have contracts, […] so that we will get reparations if they opt out. But then it becomes a matter of what fair compensation is. I’m not spending my time on such a project to eventually have it cancelled and get some fee. Sure, my costs are covered, but factually I end up with nothing. I’m not in this business to make big money, if I were, I would have done something else. I’m in it because I feel it’s important that we start producing sustainable energy. […] I trust the people at OGcorp, I trust them. But that doesn’t mean that I don’t consider other larger internal processes at OGcorp which could steer things in a different direction. […] Look, if I break a promise, somebody comes to me and calls me out on my morals. With a large corporation that’s much more difficult and you see that in the discussions taking place. […] Things get very impersonal at a certain point, and at that point you need more contracts, which are also very impersonal.” (CEO, RePurp).
Incumbent exploration and emergent firm’s exploitation are balanced via this construction of making land available, giving the emergent firm a lot of freedom, and securing the interests of both parties via formal contracts. Once the work has begun, OGcorp starts getting project specific data of all three biogas firms, and they have noticed that there are possible complementarities in their designs. OGcorp can thus be an innovator through recombination of external knowledge. They have subtly tried to explain this to the parties involved, without spilling over specific knowledge or numbers of the partner firms. However, as OGcorp has not formally hired the three partners as contractors yet, they have to leave the initiative to collaborate with the three partners.
4.3 Concluding Case Remarks and Summary
OGcorp applied two distinct methods of exploring RET technologies. In the case of NewSZ, there was a clear drive to find a technical solution to a RET problem identified by OGcorp. Because NewSZ was selected on mainly technical criteria, a technology partner was found that differed a lot from OGcorp’s core business and the industry was relatively mature as compared to RePurp. This increased tensions between the exploration rationale of OGcorp who tried to understand NewSZ’s business, and the exploitation rationale of NewSZ, who were struggling for cash and needed to move forward. Excellent alliance capabilities from OGcorp’s ETT softened this tension on a relational level by sending a delegation to NewSZ’s important investors summit. Conversely, this created extra tensions within OGcorp between ETT, who pursued continuation of the project, and the commercial department, who was struggling to see why collaboration with NewSZ made economic sense. Consequently, these tensions required extra intervention by a senior ETT manager, who stressed the project’s importance to the future of the company. Thus, norms grounded in experience should be applied loosely.
Conversely, the RePurp case was driven from a commercial perspective. OGcorp faces end-of-life of several of its strategically located assets (SLAs). According to agreements with governments OGcorp will lose the ability to earn anything from these assets after they have been cleaned up. However, OGcorp convinced local governments that these assets may still offer value in speeding up the energy transition. Consequently, this enables them to prolong their license-to-operate in those areas, while also enabling them to learn from the RET partners that have been found to develop on those pieces of land. Moreover, certain parts of those facilities might be re-used, and thus do not have to be removed. In working with sourced alliance partners for this project, synergies between formerly competing partners were found, enabling more efficient RET deployment. OGcorp is learning from the role of a silent platform operator. This commercial approach leads to mild tensions between the partners, because there are significant benefits to all parties involved. Any uncertainties alliance partners still may have in this context can be mitigated through contractual governance mechanisms, assuring reparations if OGcorp decides to back out of the development of their land.
5. DISCUSSION
This study follows an O&G incumbent in its search for RET technologies. Research on how exploration and exploitation contribute to industry evolution is rare and requires theoretical expansion (Lavie et al., 2010). Therefore, this paper uses the exploration-exploitation lens to theorize that the O&G incumbent will explore through alliances in niches that have matured and are inhabited by emergent RET firms who seek to exploit RET technologies (March, 1991; Steen & Weaver, 2017; Walsh, 2012). In order to understand the resulting tensions and how these tensions are managed, the following research question was developed: “How do emerging and incumbent firms partnering for
sustainability cope with their respective strategic goals of exploration and exploitation which compete within the scope of the alliance?” The investigated incumbent’s choices for alliances to explore, fits
the existing literature on methods of exploration for incumbents (e.g. Rothaermel & Deeds, 2004). However, the nature of the O&G industry is expected to result in alliances with increased tensions, due to the complex nature of the energy sector. The alliances this paper investigated proved to be exemplary for the notion that exploration and exploitation oriented firms do not complement in the same degree as would be the case in the pharmaceutical industry (Rothaermel & Deeds, 2004). However, the niche markets are no longer solely dominated by emergent RET firms either. Former competitors and clients of OGcorp already diversified and started exploiting in these niches, where OGcorp is still exploring them, meaning that RET industries have moved to a more mature state (Walsh, 2012).
Proposition 1: When an incumbent’s exploratory efforts are on a technical rationale, the incumbent is
more likely to explore more distant, nascent industries.
Proposition 2: When exploring increasingly distant, nascent industries, mismatch in strategic goals
between alliance partners will more likely lead to tensions.
Conversely, OGcorp’s efforts to repurpose one of their assets was initiated by the commercial and new business development departments. Only after it was determined that RET might prolong the value of this asset, either economically or societally, the ETT was onboarded and alliance partners were sought. This resulted in the selection of small and large firms, including RePurp, who had more ready-to-implement technical solutions and were already familiar with legislation. By enabling RePurp to develop large-scale plans on OGcorp’s SLA, RePurp had a high incentive to share knowledge about their technology, market dynamics, and subsidy and legislation procedures. OGcorp’s SLA allowed RePurp to start developing a project, which can be seen as a form of exploitation, while OGcorp could simultaneously explore how RePurp’s methods. Because all parties involved considered the SLA platform as a win-win, only minor tensions resulted from this approach. The tensions that did emerge mainly concerned RePurp’s uncertainty if they would be fairly compensated in case OGcorp decided that the SLA development would be discontinued or used for other purposes. Summarizing, by creating a platform on a commercial rationale, OGcorp succeeded in exploration, while minimizing tensions with the exploitation-oriented RePurp. This leads to the following formalized propositions:
Proposition 3: When an incumbent’s exploratory efforts are on a commercial rationale, it is more likely
that the incumbent will explore relatively related, mature industries.
Proposition 4: When exploring more related, mature industries, a mismatch in strategic goals between
alliance partners will be less likely to lead to tension.
Nielsen (2010) proposes that contracts form the backbone of balancing opposing strategic goals in a dyadic alliance relationship. However, the NewSZ case illustrated that it was a contract that formed the basis of mutual frustrations. The pressure exerted by NewSZ to get a collaboration agreement in writing increased tensions between the two firms. It was in fact OGcorp’s excellent relational alliance capabilities that enabled all parties to get what they wanted. Contractual agreements are, from OGcorp’s perspective, a form of legal exposure that could be leveraged against them, hurting their reputation. Therefore, all contractual governance structures are postponed as long as possible, until OGcorp has secured that NewSZ’s technology is in fact commercially viable. To enable collaboration, OGcorp has used relational levers to cater to NewSZ’s needs. Exemplary of this, is the decision made on the account of ETT and NBD to join NewSZ in an important investors’ summit. Therefore, I propose the following:
