Shipshaped Kongsberg industry and innovations in deepwater technology, 1975-2007 by Stein Bjørnstad A dissertation submitted to BI Norwegian School of Management for the degree of PhD Series of Dissertations 7/2009 BI Norwegian School of Management Department of Innovation and Economic Organisation Stein Bjørnstad Shipshaped: Kongsberg industry and innovations in deepwater technology, 1975-2007 © Stein Bjørnstad 2009 Series of Dissertations 7/2009 ISBN: 978 82 7042 951 6 ISSN: 1502-2099 BI Norwegian School of Management N-0442 Oslo Phone: +47 4641 0000 www.bi.no Printing: Nordberg The dissertation may be ordered from our website www.bi.no (Research – Research Publications) 2 Abstract Shipshaped is a thesis on the emergence of an innovative offshore supplier industry. Multiple influences combined to the success of various techniques to extract oil and gas without fixed platforms; this thesis put particular emphasis on the relaxation of hierarchies in fostering innovation. Such disintegration occurred within firms in which empowered employees took on larger responsibilities and between firms. The pace of innovation accelerated where people were allowed to sort out things themselves rather than conforming to directions from above. Initially these conditions were more evident in offshore support services serviced by shipping companies, but practices pioneered in shipping eventually spread to the proper offshore oil industry. Two business units at Kongsberg, Albatross and Kongsberg Offshore, serves as a vantage point for this thesis. Kongsberg Offshore pioneered production systems that help oil companies control the flow of petroleum from a valve tree on the seabed rather than on fixed platforms. Albatross pioneered dynamic positioning, a technique that helps shipping companies maintain their position using propellers rather than mooring lines and anchors. In the 1970s, dynamic positioning rapidly gained a market whereas the oil industry hesitated to introduce subsea production systems. In each case, qualities related to demand for technology as opposed to supply of technology, are central to the conclusions in the thesis. Eventually, oil companies went through a number of changes that aligned the practices of shipping and the practices of oil. These changes in procurement practices, management and institutional framework helped develop an innovative Norwegian supplier industry. The effects showed in profitability, global expansion and the development of advanced capabilities. As of 2007, this thesis argues, supplier industries can combine to handle most tasks associated with an oil company. Their growing capabilities permit innovative and entrepreneurial ways of exploiting oil offshore. 3 4 Table of contents Acknowledgements ....................................................................................... 11 1 Introduction .......................................................................................... 13 1.1 Innovation: a history of technology and business ............................ 17 1.2 On theories and concepts ................................................................. 23 1.3 A select historiography .................................................................... 32 1.4 Structure of the thesis ....................................................................... 37 2 Birth of an offshore supplier industry, -1974 ....................................... 39 2.1 Oil in Norway: rules of the game ..................................................... 39 2.2 Kongsberg moves into oil ................................................................ 43 2.3 A peculiar industry architecture for offshore ................................... 48 2.4 Two technological systems at odds .................................................. 57 2.5 California to Kongsberg: the diffusion of deepwater technology .... 62 2.6 Conclusions ...................................................................................... 68 3 Slow track and fast track, 1974-1976 ................................................... 71 3.1 A slow start to subsea sales .............................................................. 71 3.2 The conserving effect of field development styles .......................... 76 3.3 Meanwhile, in the sea off Brazil… .................................................. 80 3.4 Shipping customers and a rapid start to DP sales ............................ 81 3.5 Conclusions ...................................................................................... 86 4 Venturesome consumption and company culture, 1976-84 ................. 89 4.1 Dynamic positioning in theory ......................................................... 90 4.2 Dynamic positioning in reality ......................................................... 95 4.3 Jacobsen’s escape from the weapons factory ................................... 98 4.4 World leader in dynamic positioning ............................................. 106 4.5 A company culture reinforced by customers ................................. 110 4.6 Theory Albatross: institutionalising company culture ................... 115 4.7 DP class certificates and their effect on innovation ....................... 119 4.8 Conclusions .................................................................................... 123 5 Changing industry architecture, 1979-1985 ....................................... 127 5 5.1 Lobbying for a role alongside oil companies ................................. 128 5.2 KV as a subsea apprentice ............................................................. 133 5.3 EPC contracts and their effect on innovation ................................. 137 5.4 Regulation conserving the industry architecture ............................ 143 5.5 Reliability as a reverse salient ........................................................ 146 5.6 Project Thor – striving for a larger portfolio .................................. 151 5.7 Conclusions .................................................................................... 154 6 Creative destruction, 1984-1987 ........................................................ 157 6.1 Institutional change ........................................................................ 158 6.2 Attempts to become more nimble .................................................. 162 6.3 Independence for Albatross ........................................................... 166 6.4 The unravelling .............................................................................. 171 6.5 Explaining downfall and recovery ................................................. 178 6.6 Conclusions .................................................................................... 186 7 Inventing simplicity, 1986-1991 ................................................... 187 7.1 Cost consciousness and competition in the oil industry ................. 188 7.2 Pulling an act together ................................................................... 195 7.3 AIM – Albatross’s control system for vessels ............................... 202 7.4 Standardization in the subsea industry ........................................... 208 7.5 Conclusions .................................................................................... 213 8 Deepwater technology replaces fixed platforms, 1991-1996 ............. 215 8.1 A challenge to the Norwegian Style of development ..................... 215 8.2 Floating production and economic field development ................... 219 8.3 Norne and the concept of interchangeable modules ...................... 226 8.4 HOST and the second standardization drive, 1995-1998 ............... 229 8.5 Steady improvements in dynamic positioning ............................... 233 8.6 Albatross into the oil industry’s core ............................................. 238 8.7 Corporate winds of change ............................................................ 242 8.8 Conclusions .................................................................................... 246 9 Profiting from geology and globalization, 1997-2007 ....................... 249 6 9.1 How demanding procurement practices helped Norwegian suppliers expand abroad ....................................................... 250 9.2 On competition ............................................................................... 255 9.3 Dilemmas related to success .......................................................... 258 9.4 The quest for oil and its effect on deepwater technology .............. 264 9.5 Reverse salients, continued ............................................................ 268 9.6 New approaches to contracting ...................................................... 274 9.7 Conclusions: the shape of things to come ................................... 278 10 Conclusions: shipshaped progress, 1972-2007 .................................. 281 10.1 The effect of venturesome consumption ........................................ 284 10.2 Ingenious when left to one’s own devices ..................................... 286 11 Appendices ......................................................................................... 293 11.1 Names and legal structures ............................................................ 293 11.2 Profit and turnover from the Kongsberg family ............................. 295 11.3 KV’s divisions (1973-1986) .......................................................... 299 11.4 Organizational chart for KV’s Oil Division, 1975-1976 ............... 300