Framing the Past and Future: The Development and Deployment of Technological Capabilities by the Oil Majors in the Upstream Petroleum Industry

Abstract

In this study, I seek to unravel the relationship between technological capabilities and operational performance amongst a peer group of integrated oil companies in the upstream petroleum industry. I argue that the development and deployment of technological capabilities and their complex relationship with operational performance is conditioned by the interpretative frameworks, or technology frames, of the firm. The concept of a technology frame builds upon two theoretical flows: organisational sociology (notably Weick) and the resource-based view of the firm (relying specifically on Penrose, Chandler and Teece). The technology frame is defined as the firm’s selfimage of its technological resources, capabilities and opportunities. The technology frame should not be confused with strategy; the frame is comprised of the evident and latent beliefs that provide the context for determining strategy. Using conventional metrics, I compiled a dataset of technological capabilities and operational performance measures for the 10 leading oil companies (‘the majors’) for the period 1984 to 1997. Fieldwork interviews and industry research developed and expanded this analysis. These findings indicate that, not only is the relationship between technological capabilities and operational performance too complex to be modelled by simple variables and functions, but also that the proxy variables reveal the technology frames rather than the technological capabilities of these firms. To explore the technology frame, I consider two elements: the firm’s appraisal of the upstream industry and the nature of the role for technology. The gearing ratio and R&D expenditures are used as indicators of the firm’s appraisal of the dynamics of the upstream industry (in growth or efficiency phases), while the nature of the role for technology (implicit or explicit) is proxied by the inclusion or absence of technology management at the executive board level and the positioning of technology within the Annual Report. The existence and value of the frame as a heuristic is then tested through panel data regressions on key expectations of strategic behaviour and outcomes in the area of technological capabilities of firms. The panel-data econometric evidence supports most of the predicted effects, notably indicating that the growth frame is correlated with an explicit frame, and that the role of technology is correlated with upstream R&D expenditure. The technology frame provides a significant extension to the resource-based theory of the firm by identifying the capability of sensemaking as an integral co-determinant of the firm’s resources and capabilities (or ‘services’ as Penrose terms them). On this basis, I am able to interpret the data on technological capabilities and their complex relationship with operational performance in a more consistent and comprehensive manner than has been achieved before.