Framing Energy Transition

I’m dissatisfied with the term Energy Transition. Everyone’s doing it, but they’re all doing something different. So, I’ve been working on a framework for describing what’s going on.

Much of my network is concerned with Oil and Gas and there is this term “Energy Transition” banded about. Which it seems they define as –

“What we are doing now won’t work in the future. Let’s find ways to apply our skills to ANYTHING new and hey-presto, that must be energy transition”

As a definition it is not helpful. So I am looking for a different way of classifying things. This is what I have so far.

Meta Industries

Firstly, I took the word Energy and examined it. That led me to realise that it is really one of a few “meta-industries” that provide the fundamental requirements for our world. Energy being one. Others include things such as Shelter, Food and, Transport. Each of these meta-industries have alternative outputs which can be used to provide their utility. For instance, Energy, output can be fulfilled by Oil, Gas, Coal, Electricity, etc. You get the picture. It’s the same for the others meta-industries.

Meta Industries in transition

Each Meta industry has alternative outputs which are, somewhat, interchangeable and can achieve the primary goal of supply.

Each of these alternatives outputs have a supply chain of interconnected industries that will be impacted by a switch between alternatives. Such a switch will also require modification of consumption activities. i.e. switching more of the Meta Industry “Energy” output from Oil to Electricity requires electric vehicles, which require batteries etc.

I think talking about working in “Energy Transition” is almost meaningless. Energy Transition is an outcome created by other activities. These activities are things you can work on. Energy Transition is not a thing in itself but a description of what happened. It would be the equivalent of saying you work in “Energy Profitability”.

Working Up, Working Down

This thinking has led me to a framework around each alternative supply chain (working down) and from each “traditional” industry (working up).

To explain, the Oil Industry is a component of the “Energy” supply chain, but is also a component of the “Fertiliser” supply chain which is part a “Food” Meta Industry output alternative.

It is difficult to analyse the “oil industry” in isolation as it gets caught up in all it’s supply chains from energy to chemicals to road construction to transportation. I propose that we can simplify the analysis by looking down from a fundamental Energy Meta Industry.

There are 4 Industry groups impacted in a transition between alternative outputs of a Meta Industry. E.g. the switch from Oil to Electricity.

  • A: Industries that will cease to be needed
  • B: Industries that mitigate the impact of (A) industries until they do
  • C: Industries that will replace them
  • D: Industries that do not need to change at all

Industries that die and ones that help them pass peacfully

The (A) industries are unwelcome but necessary for a while. The goal should be to make them obsolete as soon as possible.

This removal creates economic opportunity:

  • To reduce the environmental impact until they do (for instance by reducing unnecessary emissions)
  • As facilities are removed from service, activities for dismantling the infrastructure will flourish
  • Professional services for financing, operating, and advising in this space.

The reducing capacity of (A) industries will lead to reduced scale economies and higher cost of capital.

Temporary mitigating industries emerge

The (B) industries are temporary, they will somehow clean up the unavoidable impact that (A) industries have until they are closed down. Carbon scrubbers that sort of thing.

The doom-spiral for doomed industries

Even if they are doomed, (A) industry projects will still be required to be around for a time. But they will also need to execute unpopular projects with loads of political risk. They will have higher cost of capital. They will carry increased costs from compliance, regulatory charges, and penalties. They will need to pay for a new input cost – (B) industries. They will have higher operational costs. They will find it hard to recruit and retain staff so labour costs will increase. These increased costs will lead to increased output prices. This will cause further reduction in demand for their product. Scale economies will kick in for competitive substitutes. It will become a downward spiral for the old, and an upward whirlwind for the new.

New industries emerge as innovation accelerates

The (C) industries are the up and coming replacements. They will likely be easier to finance, enjoy tax breaks and subsidies. They will also benefit from scale-up, learning economies and rapid innovation. They are likely to employ modern technology such as autonomous vehicles, AI, 3D printing and big data from the start. They will be the foundation of the 4th industrial revolution.

Some things stay the same

The (D) industries are the ones with very little impact on the environment that don’t need to change in this Meta Supply chain. But may be impacted by due to interference from other Meta Industry transitions.

Meta Industries need to be analysed seperately

This lens applies to all the Meta Industries, and can help disentangle the analysis.

Of course there are interconnected implications, because if the Oil Industry is a type (A) industry for energy, it may be type (D) for, say, fertiliser manufacturing. So even if it is eliminated from the Energy Meta Industry, it may not be from the Food one. But the implications of the changing cost of production may have interesting implications for fertiliser pricing and availability.

Two brand new Meta Industries

On top of this there are two more new Meta Industries. These meta industries don’t seem to function well with our current rules, regulations, incentives and rewards. To get them to function we’ll need some changes to the economic rules of the game.

Meta Industry 1: Coping with Climate Change. As sea levels rise and storms increase there will be activities required to deal with this. From insurance, to design, to retro-fit conversions, to disaster recovery.  Meta Industry Output is “resilience”.

Meta Industry 2: Cleaning the biosphere. There are technologies being worked on that can remove harmful gasses from the air, can rehabilitate rain forests, rewild habitats etc.  Meta Industry Output is “Biosphere Maintenance”

The problem with these two Meta industries is that it’s not clear who would pay. In an individualist capitalist society it is in no one person’s interest to pay for this, but we will all benefit from it if it occurs. We have moved away from socialist policies for the common good for a long time, but maybe these industries will require us to return to them – and on a global scale.

We must act together or not at all

Climate saving behaviour is binary and it’s global. We’re either all in, or all out. You cannot get off the bus or sit this one out.

As a species we have been very good at creating multiple view points on many topics. Each side convinced that they are right. History being written by the victors and the untrodden path left shrouded in what-ifs.

With the Internet we have “culture wars” where no choice is made but factions live side by side (with various degrees of friction) and multiple opinions matter.

While there are a few points of view on climate change, the science seems to be clear. But then not everyone believes in science. Most engineers believe in science. But not all the ones I know choose to believe climate scientists. They explain to me (with no data) that forces bigger than us must be doing it (volcanoes, solar weather etc.).

Many don’t believe in religion. Whether they see the irony in being scientific, rejecting religion as hocus pocus but then assigning climate change to a “force bigger than us that we can’t understand” I’m not sure.

We cannot have co-existing points of view on climate and succeed. We, as a species are either for cleaning up our act, or we are not. There can be no compromise. To be successful with a path of modifying the atmosphere the vast majority of the world will need to act. It is not a personal choice, it is a collective one.

The world seems to be increasingly insisting that we need to clean up our act. Whether “right” or “wrong” does not matter, it looks like it is happening. There will be a battle for public opinion but will not be national. It will be global.

Will Peace Keeping Forces, may become environmental enforcers working at the behest of the UN, the World Bank, the IMF, WHO or goodness knows? Perhaps the IPCC will mobilise an army to takeover polluting plants and shut them down.

I’ve been a banging the drum for a technology led 4th industrial revolution for years, but I now feel we will have a technologically enabled, climate led one.

The implications of technologies such as AI, Autonomous Vehicles, Remote Sensing, Big Data etc. means that the outcomes will be similar to those I’ve written about before but they will be a by-product. I’ve realised the optimisation function has changed, or it was always this and I’ve just woken up to it.

Labour party announces national energy

https://www.bbc.co.uk/news/uk-politics-63046067

Well, perhaps they read last week’s blog. But judging by the analysis they appear to have done they seem to have done their own homework. But glad they agree with the point of view:

Though they did it with Electricity. I wrote this in a LinkedIn post on Monday

UK Electricity is priced at the marginal production cost. This is set by the price of gas. Recently this has meant that producers who use wind or solar have had no increase of costs but a large increase in sales price. This has led to large profits.

Some countries chose to place a windfall tax and distribute the proceeds to support consumer bills. The UK Government has chosen to support the profits by borrowing to subsidise consumers to help them pay the bill. Though there are likely to be lots of increases and difficulty paying in anycase.

The profits remain with the companies. Over 50% of offshore wind generation in the UK is owned by foreign state-owned companies. The UK is borrowing money (which will be paid back from future taxes) in order to underpin the profits of foreign states.

The other big beneficiary is the British Royal Familly. The crown estate owns and rents the sea bed out to 12 NM in return for a share of profits.

The monarchy, and the wealthy, also own large tracts of land which are similarly attracting rents from onshore turbines.

Coupled with Friday’s hood-robin of a budget annoucement do you think that political pressure for nationalisation will increase here?


https://www.theguardian.com/commentisfree/2022/sep/24/uk-energy-system-state-coffers-britain-british-public

https://www.theguardian.com/uk-news/2022/sep/18/windfarm-windfall-set-to-spark-debate-about-funding-of-uk-monarchy

https://www.nytimes.com/2019/04/19/world/europe/england-land-inequality.html

Should we nationalise oil and gas?

6 Years ago, I touched on the UK boom years from 1979 and how much of that was financed by selling state industries and taxing oil and gas. It also discussed the reduction in tax revenues and the power of private money to distort local markets that has arisen lately. https://bestemnetwork.com/2016/02/02/schumpters-cayman-island-holiday/.

Today we are in a world of record gas price rises with electricity being sold at the marginal rate of production – which is determined by gas prices. This has led to massive state interventions in the energy markets of Europe. One approach is to tax the super-profits of non-gas electricity producers and use the money raised to distribute to the poor to help with their bills (French model) and another is load up on borrowed money and distribute it to power companies and the general population through bill subsidies and caps taking no regard to income or usage (British Model). The British model leads to borrowing almost 2x the money required for the furlough scheme. They are heading for borrowing levels (104% of GDP) not seen since the end of the Second World War.

I wrote about tax systems and wealth distribution in regard to the 4th Industrial Revolution here: https://bestemnetwork.com/2021/01/08/part-2-work-trade-taxes-and-government/

It is apparent to me that political tensions are mounting around the issue of private ownership of essential services. These include things such as education, health, rail, water, and power. 

The movement towards cooling the planet will require global co-operation. After the second world war trans-national institutions such as the Nato, the IMF and the World Bank were set up to ensure that we did not recreate the problems that led to the hyper-inflation in Germany of the 30’s and the Great Depression that enabled dictators to flourish – this eventually led to global conflict. Maybe access to essential services should be controlled this way in the future?

Thought Experiment

Consider this if you will. It is only a thought experiment.

Neoliberal markets seem to be failing to create public good as witnessed by the electricity suppliers’ bumper profits and freezing grannies who can’t afford to eat.

Water companies continue to pump raw sewage into the sea while taking money without any real-choice from households and distributing it to their foreign owners as dividends.

Profit seeking behaviour can lead to bad outcomes for the public if it is used to withhold goods and services essential to life and when poor behaviour towards our shared environment is rewarded.

In these situations the customer essentially has no choice but to pay. To me this sounds a lot like a tax, but where the benefit does not go to the citizens, and the “tax payer” has no control over operations whose side-effect is unwelcome.

If we are to reduce emissions, perhaps we might need to treat Oil and Gas as a controlled substance like say plutonium, or asbestos. I have been disappointed that some of the oil executives I speak to don’t really want to reduce unnecessary emissions – even when doing so would generate positive cash flow from saved fuel gas. They just don’t see it as a priority when their time can be spent elsewhere for more profits.

Perhaps the profit motive should be removed?

We also have a transition problem to deal with. We will need to develop new oil and gas fields, but we also want to shut them down as quickly as they can be replaced. That’s going to lead to some expensive risk capital and an inevitable rise in prices if the “free” market is put in charge.

One solution to capital availability and the required policy volte-face (to switch from building to shutting down capacity) might be re-nationalisation of assets. Operators can be paid a service fee to produce them.

Perhaps it won’t be a nationalisation but a super nationalisation (internationlisation? globalisation?). Setting up an institute like the IMF to control all global oil and gas operations, control the product prices and set consumption quotas to ration usage. Perhaps that might be a new role for OPEC to regulate and license consumption rather than regulating production quotas to maintain the price.

Let’s see how the political winds blow, but I feel the limits of free markets are likely to be tested when it comes to Oil and Gas.

If you have time, check out this post on energy security – it’s good to remember where we came from. https://bestemnetwork.com/2016/02/09/energy-security-and-geopolitics/

Are we there yet? (or road-bock ahead – let’s take another route)

What a period of unpleasant surprises we’ve had recently. In my view they are a combination of causes and effects of the 4th Industrial Revolution. Global warming concerns are driving decarbonisation which is driving energy transition which is driving new technology adoption and resulting in the 4th Industrial Revolution by the back door. It’s not smooth and gradual – external shocks are accelerating and decelerating the process. Not everyone’s happy about it.

There have been a series of large shocks to the economic system. The system that prevailed from 1979 until 2008 no longer functions. The word crisis has been overused. It has not been a single crisis but a series of lurches during a sustained dismantling of a globalised integrated approach that was fuelled by logic and data in what will be seen as a politcally benign period.

I am not going to detail all the main drivers and the minor and major shocks but it’s quite a list. One that includes drivers like digitalisation and information transparency, speculations such as the CDO market (and probably bitcoin), and unplannable events such as Icelandic volcanoes, pandemics, Brexit and a war in Europe.

Almost 10 years ago I started the Bestem journey in pursuit of understanding and helping others cope with the 4th Industrial Age. If you had asked, I would have explained how I believed the rise in technological capability would inevitably result in its adoption. Increased efficiency and the “rise of the machines” would lead to changes to working patterns and force changes in the way wealth was distributed.

You can imagine how disappointed I am that, even with solid business cases in place, companies I talked to resolutely couldn’t have cared less. Certainly not enough to implement change. They were doing just fine thank you and there were more important things to spend their time on. Admittedly I was talking to Oil and Gas operators who exist in a quasi-monopolistic position (where they rarely feel the pressure to compete with each other) but the story was similar in many established industries. Taxi drivers and Hotels were disrupted by Uber and AirBnB – but they were victims of an information revolution rather than an industrial one. If anything, their systems became less efficient, but the profit-distribution changed.

A couple of years ago, I realised that the economic case for solar had dramatically improved. Semi-conductor technology and electrical efficiency had also experienced a step-change improvement. I was sold on the case for energy transition where electrical systems replaced chemical ones based on traditional economic drivers. Of course, I argued, in certain applications where portability of high-density energy was required (air travel etc.) there really were not many alternatives to gasoline available. So, my view was that energy growth would be taken care of through electricity but that fossil fuels would remain the baseload for a while to come.

Then I saw the data on climate change and decarbonisation. I did my research, I read Bill Gate’s book, I watched the BBC series on the obfuscation operations conducted by Big Oil and re-watched Al-Gore’s inconvenient truth from 25 years ago.

I still speak to oil companies that see compliance with environmental legislation and emissions reductions as some form of cost to be managed. It really isn’t. Protecting the atmosphere (or as Al Gore put it, the layer of varnish on top of the globe on your desk – yes it is that thin, and the only thing that makes life possible) is extremely important. It should be our number one priority, it’s a matter of morals not profits. It should be a matter of regulation.

Add to that the evident issues of energy geo-politics and how “western” civilisation and values seem increasingly at odds with the behaviour of “strong-men” leaders who control fossil deposits, and it seems clear that independent, non-centralised, distributed generation and consumption adds resilience that can withstand shocks and provide stable, reliable and fairly priced energy.

We are on the cusp of change in many industries forced by energy scarcity, emissions reduction, supply chain re-configuration, demographics, and work-force expectations. There will be no choice but to adapt to these new configurations, some of which will be underpinned by legislation and international sanctions.

Of course, if you are setting about re-configuring an industry it will inevitably use new information and digital technologies, it will use AI and it will use 3D printing. You might not choose to swap your perfectly functional old system with a slightly better new one, but if you must change anyway then of course you will replace with systems that use the new technologies. These new technologies will be more efficient and will lead to different employment mechanisms and the distribution of wealth.

It’s the same outcome I’ve been banging on about, but it will take a different route.

Change is hard, Business case for survival is hard – screw it let’s cut costs

BA still can’t get operational IT right. The 4th Industrial Revolution has been delayed due to myopic business cases. I suspect BA as a large encumbant in a stagnating industry suffers from this. Fighting climate change will change the calculus and global enforcement of new laws, and what is viewed as acceptable behaviour will require a rethink on spread-sheet optimisation.

When my focus was solely on the digitalisation aspects of the 4th industrial revolution, I wrote a story about BA in 2017 [link], and then again in 2018 [link]. On both occasions I highlighted both how fundamental “Operational Information Technology” was to the heart of the business (rather than a support function) and how “business-case” led decisions had led to bad outcomes.

My friend Krzysztof [link] talks about technical debt  and how, like fast food, it’s occasionally acceptable – but in the long-term will kill you. He speaks of this in the context of software development, but I think it could equally be applied to deferred and missed modernisation opportunities for operational systems.

I thought BA had got the message, and then this:

https://www.theguardian.com/business/nils-pratley-on-finance/2022/mar/31/ba-investors-as-much-as-customers-deserve-explanation-for-it-woes

Change is hard

BA said they would change, and I assume they tried. Just goes to show, change is harder to achieve than it looks. The first step is for leadership to acknowledge that change is required, but implementing that change can be difficult, especially if most of the reason for bad outcomes is their own inability to admit to blind spots. Add to that some bad decision making processes (and possibly some autocratic opinoins) and this is what happens.

Diversity is often talked about but not always understood. Building “Cognitive Diversity” into leadership decisions is challenging, especially when – in order to reach new decisions – the fundamental value decision frameworks need to be challenged. My friend Csaba over at ICQ Global [link] works extensively in this area. If anyone has a line into BA’s management, they might pass on his number.

This is the digitalisation problem. It comes down two factors:              

  • cost justification cases for the SURVIVAL of companies cannot be made due to an inability to demonstrate a return on investment. (daft when you think about it)
  • cases for cutting flexibility and reducing performance on the grounds of cost saving are quickly approved and implemented.

The result is, no digitalisation, no change and a crash course in crisis management. I think this all stems from most “business case” and ROI calculations assuming that the business environment will remain static and everyone will wait around until you can educate senior management and make sense of their digital investment opportunities.

Innovation will be driven by decarbonisation

With the race to decarbonise the atmosphere well and truly on – goals such as electrification and energy transition will impact whole swathes of supply chains.

Digitalisation and the wider adoption of 4th Industrial Revolution technologies will be a prerequisite for survival. The purpose will no longer be to boost short-term profit, but to achieve outcomes that enable companies to survive. It will be interesting to watch how myopic business cases will be overcome.

Perhaps there is a case for saying that financial returns are a hygiene factor and should have a target optimal. Maximisation – for this phase of the transition – should perahaps be focussed elsewhere.

How are you going to hire, train, incentivise and manage the performance of the leaders we now need in place?

Drill Baby Drill……….

Well, I know I said in November that oil prices might spike in the short term, and that we should not discount the prospect of war – but even I didn’t expect $140 oil by March and gas prices up to 800p per therm.

Tragic for those caught up in the mess but for the oil industry it will be profitable in the short run, fill your boots while you can.

Prepare now for the future

But what about the long term? Does it make sense to invest money now when you won’t be reaping the reward until a few years have passed?  Will prices stay up, or will they crash when everyone else who invests comes on stream together?

That dynamic will drive the short- and medium-term market, it’s the classic conundrum of all cyclic markets – lurching from over to under capacity as industry players second guess each other and end up rushing for the exit at the same time. Right now Mr. Putin has just shouted fire in the cinema.

It’s a classic theme that I come across often with my clients. How to balance short term money making with investments that are both speculative and, even when they work, won’t pay off for years. The other position is equally bad – like Wily Coyote running over the edge of a cliff, running fast in the short run looks smart until, one day, it isn’t.

Invest through the crisis

This crisis will be bad, but can lay the foundations for energy security through transition

The industry just got a second window, don’t waste it. Windfall profits can fund transition, which will create the energy security craved by the politicians.

Have a read about energy security, the Russians and the Saudis in my post from 2016 [LINK]

How to think about transition strategy

The clients I work with are addressing energy transition strategy. It’s a hard one for the indsutry veterans because – well old dogs and new tricks. It should be easy right now – but perversly it just got a lot harder . 

In 2014 markets were booming and then suddenly they weren’t as prices fell (due to oil oversupply from shale – or so some thought). Some companies hunkered down and waited for customers to come back but they didn’t. I suspect customers will rush back now. The old strategy is about to make a lot of money and be “successful”. Waiting for customers to come back seems like it might have been the right decision (as it was in 1984 and in 2000).

Wait for the chorus of “I told you so” – as they chase the road-runner into unsupported fresh air.

This is the moment to reap the profits from oil and gas and invest in energy transition. This will not last, this is borrowed time, we are in the end game.

So what’s the plan?

Between 1945 and 2005 the world agreed a “dominant design” for the creation and distribution of energy and set about expanding capacity. I suspect that we will see another stable configuration from 2050 onwards where expansion proceeds along agreed lines with technologies that currently either don’t exist, or are uneconomic at scale. But frankly that’s a bit far away to be relevant, there is a process of transition that’s going to unstablise the energy industry until then.

My advice to clients is to consider building a strategy that addresses dimensions of time, space and focus-area.

There are 3 distinct periods to consider.

  • Now->2030
  • 2030->2040
  • 2040->2050

In each of these periods there must be a strategy for making the most of moment, but also one that prepares for the next period.  

The immediate question is: how to balance making money between today and 2030 and how to lay foundations for success in 2030+.

The boundaries have S-Curves

If history is a guide, the handover between periods will be based on technology adoption. It starts as a gradual “more of this, less of that” approach and then accelerates through an S-Curve of adoption. I suspect the steepest part of the first curve will be immediately before and after 2030.  For a more in depth discussion as to why, I recommend reading the late Paul Geroski, Evolution of New Markets (https://www.amazon.co.uk/Evolution-New-Markets-Paul-Geroski/dp/0199248893). I wish I could still call him – I’d ask what he thinks about energy transition, he’d really have loved this.

Options for each period

Option 1: Milk it now for as long as you can

Option 2:  Innovate and be a leader and drive the change

Option 3:  Wait for the change and then buy the emerging winners.

All are valid approaches but what you do to implement them is different, so a choice should be made and made explicitly. It is possible to blend elements of all three, but make sure incentives don’t get in the way.

Geography matters

My clients operate internationally, so there is the question of where to focus. Europe, America, Asia, ME will transition at different times and at different speeds. It might sound silly but don’t discount “outer-space” as a geographic area, because within this time frame, space energy will be “a thing”.

Focus Area

Once you have selected the periods you are addressing, the approaches you want and the geographies that matter to you, then what are you going to do?

One framework available, is to answer: Who, What and How. Who are your target customers, what will you offer them, and how will you deliver (and charge). That’s for the next post.

Outlook for 2022

Inflation, oil price shock, government stopping a large tech company being sold to America, the prospect of war with Russia, wind-fall taxes and the French stopping the British going on holiday. Break out the prawn cocktails, sit back and enjoy the 1970’s.

This site has discussed energy transition before and it is interesting that Oil prices have reached levels not seen since 2014 (some would say predictably); valuations of public oil and gas companies and the willingness to invest in projects are low.

In 2021 the Bestem Network held a think-tank evening where industry, finance, consulting and entrepreneurial leaders discussed these and other issues. It is only the beginning of Feb and at least three of the wild-cards identified are starting to appear.

The notes from the dinner are now available, please download your free copy here.

Download here: LINK

Fortunes of the future…..

It’s time for an anology

What did we think before the last transition?

I remember one of my friends telling me that, as a small girl, she grew up speaking to Arthur C. Clarke when they both lived in Sri Lanka. This was because her mum (an AT&T rep) had one of two video phones in the country in the 1970s, and Mr. Clarke kept wanting to demonstrate the other one which he owned. It became her job to be the other end of the call.

The futurologist and sci-fi writer had predicted some of impacts of communications in the below clip from 1964 (broadcast on the BBC Horizon Program). Knowing that he lived in Sri Lanka, perhaps explains his focus on being able to do business from anywhere without the need to go to London. (If you’ve followed this blog you’ll have read about deep fakes – this video isn’t one. This isn’t revisionist. It’s real).

He has interesting, forward-thinking ideas about the impact of communications on travel. I enjoy listening to the thoughts of people that look “around corners”. One of the members of the network tells me that I do this for him. Seeing the knock-on consequences of new innovations if they become successful is useful. I’ve found it is always a good idea to tread carefully around existing business models in times of change – try to work out what of the old will be challenged by the new. Often it’s a second order effect that is the biggest – not the direct challenge.

Watch the clip here:

Lessons from the information revolution

  • The potential of this technology was clear, but it would take 50+ years for it to adopted in the mainstream.
  • While imagining the implications of the technology he missed the boom in business travel that ran in parallel with development, and the implication of non-business users being able to easily communicate and organise (cyber-bullying, conspiracies, revolutions).
  • In the past 50 years most (all?) the great new fortunes were made on the back of communications / information processing.

Implications from the climate revolution

We have started our 50 year journey into cooling the planet. This involves both emmisions reduction and removing carbon from the atmosphere. If we don’t lose interest (and really want to achieve something) then the breadth of change required in technology, behaviour, geopolitics and value systems is staggering.

New fortunes will be made from combating climate change – but how we value those fortunes may also change.

It’s not what you do, it’s the way that you do it……

This post is about competence, capability, and behaviour. Three words that many people are comfortable using but ones for which, when asked for an explanation of meaning, I have uncovered hundreds of different underlying concepts.

I’ve found that words really matter because they shape the way people think and behave. I’ve found that people can use the same words but mean different things. This gets in the way of organising group activity.

I pay more attention than many people I know to this. I take time to clarify and develop shared understanding. Maybe it’s because I’ve worked in many countries and cultures. Maybe it’s because I was trained in solution selling early in my career. Maybe I’m a pedant. I don’t know.

My roles in sales, marketing and as a consultant have presented me with opportunities to interact with hundreds of different companies across different continents and to observe their approaches to structuring work. I find it fascinating to uncover why things are the way they are, and how to make progress in different settings.

I find that people are often unaware of their own assumptions – what they believe to be objective truth is probably only so within an accepted framework, and that framework can sometimes be just an opinion. Maybe it isn’t accepted by others.

I have found that with careful choice of words it’s possible to influence individual performance and create improved group outcomes.

So here is my simple definition of competence, capability, and behaviour.

Competence

This is something that an individual person can do. They have a level of competency ranging from “incompetence” to “mastery”. An example might be “carpentry” – and may consist of sub-competencies such as “joint making”, “cutting to size”, and “veneering”. Competence is a combination of knowing what to do, the skill to do it, the number of times you’ve done it before (accumulated practice), and how recent the last time you did it was.

Capability

This is something that an organisation can do. In a one-person company it’s essentially the same as competence. It is strongly correlated with competency in a lone-wolf role such as rain-making sales. In other areas, capability relies on the successful organisation of different competencies brought by more than one person. In these circumstances an organisation can create capabilities that no single person is competent to perform on their own.

Behaviour

This is the “manner” in which work is performed. Are people polite to each other? Does a person have “presence” and “gravitas”? An organisation can exhibit collective behaviour – which is related to but not the same as culture, another word often understood differently. An individual can exhibit behaviour – which is related to but not the same as personality.

In both the case of capability and of competence it is possible for organisations and individuals to exhibit different behaviours but still be equally capable and competent. In this case they may well achieve different outcomes, especially if they must influence others.

What do you think?

What do you think of these definitions? How can you help improve them? Please comment here or email me directly.