In last October’s Discovery, Brad Razook and Jeff Ramsey explained how Flint Hills Resources was beginning to transform itself in order to compete in a marketplace that was becoming increasingly unpredictable.
By then, it was already obvious that FHR’s traditional kind of long-term thinking was no longer reliable. New technologies and competitive threats were poised to disrupt — and in some cases completely redefine — the very nature of its industry, especially the transportation fuel sector.
Advancements in batteries and autonomous vehicle technologies, together with policies that ignore market economics by subsidizing electric vehicles, have the potential to completely reshape FHR’s competitive landscape.
Refiners and petrochemical manufacturers are no strangers to the disruptive effects of new technologies and the realities of competing in a sometimes volatile and unforgiving marketplace.
For decades, FHR and its predecessor companies have endured economic recessions, oil embargoes, price controls and the promise of hydrogen cars. Over the years, countless government policies have manipulated energy markets in unproductive ways.
Despite these challenges, the delivery of safe, reliable and affordable fuels and other products — all derived from a 42-gallon barrel of oil — has helped transform civilization and led to a marked improvement in the quality of life all around the world.
Along the way, FHR has played a key role in finding ways to improve the delivery of these products in a safe, energyefficient manner. Market-driven innovations in biofuel technologies have only contributed to the value proposition of these products.
“We have done a good job of adapting in the past,” said Brad Razook, Koch Industries executive vice president and CEO of resources, “but the challenges we face today are more existential and require an even more determined response. They are the fundamental drivers of our need to transform.”
TRANSFORMATION IN PROGRESS
The type of transformation the company is pursuing doesn’t happen overnight. It also must be continual. So even though FHR has already made significant progress, there is still much work left to do.
“We began by fundamentally changing our mindset,” explained Jeff Ramsey, CEO of Flint Hills Resources. “We had to change our organizational focus and create entirely new capabilities, otherwise we wouldn’t have been able to change fast enough. In this kind of marketplace, which is much more dynamic, we have to be very nimble and opportunistic if we want to remain competitive.”
The changes FHR has already made span the organization. The wider use of automation, data analytics and other technological advancements are just the beginning. These have already helped improve FHR’s competitiveness and are preparing the company for whatever opportunities and challenges lie ahead.
Some changes have been small but meaningful, such as incorporating smart-bot technologies into the company’s accounting practices. This has eliminated boring and repetitious work such as scanning invoices.
Other changes have been more foundational. FHR has created new shared-service capabilities for legal, EH&S and large capital projects. It has also consolidated FHR and Koch Pipeline Company, creating new synergies that have helped both companies reduce costs.
Perhaps most significantly, FHR has dramatically restructured its site operations to more aggressively leverage automation technologies and eliminate inefficient hierarchies.
More than 500 operational roles have been realigned to focus on using new technologies to run process units and provide services. The benefits of this have already become obvious across the organization.
To help accelerate transformation efforts, FHR’s Operations Excellence group has reorganized and changed its name. It now focuses on new capabilities, including data analytics and automation. Today’s Ops Services group serves as a knowledge network for driving site-by-site adoption of new technologies.
So far, the results of these changes have been promising.
Transformation initiatives, including the wider use of Advanced Process Control technologies, have contributed to all-time monthly production records at the company’s Shell Rock ethanol plant and an industry-best, 90+ percent utilization rate at its Pine Bend refinery. New deep-learning Advanced Analytics Process Controls currently being tested at FHR’s Port Arthur chemical site show even greater potential.
As Koch’s new Vision plainly puts it, creative destruction has always been with us. But today’s rate of change is unprecedented, and it will touch every aspect of our business, including our greatest resource — our people.
Koch’s Guiding Principles — which were recently updated to help us confront the challenges all Koch companies face today — are essential for the creation of virtuous cycles of mutual benefit.
“More than anything else, our future success depends on the ability of our employees to embrace transformation and internalize our company’s Guiding Principles,” said Ramsey. “The technological changes we are experiencing are an opportunity for all of us to find new ways to create value in our roles and find fulfillment in the work we do.
“As Charles Koch recently said at an employee meeting in Wichita, ‘We want you to be fulfilled rather than just earn a living.’”
COMPETITION IS GOOD
The marketplace is littered with the wreckage of companies that failed to anticipate and respond to the disruptive effects of new technologies and new sources of competition.
Even more so today, the rapid pace of technological change threatens to leave laggards behind permanently.
“Make no mistake, competition is good, and we should all welcome the challenge that’s in front of us,” said Razook.
“The truth is, the best way to remain viable and to compete successfully in this world of new and emerging technologies is to produce a superior product and do it better than the competition.
“We have to recommit ourselves to the core concepts that are the foundation of Koch’s success, especially the idea of creating virtuous cycles of mutual benefit.”
“In many ways, we need to harken back to our company’s origins,” added Ramsey.“Back then, the constant drive of competition, innovation and discovery paved the way to a better future.
“It’s true that our past success is no guarantee of future results. That’s why we’re working on new and better ways of building our business.”