With oil and gas so far behind in dealing with digital change, what can Boards do to move the needle?
The Board Level Need
Boards of Directors on oil and gas companies are seeking tangible and practical things that they can do to address digital change. Or so I was told recently where I was visiting idyllic Lake Louise, Canada as one of 6 presenters at the Peters and Co annual winter energy conference. My talk was on the impact of digital on the energy industry, drawn principally from a recent publication where I was a peer reviewer, and I concluded my remarks with pointed advice for Boards and management on digital.
The oil and gas industry lags other sectors in adopting new digital ways of working. This isn’t just my point of view – the same message is coming through in numerous publications, analyst reports and industry surveys. It shows up most starkly in the capital markets – the top six largest companies in the world by market capitalization are all digital businesses (Amazon, Apple, Facebook, Google, Microsoft and Tencent). Oil and gas businesses used to own this distinctive position, but no longer. Sure, some of the largest businesses in the world by revenue are oil and gas concerns, but the market is not swayed by revenue, it would seem.
Most, if not all, publicly traded oil and gas companies will have some kind of stock option scheme or share distribution program for their employees and managers. My sense is that to put some froth into the share price of an oil and gas company, it needs to have a story to tell Wall Street and Bay Street how it’s dealing with technology driven change. This must start at the Board who will have the final say on where companies invest.
Candidly, Boards are not well positioned to understand, let alone endorse, digital strategies and investments. Digital, blockchain, augmented reality, the internet of things, additive manufacturing, machine learning, crowd sourcing, social media – these are all modern inventions. Board selection committees sensibly seek experience for their ranks, and the digital industry is too young to have spawned enough mature experienced, Board-quality hands in anything like the number needed to meet demand. Boards need to do take different steps.
Ten Practical Steps
Here are 10 practical things that Boards of oil and gas companies can do to help their organizations get better positioned to meet the wave of digital change we face.
BUILD DEPTH IN DIGITAL
Boards will struggle to address digital issues without enough expertise to leverage. Since that expertise does not exist at the Board level, they should be asking management to invest in getting digital expertise inside the company. That expertise could be in the form of a small team whose task is to help the company and Board understand and anticipate the digital shifts in the economy.
Despite my earlier claim that there’s likely not enough digital talent to satisfy Board level demand, Boards should try to add some digital expertise to their ranks. The biggest oil and gas companies have already added digital depth to their boards. Retired Google executives may be both rare and expensive, but there are bound to be serving executives in the more mature technology companies that could be valuable (thinking Cisco, IBM, telcos). If not full Board members, there is certainly room to set up digital advisory councils and board committees.
VISIT SILICON VALLEY CAMPUSES
If digital is struggling to get into oil and gas, then take oil and gas to the center of digital action. By this, Boards could pay a visit to any of the campuses of the digital giants (and you know who they are). Yes, they are a bit secretive, and they all seem to have initiatives intended to disrupt transportation fuels, but in general they want new markets too, and they would value getting to know such a revenue rich industry. Many have announced industry verticals (Apple) or are already widely deployed in oil and gas (Microsoft) and they would see value in hearing from the customer.
VISIT (OR SPONSOR) THE ACTION
There are lots of incubators and accelerators (I’ve counted 15 in Calgary alone), that are always looking for funding and participation. Some are free standing, others are part of the university/community college system. Membership is generally modest ($50k?) to get a front-row seat to the developing action. I would conduct a scan of the incubators and accelerators, and confirm who might be looking for sponsorship in exchange for some influence over who the incubator nurtures. And note that the accelerators might not be in the home town as digital innovation can happen anywhere.
GET ON THE BOARD OF A TECH STARTUP
Boards should be challenging their own ranks why they are not actively seeking advisory roles on technology startups. Trust me, tech startups lack business experience – most are headed by a founder with an idea, and they need all kinds of help of just the sort that Board experience can offer. I’m seeing this first hand with the community that I advise. Tech start ups need insight into how to sell to oil and gas, how to overcome adoption inertia, and how to price their innovations.
RUN SOME EXPERIMENTS
Oil and gas tends to be quite skittish with adopting change, and rightly so. But there’s still plenty of scope for experimentation that doesn’t involve blowing things up. Data is a case in point. There’s ample room to take data and feed it into machine learning to see what comes out, or into an augmented reality viewer to see who might use it. Boards should be challenging management to identify and run 3 no risk digital experiments every 6 months (if not faster). Some should absolutely be at the plant level.
START A LAB
With all the empty office space in some oil and gas towns (I’m looking at you, Calgary), Boards could be asking management why some of that space is not being put to use as a digital sandbox, workshop, maker studio or clean-tech hatchery. The space is paid for. It might not be perfect, but start ups will appreciate being in the down town and not in some garage near the airport. At least one company in Calgary has set aside a chunk of their underutilized facility and turned it into a workshop for entrepreneurs,making available some of their own tools, workbenches, and equipment.
HAVE SOME STUDENTS PITCH YOU
Today’s university student has fantastic exposure to things digital, and the know how to build prototypes, to prove their ideas (recall that today’s digital giants generally started with some fresh grads and some breakout ideas). Last week, while I was recruiting at Haskayne (Calgary’s business school), several enthusiastic candidates pitched me their ideas, from blockchain startups to new transportation businesses. Boards should invite the local business school students and campus clubs into a pitch-off. Boards would benefit from seeing what the true front line is working on (and the implications for attracting and retaining next generation talent), and the students would appreciate a free meal.
HOLD A BOARD MEETING IN ESTONIA
The world’s most aggressive digital country is by far Estonia. Boards might wish to hold a board meeting there, and see about getting some meetings with the country’s CIO to understand how the country is transitioning to a digital future. Estonia’s insights will fundamentally challenge many western business orthodoxies about commerce, governance, accountability and business models.
START A BOARD LEARNING PROGRAM
Given the Board level digital deficit, some kind of continuous learning and awareness program is required to help Boards execute their role. Boards should put in place regular briefings on the latest developments, and the impacts on the industry. Once a year is clearly not enough. Key technologies that will have the greatest positive impact on oil and gas include 3D printing, artificial intelligence, cloud computing, Blockchain, machine learning and analytics.
The digital deficit at the Board level will not go away, and without action, the deficit will continue to grow. Boards should take some of these practical and modest actions to begin to close the digital gap.
About Geoffrey Cann
Geoffrey Cann is a consulting Partner with Deloitte in Calgary, Alberta, Canada. He is deeply passionate about the impacts that digital innovation will have on the oil and gas industry. His 30 year career has taken him to oil and gas companies in the far corners of the globe seeking out digital innovation. You can follow him on Twitter (@geoffreycann and @digitaloilgas), subscribe to his blog, listen to his podcast (on iTunes entitled “Digital Oil and Gas”), or simply connect with him on LinkedIn.
The views expressed herein are those of the author and not of the publisher or Deloitte. Readers should not rely on any predictions and should ensure that before they make any decisions they obtain their own independent professional advice.