Recently I fielded an email enquiry from a large international oil and gas company asking my views on what should be included in the scope of a digital transformation. A bit like asking for the table of contents from my book.
The volume of interest in understanding how digital will impact oil and gas companies appears to be on the rise. My unscientific poll of the oil producing world suggests that organizations accounting for north of 40% of global oil production have some kind of digital innovation program underway. I suspect that I’m underestimating the actual level of activity considering how many conferences, trade shows, and panel discussions I’m hearing on the topic.
Of course, focusing solely on the producers seriously understates the overall potential demand for digital transformation. Digital drives benefits in cost reduction, productivity improvements and carbon abatement, one of the very few investment candidates that delivers on all three of these business drivers.
As an aside, it feels like the midstream sector is still behind the game. Recently I spoke at an event of young employees in the pipeline sector, and while the public tone was optimistic, privately the young people were pretty discouraged with the slow pace of change, the lack of management interest, and the resulting negative impacts on their careers.
In any case, my website gets the occasional request for information about digital transformation, and this week the request was along the lines of:
As we are just about to embark on our Digital Transformation journey, we are open to inputs/suggestions by our potential partner companies/consultants who have experience in Digital transformation of E&P companies. In this regard, I would request you send suggestions on what critical elements should be part of our roadmap to Digital transformation.
A very good question indeed, and it prompted me to distill my thinking into an email reply. Which is hard because my book on the topic weighs in at 80,000 words and the collected body of blogs is a further 195,000 words.
Ask ten consultants what should be in a digital roadmap, and you’ll inevitably get 10 distinct answers. They will vary depending on what the consultant sees as the potential up sell — for example, a company that sells cloud computing is likely to position a cloud first strategy. Those with significant businesses helping with ERP deployments will advocate upgrades to these big foundational systems.
Here are the small number of big themes and ideas that I believe should form the backbone of any competent digital roadmap.
The digital roadmap for oil and gas must solve business problems as an urgent priority. Oil and gas has little interest in science projects, or wide-ranging transformation programming, or big foundational systems. The transformation roadmap needs to be pragmatic and practical, leading to value quickly.
I advocate starting with the value driver tree for the business which points to how the business makes money. The tree will look quite different for off-shore upstream as compared to on-shore downstream. The value driver tree, coupled with business leader insights into where the business experiences real pain, will give clear guidance to the key steps in the road map.
EDUCATE, EDUCATE, EDUCATE
Digital change is not a one-person, or even a one-department show. You need to get a lot of people aligned on the reasons for investing in digital, and they’ll need to be educated on key digital topics. Most people in oil and gas are blind to what digital can offer. The implications of Moore’s Law and Metcalfe’s Law elude this industry in large measure. The most potent digital investments are not obvious. And if you have had consultants wandering around your place, they will have already started to educate your people to favour their perspectives.
Digital is actually a people problem as jobs, roles, and reporting will all change with the arrival of digital innovations. In fact, you’re not doing digital right if you’re only getting 10-15% gains. In the US, for example, digital teams are tasked to find 80-90% productivity gains. I find most digital roadmaps lack sufficient ambition, underestimate the impacts of digital on the business, and avoid changes that could disrupt or destroy the existing business model.
THINK BIG, START SMALL, MOVE QUICKLY
Digital moves so quickly that any change goals need to be big. By the time you’ve implemented anything, the effects of Moore’s Law will have cut your competitor’s costs by 50% or more, and expanded their capabilities by a further 50%. Your roadmap needs to anticipate this reality, and plan accordingly.
DIGITAL IS ABOUT THE DATA
While oil and gas companies, particularly in the upstream, are blessed with lots of data, much is of such poor quality that it won’t work for digital. Digital roadmaps that ignore data quality issues face an immediate speed bump to their progress. Much digital innovation requires data of consistent quality. Simple stuff like abbreviations (is pressure measured as psi, p/si, lbs/sq in), need to be ruthlessly consistent or digital systems will go sideways. A clever roadmap step is to think about applying digital to the task of cleaning up data assets.
GET TO THE CLOUD
Most digital innovations are based on some variation of cloud computing. If you’re not thinking about cloud, you’re not going to be able to leverage new software as services, blockchain, internet of things, etc. That doesn’t mean that everything should become cloud enabled — some private data, certain operational systems like SCADA, and legacy data of uncertain quality, will likely stay intact in an on-premises environment.
ALIGN OR MERGE IT AND OT
For good and plentiful reasons, oil and gas has historically separated its operational or SCADA technology teams that support plant operations, from the commercial or IT teams who support ERP systems, email and other systems. Digital, however, is blind to this kind of separation of technology support. And there are now good reasons to bring OT and IT together. OT is best at keeping systems running reliably with high uptime, while IT is better at patching and integrating systems. These skills are complementary and valuable when tying a new (OT) robot to the (IT) work order system.
One of the harder changes to bring about is the adoption of new work processes. Many a digital team trying to quickly bring a solution into reality are thwarted by legacy work processes that operate on annual budgeting cycles, or painfully slow committee-driven decision making, or functional designs driven by scope rather than time. A good digital roadmap includes some work in bringing about faster processes in IT support, as well as faster decision making in solution design.
For historic reasons, notably the value mismatch between assets and humans (assets expensive, humans cheap), oil and gas technology tends to dramatically underinvest in the human interface to that technology. As a result, oil and gas technologies are typically hard to learn and master. In comparison, digital solutions are so intuitive that users need no training. This isn’t an accident—digital success means putting energy in the user experience and the overall design.
FOCUS ON THE BACK OFFICE TO START
The digital roadmap must decide what to work on first. There’s no doubt that implementing change is faster in the back office—there are fewer mechanical moving parts, limited safety risk, and no true operations—but the value to be realised is far bigger in the front office but will be more slowly captured. If your organization has time to react, target the front office, but if your situation is more dire, then you might have enough change readiness to tackle the back office.
CYBER IS THE RED LINE
Attention to cyber security is mandatory and must be built in from the start. Digital creates a bigger attack surface for criminal activity, and all Boards are now well educated to the peril they face should cyber securities be breached.
Some choices really matter, but as digital is changing so quickly, most do not. As Amazon says, consider if your decision has no roll back option and no off ramp to a viable alternative. If you have no roll back or off ramp, make the decision carefully. If a roll back is available, and an off ramp exists, just make the decision and get on with it.
Your digital roadmap should include these elements — a view about your future state, practical steps to move forward, organizing for success, change management, design thinking, agile methods, etc.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon, iTunes, Audible, and other on-line bookshops.