Is Your Digital Transformation Effort Lagging The Competition? - Geoffrey Cann - Energy News, Top Headlines, Commentaries, Features & Events

International companies are catching up fast thanks to digital democracy and education

By Geoffrey Cann

It’s hard to gauge the state of digital play among the global oil and gas world without some kind of benchmarking effort, but teaching provides a useful proxy source of insight.

Many years ago, one of my mentors counseled me that if ever I’m asked to contribute my time and talent to some corporate initiative, focus on something that is about company growth, and not company cost reduction. His logic was that growing a company is both more rewarding and yields more positive energy, than cutting a company back. Teaching is a great mechanism for helping to grow a company’s capabilities.

I’ve experienced both retrenching and growing a company. During the 2008-2009 financial crisis, I was unceremoniously handed the keys to Deloitte’s consulting practice in Calgary (my predecessor was fired for cause), and I remember either having to lay off people or to deal with a resignation every other week for a solid year. Twenty-six individual departures, some of whom I had personally hired. Not a lot of fun.

To compensate, I diversified into corporate training. For many years, I served as a global corporate trainer for Deloitte’s annual leveling-up courses for its new hires and annual promotes. These events I really enjoyed—the investment in building lasting relationships with freshly minted consultants would be repaid many times over in the years that followed.

My books now serve as a draw to help multinationals strengthen their cadre of new managers. Last week I delivered the first of a series of lectures to a big Asian oil and gas company’s latest group of promotes from operations on digital in oil and gas. It’s part of a week of learning and growth that covers a huge range of topics, organized by a global executive services company, who are helping ready the next generation of leaders for their new roles as executive stewards of the company.

In preparation, I queried the organizer about the company’s digital state of affairs. Among western oil and gas companies, digital has been a ‘thing’ for the past five years, but what about Asia? Would my remarks be sufficiently on point and relevant? After all, the magic of digital is that it is a global leveler:

digital technology moves across borders instantly. There are no embargos of consumer grade technology. Quite the opposite.
Acquiring digital knowhow is not much more difficult than watching a few YouTube videos
Low code and no code technologies allow societies with no coding history to be just as productive as those where coding is deeply ingrained

Unsurprisingly, Asian oil and gas companies are well advanced in their use of digital innovations. The students in the lecture were well able to share innovative examples of digital adoption in their company:

Aerial drones for carrying out inspections of the insides of hydrocarbon storage tanks
Use of flying drones for conducting surveillance of pipelines from above
Clever analytics to optimize well production

But it was their questions that struck me as providing the best insight into their own struggles with embracing digital change. These questions provide a useful gauge as to where Asian oil and gas companies are in their digital transformation journeys. Here are the stand-out questions from the floor.

The question: Are cyber risk insurmountable?

Among the top of mind issues is cyber. Hacking incidents plague all countries, and the students were noting the rising incident rate of cyber attacks in the civilian world. What was the correlation between rising digital adoption in oil and gas and the risk of cyber attack?

My response: Cyber worries should not block progress.

Cyber risks are genuine. The war in Ukraine is producing two cyber armies (one on each side), with the Ukraine side focusing on the aggressor’s oil and gas infrastructure. The cyber tools and techniques developed during the conflict will eventually be turned on non-aggressors. Cyber is increasingly being built and deployed using the same tools that businesses use for digital adoption. There’s really no where to hide.

That conclusion, however, provides no excuse to ignore digital innovation. The next generation of workers knows no other reality. Capital markets over reward digitally led business. Digital delivers 20% cost reductions and 20% productivity gains, and digital’s ability to deal with carbon emissions provides an ample business case. The question cannot be framed as either/or—it can only be both.

The Question: Is AI a job killer?

In case you were thinking that AI tools are just a North American phenomenon, think again. A second important question was the likely impacts of AI on jobs. Just as these new managers were taking on their responsibilities, would AI eat their work?

My Response: Technology grows jobs.

At first blush, the latest crop of generative AI tools like ChatGPT look like they’ll take over any job that consists mostly of reading, writing, coding, chatting, translating, deciphering, interpreting, discovering, patterning, scripting, drawing, predicting, forecasting, and many other tasks formerly in the realm of purely human capability. But that’s generally not how technology works.

Consider the smart phone. Yes, smart phones destroyed jobs such as telephone handset sanitizers, telephone booth repair, phone book writing, paper map making, CD creation, and much else besides. But no one, aside from a few Luddites, advocates that we return back to the days of pen and paper for everything, phones that are fixed to walls, and bulky thousand dollar cameras.

New technologies seem to go through this curve where they at first displace some jobs, but inevitably humans think of ways to use new technology unanticipated by its developers, and those new ways unlock lots of new jobs. It will be the same with AI.

The question: How should we organize for digital?

I might be reading too much into the question, but the students wanted to know about best practices for organizing companies for digital change. The Information Technology function seems a logical place for driving digital change—digital involves computers—but they shared some skepticism about corporate IT’s ability to take the task on.

My response: Involve IT, but lead from the business.

Corporate IT functions are in general not structured for digital. They tend to follow classic waterfall design methods, not agile, overly focus on business process at the expense of the user experience, are overweighted to keeping the massive investment in legacy systems running, and are too distant from the business to really grasp the digital opportunity. There’s not a lot left over for innovation.

Most organizations instead stand up a digital strike force, a digital center of excellence, or similar construct, to drive digital innovations forward. This team needs to be under business leadership, not IT, likely located within the business, moving fast using digital methods. This new function will work with IT for things like legacy system integration and cyber, with operations for accessing SCADA, DCS, and related operations technologies, and with the business for getting the user experience right.

The question: What about our legacy systems?

My frameworks about thinking about digital and business tend to gloss over the thousands of other systems that oil and gas uses to run the business. The students immediately picked up on this, and wanted to know what happens to that investment legacy.

My response: The technical debt must be paid

Years ago, it was not in the best interests of technology providers to deliver openness to their systems. By making systems hard and costly to connect with, a kind of moat, technology companies locked customers into their solutions, guaranteed license fees, and captured all growth. As digital has advanced, many technology providers have intentionally not kept pace, widening the gap to the frontier of digital, and protecting their franchise.

The debt is now due.

These legacy systems now stand resolutely in the way of progress. They’re big, rigid, change resistant, costly to run, and lock in place practices that are long overdue for change. Any business process or system that has not been materially rethought with cloud computing, mobile connected workers, and widespread telecoms networks is now an anchor, not an enabler.

Those systems that have kept pace should be retained, and those that have not, either because of neglect by the provider or management decision to ignore, are now due for radical change.

The question: Where is digital innovation happening?

Oil and gas companies fancy themselves as pretty innovative, and they are. This industry invented big data (think seismic processing), big computing (for years they ran the biggest data centers until cloud came along), and ERP (SAP runs the global oil industry). But the students implicitly recognized that the most impactful digital innovation is not happening within their company. Where is all this innovation taking place?

My response: Look to the supply chain and the ecosystem

Research shows that the vast bulk of innovation in oil and gas is actually in the network of companies that are supplying goods and services to the industry. That makes sense—the supply chain has to compete. Oil and gas has to compete to acquire reserves, but once the reserves are locked in, it’s a matter of production at the pace that capital market rewards. Meanwhile, engineering firms, equipment houses, and services providers are all furiously reimagining themselves for a digital world. Look there.

A second, and based on the show of hands, mostly ignored source of digital is the local ecosystem of incubators, accelerators, universities, labs, and mashups. These arenas are where digital innovators are gathering to work their ideas into commercial success, and frankly, solving the problems of the energy industry is not top of mind for them. Oil and gas needs to show up at these forums, with money and projects (which our industry has in abundance), and the innovators will take immediate interest.

My conclusions

Teaching is a great way to gather indicative benchmarking data. Based on this past week, I conclude that while western oil and gas companies are ahead in addressing digital innovation, the gap with the broader global industry is narrowing, and the pressures from climate change are pushing the global industry to move faster.

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Photo is from a live teaching event in San Frans Geoffrey Cann, and cranked out on an iPad using Procreate.