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Low Oil Prices Prime Oil And Gas Industry For IoT Adoption

John Ward

“When you are making money and shareholders are happy, there is little case for change,” explains Peter Reynolds, a contributing analyst with the ARC Advisory Group. “But when prices are this low, it’s time to look at doing things differently.”

Reynolds is talking about the need for change in the oil and gas industry. And you can’t argue with the timeliness of his remarks.

Recently, U.S. crude prices fell toward $26 per barrel; their lowest since 2003. But what kind of adjustments make the most sense in this economy?

Reynolds – who spoke with me after the Best Practices for Oil and Gas Conference – believes finding ways to lower operational costs could be a key to survival for many oil and gas companies. Further, he sees embracing the industrial Internet of Things (IoT) and its proliferation of networked devices as a good place to start.

Sweating the assets

The world of oil and gas is dominated by physical assets. The industry is built on countless miles of pipe and millions of pumps, valves, and gauges.

“There is an awful lot of legacy infrastructure out there,” says Reynolds, “but that doesn’t mean you have to rely on legacy thinking.” The IoT is really about rethinking your work processes and transforming the operational experience, he tells me.

Reynolds cites a couple of examples around optimizing performance and lowering maintenance costs.

“Everybody talks about sweating the assets,” says Reynolds, “but where should this optimization take place? Is it with work boots on the ground or in centers of excellence?”

Sensor-enabled infrastructure and wireless connectivity offer oil and gas companies alternatives to costly field operations. “Why monitor 50 pumps when you can monitor 50,000 pumps?” Reynolds asks.

Remote monitoring from a centralized location lets companies achieve economies of scale while enabling them to make critical performance decisions based on mass amounts of data.

More than one option

Manufacturers in many industries are already building in secure sensor technology as a standard component of their products – everything from pressure monitors in your car’s tires to the three-axis gyroscope in your iPhone.

The OEMs supplying the oil and gas industry are no different, and this leads to multiple business models.

“Oil and gas companies could decide to buy every pump with a service contract.” Reynolds suggests. “Let the OEM do the remote monitoring and predictive analytics.” The oil and gas company saves on maintenance because it no longer needs to stock spare parts, and it could see improved uptime as well.

“There is an explosion of companies looking to make better use of this sensor data,” says Reynolds, “The idea is to bring this real-time information up to the enterprise where the benefits can cascade across several different areas.”

IoT isn’t about disruption

From Reynolds’ perspective, the industrial Internet of Things isn’t about disrupting the existing supply chain but rather enhancing it. And he recognizes the challenges inherent in an industry with so much extant infrastructure.

“At ARC, we estimate that there are US$65 billion worth of legacy automation systems in place today,” Reynolds says. “We aren’t going to modify it all overnight.” But as he points out, if you need remote monitoring or performance guarantees, you can easily add a real-time sensors and new connectivity to layer existing controls.

Reynolds also notes that if companies can find better and cheaper ways of operating, then these investments are essentially self-funding – especially when you are talking about the scale of the oil and gas industry.

And in an economy where operational efficiency just might prove to be the key differentiator, self-funding changes make a lot of sense.

Many thanks to Peter Reynolds of the ARC Advisory Group for taking the time to share his insights, and please join me on Twitter at @JohnGWard3.

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This story originally appeared on SAP Business Trends.

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About John Ward

John Ward is an Integrated Marketing Expert at SAP. He has over 30 years of professional writing experience that includes marketing material, sales support, technical documentation, video scripting, and magazine articles.

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Transform Or Die: What Will You Do In The Digital Economy?

Scott Feldman and Puneet Suppal

By now, most executives are keenly aware that the digital economy can be either an opportunity or a threat. The question is not whether they should engage their business in it. Rather, it’s how to unleash the power of digital technology while maintaining a healthy business, leveraging existing IT investments, and innovating without disrupting themselves.

Yet most of those executives are shying away Businesspeople in a Meeting --- Image by © Monalyn Gracia/Corbisfrom such a challenge. According to a recent study by MIT Sloan and Capgemini, only 15% of CEOs are executing a digital strategy, even though 90% agree that the digital economy will impact their industry. As these businesses ignore this reality, early adopters of digital transformation are achieving 9% higher revenue creation, 26% greater impact on profitability, and 12% more market valuation.

Why aren’t more leaders willing to transform their business and seize the opportunity of our hyperconnected world? The answer is as simple as human nature. Innately, humans are uncomfortable with the notion of change. We even find comfort in stability and predictability. Unfortunately, the digital economy is none of these – it’s fast and always evolving.

Digital transformation is no longer an option – it’s the imperative

At this moment, we are witnessing an explosion of connections, data, and innovations. And even though this hyperconnectivity has changed the game, customers are radically changing the rules – demanding simple, seamless, and personalized experiences at every touch point.

Billions of people are using social and digital communities to provide services, share insights, and engage in commerce. All the while, new channels for engaging with customers are created, and new ways for making better use of resources are emerging. It is these communities that allow companies to not only give customers what they want, but also align efforts across the business network to maximize value potential.

To seize the opportunities ahead, businesses must go beyond sensors, Big Data, analytics, and social media. More important, they need to reinvent themselves in a manner that is compatible with an increasingly digital world and its inhabitants (a.k.a. your consumers).

Here are a few companies that understand the importance of digital transformation – and are reaping the rewards:

  1. Under Armour:  No longer is this widely popular athletic brand just selling shoes and apparel. They are connecting 38 million people on a digital platform. By focusing on this services side of the business, Under Armour is poised to become a lifestyle advisor and health consultant, using his product side as the enabler.
  1. Port of Hamburg: Europe’s second-largest port is keeping carrier trucks and ships productive around the clock. By fusing facility, weather, and traffic conditions with vehicle availability and shipment schedules, the Port increased container handling capacity by 178% without expanding its physical space.
  1. Haier Asia: This top-ranking multinational consumer electronics and home appliances company decided to disrupt itself before someone else did. The company used a two-prong approach to digital transformation to create a service-based model to seize the potential of changing consumer behaviors and accelerate product development. 
  1. Uber: This startup darling is more than just a taxi service. It is transforming how urban logistics operates through a technology trifecta: Big Data, cloud, and mobile.
  1. American Society of Clinical Oncologists (ASCO): Even nonprofits can benefit from digital transformation. ASCO is transforming care for cancer patients worldwide by consolidating patient information with its CancerLinQ. By unlocking knowledge and value from the 97% of cancer patients who are not involved in clinical trials, healthcare providers can drive better, more data-driven decision making and outcomes.

It’s time to take action 

During the SAP Executive Technology Summit at SAP TechEd on October 19–20, an elite group of CIOs, CTOs, and corporate executives will gather to discuss the challenges of digital transformation and how they can solve them. With the freedom of open, candid, and interactive discussions led by SAP Board Members and senior technology leadership, delegates will exchange ideas on how to get on the right path while leveraging their existing technology infrastructure.

Stay tuned for exclusive insights from this invitation-only event in our next blog!
Scott Feldman is Global Head of the SAP HANA Customer Community at SAP. Connect with him on Twitter @sfeldman0.

Puneet Suppal drives Solution Strategy and Adoption (Customer Innovation & IoT) at SAP Labs. Connect with him on Twitter @puneetsuppal.

 

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About Scott Feldman and Puneet Suppal

Scott Feldman is the Head of SAP HANA International Customer Community. Puneet Suppal is the Customer Co-Innovation & Solution Adoption Executive at SAP.

What Is Digital Transformation?

Andreas Schmitz

Achieving quantum leaps through disruption and using data in new contexts, in ways designed for more than just Generation Y — indeed, the digital transformation affects us all. It’s time for a detailed look at its key aspects.

Data finding its way into new settings

Archiving all of a company’s internal information until the end of time is generally a good idea, as it gives the boss the security that nothing will be lost. Meanwhile, enabling him or her to create bar graphs and pie charts based on sales trends – preferably in real time, of course – is even better.

But the best scenario of all is when the boss can incorporate data from external sources. All of a sudden, information on factors as seemingly mundane as the weather start helping to improve interpretations of fluctuations in sales and to make precise modifications to the company’s offerings. When the gusts of autumn begin to blow, for example, energy providers scale back solar production and crank up their windmills. Here, external data provides a foundation for processes and decisions that were previously unattainable.

Quantum leaps possible through disruption

While these advancements involve changes in existing workflows, there are also much more radical approaches that eschew conventional structures entirely.

“The aggressive use of data is transforming business models, facilitating new products and services, creating new processes, generating greater utility, and ushering in a new culture of management,” states Professor Walter Brenner of the University of St. Gallen in Switzerland, regarding the effects of digitalization.

Harnessing these benefits requires the application of innovative information and communication technology, especially the kind termed “disruptive.” A complete departure from existing structures may not necessarily be the actual goal, but it can occur as a consequence of this process.

Having had to contend with “only” one new technology at a time in the past, be it PCs, SAP software, SQL databases, or the Internet itself, companies are now facing an array of concurrent topics, such as the Internet of Things, social media, third-generation e-business, and tablets and smartphones. Professor Brenner thus believes that every good — and perhaps disruptive — idea can result in a “quantum leap in terms of data.”

Products and services shaped by customers

It has already been nearly seven years since the release of an app that enables customers to order and pay for taxis. Initially introduced in Berlin, Germany, mytaxi makes it possible to avoid waiting on hold for the next phone representative and pay by credit card while giving drivers greater independence from taxi dispatch centers. In addition, analyses of user data can lead to the creation of new services, such as for people who consistently order taxis at around the same time of day.

“Successful models focus on providing utility to the customer,” Professor Brenner explains. “In the beginning, at least, everything else is secondary.”

In this regard, the private taxi agency Uber is a fair bit more radical. It bypasses the entire taxi industry and hires private individuals interested in making themselves and their vehicles available for rides on the Uber platform. Similarly, Airbnb runs a platform travelers can use to book private accommodations instead of hotel rooms.

Long-established companies are also undergoing profound changes. The German publishing house Axel Springer SE, for instance, has acquired a number of startups, launched an online dating platform, and released an app with which users can collect points at retail. Chairman and CEO Matthias Döpfner also has an interest in getting the company’s newspapers and other periodicals back into the black based on payment models, of course, but these endeavors are somewhat at odds with the traditional notion of publishing houses being involved solely in publishing.

The impact of digitalization transcends Generation Y

Digitalization is effecting changes in nearly every industry. Retailers will likely have no choice but to integrate their sales channels into an omnichannel approach. Seeking to make their data services as attractive as possible, BMW, Mercedes, and Audi have joined forces to purchase the digital map service HERE. Mechanical engineering companies are outfitting their equipment with sensors to reduce downtime and achieve further product improvements.

“The specific potential and risks at hand determine how and by what means each individual company approaches the subject of digitalization,” Professor Brenner reveals. The resulting services will ultimately benefit every customer – not just those belonging to Generation Y, who present a certain basic affinity for digital methods.

“Think of cars that notify the service center when their brakes or drive belts need to be replaced, offer parking assistance, or even handle parking for you,” Brenner offers. “This can be a big help to elderly people in particular.”

Chief digital officers: team members, not miracle workers

Making the transition to the digital future is something that involves not only a CEO or a head of marketing or IT, but the entire company. Though these individuals do play an important role as proponents of digital models, it also takes more than just a chief digital officer alone.

For Professor Brenner, appointing a single person to the board of a DAX company to oversee digitalization is basically absurd. “Unless you’re talking about Da Vinci or Leibnitz born again, nobody could handle such a task,” he states.

In Brenner’s view, this is a topic for each and every department, and responsibilities should be assigned much like on a soccer field: “You’ve got a coach and the players – and the fans, as well, who are more or less what it’s all about.”

Here, the CIO neither competes with the CDO nor assumes an elevated position in the process of digital transformation. Implementing new databases like SAP HANA or Hadoop, leveraging sensor data in both technical and commercially viable ways, these are the tasks CIOs will face going forward.

“There are some fantastic jobs out there,” Brenner affirms.

Want more insight on managing digital transformation? See Three Keys To Winning In A World Of Disruption.

Image via Shutterstock

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Andreas Schmitz

About Andreas Schmitz

Andreas Schmitz is a Freelance Journalist for SAP, covering a wide range of topics from big data to Internet of Things, HR, business innovation and mobile.

Robots: Job Destroyers or Human Partners? [INFOGRAPHIC]

Christopher Koch

Robots: Job Destroyers or Human Partners? [INFOGRAPHIC]

To learn more about how humans and robots will co-evolve, read the in-depth report Bring Your Robot to Work.

Download the PDF (91KB)

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About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing. Share your thoughts with Chris on Twitter @Ckochster.

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Building A Business Case For Financial Transformation

Nilly Essaides

There’s constant pressure on the CFO from the CEO to do better—to innovate, and to transform the finance organization into both a leaner and a more forward-looking analytics hub that provides insight and foresight to the enterprise. CFOs today must:

  • Interpret numbers instead of reporting them
  • Deploy enabling technology to automate low-value work
  • Scout for business and growth opportunities
  • Work effectively with Big Data to turn their teams into the brains of the organization
  • Act as true partners to the CEO, business leaders, and board of directors

Defining the ROI for transformation

Transformation sounds great in theory, but to get finance to literally go beyond its form—not an easy feat—executives need to see a strong business case and a tangible payback. After all, finance is all about the ROI.

Here are some solutions CFOs can wrap their heads around to help drive change:

  • Manage competitive disruption. Today’s business environment is rife with competitive threats. My last post listed five ways financial planning and analysis (FP&A) in its future form can help companies battle these threats. The cost of not transforming the finance function into the fast-thinking, forward-looking brains of the enterprise is the opportunity cost of falling behind. It’s the risk of becoming irrelevant through the inability to foresee competitive threats, or of lacking an action plan for dealing with the potential impact of such pressures on the financial health of the corporation.
  • Streamline processes. Obviously, there’s the dollars-and-cents savings that come from streamlining processes, using new technologies, and breaking down internal silos. For example, in many organizations, forecasting processes occur in different departments. Merging these disparate processes into one and using a single technology platform can save enormous resources in terms of systems and time. It eliminates duplicate entries of data and the need to reconcile discordant information, or the need to later argue about which number is right. It creates a single version of the truth.

Even within finance, things can be improved. Often the processes of budgeting, forecasting, and planning happen in isolation in different time frames. And operational and financial planning occur in different cycles and levels. By syncing up these processes, companies can get rid of redundancies. What’s more important, they can discover efficiencies and improve the quality of the end product.

  • Eliminate waste and free up strategic time. New technologies are enabling the finance function to automate low-value work and free up executives’ time to focus on strategic thinking, developing partnerships with the business, and advising management on how to drive growth. The payback is smarter decisions (faster growth, higher investment returns) while lowering operating expenses.
  • Look forward. Finance and FP&A today are shifting their focus from yesterday to tomorrow, from what happened to what’s going to happen. Transforming their mindset is key to helping the business move forward. Using techniques and technologies like driver-based modeling and predictive analytics, finance is remaking itself and producing faster, more frequent and—most importantly—more accurate forecasts. It’s giving management the one thing that matters most: time to pull business levers to affect future financial results. The payback is higher sales, wider margins, and lower cost of operations.
  • Change the mindset. There’s no transformation of the financial organization without a transformation of the financial skill set of executives. The first-quarter Deloitte CFO Signal Survey indicated that CFOs expect to embark on a wide range of efforts to improve the performance of their teams before the end of 2016. While foundational finance skills remain a must, to transform finance into the “A-team” of the future, executives must possess business acumen, diplomacy skills, intellectual curiosity, technology savvy, and a degree of comfort with ambivalence. They have to be okay with making decisions without 100% of the information. One can argue that the return on soft skills is soft. But it also means being able to move fast and grab windows of opportunity. Not all business cases are based on cost savings.
  • Build an analytics hub. The biggest challenge for CFOs today is to transform finance into the analytical hub of the organization and leverage Big Data to drive smarter business decisions—both in terms of cost cutting and in giving the business units advice on how to market, sell, develop, and grow their operations. That’s how finance fits within the digital enterprise. Finance needs to funnel Big Data from all corners of the organization—and outside it—to leverage its unique central viewpoint. It must bring the information together and run it through advanced analytics models to come up with causal relationships that explain what business initiatives are really moving the needle, what steps the company can take to improve results, and what its customers are doing and are likely to do. Digitizing finance has a huge payback: It allows companies to stay competitive in a digital economy.

Is finance transformation worth the effort? That may be the wrong question. The question is, can companies afford not to transform their finance function and remain relevant now and going forward?

Learn how the FP&A team at CF Industries Holdings Inc. prioritized business partnering options and transformed the organization to optimally support strategic goals by establishing an integrated business planning process at the AFP Annual Conference session, Driving Finance Transformation Through Integrated Business Planning.

For more of my insights on FP&A, subscribe to the monthly FP&A e-newsletter from my company, the Association for Financial Professionals. You can also connect with me on LinkedIn or follow me on Twitter.

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Nilly Essaides

About Nilly Essaides

Nilly Essaides is the director of the FP&A Practice at the Association for Financial Professionals. She has over 25 years of experience in the finance field. Nilly has written multiple in-depth research reports on FP&A and Treasury topics, as well as countless articles. She also speaks at conferences and moderates financial executives' roundtables across the country. Nilly has published a book on best-practice transfer and process excellence with the APQC, "If We Only Knew What We Know."