Most industries measure digital transformation by accelerated, highly visible outcomes – from new business models and efficient processes to experiences that wow customers and employees alike. But not the oil and gas industry – in fact, it may be following a completely different playbook.
To most industry outsiders, the pace of digital transformation for oil and gas companies may seem glacial. But according to Geoffrey Cann, author and adviser on digital strategy and innovation in oil and gas, digital technologies are actually well-positioned to impact oil and gas operations in profound ways.
“Industry analysts, such as The International Energy Agency, predict that digital tools will expand reserves in the upstream by 5% worldwide. That’s 500 billion barrels of oil!” he stated during the Americas’ SAP Users’ Group (ASUG) Webcast “Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas.” “When you consider the current price point is US$50 a barrel, the released value of this digital advantage easily amounts to several trillions of dollars.”
The asymmetric, chaotic nature of digital evolution
Oil and gas companies are avid users of innovative technologies – and this openness shows as their operations become more intelligent in areas such as fracking and resource stimulation. But what separates their progress from the rest of the world is their limited use of newer technologies.
“What’s different is how the industry defines digitalization,” explained Cann. “Most industries want to deliver a product, service, or business model that brings together data analytics and computational power to create an experience that is compelling or novel. But for oil and gas businesses, the priority is to strengthen their operational foundation with data, analytics, and connectivity.”
When you consider the level of uncertainty and impending erosion of demand that’s casting a wide shadow over the industry, this approach makes sense. For example, the petroleum market could contract significantly if auto and truck makers and other transportation equipment manufacturers aggressively replace internal combustion engines with electric engines. But no one knows with certainty whether and how the industry will change over the next few years.
So in the meantime, most oil and gas providers are choosing to focus on digital assets that drive cost improvements and productivity gains. But don’t be fooled – as Cann reminded me during the Webcast, never underestimate the power of data, analytics, and connectivity.
“When I first started my career, data was basically numbers presented in rows, columns, and the occasional chart in a spreadsheet. Data was scarce,” he reflected. “But now, data is ridiculously abundant and can represent images, sounds, and odors, along with measures like pressures, speeds, temperatures, orientation, and locations. Even the contents of text messages, tweets, and Facebook posts can be used to measure sentiment and emotions.”
Navigational tools for digital transformation amid uncertainty
Working in such a data-rich environment can be challenging, especially as the industry shifts operations online through its supervisory control and data acquisition systems and adoption of the Internet of Things. But with the right mindset, oil and gas industries can ensure their digital investments are aligned with the needs of the business – no matter which direction the industry moves.
“The deeply rooted truths of digital initiatives are difficult to challenge when no one understands the orthodoxies, vision, and impacts they will deliver,” mentioned Cann. “The key is to embrace entirely new ways of thinking about the business.”
To take advantage of every digital opportunity, Cann suggests five fundamental steps:
- Set your digital North Star: Sense where the industry is heading, set an opportunistic course, and mobilize your organization.
- Educate your workforce and business network: Create a digital manifesto that involves your front office, back office, and supply chain. Every line of business should serve as a contributor to the company’s digital success.
- Build a business-driven road map: Filter a vast range of digital technologies to find the right one(s) to solve strategic issues and deliver outcomes that support new business scenarios.
- Raise your data acumen: Put in place a good standard for data governance and business intelligence.
- Establish your foundation: Deploy a rock-solid ERP system that can scale to your business needs now and in the future, secure every connection in your IT landscape, and augment your workforce’s digital skills.
With this framework, oil and gas companies can achieve substantial value from their data and critical technologies, such as ERP systems. Then they can leverage those digital assets in the future to augment their operations meaningfully with intelligent technologies such as artificial intelligence, blockchain, and robots, individually or combined.
“In the context of digital innovation, there is no shortage of innovation in the oil and gas industry,” Cann concludes. “The key is to take advantage of this innovation potential, no matter how small the step. What counts is that the business continues to progress forward – and the benefits will soon become clear.”
Hear Geoffrey Cann, author of “Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas,” and a roster of 70 additional speakers share their insights on the oil and gas industry. Join us at the Best Practices for Oil & Gas conference.