24 Aug Stop Buying Digital. Start Being Digital
There is a difference between buying digital (the default position in oil and gas) and being digital (the default position of young people). Oil and gas must be digital to have any hope of attracting top talent in the future.
It Took a Pandemic
This story opens in 2012. I am living in Brisbane for the start of a 4 year tour in the country’s new gas export industry and keen to avoid the snakes of which I’ve heard lots.
And I am sure there are no snakes living in Hamilton where I rent a condo. I confidently assure our few visitors that they will not encounter snakes inside the city limits.
This assertion proves incorrect in every imaginable way. Snakes are everywhere, including one in my front yard.
Meanwhile I have a front-row seat to the impacts that digital innovation is having on Australia’s relatively isolated economy, such as Brisbane police comically purchasing thousands of burner mobile phones to catch Uber drivers. This is like buying a new fishing rod every time you catch a fish.
I wonder when conditions in oil and gas, an industry whose business model had stood resolute since its invention 100 years ago by Nelson Rockefeller, will compel digital innovation as a sensible strategy.
Conditions have never been very good. For example, in 2016, Australia had a market price for gas of $8/gigajoule and a twenty-year break even price for the new industry of $16. A crushing regulatory compliance burden. The highest cost oil and gas labour in the world. A seriously constrained labour pool.
It wasn’t enough.
In 2017, the IEA publishes a landmark study that presents the $25 trillion value of digital innovation. 20% cost reductions. 20% improvements in asset productivity. 5% boost in reserves. A pathway to carbon neutrality, and possibly carbon zero. Cleaner air.
It wasn’t enough.
By 2018, we faced yet another oil price collapse, Greta Thunberg, the transformation of automotive markets driven by Tesla. The rise of renewables and alternative fuels.
It wasn’t enough.
By March 2020, an unseen villain, corona virus, finally succeeds where Boards, capital markets, regulators, and consultants have all failed. Digital shifts from a political impossibility to a survival necessity.
Conditions are now right.
Digital has proven itself during the pandemic. Doing digital is no longer the question. The question now for oil and gas is to be or not to be digital.
To be or not to be. To answer, we need clarity on a few items:
- What exactly is “digital”?
- What does being digital mean?
- How do you be digital?
What is “Digital”?
What is digital and why is it somehow different? Despite the near universal use of the term “digital” to represent features of our modern economy, there is no shared definition of what digital actually is.
To an engineer, digital is an alternative to analog. To a millennial, digital is an integral part of everyday life. To a doctor, digital describes an awkward medical procedure involving latex gloves, some lubricant and a moment of embarrassment.
Here’s my definition, borrowed from the IEA.
Something digital incorporates three building blocks (or what I call the digital trinity) that together create something that most people generally concede is a digital device, solution, or service.
Data is the lifeblood of digital. Digital produces and uses copious amounts of data.
Analytics or computational ability means the ability to carry out calculations and computations on the data.
A digital device, solution, or service uses a telecommunications network that allow digital devices to connect with one another to exchange or share data, or computations.
A smartwatch is an excellent example of a digital thing: it has data, such as address books, pictures of my recent lunch, and maps; analytics, which are apps that carry out calculations, such as calculating the distance between two points; and connectivity, since it also works as a credit card replacement. And I still use it as a watch.
There are lots of modern examples of digital things in the oil and gas world, from tank gauges, to apps for connected workers, to vehicles.
The digital trinity are all based on a single foundational technology, which is the lowly computer chip. As chip technology advances, the cost of earlier generations of chips falls to zero and it becomes economically feasible to incorporate chips into almost everything. They become smaller, thinner, lighter, safer, richer, and, most critically, they need very little power to operate. It is the chips that store the data, provide the computations, and enable the telecommunications computers that drive the network connections.
All three sisters of the digital trinity are each experiencing massive exponential growth, driven by Moore’s Law of exponential change, and Metcalfe’s Law of network value.
Where the oil and gas industry has always worked in a world of constraint (one of its orthodoxies), Moore and Metcalfe are creating a world of abundance—abundant data, analytics and networking.
Virtually anything (services, products, and assets) can and will be digitally enabled because of the falling cost of chip technology.
Early successes in industries that adopted digital focused on building ecosystems, concentrating on speed to market, and enabling new disruptive business models.
Capital markets now value digital companies with dramatically more optimism than asset-heavy and revenue-rich companies. Apple is zeroing in on $2T valuation.
The digital market leaders have perfected their skills at bringing digital innovation to multiple industry sectors and are investing to bring their know-how to energy and transportation, because the customer relationship is up for grabs.
To quote Cisco, “anything that can be digitized will be digitized”.
To quote Game of Thrones, ‘winter is coming’.
The State of Being Digital
To the second question: what does it mean to “be digital”?
I have developed a snake-free framework that connects the digital technologies to each other and presents a model for thinking about, and planning for, digital investment.
The framework has three layers.
The Digital Core
The digital core includes data, sensors, intelligence and robots.
At its heart, digital is about how data has become a valued thing on its own.
Sensor technologies and the Internet of Things will generate vast quantities of highly valuable data to store and analyze, but in the process outstripping human capacity, and our legacy tools, to analyse them.
We will turn to artificial intelligence and machines to read and interpret all the data, supporting key human decision-making functions.
Autonomous technologies will apply the data and analysis to execute work, replacing humans in the office and the supply chain, as well as in costly, dangerous, and repetitive work. In the process, entirely new jobs will be created.
Combining these four things creates signature ways of working.
The Digital Foundation
The digital core rests on the digital foundation.
Cloud computing will store the new flood of data, enable new disruptive business models, and provide the foundation for most other digital innovations.
Blockchain will transform business processes involving assets, trust, ownership, money, identity, and contracts.
Enterprise systems will continue to provide the commercial, cyber and connectivity underpinnings for the industry, while becoming more digital in their design and operations.
The Digital Capabilities
While the digital core and the digital foundations are about doing digital, being digital means adopting new digital capabilities.
Agile methods are how digital gets done, and will augment and in many cases replace waterfall practices. Processes will be designed with the user experience as the driver.
Digital reality will become the design and execution arena for humans to engage with the physical world in new, rich ways.
Gamification will enable workers to study, experiment with, and play with their actual businesses and industries in more profound ways.
Finally, being digital is about people, change management, skills development, talent models, and governance.
Three layers: digital core, digital foundations, digital capabilities.
You need all three to “be” digital.
How To Be Digital
Now to the third question. How do we be digital?
First, set your digital North Star. Where are you headed with digital and what is your ultimate aim? Your organization needs that clarity so that it can properly mobilise. The CEO of Ford was fired because after 3 years, he could not articulate a compelling vision for Ford against Tesla.
Second, educate your organization. 30% of your employees at all levels need to be ready to embrace digital, and digital awareness is still a work in progress. Sending everyone home during the pandemic does not convince the troops of the need for change. It merely showed that the pace of change could accelerate.
Third, build that business driven roadmap. The specific investments that you’ll make to trial some ideas, test some thinking, and move the organization along towards the vision. Getting started is far more critical than starting in the exact right place because the goal posts in digital are constantly moving. The pandemic shows us this. Shifting all computer screen workers to home offices was not anyone’s starting point. Oil and gas is at greatest risk here of simply buying digital technologies, layering them on top of legacy technologies and processes, and not tackling business culture. This is a telltale sign of doing digital.
Fourth, raise your data acumen. Oil and gas is generally rubbish at data. But data is the lifeblood of digital, and you’ll need to get good at it for digital to pay off.
And finally, put the foundations in place — cloud, solid enterprise solutions, cyber defences.
The overwhelming temptation in oil and gas is to simply buy digital things and conclude that the presence of some clever digital innovations is somehow sufficient to be digital. The work of changing mindsets, of training supervisors to behave differently, of overhauling processes to capture a 95% improvement, is placed conveniently in the all-too-hard bucket. This simply won’t do. The next generation of workers, who are already predisposed to view the vital hydrocarbon industry as dirty, backward, and evil, will increasingly give the sector a pass.
It is time that oil and gas stopped simply buying more stuff and started tackling the greatest impediment to its collapsing valuations, its social vilification and its victimisation narrative — its own business culture.
No snakes were harmed in the writing of this article.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon and other on-line bookshops.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.
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