In this article Neil Logan, CEO of Incremental Group, sets out how digital technology is changing industries so quickly that it causes disruption, and that the Oil and Gas sector is not immune from this disruption.
He highlights digital disruptions in other industries and explains the difference between disruption and transformation.
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Finally, he shares his recent experiences working with The Oil and Gas Technology Centre (OGTC) on two operational areas that were right for transformation: Logistics and Exploration.
Digital Disruption
First off: what is digital disruption? Put simply, digital disruption is a substantial business change caused by advances in and the application of digital technology. It is worth also contrasting digital disruption with what I will call digital transformation. Both herald substantial business change but disruption comes from an external source whereas transformation from an internal one.
Digital disruption has become the watch word for the last two decades. Typically, digital disruption has occurred when an ambitious technology company attacks a problem that it finds interesting.
Often the technology company doesn’t fully realise the implication when it starts attacking the problem (I suspect Apple didn’t realise that the iPhone would decimate the digital camera market).
However, sometimes it does (Google knew that Adwords would change the advertising industry forever) and sometimes they set out with a clear mission of destroying the existing market (Netflix understood that their business model would disrupt movie rental and dislodge existing players like Blockbusters). We only need to talk walk down the street to see how retail has been disrupted by ecommerce and online retailers like Amazon.
So what’s the point of this warning from history? For a very long time the Oil and Gas Industry has, in my opinion, considered itself immune from this kind of disruption. Finding and extracting hydrocarbons is a difficult and dangerous business and it’s true that to date many digital led businesses have not sought to enter the Energy market. In my view though, it will not always stay like that.
These digital led organisations are hooked on growth. They pursue it with a fervour never seen before and they are comfortable with risk. Most recently the automotive industry has been put to the test and whilst Tesla motors have struggled to become a true mass market producer, their presence has seen that industry receive a massive wake up call.
Digital Transformation
In the face of such dangerous competition, the automotive industry has sought to digitally transform itself. To embrace the same mindset that these digital led organisations have and re-focus on their business problems.
Ford, the ever popular car manufacturer has gone as far as to recast itself as a personal mobility company. Not a car company, not a van company, but a company that you can turn for all your personal mobility requirements.
I believe that the drop in oil prices is a blessing in disguise for the industry. At $100 oil, the industry was focussed on existing business models and was ripe for disruption. Now however at $60 oil the industry is focussed on improving its performance. We’ve seen job losses, but that only gets us so far. Focus must now turn to transforming how we operate.
In August of last year, I met with Sir Ian Wood. Sir Ian told me about his plans for the Oil and Gas Technology Centre and I started to get excited. Could it be that Oil and Gas Industry was about to embrace digital technology? The more we spoke the more excited I got and the more I could see that now was indeed the right time for the industry to transform – a crisis is a terrible thing to waste after all.
More about OGIC here –
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We set to work looking at two operational areas that we felt were right for transformation: Logistics and Exploration. Both areas are complex, both technologically and behaviourally, but the opportunities that both areas provide are huge and success here can be a catalyst for maximising the economic recover of the basin.
Over the last 6 months I have worked alongside the industry with the support of the Technology Leadership Board and the newly formed Oil and Gas Technology Centre (OGTC) to explore how we can bring about a digital transformation in these areas.
In logistics, we are exploring how we can model, inform and optimise the logistics process, giving the industry the capability to dramatically improve. In exploration, we are seeking to apply the latest machine learning and artificial intelligence techniques on a basin wide scale to improve the accuracy of the exploration process.
The Future
I believe that the low oil price and the maturing of the UKCS creates the right environment in which the oil and gas industry can digitally transform its fortunes. The old ways of working will not work in the short term or the long, and every aspect of operations requires to be re-evaluated. I am engaged in looking at two key areas but I would ask that if you take nothing else from this article, you take a look at your operational areas, and ask how can they be better. This industry’s greatest asset is the intellectual capacity of the people involved in it, and you have the capacity and need to transform this industry. Too many industries have fallen foul of digital disruption. Let’s transform before disruption arrives.
