Leadership teams at oil and gas companies are well aware of how digital technology can improve downstream operations. Firms that successfully digitise can cut operating costs by up to 20 per cent, increase plant efficiency by 12 per cent, and reduce the number of unplanned shutdowns.
But these gains are unlikely to be captured using a traditional approach to technology. Instead, firms need to prioritise options with the greatest and fastest impact, build the right capabilities, and implement them in an agile way.
Consultant Strategy& recently interviewed senior executives at national and international oil companies and found that many organisations – large or small, in developing or developed markets – wrestle with the same issues.
New technologies are constantly emerging, and downstream operations are extremely complex, making it tough to introduce new tools quickly.
Many companies also lack a clear strategy and vision for how they will use technology, instead moving hastily to invest in the latest digital offerings as they become available.
They often try to implement new tools using traditional approaches to project management, which tend to be slow, linear and overly structured.
To overcome these challenges, oil and gas companies should apply a three-step approach.
First, companies need to identify the business needs and priorities with the greatest potential to create value from digital. For example, all organisations need to improve operational performance and reduce maintenance costs.
They can use digital support tools to achieve these goals. Some digital tools are relatively basic, such as mobile and hand-held devices. Others are more advanced, such as ‘digital twins’, which are virtual facilities that can model the effect of changing input parameters and help managers make better decisions.
Other digital priorities for oil and gas companies include linking the entire supply chain, from raw material to end customer, to improve service efficiency, optimise inventory, incorporate customer insight into product development and increase transparency. Finally many companies are digitising their health, safety, security and environment function, along with fire services to reduce both human exposure to hazardous operations and streamline key processes. All of these applications offer the potential to create value quickly.
The second step is to build the foundational capabilities needed for a digital transformation. This starts with hardware: companies invariably need to revamp their technology architecture to incorporate newer technologies and applications. In some cases, these replace older processes and systems entirely. In other cases, these technologies can sit on top of existing hardware, making implementation faster.
At the same time, companies need to build new skills in the workforce, particularly data and analytics capabilities. For example, data scientists will be needed to maximise insights from a vast amount of existing and new data.
Greater reliance on data means firms need to consider data governance and management – making information accessible to the right people at the right time. Companies also need cybersecurity to protect critical operations and assets.
Developing these capabilities will be harder at some organisations than others. Many employees are uncomfortable with technology, and some are too comfortable with old ways of working. A concerted effort is required to overcome this inertia, build a digital culture and enable new ways of working.
Third, companies should apply a more agile approach to IT implementation. This is in contrast to the traditional approach of large-scale programmes that take years to complete. Specifically, they need to gauge their digital maturity, pilot a few new technologies linked to business priorities, and scale up initiatives with proven benefits. They should also not hesitate to shut down those that do not succeed.
For example, a company could launch a pilot project to establish a proof-of-concept in terms of digitising one process in a specific geographic market. Based on the outcome of that pilot, it could then expand the implementation to other functions and markets, or make adjustments based on lessons learned.
Alternatively, it could end the initiative and restart with a different technology or application. All of these outcomes are ‘wins’, in that they get the organisation to take the difficult, early steps to digitise and build up internal expertise.
Many management teams are, naturally, overwhelmed by the sheer range of new technologies, the pace at which they hit the market, and the complexity of applying them across large enterprises. This three-part approach can help firms make sense of the options, and rewire their organisations for better performance today, with the ability to capitalise on new technologies as they emerge tomorrow.
Anil Pandey (pictured) is a partner with Strategy& Middle East, part of the PwC network; Reinhard Geissbauer is a partner with PwC Strategy&; and Jean Salamat is a principal with Strategy& Middle East