Digital transformation (DX) initiatives lie at the heart of the corporate strategy of most oil and gas (O&G) companies. DX has become an integral part of companies’ enterprise strategy. In my previous blog — European Oil and Gas Companies Reinventing IT Strategies to Drive Digital Innovation and Build Resilient Business — I discussed the emerging trend of O&G companies appointing dedicated chief digital officers (CDOs) or DX executive board members.
DX has been on the radar of O&G executives for decades, but only really took center stage in the recent past, probably going back five years. Anyone who follows the O&G industry knows that digital technologies have been an integral part of making the industry players so successful in their critical exploration and production (E&P) activities. Every part of core business activity — seismic data acquisition, seismic processing, data interpretation reservoir characterization and modeling — has been reaping the benefit of respective software solutions.Meanwhile the digital tech firms have relentlessly worked and innovated, developing and customizing their products and services for hundreds of new use cases for the O&G industry. Some of them are unique and radical, while many are the result of intelligent incremental innovations. Thanks to IT and digital solutions, companies have developed the capacity to offer large-scale industrial digitalization solutions tailored to O&G firms. Now when we ask global oil executives about their views on DX initiatives, it is no surprise that they all say DX is their highest strategic priority and their organization is going through DX.
But there is still a question about the extent of their DX plans and how they are implementing it. The majority of petroleum company CEOs have reportedly been finding it tough to strategize clear and effective DX road maps. Among the various challenges that keep O&G players from realizing their digital success, there are two main challenges for both worldwide and European O&G players — “setting up the right KPIs to measure digital success” and “developing digital capabilities and skills.” (For more detail, please refer to the IDC Energy Insights C-suite DX executive sentiment survey document mentioned at the end of this blog. The document also highlights O&G companies’ strategies to fund their DX projects and the percentage of budget they are planning to keep aside for DX.)
Once the DX budget allocation is done, it’s important to see how it is distributed across the industry value chain. At IDC Energy Insights, with respect to DX we have categorized the whole O&G industry into four major digital themes that have the potential to attract DX budget and massively improve existing OT — connected assets, digital refining, digital upstream, and next-gen safety.
What is interesting here is that all four areas attract nearly equal DX investment worldwide (around a quarter each). The preference in terms of DX budget allocation does make sense, but are O&G companies prepared to roll out their on-ground plans? Are they digitally capable? I sincerely doubt it. One can see that there is a majority of firms out there, excluding the handful of O&G supermajors, that still do not have an above-average industry-standard modern data management infrastructure, which is a fundamental requirement for an enterprisewide DX program. The bulk of data generated in such companies is not put to good use, and they only utilize a fraction of selective datasets to make business decisions. In fact, currently 63% of O&G players (including 69% in Europe) are relentlessly working on data management services and infrastructure as a part of their efforts to boost digital capabilities (according to IDC’s Oil and Gas DX Executive Sentiment Survey, 2018).
Once you turn your focus to building up your capability to utilize the majority of data, you’ve got to consider the security aspect. In fact, “data and system security” was ranked highest by both worldwide and European O&G respondents when they were asked about the major IT area of investment for DX. Many DX components are intertwined and if you go for one you will have to take into account the others, so this digital capability isn’t limited to data management and security. There are multiple facets of DX strategies to mull over, including the decision to migrate from datacenter to cloud and then, as a multinational O&G firm, choosing the right approach when evaluating options among PaaS, SaaS, and IaaS. Each has its pros and cons. This was just one example, and the story is the same for advanced analytics, mobility, and others. More details about this are available in the IDC Energy Insights sentiment survey document.
Finally, I would also like to shed light on one other thing that is paramount for O&G firms to help them understand their DX mindset. Do they see DX as the best strategy to transform their old-fashioned capital-intensive and time-consuming ongoing OT, or has DX merely turned out to be a means to keep up with competition from their peers? In my next blog I will maybe elaborate on this and look at how this is relevant for O&G firms to achieve long-term success.