Amazon reinvented how we bought books. In the process they re-invented the way we enable people to find and order almost any type of goods. Once ordered, the company arranges to have to have our orders despatched and delivered. Amazon seems to have become an unstoppable force in the world of retail – laying waste to high-streets, department stores and shopping malls along the way.
I see something similar beginning to happen at Tesla. Elon musk has moved on from innovative products such as the electric car and is now on the cusp of reinventing manufacturing. Few people seems to have noticed how general his approach can be and how it can be applied to making just about anything, and making it anywhere.
If you haven’t read “The innovators’ Dilemma” by Clay Christiansen [LINK] it may be time to do so, or if you have brush up on the contents again. This book was first published 1997, as the world was going internet and computer crazy. It has stood the test of time.
The basic premise of the book is that industry incumbents tend to innovate by making their products better. All their customer focussed research and development is structured to avoid making products that are demonstrably worse than what they have in almost every way. But upstarts can and often do launch products like that to serve market segments uninteresting to the incumbent.
But innovation, it turns out, is dynamic and pretty soon the upstart is learning to get better to the point that their offering becomes “good enough” for a large slice of the market served by main suppliers. The most demanding customers will still be pushing for extra features from the incumbent but this becomes increasingly difficult to achieve and scale economies fade (as the mass-market defects). This leads to the demise of the once dominant generation and the rise of the innovator.
The examples that Clay based most of his early published research on where the manufacturers of disk drives in Silicon Valley. But he drew the parallels in other industries. The book considered end-product (the disk drive), whereas now I am seeing the same market dynamics emerge in processes and services. Where the first steps of the new methods are not quite as good as the traditional, but the direction of travel means that the inevitable result will be an unstoppable revolution in the way things are done and the way things are made.
Amazon warehouse success and Tesla’s manufacturing innovation
Earlier I wrote about the innovation that was happening in the Ocado warehouse. [LINK] Amazon has quite a lot to say about efficient warehousing but (I don’t think) are licensing their technology to others. The innovation that has happened here has digitalised the warehouses and made them more efficient.
Elon Musk is doing this for manufacturing. What I find interesting about the approach to manufacturing in the Giga Factory [LINK] [LINK] is that it’s fundamentally different approach than updating a car manufacturing plant to become digital. It’s the reverse. Let me explain.
Amazon didn’t apply digitalisation of retail to book buying, they applied book buying to a digital retail and supply chain – once perfected it was instantly ready to serve across categories. Tesla is doing the same in manufacturing. Once you’ve learned to manufacture in an automated way – it’s a small step from cars to any other type of product.
A good place to start
Books were a good place for Amazon as it was a very inefficient process and bad for the customer. It turns out that car manufacturing is also a great product to choose to apply to digital manufacturing because there is demonstrable market for the finished goods. They are poorly served by the current process and the incumbents are being held back by two big forces – the internal combustion value-chain, and the clogged thinking born of mass employment and model for command-and-control distribution of labour and “industrial man”. See “My Years at General Motors” Alfred P. Sloan [Link] for insights on what the world of manufacturing has been striving to emulate since the 2nd industrial revolution started.
How does this apply to oil and gas?
There are two reasons why this is relevant to Oil and Gas.
- firstly we are organised very much along the lines of division of labour and command and control described by Sloan. If this model is now under threat from people like Musk then we can assume that world of work as we know it in our industry will also change;
- secondly as Patrick Von Pattay said in my interview with him [Link], perhaps the threat is not going to come from an incumbent applying digitalisation to make their existing oil and gas operations better, but perhaps it will come from someone who has learned to be an efficient operator of facilities who is now going to include oil and gas to their process. Like Amazon starting to sell electronics as well as books.
For the next 25 years, I suggest closely following the advances in automated manufacturing which is happening in Nevada right now, and imagine how such changes in working practice can affect our industry. Because they will.