Report from the future

The trouble with our industry at the moment is the plethora of conferences and events that go on. The FT reported on Thursday that our industry is 40% less productive than the rest of the economy, is there a connection?

Last week there were, at least, four separate events happening in Europe. I didn’t manage to attend the Future Oil and Gas conference in Aberdeen, but it seems that I may have missed a rather good one. I’ve been asking around and receiving reports on the discussions and topics.

My informal word-count revealed some key themes: Open platforms, leverage of diverse data sets, generating insight (whatever that really means), data silos, collaboration, machine learning and AI.

Where are all the young people?

First the bad news. This conference seemed to have a definite bias towards the fourth industrial revolution and the future of innovative technology – but no-one arrived by skateboard. In fact, my sources indicate there were more suits and ties on display than at a moss-bros Christmas party and Grecian 2000 narrowly avoided being the main sponsor.

Where are all the young people?

When I go to a tech conference in the South East or in Silicon Valley I’m positively jumping out of the way of hover boards, unicycles and tattoo artists. I may appear flippant but I’m not – the great creative and innovative minds of the future seem to be missing from our conferences. If we are going to succeed we need to be able to form teams that embrace diversity and create energy. We need people like this and we need to provide an appealing set of challenges to keep them motivated.

Equinor supports entrepreneurs

Now onto the good stuff. Einar Landre from Equinor (the artist formally known as Statoil) told how they supported small vendors – while being careful to explain that they were not offering blank cheques, he recognised that procurement processes could be slow and risked pushing suppliers to the wall. I heard they claim to be actively promoting ways to engage with innovation and to create disruptive business models where they pay for outcomes rather than for inputs. Separately,  I  picked up on an announcement that Equinor plan to release all the operational data that was gathered on the Volve field to be used to test algorithms and find new ways of working. Well done chaps, I think that’s a very collaborative and welcome move.

Chrysaor integrates a new asset

I also hear that David Edem from Chrysaor gave a lively presentation where he told the gathering about the recent experience of taking over an oil field from another operator. How explained that first problem is to get hold of the data to understand what it is that you’ve actually bought. In the middle of all this their organisation head count grew 20x in a year and, for them, it is clear just how much time and effort had to be invested searching for data. David told us he was keen to address this early in the company’s life and highlighted one case where a simple change in data-handling practice is already producing savings of $1M pa. He said that we should consider carefully the value that is embedded in the data that comes with a platform and treat this as a capital asset.

Ithaca understands the tension between IT and OT

I also heard that Malcolm Brown from Ithaca was keen to share his experience regarding the tension between IT and OT. He brought a key insight that the perception of risk is different – IT believe that the more you leave a system alone the more vulnerable it becomes (because of the evolving security threats and the lack of patching), whereas OT believe the opposite – each time you touch a system it is more likely to break than get better (i.e. don’t fix what ain’t broke).

Of course, both viewpoints are valid and have merit. Reconciling these is going to be important for us all, so it sounds like formal risk-management processes with OT are going to be required to enable safe innovation.

Fail Fast and Learn

Another theme that emerged from the conference was Agile development of systems and processes. This is important, because Silicon valley has proven that Agile methods can increase the rate of value creation. They also establish competitive advantage and lead to unimagined breakthroughs. How can we integrate the “fail – fast & cheap – and learn” methodologies with our industry and still keep everything safe.

Keith Wildridge from Eigen brought this topic into his talk and was keen to share experience engaging in collaborative development with ENI making safety systems and using methods such as SCRUM and SPRINTS.

Event Format

The format for the event – that of discussions and panel sessions – was warmly received by everyone I talked to. They all said they were fed-up of boring people with boring powerpoints standing up and lecturing at an equally bored audience. This was much better.  They were also happy that the representations were not all from Vendors trying to find a way to dress-up a blatent sales pitch as some form of case study. Exploring broad themes in an open environment went down really well – so this conference seemed like a welcome boost and I think it will stand the test of time and become a feature in my diary for 2019.

Conclusion

I’ll leave it to the words of Esa Jokionen from Rolls Royce who apparently summed up the industry approach to AI and Big Data. I’m told he said it was like teenage sex. Everyone thinks everyone else is doing it, everyone wants to say they are doing it – but, truth be told, there is not much of it actually going on, no one knows how to do it properly but everyone’s keen to try.

Image credit: http://www.futureoilgas.com

 

 

The Fourth Musk(eteer)

Introduction

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.

Innovator’s Dilemma

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.

Conclusion

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.

Four Grand Challenges

Comments on Jodrell Bank Speech

Theresa May, British Prime Minister, May 21st 2018, Macclesfield

In yesterday’s post I had high expectations of scooping a major news story, but no. Maybe it’s because I don’t own a television, but I am very disappointed by the lack of coverage of a speech that history may look back as a turning point when we, “as a nation” – to borrow a phrase, shifted our focus from banking and finance back to inventiveness and engineering. Maybe that’s just my hope though.

I’ve listened to radio 4 and searched on the BBC and ITV websites, but all the references to the speech are in relation to Brexit and are all sound bites. They all miss the point entirely.

The speech was full of historical rhetoric about how great we used to be in science and name checked a roll-call of the great and the good. It therefore managed to tick both the jingoistic and nostalgic boxes. This was, however, not a light-weight speech but instead sets out a direction of travel and intent that we should all be aware of, because it has the potential to change our industrial history.

The full speech can be read here https://www.gov.uk/government/speeches/pm-speech-on-science-and-modern-industrial-strategy-21-may-2018

Like with Harold Wilson’s “white heat of revolution” speech where I didn’t comment on his pro-soviet views, I will also not comment on the Brexit views contained within this speech. That is as divisive and full of misinformation as was the capitalist/communist argument in the 1930s to 1960s and a rabbit hole that yesterday’s media went straight down – missing the point entirely.

Here are some of my highlights of the speech. Some of these, as predicted, do echo the structure used by Wilson in 1963, though to be fair, perhaps it was closer to the 1961 speech to congress by JFK [link].

On the scale of change of the 4th Industrial Revolution we now face, referencing of 1945 Britain

Their grand-parents lit their homes with oil lamps and travelled by horse and cart, but they would live to see jet travel and space flight.

Echoing the 1960’s speeches

[…] the world today stands at the threshold of a new technological age as exciting as any in our past. Great changes in how we live, how we work, how we trade will reshape our economy and transform our society in the years ahead. This technical revolution presents huge opportunities for countries with the means to seize them. And Britain is in pole position to do just that […]

[…] But success is not automatic. We are at the forefront of scientific invention because we embrace change and use regulation not to stifle but to stimulate an environment for creativity […]

[…] Scientific research is a noble pursuit and a public good – whether or not it leads directly to a commercial application. But when a discovery does have the potential to create or transform an industrial sector, time and again British entrepreneurs have been the first to capitalise on it[…]

[…] However, the nature of innovation and progress is that new technology inevitably replaces old. And in the twenty first century, some parts of the country that once thrived because of innovation and technology has seen the jobs and opportunities of the past fall away […]

[…] Our challenge as a nation, and my determination as Prime Minister, is not just to lead the world in the 4th Industrial Revolution – but to ensure that every part of our country powers that success. […] Nurturing the talent of tomorrow – through more outstanding schools, world-leading universities and the technical skills that will drive our economy.

On Investment in Science and Technology

£7Billion in new public funding for science, research and innovation […] goal of 2.4% GDP invested by 2027 […] Could translate into £80 billion investment over the next decade.

On Education in new technology

£26K tax-free bursaries for new teachers in priority subjects […] New T-Levels as good as A-Levels […] New Institutes of Technology […] National retraining scheme to help workers of all ages adapt their skills to the jobs of tomorrow.

On other elements of the strategy

Renewing and extending our infrastructure with faster trains, bigger stations, better roads […] Delivering the next generation of mobile and broadband connections […] Right regulation, modern employment standards, effective corporate governance.

At this point in the speech Theressa May laid out what she calls 4 grand challenges. Noting that it’s hard to predict exactly what breakthroughs lie ahead, she set out a Mission for each of the challenges with promises of more to come. So stay awake!

Grand Challenge 1: AI and data

Mission: Use AI and data to save lives.

In short use AI and data to predict diseases that kill people which if detected early are treatable.

Grand Challenge 2: Healthy Ageing

Mission: 5 extra years of healthy living by 2035.

Use technology to keep people happy, healthy and independent in their own homes, change employment responsibilities and innovate new products.

Grand Challenge 3: Future Mobility

Mission: Only zero emission vehicles by 2040

We pioneered trains and jet air travel, so this should be a doddle. A bit light on details though. But get on with it, we invented Formula 1 for heaven’s sake.

Grand Challenge 4: Clean Growth

Mission: Halve energy usage of new buildings by 2040.

Well pretty much what it says on the tin for that one.

These four missions are just the beginning – and in setting further missions across the four grand challenge areas, we will work closely with business and [the private] sector.  In each one of these four missions, scientific and technological innovations have the potential to create jobs, drive economic growth across the country and deliver tangible improvements for everyone in our country.

Conclusion

This is the first use of the term “4th Industrial Revolution” by a British Prime Minister. It shows a recognition that big changes are underway in the structure of society and the way it integrates with the world of work and therefore inevitably in the distribution of wealth and allocation of capital.

The OGTC in Aberdeen must be a happy place today, if there is anything to note for them there will be much more funding for institutions like them and their influence on policy can only increase.

Of the four “Grand Challenges” it seems to me that “AI and Data” will be required for the other three too, so the structure is a bit wrong. The missions however seem like a good concrete way to lay things out – though, to be fair, they are not really up their with JFK’s mission announcement at Rice University in 1962 [link]

At least she didn’t say : We didn’t choose to go to Cheshire because it is easy, we do this and the other things because they are hard. Have you seen the potholes on the M6 or the price of a train ticket to Prestbury?

Though technology may even have reached that far North. I am reliably informed you can now get an Uber in Prestbury. There is – exactly – one. British enterprise knows no bounds.

Industrial strategy revisited

Today, May 21st 2018, the UK Prime Minister, Theresa May is scheduled to give a speech regarding AI and the use of health data. This is the start of the revelation of the UK government’s new industrial strategy. From my vantage point, I see this political response to be part of the Fourth Industrial Revolution. My post was written (and published) before this speech and is a naughty attempt by me to see how well her speech writers know their political history. I have framed this in the terms of the Oil and Gas industry, Mrs. May’s speech will address Health Tech, but maybe some of the broader themes will resonate.

Industrial strategy is a something that the government hasn’t really majored on since the days of Anthony Wedgewood Benn.  They do say that history doesn’t repeat – but it does echo. This post draws on the “White Heat of Technology Revolution” speech given by Harold Wilson in October 1963.

To provide some context, Mr. Wilson’s speech was given during the early days of the 3rd industrial revolution. At this point we were seeing the start of computerisation and automation. Within a few short years we would see: the end of the typing pool; the death of the statistical time-and-motion studies; ledgers would be replaced with spreadsheets; and punch cards with magnetic tape with hard disk drives.

Unlike Mr. Wilson, who basically suggested that we better get on board with computerisation or we are all doomed; it appears that Mrs. May’s speech is going to suggest that AI can help cure cancer. Maybe it’s true that you can catch more wasps with honey than with vinegar. Mr Wilson’s political approach led, eventually, to the “Winter of Discontent” and the inevitable computerisation/automation led to the mass unemployment and the industrial upheaval of the 1970’s. Perhaps there are “interesting times” ahead?

I’ve taken some liberties by extracting parts of the 55 year old speech and reframed them. Perhaps you, too, will hear the echoes of history and see the implication of the change that we now face. For a transcript of the full speech have a look at this link

White Heat of Technology in Oil and Gas

(with apologies to Harold Wilson)

Now, this morning, I present this blog post to the world, the oil industry and the 4th Industrial Revolution, because the strength, the solvency and influence of the oil and gas industry which some still think depends upon nostalgic illusions or upon sub-sea posturing – these things are going to depend in the remainder of this century to a unique extent on the speed with which we come to terms with the world of change.

There is no more dangerous illusion than the comfortable doctrine that the world owes us a living […..] From now on The Oil Industry will have just as much influence on energy supply as we can deserve. We have no accumulated reserves on which to live.

It is, of course, a cliché that we are living in a time of such rapid scientific change that our children are accepting as part of their everyday life things which would have been dismissed as science fiction a few years ago. We are living perhaps in a more rapid revolution than some of us realise. The period from 2018 until the mid 2020’s will embrace a period of technical change particularly in production methods, greater than the whole industrial revolution and period of computerisation that went before.

It is only a few years since we first talked about digitalisation […..] Let us be frank about one thing. It is no good trying to comfort ourselves with the thought that digitalisation need not happen here; that it is going to create so many problems that we should perhaps put our heads in the sand and let it pass us by. Because there is no room for Luddites in our industry. If we try to abstract from the digitalisation age, the only result will be that the Oil Industry will become a stagnant backwater, pitied and condemned by the rest of commerce.

[….]

Because we have to recognize that digitalisation is not just one more process in the history of computerisation, if by computerisation we mean the application of technology to eliminate the need for data gathering and analysis by middle-management. The essence of modern digitalisation is that it replaces hitherto unique human functions of: risk assessment; judgement, decision making in the face of uncertainty; and ultimately action taking. Now digitalisation has reached the point where it commands facilities of memory and of judgement far beyond the capacity of any human being or group of human beings who have ever lived.

[….]

Or listen to the problem in another way. We can now set a machine learning system so that, without the intervention of any human agency, it can produce a new set of algorithms smarter than itself. And when these tools have acquired, as they have now, the faculty of unassisted reproduction, you have reached a point of no return where if man is not going to assert his control over machines, the machines are going to assert their control over man.

[….]

The problem is this. Since technological progress left to the mechanism of private property can lead only to high profits for a few, a high rate of employment for a few and to mass redundancies for the many.

[…]

Now I come to what we must do, and there are four things:

  1. We must produce more digitally trained engineers
  2. Once produced we must be more successful in keeping them in the industry
  3. We must make intelligent use of them
  4. We must organize the oil Industry so that it applies the results of their insights to the efficient production of hydrocarbons

[…..]

Relevant, also, to these problems are our plans for on-demand cyber training and MOOC’s (Massive Online Open Courses). These are designed to provide an opportunity to those who have not been trained in digital methods to do so with all that the internet and mobile technologies can offer.

[…..]

I have talked in other companies to ex oil-and-gas digital-workers who have left the industry. It is not so much a question salary; it is the poor valuation put on their work by our industries; the lack of interest in their work; and the inadequate provision of digital infrastructure and equipment. It is because in many cases in the Oil industry today, promotion of those versed in technological methods and their new ideas for ways-of-working are thwarted by middle management.

One message I hope this conference can send out, not only to those who are wondering whether to leave the industry or not, but to those who have already left is this: we want you to stay here. We want those of you who have left the industry to think about coming back, because the industry is going to need you.

[….]

The oil industry that is going to be forged in the white heat of this revolution will be no place for restrictive practices or for outdated methods on either side of IT or the Business. We shall need a totally new attitude to the problems of educating for changing working practices. If there is one thing where the traditional philosophy of capitalism breaks down it is in the training for digitalization, because quite frankly it does not pay any individual operator, unless it is very altruistic, quixotic or farsighted, to train the digital workers if it knows at the end they will be snapped up by some unscrupulous firm that makes no contribution to the training. That is what economists mean when they talk about the difference between marginal private cost and net social cost.

I’ll leave you to read the original and draw your own conclusions, I don’t agree with all the cut-and-thrust and pro-soviet views expressed but there are echoes from history that we ignore now at our peril.

Image Credit is from MI5. Oh, and if you like a good conspiracy theory have a look at the denials on MI5’s website about the alleged plot to bring down the Wilson government of 1974-76, and – interestingly – that George W Bush was head of the CIA (who knew? He kept that quiet). https://www.mi5.gov.uk/the-wilson-plot

 

 

The new CIO – Lessons from Salesforce.com

I’m seeing interesting parallels in the Oil and Gas sector that I first encountered when I witnessed Salesforce.com start be adopted by large corporates over a decade ago. Let me explain.

What is Salesforce.com

Salesforce.com is a company started to provide a way for small businesses to access customer relationship management (CRM) in a structured way. This helped them to co-ordinate sales activities and record information about customers, conversations that had been had between different people across the selling organisation.

Salesforce.com did this by using web-pages rather than software and thus required no software to be installed, and because the information was held in the centre, it was automatically up to date and shared among the staff. In 1999 this was a revolutionary approach.

Salesforce.com now does a lot more than just sales, and is – justifiably – used as a more general information processing platform for companies. One of my clients even runs their entire global finance function using the platform.

The Salesforce.com transition to corporates

Before Salesforce.com the problem of co-ordinating diverse sales teams and sharing CRM sales information was one that was addressed with (say) Siebel. This required an on-premise server at each sales-hub, an application on a lap-top and then some form of roll-up to a central IT system so HQ could see what was happening.

The role of the CIO was clear – gather together a cross section of users, design some screens that may (or may not) mirror the sales process, have them programmed up, check they worked like you had asked for, make a standard install and then go around the world trying to get systems to talk to each other and brow-beat the sales guys into using the software (which they hated). On top of this “senior buy-in” was required to persuade the guys on the front line to change the way they worked until it fitted in with the standard IT system.

This was the old way. The focus was all about getting the blinking technology to work in the first place. Once it did, if you were lucky, you could then outsource the management of the whole cluster f*** to a call centre that “followed the sun”.

Well it was little wonder that in 1999 the dream of shared CRM was out of the reach of small sales-teams (who would often use an odd little product called ACT!), that big company sales guys hated their IT departments, and everyone hated Oracle.

Once Saleforce.com came along everything changed. The application was not installed but was delivered over the web. Because all the data was hosted in the middle, it was naturally synchronised and could be shared. Because it ran on Salesforce.com’s servers there was nothing for the CIO, IT department and the outsource guys to maintain. It was also very easy to use and quick to customise it to tune it to your business.

Small businesses took to Salesforce immediately. It was so much better than what they had before and, function for function, much cheaper. Costs scaled with the number of users and you didn’t have to buy or maintain all manner of servers and network links. It took a while for the big companies to start to “get” Salesforce because the sales pitch had been around the cost of the solution which was very clear cut for small businesses. For big companies however, the benefits when measured with traditional business-cases and the commercial logic of the procurement department did not seem as clear-cut. Add to this that traditional “IT Departments” weren’t set up to contribute to a conversation that didn’t involve “keeping the lights on” IT – it was quite difficult to generate momentum to start with.

The ten-year pause

I worked with Salesforce.com technology and was in the middle of the transition from a world of small companies and independents to major company roll-outs using the help of big consulting firms. It was about 10 years after the SME’s started to jump on the bandwagon that the corporates started to understand and deal with a compelling business case around CRM.

Around the same time that CRM was making inroads to large companies, new technologies were emerging in various “cloud” guises. This included companies like SAP, Microsoft, Oracle or others. Enterprise on-demand platforms were becoming available. But the business case for adopting them was not clear. That was about a decade ago. Now I’m seeing the big-company adoption in oil and gas starting to address the same types of problem I saw Salesforce.com overcome. Perhaps there are lessons that can be drawn?

Make cloud work in 3 areas

In the last decade, the on-demand technology, infrastructure, bandwidth have all improved dramatically. This has made some of the lazy performance objections invalid. Now the centralisation of the technology in cloud and the provision of on-demand pay-as-you use applications, compute, storage and bandwidth just works, and works better than anything a company could do for themselves. And that applies to almost every area of activity.

The three main driving forces then were: a change in structuring budgets, capturing cost of ownership benefits and understanding where value is created within the system; the enablement of entirely new ways of organising core operations; and the role of the CIO.

What’s happend at Salesforce since I last looked?

I tabled these ideas with a senior strategist at Salesforce.com to see what he’d seen in the decade since I sold my SFDC partner business and, to paraphrase, this is what he said:

Well Gareth, in my world I see that CEO’s are very concerned about the potential from disruption led by start-ups who can establish market share quickly. I see this in many industries and in oil and gas you have innovators such as Lord Browne combining smaller companies and driving innovation. CEOs like this need Agility, Flexibility and Speed to enable their business to react. They have tasked their CIO’s to provide tools that their people can use to innovate. The CIO has to find budget for innovation and the only way to do this is to remove legacy run cost from the existing landscape.

Platform’s like Salesforce also lower the cost of innovation by enabling point and click  / low code prototyping etc. However that innovation must be aimed at retiring legacy systems rather than add to the IT stack (and cost). Here, integration is the key. Meta-data driven API’s mean it’s easier to make changes and flex with the business needs across multiple systems.

I’ve also noticed that, since you left, we encountered a new generation of employees who are used to looking out across the web to find information. They are very surprised by how backward many of the corporate IT systems are, and how isolated information is between functions. CIOs who are deploying on-demand platforms simplify IT run and therefore reduce costs. They also have the opportunity to consolidate applications onto a single platform to ease support / dev teams and create a consistent user experience. This saves money, frees information access and makes technology help rather than hinder.

I’ve seen the role of the CIO change in the last decade. It is now to bring technology ideas and options to the table as a business partner for digital. The CIO needs to be aware of what competitors, the market and other parts of the business are doing. However, there is no-such thing as self-adopting application. It is laziness to assume that changing technology will be enough. Some companies still think that if they create a new system then if people use it then that’s great and if they don’t it’s the fault of IT for not delivering a great experience. There is no time for mistakes and we’re just accelerating the rate of change. We need to get it right first time. This means that the COO must lead the change enabled by an IT project and be accountable for its success and responsible for changing the business processes and management around it. The CIO is there to support the business change, not to foist unwanted technology on an unwilling operation.

image credit: http://www.iacloud.com/

Five Digital Vectors

Frameworks for Digitalisation – Part 1

I’ve been working on frameworks that help me describe concepts around Digitalisation in upstream oil and gas. I plan to publish these in several formats but so far I’ve been too busy to do this to my satisfaction – so I’m going to put them out here for comment and then work them up as packaged tools.

This first framework – five digital vectors – is designed to set the context for the strategic intent of a digitalisation initiative. This is important because senior management had better know why they are embarking on programme of change, what they expect to get from it and where threats to it will come from.

I was recently talking to the CEO of a multinational engineering consultancy based in Norway. To slightly protect his identity, I’ll call him Egil.

Egil:  “Gareth, you know [insert Big 4 consultancy here] was just in my office telling me that digitalisation was going to radically alter my business. They said just look what NetFlix did for the video store. It must be important or they wouldn’t be here. But I’m busy and, frankly, I don’t get it”.

Communicating strategic intent is important. I am as guilty as anybody about trotting out tired lines about how digitalisation will disrupt industries and then helpfully pointing out that Uber has no cars, AirBNB no property and Amazon no shops. This may be intriguing but it’s no longer precisely true (as all three are busy making strategic bets in traditional assets), and it’s of very little help if you’re in Oil and Gas wondering how this applies to your business.

Using this Five Digital Vectors framework provides a way to classify the objectives of an initiative, how innovation in the area may cause competitive shifts and explain where to look in order to measure success. There are Five main vectors for digitalisation. They are:

  1. Pure Digital
  2. Digitally Enhanced Products and Services
  3. Digitally Efficient Operations
  4. Digitally Effective Supply Chain
  5. Digital License to Operate

I’ll explain a little about each of these, and then hopefully you’ll get the idea. If you take each in turn you can look for potential disrupters and initiatives and decouple them. Some of these will be more likely to impact your business than others. At least now you can decide which few to concentrate on first.

Vector 1: Pure Digital

Pure Digital strategies work when a product can be codified as information. Think Music, E-books, Films. Once the physical product is removed massive scale economies accrue to storage and distribution. What is called “long-tail” economics kicks in around inventory and specialisation, customisation and choice. In Oil and Gas, we may see some spare parts digitised, emailed and then 3D printed on-site. This will reduce carrying costs and delays. We may also see pure information products trade more freely (such as production forecasting, planning, sub-surface models, training data sets and educated machine-learning algorithms).

Vector 2: Digitally Enhanced Products and Services

Digitally enhanced strategies arise when the fundamental “product” becomes augmented with information. For instance, Uber generates a fair portion of its demand not only on price, but also because it provides information about where the cars are, when they will arrive, the route they take and the price you will pay. They then ease the transaction by collecting payment and supplying receipts. However, all the digitalisation in the world will be useless without the underlying physical product (in this case, a car to take you home). In upstream oil and gas we may see that a supplier of products such as spare parts, services or even crude oil become a preferred option when they supply accompanying information before their wares arrive and when they keep you informed while they are in service.

Vector 3: Digitally Efficient Operations

In oil and gas this is the area where I am witnessing most digitalisation activity.

Using information within your own business to reduce waste and increase accuracy is hardly a new idea, but digitalisation changes the game. As more information becomes available – because of better connections, more sensors and accumulated history – so it becomes possible to change the way you do things. Prioritisation, scheduling, just-in-time: these concepts work better when you can access more information and use it sensibly. Today’s engineers entering the workplace can probably not remember a world that didn’t have an iPhone and Google (Google is almost 20 years old). So, they are used to being able to think of a question and get an answer quickly. If you can harness this creative real-time problem-solving ability (by making information available) you can improve your operations.

Vector 4: Digitally Effective Supply Chain

Both vertically and horizontally there is potential to add value through more efficient exchange. The digitally efficient operation strategy will reduce the waste and hence cost within a single company (see Porter on what it will do for price). Supply chain strategies focus on removing friction between companies so inter-company waste will also reduce. This is, in many ways, a move from Digitally Efficient Operations to Digitally Efficient Industry. It is about expanding the focus from the individual company to the collection of companies.

For this to work requires standards, data compatibility and platforms where buyers and sellers can transact. Some suppliers (think about a stationery company) will supply various industries – say automotive and oil and gas. So eventually some standards will need to be cross industry, whereas others (say for drilling services) won’t be.  Though the benefits can be large, there are two main problems: co-ordination of participants; and allocation of cost and benefit.

Vector 5: Digital License to Operate

This is an interesting insight that came to me when I was discussing the apocryphal case of a town inviting bids from contractors to build a pipeline through it. One bidder offered to expose in real time the contents of the pipe, the corrosion status, inspection procedures and compliance, the leaks and seeps and other such. The other company claimed it was confidential. Guess who got the permission to build.

Whether the information was confidential or whether the quality of it and how to access it was suspect, I don’t know. But we see similar exposure of operational data for services such as trains and busses through simple APIs. This data is then “mashed up” by active citizens for public good to help people plan journeys or avoid breakdowns.

In the future, perhaps it will be a requirement of regulators that operational, safety and environmental data is made available to the public in real-time, if not – then you won’t be allowed to operate your field. Once that data’s out there you can expect to be held to account for your actions. Welcome to CSR in Industry 4.0.

Summary

The five vectors described here help to provide a primary direction for an initiative. For maximum impact, like all good vector mathematics, the magnitude of value delivered will increase as the direction of the vectors align. This tool helps to focus the mind on the primary vector and provides insights to the effect on the others to enable informed choices to be made.

As always, email me direct or leave comments here and I’ll do my best to respond.

Image credit http://www.kimonmatara.com/vector_ops/

 

Interview with Patrick von Pattay

I was introduced to Patrick [Link] by our mutual friend Short Allerton [Link]. We both worked with Short in Schlumberger days, but our paths had not crossed until recently. Patrick is an exciting individual who has worked on very interesting projects pushing the boundaries of future oil and gas practice in Upstream. We got on well and he shares many of my views on digitalization, and – importantly – our opinions differ about how things may develop in some areas. It was a genuine pleasure to speak with him and he has agreed that I may publish this interview on the blog.

GD: Good Morning Patrick, thank you for agreeing to talk to me about Industry 4.0. It sounds like you are very interested in the topic.

PVP: As you might have recognized I am very passionate about the idea of a disruptive change in the oil and gas industry.  Currently I am looking into the strategic implications of digital revolution that is surrounding us and what is likely to be a time of disruption and step-changes in productivity.

GD: I agree with you Patrick digital technologies will make a big difference in upstream oil and gas, I expect to see this most pronounced in operations of existing and new plant. In my view, some fundamentals won’t experience much change – such as how resource licenses are issued by countries and used as security in the capital markets.

PVP: Just because we have not yet identified the potential disruption does not mean to me that there cannot be any.  It just means  that we haven’t thought hard enough. If it were an obvious change then it wouldn’t be so disruptive as we’d all have the ability to respond. A disruptive completive threat, by its very nature, is likely to come from left field.

GD: I’m not convinced, but interested to hear what you think the changes will be in operations?

PVP:  Leaving aside access to resources, I think there will be three main effects of the digital revolution in upstream:

Increase in efficiency:

Automatisation will be key here and I expect that activities will include predictive maintenance, artificial intelligence based auto modeling, augmented reality supported operations, automated manufacturing, Internet of things, etc.

Increasing effectiveness.

This will result mostly from faster and smarter decisions. Advanced, more complex, more integrated and holistic modeling will enable us to make more educated choices.

Improved uncertainty / risk management.

The advanced and integrated modeling will enable us to model (and therefore manage) uncertainties all the way from the reservoir to the marketing of finished products and the trading of field percentages.

GD: Yes, I agree with you on those three for sure, though it’s a bit mother-hood-and-apple pie. That’s what we’ve always tried to do, and gradually we’ve been improving there over the years. What’s going to change?

PVP: Well of course we’ve been doing that! But, things are about to accelerate and we’ll see enablers for step changes – super and cloud computing is key to holistic asset modelling – but, beyond that especially in the way we contract and co-ordinate the supply chain I expect great changes.

GD: What trends are you seeing there?

PVP: Services of all kind are becoming a commodity. Initially, this is focusing only on basic oilfield services such as cementing.  I expect that this will lead to more choice for me as an operator.

Maybe I will not buy such services through classic service contract models any more, but through a web-based and horizontally integrated retail platform. This will increase my flexibility, control and drive down costs. Perhaps drill bits will become a line-item on Alibaba? And maybe this is the domain where we will see most disruptions in the coming years.

GD: I see how that can work. There have been automated purchasing databases before, mainly for supplier pre-qualification and compliance checking. Services like the Achilles system, but they’ve been directed towards procurement departments and not putting the power of supply-chain optimization directly with the end-user of products and services.

PVP: Yes, as time progresses and digitalization evolves, commoditisation will include more and more complex services. Already the service companies and EPCIC contractors are integrating their services and offering me solutions.

Combining this trend with digital technologies could make even the development of a complete oil field a commodity one day (as much as building an airport would be a commodity by then).

GD: How do you see this changing the industry for project owner operators?

PVP: We must expect new players to enter the market. To thrive in this situation means we need to find new differentiators, perhaps even re-invent our business model. This will mean perhaps developing even more complex projects and integrating services/solutions along the horizontal and vertical value chain.

GD: That’s very interesting. What I think you are saying is that the low-end easy returns from deploying capital to safe projects will be competed down to the cost of capital, so you you’ll need to do more difficult things where there is less competition. Can you expand on that a little, how can you use digitalization to achieve that?

PVP: Well of course, there’s the nub of the issue. I can’t tell you everything I’m working on of course, but let me give you three areas where I think we are likely to see disruption: The Value of Data, the use of Cloud Computing and What I call “Buying a Result”.

The value of data

Artificial intelligence is a key technology in digitalization. It will allow us to assist humans in many places and to achieve results significantly quicker / with higher accuracy. In any case the key will be to train the artificial intelligence based on distinct high-quality data sets. Considering such data sets as training material makes them an asset. Trading such data against trained models will be a part of the new business world. Like Google is the best search engine because of its accumulated experience, so it will be with oil fields. Once this is cracked, experience may result in enduring competitive advantages which can be monetized by turning data into decisions in minimum time.

Cloud computing

The cloud will be the only place to store and process data in the future.  It is the most secure and cost-effective way.  A whole new landscape of solution providers will arise from this.  The classic service and software providers are establishing their cloud solutions today.

The operators I talk to are concerned about locking up with one of them and being chained to their choice forever. Their data may become trapped. This is going to drive standardisation and open platforms.  These will allow plug and play of any software in the cloud.  The availability of such a platform and the guarantee of the provider to support the integration of any service / software will provide small solution providers with a new platform to offer their products and reduce the market entry hurdle for them greatly.  We can imagine this a bit like the different APP stores.

Buying a result

Today we still buy compressors and then maintain them. In aviation, some airlines buy only accident-free-human-miles-transported from an airplane manufacturer. They focus on planning routes, marketing seats and ensuring client loyalty.  Similar things may happen in our industry. Augmented reality allowing to scale the know-how of a single expert, Internet of things, big data analytics, predictive maintenance, etc. will allow various solution providers to offer services to us like the way airplane manufactures do today.  The E&P companies will transform into managing and providing more complex solutions and business models. This will include more and more gain share models.

GD: You do paint an interesting view. In your scenario data and machines look like they will take over. That’s bad news for any young engineers surely. Why on earth would you need any people? Are operators going to be run by hedge funds and lawyers?

PVP: Some people think that many oil companies already are! But, seriously, I believe customer focus, personal interaction, social competencies, and creativity will become more valuable. As more and more complex tasks are fulfilled by machines the role of the human will shift towards creativity and social interaction.  I am convinced we will be very busy thinking about things that we do not even imagine today as we are busy with the groundwork.  It will be great fun!

Look, we know that even after all the money spent on, and focus applied, creating an Amazon a web page, it is still not the key to providing the best possible service. It’s efficient for somethings, but sterile and not very interesting for others. Even Amazon is opening physical stores and Apple has the most valuable retail operation in the world. Human contact and empathy is still important.

The key will be to hook up with the client immediately and to ensure that he/she can’t live without your service ever again. The client has choices, so this must be done through excellence not through lock-in. In the domain of super-mega projects this might simply boil down to the ease of doing business with you.

GD: Thank you for your thoughts on this, it’s very insightful. Where do you think, we go from here?

PVP: Reflecting on our conversation, I might even agree that the oil & gas industry will not change in the fundamentals of exploration – development – production – abandonment.  But the landscape of players will shift due to digitalisation and this might be the disruptive change for us all.

GD: Thank you, and good luck. Will you please come back and tell me and my readers how you get on?

PVP: Sure, I’ll keep in touch, and I’d I love to have feedback on my thoughts