How are you going to innovate?

This year everyone appears to be talking about innovation. Many think it’s being driven in response to the pandemic. If that were so, all we would need to do is wait until the vaccine is delivered and we can forget about it and go back to the way it was. Almost no-one believes this to be true.

The commercial world is evolving, and the end state is not yet known. This means traditional budgeting, planning, efficiency drives and cost reduction will not be enough for success. Organisations must accelerate their innovation agenda – this is not about inventing something new; it’s about taking what you know, reconfiguring it to be relevant and continuing to adapt and evolve.

In the previous three posts I set out some of my thinking about the fourth industrial revolution because I think this model serves well to explain why we are experiencing change. As part of your innovation thinking you may want to consider seven fundamental factors that underpin the revolution. They may not have an immediate impact on today’s business but as Wayne Gretski almost said – it’s best to skate to where the puck is going, rather than where it is now.

It is hard to untangle these factors because they influence each other and form self-re-enforcing feedback loops (which accelerates change). I find it useful to use this when considering issues and deciding where to focus, I hope you do too.

1. information creation and connectivity

The ability to create, share and access information has implications across social, political, and industrial spheres. Whether as flash-mob revolutions, exposure of tax fraud, mob-trolling of celebrities or remote monitoring of industrial plant and machinery.

​Transparent information undermines authority by revealing the inconsistencies, lies and hypocrisy required to govern. Anonymous transmission of ideas on social media leads not only to emboldened action but also to misinformation and on-line bullying. Information is conflicting and unreliable and knowledge and certainly is displaced by opinion. The ability to sift and evaluate data and then apply rational analysis is not evenly distributed among populations.

​The cost and availability of creation, capture, and transmission equipment has reduced nearly to zero. It is ubiquitous. The creative idea, installation of capture equipment and the editing of results is rare and not free.  One cannot go back and measure the past, so value may be found in stored experience. If you can curate information and control its presentation, then there is power to influence perception.

​Commercial innovation is likely to arise from creative firsts, unique archives, collection networks, influencing curation, and low-cost data organisation, error-correction, and editing.

2. understanding and acting upon information

Advances in computing power have led to new ways to analyse information, methods to learn and infer meaning and procedures to decide how to act. This leads to automation – unattended service, purchase reccomendations, warehouse picking and self-driving vehicles.

​Too much data causes problems with human-led processing such as overload, decision biases and selective world-models. We have evolved to make binary conclusions “being decisive” and “acting with confidence” are perceived as star qualities. Leading based on flexible decisions resting on the probability afforded by analysing emerging information is uncommon. Motivating others to make swift progress in the face of uncertainty will require a new set of leadership skills.

​Commercial innovation is likely to arise from increased quality of service accurately targeted towards needs, as well as reduced cost of provision. Companies that can harness learn to direct activity and make progress under conditions of uncertainty will also benefit.

3. additive manufacture

This is not just 3D printing. Many things are traditionally created by removing material using techniques like cutting, drilling, thinning, and shaping. This wastes material, energy, and time. The materials we use – cement, steel, rubber, plastics are chosen because they lend themselves to these processes.

Additive manufacture will change the materials we pick, it will reduce waste in production and change the shapes we create and the material performance we obtain. It will not only impact factories but also it will change extraction industries and trade routes. It will be possible to email design files and create what’s needed on site without the need to ship raw materials, sub-assembled parts or finished goods.

We are seeing the rise of extrusions and laser-melted metal powders and will shortly embark on assembly at the molecular level. This will mean the same forces that change building materials will impact other wasteful processes including agriculture, slaughtering, drug formulation, paper making and paint manufacture. We can expect to also see different flow-processes with lower temperatures and pressures, lab-grown meat, structured drug design and smaller-batch runs. Additive manufacture principles will impact a diverse range of industries including specialist machine makers, house-hold construction, manufacturing, farming, and medicine.

Commercial innovation is likely to come from creative designs, disintermediating supply chains and creation of innovative not-possible-before shapes and material-performance. There will be insights for applying this technology to industries not considered before.

4. planet maintenance, collective responsibility

Some call this activism or environmentalism, but whatever you call it there are growing movements encouraging (and forcing) vested interests to consider the impact they have on the wider world. This encompasses the materials consumed, the energy used, and the waste products created.

​Fuelled by information and analysis governments have concluded that there is a climate emergency which calls for rapid decarbonisation. This is leading to energy transition, smart-grids and electric drive trains on the one hand, and examination of the energy intensity of industry and ways of living on the other. It has also given rise to the notion that resources on earth are finite which leads to the circular economy (where goods are recycled into new goods) on one hand, and the drive for mining of materials from asteroids and the seabed on the other.

​Commercial innovation is likely to occur around opportunities afforded by legislation – such as carbon pricing, outlawing of practices as well as the inclusion of sustainable methods and transparency of operation. Smart ways to redirect and reuse energy will become valuable.

5. organisation of labour

We now have remote working and video conferencing; people don’t need to go to the office. People don’t need to be in the same town or the same country.  The COVID crisis of 2020 saw mass adoption and made it normal to use.

On-line retail, automation, self-driving cars, and additive manufacturing will reduce demand for labour in many sectors and, due to our global supply chains and clustering of industries, this is likely to create geographic areas where traditional work will become scarce.

The gig economy is at one end of a spectrum of employment that runs from employee, through contractor, project team into gig work. The quantum of work purchased is becoming smaller and pay is more related to outcome rather than time spent on a task. Bonds and exclusive service to one employer is becoming less common.

​Commercial innovation is likely to encompass ways to facilitate remote interactions, telepresence, and ways to build trust (both emotional and technical). Ways in which goods and people are transported will change leading to opportunities in non-traditional geographies and innovations are possible in the way labour is accessed, motivated, managed and rewarded.

6. culture, art, craft and beauty

The 4th industrial revolution moves us more towards a world where less human labour is needed to produce and distribute the goods, services, and energy we need. Other factors will come to the fore in determining what is more “valuable”.

​Where we are used to optimise for low-cost production, we will increasingly favour products, services and experiences that appeal on an emotional level. Emotions will become more important. This is occurring already via inclusion policies, social movements, and campaigns for various forms of justice. We can see on-line culture forming value through influencers and followers whose product is purely an experience and a connection between people with similar perceived values.

​How one spends time will become more important. Dedicating large amounts of time to an employer will seem less likely to determine level of “success”. This will lead people to choose to do more things that they like – leading to more artisan production.

​Commercial innovation may occur in the labour market by enabling people to find their vocation and navigating the changed expectations required to transition career thinking to match the 4th industrial age. The types of products and services sold, and the labour conditions required for workers will increasingly require taking account of design, beauty and evoke emotions, resonate with the values of buyers and be fun.

7. politics of wealth and power

This is likely to be the slowest area of the 4th Industrial revolution to mature. But it will be the most profound and biggest determinant of outcome. While it is tempting to ignore this because it does not lend itself to traditional commercial analysis, it is likely to prove one of the biggest source of disruption and should not be left unattended.

Changes in this factor are likely to occur in (possibly hotly debated) jumps because this deals with fundamental and, for many, unimaginable changes to basic principles of societal organisation. If labour is no longer in short supply this could lead to what used to be called mass unemployment.

I believe that we are less likely to tolerate wide-spread poverty such as that experienced when people moved from the land into the cities during the first industrial revolution. Perhaps we will find a way to allocate resources to people other than by labour, while still maintaining civil and ordered society. What was once called welfare may become a universal basic income.

Accepted definitions of wealth may change to include more than money. Because time is an immutable constraint, this may become a currency. How it’s spent may differentiate between rich and poor. Manners, deportment, compassion and popularity may be qualities that people will support to determine unequal reward for others. Honour and shame may become fashionalbe once more. In some socieites this may instead become enforced compliance. Human groups naturally form hierarchies. When traditional methods of determining who has more worth changes then so will our definition of who is more worthy. Some people want to be “top-dog” and will use every method to be so (or remain so) – not only by pulling themselves up, but also by pushing others down.

As information asymetry combines with confirmation bias, we are likely to see politics become more fractional. Groupings will emerge like sides on a battlefield. They may be wealthy industrialists with their capital and bankers, career politicians with their nationalistic tendencies, intellectually enlightened middle classes, disenfranchised and once-proud working classes and individuals who want to be made to feel special and better than their peers. These interests will come with different ideas about what to optimise for success and how to go about doing it.

Different factions with competing ideas, their votes, their followers, and their financial means will be pitted against each other. They will use new technologies, historic resources, traditional oratory, and brute force. They will use the structures and institutions of society – as well as whatever form of subterfuge is available – to further their conflicting objectives. Human history suggests that without acceptable compromise frustration will lead to anger, irrationality and even violence.

Conclusion

Commercial innovation here may be hard to achieve but being alert to the political and social dimensions will provide early warnings and adaptation may keep you on the right side of history.

For more information please see:

4th Industrial Revolution Implications parts 1-3

IR4 Part 1: Information and Communications LINK

IR Part 2: Work, Trade, Taxes and Government LINK

IR4 Part 3: Energy Transition LINK

Earlier thinking around the subject

Innovation and Productivity with the 4th Industrial Revolution LINK

Digital Disrtuption Landscape for Upstream Oil and Gas LINK

Get out of the way of digital Crhis LINK

4IR Implications Part 1: information and communication

Introduction

I am more concerned to know if I am on the right road than “being right” – I believe that we are at the starting phase of the fourth industrial revolution (4IR). There are several technology trends leading to breakthroughs in productivity across many industries. I am only going to touch on what these effects are – as information on this is now widespread, easily found and I don’t want to repeat myself. But if these are true, then perhaps there are far-reaching consequences and profound questions that should be considered. It is in these areas where I feel the greatest risks and greatest potential for innovation will be found.

2020 gave me both time to reflect on this and an insight the types of situations that might arise. Rather than write a large piece covering every aspect, I’ll write this as a series, each post looking at aspects in isolation. This post deals with information and communication.

How this will improve efficiency

There are vast amounts of information created, it’s easily stored and transported, and – with increased compute power and new algorithms – it can be quickly analysed. This is leading to opportunities for increased productivity. This is only achieved if we know what information to collect, can understand what it means and – most importantly – change how we act based on it.

I am finding examples in the fields of computer vision, satellite imagery and remote sensing. Technologies such as LIDAR, LoRAN, Hadoop, ESP32 are commonplace in industrial settings meaning that the cost of measurement, distribution and storage of information has fallen dramatically.

We are connected by mobile devices, we hold multi-way video calls with colleagues, customers, and suppliers. We can track packages from factory gate to end user, we can store every aspect of manufacture and store it directly on an object.

There is little excuse for not knowing exactly what is going on, understanding the consequences of that, and acting to make things better.

The unintended consequences

As an industrialist it is tempting to see all these advances in information and communication solely in terms of their positive impact on the workplace. It is tempting, and wrong, to think the world around the workplace and those working there will remain static. They will not. The world will change because the general population have access to these tools and they will impact your workforce in ways that you won’t control.

Information influences behaviour

Information has become more influential as it has become quickly available at scale. Modes of transmission have rapidly evolved; society is moving further away from long formal written communication towards short media-rich content bursts. On the one hand this is leading to rich emotion-laden communication between previously unconnected and perhaps illiterate people. On the other hand, it is reducing consideration of more complex issues and drowns out nuanced voices expressed through traditional means. It is also becoming harder to remember and prove what information led to which decisions and why.

https://www.researchgate.net/publication/313860181_Internet_Memes_-_A_New_Literacy

http://bestemnetwork.com/wp-content/uploads/2021/01/f8edc-miltner-internetmemes.pdf

Can you trust what you think you know?

There are an increasing number of artificially created video characters (referred to as deep fakes) which can either be entirely fictional people or manipulated images of prominent people made to look like they are endorsing a false message. Backgrounds and images can be created that are almost indistinguishable by humans. This means that we could soon see (or may already have seen) reports from wars and atrocities that never happened. Perhaps, even if you see it with your own eyes, you will no longer be able to believe it. Persuading emotionally charged people (who may not understand how a fake video image can be created) to change their minds might be very hard.

Have you heard of Q? He’s a fictional character and the basis of QAnon, what has become a far-right movement in the USA: https://www.nbcnews.com/tech/tech-news/how-three-conspiracy-theorists-took-q-sparked-qanon-n900531

MIT has a great primer on deep fakes here: https://www.technologyreview.com/2020/12/24/1015380/best-ai-deepfakes-of-2020/

This site creates a unique image of someone that does not exist each time you load the page. These people are totally fictious. https://thispersondoesnotexist.com/

This has been predicted for a while – Have a read of Victor Pelevin’s Babylon published in 1999 – (or watch the film) [….]Tatarsky is invited to join an all-powerful PR firm run by a cynically ruthless advertising genius, Leonid Azadovsky, who invites Tatarsky to participate in a secret process of rigged elections and false political advertising.[…]

Are you seeing the other side?

We are exposed to so much available information that a person can easily succumb to their own biases and seek out only items that reinforce their snap judgements. This has led to fractionating, polarised camps who no longer share a “Mutual Reality”. They have great difficulty in engaging in reasoned debate as each side has fundamentally different frames of reference. These frames induce them to interpret observations in very divergent and (to the other side) incomprehensible ways.

http://changingminds.org/explanations/models/frame_of_reference.htm

Will information cause wars?

It is possible that our future wars will be between ideologies and triggered by insults, or that – in the face of popular internal revolt – governments will launch “defensive” hostilities to stop the influence of their populations by alien states. Propaganda may cease to be a tool to assist armed conflict and instead become the sole purpose of hostilities. Perhaps the lines of conflict will not be those of countries but between ideologies, vested interests, and traditional institutions. Maybe we should watch the Hong Kong situation more closely?

https://owlcation.com/social-sciences/The-Main-Reasons-For-War

Is there a case for censorship?

In 1984 I received a UK transmitting license for a radio set. At that time (and in the decades before) the license permitted someone to use a station for experimental purposes and research into radio propagation. Of course, I also (and mostly) used mine to chat to my other geeky teenage friends. The point of bringing this up is because the government realised I was to be granted the power to communicate across the world. I, therefore, had the potential to find information and broadcast local conditions to others. Not only was an examination required to obtain a license, once acquired it was very clear about what topics I was allowed and not allowed to discuss. I had to identify myself using a centrally registered callsign. Violation of the rules would mean revocation of the privileges. Now anybody, with no training, no examination can say pretty much anything to anybody (and everybody) without restriction. They can say it anonymously. This is new in human history and the results, so far, are mixed.

https://www.theguardian.com/commentisfree/2017/aug/21/the-guardian-view-on-censoring-the-internet-necessary-but-not-easy

What is the role of cyber security?

Cyber security is currently focused on preventing people from seeing information you want kept secret or preventing people denying you access to your own files. In the future security may be required to prevent others from injecting false information into systems and influencing your or your staff to behave in the wrong way. That could be by planting rumours, or direct manipulation of operating data, financial reporting, or automated firing of workers.

https://en.wikipedia.org/wiki/PLA_Unit_61398

https://www.sciencedirect.com/topics/computer-science/data-injection-attack

https://www.wired.com/story/russian-hacking-teams-infrastructure/

Conculsion

Business has been slowly taking advantage of information and sensor data and transmitting it around the world. Remote working has been trialled and tentatively used when there were no alternatives. Now this technology is ubiquotous and in use by the “average Joe”. This is leading to new ways to communicate, new ways to manipulate the unwary and new expecations from workers.

Innovation will be the key activity for all companies that want to operate in this new environment. Setting up systems of work that promote the new and commercialising it quickly will be imperative.

I believe that it will be a responsibility for leaders – including business , political, spirtual and community – to use the tools available to them to continue to promote ordered society. Some of our most important human developments around organisation of effort, support for each other, goals for shared endeavours and, jointly agreeing what we fundamentally value, will depend on it.

2020 closing thoughts

Well what a year it’s been. I have been spending a lot of time at home this year and the Bestem Network members have not been able to meet for most of this year which is unfortunate. Interestingly I dug out last year’s notes from the dinner (link) and they tell an interesting tale of how we were thinking then.

This year the network came together virtually to share experiences at the start of the pandemic. We kept up this approach and, with network members at AGM Transitions, we turned this into a book (link). It’s been a year of finding new ways to do business.

Did you build resilience?

Those that listened to Capt. Mike Paterson’s talk at the network dinner in 2015 (before Trump and before Brexit) might recall his sage advice:

Change is happening faster than ever fueled by: high-speed communications; close trade links; and cross-border
investment. Rising inequality, climate change and cyber-development combine with politically/ideologically motivated ‘real’ and ‘Maskirovka’ type conflict. With increased change comes increased risk and, whilst we are accomplished at compiling risk registers, scenario planning better helps us to understand and to respond quickly.


Business leaders must ask: How do we build resilience? How to make risk based decisions to drive behaviours?

Read the whole report here

Business has been changing for a while

About seven years ago I started to sense that traditional business approaches weren’t working as they used to. I started to investigate what might be going on and uncovered work by people far smarter than me. They were starting to conclude that society was heading for a 4th Industrial revolution. I wrote about some of my influences in this post which I published almost 5 years ago. https://bestemnetwork.com/2016/03/29/innovation-and-productivity-with-4th-industrial-revolution/

At that time, I was a Non-Exec director on the board of an oil and gas technology company. I guided the excutives to pivot part of that company and pursue oilfield digitalisation. This included a mail-out to COO’s of oil companies setting out the case for digitalisation by assembling the works of leading writers. I urged them to make the case that it was too important to be something led by IT. This was now to become the backbone of an operational transformation.

I recall there was division among the owners of this company, I was almost laughed out of the room by one who, despite the evidence, was unable to acknowledge that the world would change and was convinced there was no such thing as digitalisation in the oil field. His view was that IT should remain in charge of anything computers and leave operations to operations people. It was not an isolated view in the industry.

My post on digital disruption of the oil and gas industry (link) from three years ago was this year’s most-read post on the blog, with hundreds of visitors each week. When I published it, it seemed no-one was interested.

The case for flexible innovation

After covid, perhaps the case has been made for investing in flexibility and contingency (as advocated by Capt. Paterson) even if the business case is based on a balance of probabilities and not a black-and-white P&L. I urge you not to be so stuck in the present and the current “rules of the game” that you believe the future will not be radically different. It may.

Perhaps look at the wise words of Patrick von Pattay from 2017. (Pattrick has been the hero of the year for his company.)

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 threat, by its very nature, is likely to come from left field.

https://bestemnetwork.com/2017/11/27/interview-with-patrick-von-pattay/

To me it’s clear we are heading along a 4th Industrial Revolution path. It is a transition and, as with all transitions, it will take longer to get where we are going than we expect, but we will go a lot further than we can imagine.

What will happen in 2021?

COVID-19. First, we scrambled to keep going, waiting for things to return to normal. Then we started to talk about the New Normal, and The Great Reset. People talk about this year accelerating change. I don’t think that captures it. It makes it sound like we’ve just gone a bit faster along a normal path. We’ve seen step changes, fleeting moments of opportunity grabbed, and old models fail.

I am putting together a post for the new year highlighting some of the trends that the network is telling me about. I think these will play out well in the coming period for those that take the heading from the course they set . It will be a jouney of rapid discovery, the answers are not final even if the direction is clear.

Overall though, it’s obvious that to be successful we will all need to innovate and to try new products, services, customers, partners and ways of working – no one has this covered yet, but some people are finding new and interesting ways to respond to the changing world.

You could wait and see if you finally get the opportunity to try the 2020 strategy you made last year – or you can get up, shake off the dust, scratch your head and figure out a way to commercialise the innovations that your team have been making.

For a hint of the changes to come, have a read of this post from 2019: https://bestemnetwork.com/2019/06/17/london-tech-week/

The future is coming, how you choose to prepare and respond is up to you. The choice is yours.

Watch out, they are comming for you

The cost of innovation is going down, barriers to entry are falling

Keeping it special

If you work in heavy industry and are near technology, you will know that there are some very robust pieces of kit out there. What I’ve always been surprised at is:

1. how simple many of the devices are in terms of functionality; and

2. how “special” they are in terms of obfuscating the obvious.

The effects of these two factors has been, for years, to reduce competition. By making it difficult to get hold of units (via price) and creating a jargon around the obvious configuration/deployment it has promoted a closed shop approach.

Keeping up standards

In some ways keeping out the riff-raff can be promoted as a good thing – it provides assurances around quality and safety. But it slows down innovation. You might say that perhaps this is good. Maybe you don’t want to be too innovative around safety and compliance systems. Afterall making mistakes is expensive and dangerous.

Keep up!

One of the aspects of the 4th industrial revolution that will challenge that thinking is simulation. I used to think that digital twins, virtual worlds and simulation would help reduce the cost of maintenance, let the experts create new ways to work and basically bring down the operating costs for the incumbents.

What if it leads to a whole new raft of competitors? What if anyone can have low-cost access to a virtual oil rig, or virtual power station, or virtual chemical plant? Not only will they learn how it’s supposed to work, they can try things and see what happens – learn by doing, learn by breaking, but do it virtually. Perhaps this will lead to:  

  1. they might come up with much better ways to operate it that you do; and
  2. train themselves to operate it before you hired them

Result: Better ways of working, access to more talent, incumbents get beaten.

If you have ever witnessed teenagers playing fortnite, you will know how fast their thinking can become and how fast their brain-hand connetion is. Imagine how quickly they will be able to react to real-world situations and think through the information being thrown at them.

Examples

I’ll provide two examples of where “public access” and “new ways of working” are already influencing established hierarchies. It won’t be long before these mechanisms appear in heavy industry.

Don’t expect today’s engineers to enter the workforce unprepared nor unwilling to take on the establishment. Watch out for competition from smart people who are not part of the established hierarchy. Don’t think the way you work today, will be the way you work tomorrow.

Example 1: Team Huub-Watt bike

I was lucky enough to see this cycle team win gold at the Track Cycling World Cup in December 2019. The team is comprised soley of amateur racers and they ran a completely novel strategy calculated using simulations and software. Their budget is £15,000 per year. They beat Team GB who have the best coaches, facilities and trainers available – and a budget this year of £26m. That’s over 1,000 fold decrease in cost and substatially BETTER performance.

Response from the establishment was to change the rules, enforce the status quo. This may not work forever. It probably won’t work for you.

https://www.tri247.com/triathlon-features/interviews/huub-wattbike-uci-interview

They were not, however, afraid to make use of the technology for their own ends. Zwift is a cycle simulator that people can use at home and join in real-time cycle events and ride-outs while collecting performance statistics. It is now being used by pro-teams to identify and recruit talent.

https://www.cyclingweekly.com/news/latest-news/i-want-to-ride-in-the-worldtour-how-british-cycling-are-using-zwift-to-help-identify-young-talent-454806

Example 2: British Touring Car Championship

In the gentleman’s toilet at the Royal Automobile Club in Pall Mall – in the heart of establilshment London – there are a series of framed caricatures of some of motor racing’s greats from the last 100 years. These include W.O. Bentley and Mike Hawthorn. Motor racing is glamourous. And costly. The money needed to race in formula 1 are legendary, but even the karting in a 125cc class will likely cost you the best part of £50K a season. Developing cars, tracks and drivers costs money.

So what do you think will be the outcome of last weekends win for James Baldwin in the first of the British GT Touring Car championship races? It’s a pretty big series, and winning a race is not easy.

Especially if it’s your first race you’ve ever competed in.

James honed his skill as a driver in a simulator he set up at home for under £1,000. And his talent was found when he entered a competition in an “E-Sports” event.

Turns out that the simulation prepared him surprisingly well.

https://www.goodwood.com/grr/race/modern/2020/8/worlds-fastest-gamer-wins-on-british-gt-debut/

https://www.bbc.co.uk/news/newsbeat-53554245

Responding to the Crisis: Leader’s Handbooks

What should we be doing right now?

It’s an economic emergency. Every company is having to rethink what they do and how they operate. Together with AGM Transitions we’ve asked our networks to share their recent experiences. We’ve written three guides:

COVID – Responding to the crisis – Leaders Handbook

COVID – The Transformation Handbook

COVID – Remote Working Handbook

What happened?

Since I published my post on March 9th the world turned upside down. Covid-19 is a “big one”, certainly when considering the economic impact of the measures taken to stop its spread.

Couple that with the shocks to both supply and demand in the oil world and members of the Bestem Network have been left slightly shell shocked.

What will happen next?

We are starting to understand where we are – but we’re battling to understand where we will need to go.

As Gordon Ballard said in the FT on Saturday: “In the past, activity decreased then picked up again — each time, we saw it come back,” he said. “Now it’s not entirely clear if things just come back as normal. Everything has changed.” [Link]

For some context however I should point out that even with 30% drop in oil demand we are now only at the level that was normal in 1996 [Link]

What have I been up to?

Alongside my hour’s cycling, home cooking, housework and playing with electronics:

  • Looking after my clients
  • Contributing my skills to my community to innovate systems to support neighbours in need; and
  • Working out what we have to do to come out of this ready for the next phase.

Stay Safe, together we will get through this.

 

Sell now while stocks last

Who’d have thought it?

In December and January, I was writing about what we might face this year. The world looked very different than it does this morning.

As I write the London market is off 8%, the Oil Price has dived to $35/BBl and Energy stocks are off 20-30%.

Continued shocks

The world seemed a rosy place in 2013. Since 2014 we’ve experienced a series of shocks – 2014 Oil Price crash, Brexit, Trump, refugee crisis, Syrian wars, trade wars, climate strikes, energy transition, Covid-19 and now Saudi & Russia are playing poker. None of this was predicted widely.

As we head deeper into the 4th Industrial revolution we will see more “externalities” that will further disrupt our best laid plans.

What about Covid-19?

Maybe Covid-19 isn’t “THE ONE” maybe it is. But it has certainly exposed how susceptible our current end-of-3rd Industrial Age, free-trade, globalised and business-case-obsessed economy is.

We have not priced risk correctly and we have not built in contingency. Workers on zero hours contracts can’t self-isolate, just-in-time imports from China are not working. To address this will require changes in policy and macro-rules to make a response possible in the face of short-run economic competitive pressure.

For more information on Covid-19 McKinsey has an excellent primer here [link]

Will business need to change

It seems clear that changed business practices will be needed if we are to become more resilient in an era where travel can be minimised, whole communities quarantined and trade in physical products localised.

Perhaps we will quickly switch to business that makes more use of information-rich scenarios (video conferencing, designs for 3D printers, remote controlled operations)?

We also now have another example of what can happen when information travels wider and quicker than knowledge. In this case panic buying of toilet roll. As we become more information-reactive in our business processes we need to bear this in mind.

Innovation is the answer, now what’s the question?

The only strategy I can see that will help is to learn to innovate quickly and be ready to react with purpose and knowledge as the future reveals itself to us.

It will never be this slow again!

Mood music changes

So BP have gone back to the future. Beyond Petroleum all over again.

When I started the Bestem Network 7 years ago I focussed it on issues surrounding the Oil and Gas industry – specifically how to use technology and reconfigure operations to develop and produce projects at lower cost and risk.

Last drop or leave it in the ground?

The Wood report was flavour of the month and much of my work centred around MER-UK (Maximum Economic Recovery). One of the categories of posts on this site was (and still is) labelled “Last Drop”; it focussed around the changes that would be required to make it possible to cooperate economically to achieve the maximum aggregate profit for the industry. It tackled things like tying together infrastructure, developing small pools and draining the basin over the long-haul and not to optimise short-term or locally.

While I never expected that the industry would return to 2012 levels, I did expect that it would come back and stabilise at a more “normal level”. I was concerned that the “big-crew-change” would mean that young people would not have the knowledge to operate our much-needed oil and gas infrastructure. I had no idea that they would reject oil and gas completely. That thought occurred to me in 2019 when I visited London Tech Week.

In 2017 I wrote that exploration was really of waning interest [Link] but I didn’t expect one of the primary reasons was that we didn’t want any more hydrocarbons.

Contrast this recommendation from Wood in 2014: “Government and Industry to commit to a new strategy for maximising the recovery [of oil reserves] in UK Continental Shelf] with the growing idea that we might leave reserves in the ground.

I wonder what the report on maximising the economic recovery from the whaling industry said.

Could the oil industry just disappear?

Despite sounding the drum for the 4th Industrial Revolution and arguing (nicely) with Patrick Von Pattay ( I was the more conservative because I thought that oil and gas really wouldn’t change fundamentally). It appears I may have underestimated things.

A very successful (and foresighted) businessman recently told me that the plastic-straw industry had simply ceased to exist within six months of the revelations of the damage it did to the oceans in the TV programme the Blue Planet. This chap now takes into account environmental position before bidding for work from a company – not for ecological reasons. He wants to direct effort to customers that will remain in business!

Surely we can’t do without oil?

Of course, there are oilmen who will tell you that the world economy cannot work without hydrocarbons – their case has always been that growth will come from renewables, and that demand would be flat. I tend to agree. But what if we’re wrong?

Here are a couple of thoughts for this (exceptionally) rainy Feb morning.

  • Solar is the cheapest form of energy production already. It’s getting cheaper and more efficient at a blistering rate.
  • Petroleum products might become classified as a dangerous substance – think asbestos or CFCs, what would that do to demand and price when supply, licensing, permitted uses and public perception of the product changes.
  • Microeconomics – which is what many businessmen optimise for – operates within Macro economic boundaries. Macro economics are formed by policy, are political and by nature are ideological. Think about: Soviet Russia, China, Thomas Pickety, Trade Wars, Sanctions. Things you think are “real” business decisions can be usurped by political will in an instant.
  • The IPCC report on climate change was issued in 2007, the Paris agreement was 2015 we seem likely to go beyond this and as a world embrace Net Zero sooner rather than later. For insight listen to Myles Allen on the life scientific (BBC https://www.bbc.co.uk/programmes/m000fgcn )

Engineering will still be important

With all this doom and gloom around it’s easy to get despondent. But, here’s the good news: if the world decides it wants to change then this will call for difficult and complex engineering, delivered in remote locations across political divides on an unprecedented scale over a mulit-decade period.

Not only will we need to invent all sorts of new technology for carbon reduction, energy efficiency, generation, storage etc. etc. We will need to deploy them all and decommission all the legacy assets.

There are not many companies that can muster the amount of engineering talent, capital control processes, large scale international project management, logistics construction that will be required. In fact, I can think of two that could – Energy and Shipping. And of course, if the world doesn’t change, oil and gas will have a renaissance.

Under all circumstances the people inside the oil industry will have skills that are needed and which are hard to replicated at scale. The only loss of value will come from those who can no longer exploit their control of underground deposits of oil in the future, and those that must pay for legacy assets and impact from the past.

Fundamental engineering practice still matters

With all the digital wizz (which I fully support) it is important not to lose sight of the practical situational requirements, human organisation and civil society that we need to enable the “platform” in which the innovative start-ups, electric cars and energy transition can happen.

Basic engineering discipline still matters, and is sometimes overlooked by hand-waving innovators and wet-behind-the ears management consultants.

You probably know about the 737-Max flight-stability software and instrumentation scandal. Recently, I read an article on Boeing where it says they are now re-inspecting new plane fuel tanks because they have found rags and tools left in them by construction workers: https://www.flightglobal.com/air-transport/boeing-orders-737-max-inspections-after-fuel-tank-fod/136819.article

It’s a sobering thought when flying :- if the wrong culture takes hold and introspective and solid processes are overtaken by gregarious and extroverted leadership.

The world still needs good engineering.

Ubique & Quo Fas Et Gloria Ducunt

2020 Vision

Sorry for the title. It’s not very original. Everyone’s been using that for the last decade, but still it seems appropriate. Every January I’ve made a post predicting the year ahead. I normally write this in December and publish it at the beginning of the year. It normally makes a few tongue in cheek exaggerations to in order to raise a smile. I stole this idea from Old Knights Almanac that used to appear each year in the RETRA magazine [Link ]

Today is the day we leave the European Union. My advice is to ignore this and go and buy today’s FT. It has many stories that summarise the transition we’ve witnessed and sets out the stall for next year. Below I’ve taken extracts and headlines and they tell the story. The one thing not mentioned is the UK Government’s industrial strategy, more on that in another post. Oh, and my watch phrase for this decade is “Society 5.0” – I think we’ll be hearing more about this in the comming while.

First here is an extract from this story (https://www.ft.com/content/b64b692e-4387-11ea-abea-0c7a29cd66fe).

This caught my eye because it illustrates the emerging tech leadership that is flowing from a very entrepreneurial and exceedingly smart China, the comming tech trade-wars and how there is a shift in earnings among tech players reflective of the shift in tech approaches – showing even when you are the innovator you have to keep innovating!

BT has said the cost of implementing the UK government’s cap on the use of Huawei equipment will cost it £500m over the next five years as it reported its third quarter figures.

[…]

There’s a bumper crop of earnings to report: Microsoft reported a 14 per cent advance in revenues, to $36.9bn, helped by cloud revenues which grew 39 per cent to $12.5bn, Tesla has notched up its first-ever back-to-back quarterly net profits. The electric car pioneer called 2019 “a turning point”. AT&T’s entertainment business WarnerMedia revealed a $1.2bn hit due to costly investments in its upcoming streaming service to rival Netflix. Nintendo’s quarterly operating profit rose 6 per cent to $1.5bn, missing expectations. Samsung Electronics confirmed its fifth straight quarterly decline in profits but said it expected memory market conditions to improve in 2020.

To avoid the risk of plagiarism I am going to direct you to today’s FT (go buy a copy or have Amazon deliver you one). The headlines from these stories paint the picture and tell the story all by themselves.

Why Microsoft and Tesla are the decade’s big disrupters

https://www.ft.com/content/b3e659fc-4380-11ea-a43a-c4b328d9061c

Ginni Rometty steps down as IBM tackles cloud era

https://www.ft.com/content/aabee59a-43aa-11ea-abea-0c7a29cd66fe

Rich and famous turn to ‘personal cyber security’ to protect phones

https://www.ft.com/content/96c79040-40ea-11ea-bdb5-169ba7be433d 

The Apple effect: Germany fears being left behind by Big Tech

https://www.ft.com/content/6f69433a-40f0-11ea-a047-eae9bd51ceba

Elon Musk jolted by German protests over Tesla factory plan

https://www.ft.com/content/8b10555e-4345-11ea-abea-0c7a29cd66fe 

The UK’s employment and productivity puzzle

https://www.ft.com/content/a470b09a-4276-11ea-a43a-c4b328d9061c 

For today’s oil market the real threat is to demand, not supply

https://www.ft.com/content/5bf49cb0-41cb-11ea-bdb5-169ba7be433d 

Shell to slow investor payouts after earnings fall 50%

https://www.ft.com/content/4e1fa700-4334-11ea-a43a-c4b328d9061

Orsted/offshore wind: Go-Greta:

(Henrik Poulsen has turned a national oil company into the world’s largest offshore wind builder and green energy champion)

https://www.ft.com/content/719dd81d-2527-4b83-8aed-e6624476c191

Competition rules stymie co-operation on climate goals

https://www.ft.com/content/b3e0da9c-3eba-11ea-b84f-a62c46f39bc2 

I wish you a healthy, hearty,happy and prosperous 2020.

While we were sleeping – Oil 1.4 and Solar

It’s been very busy since the Network Dinner in September. I will post an update on the discussion later this month.

In the mean time I’ve been busy working on innovation – more of that later – but I recently came across two interesting items that I think might be worth sharing.

Firstly the FT ran a special issue talking about Oil and Gas 4.0 [Link]. It’s good to see that this term is being widely applied – and a big change from when I started to talk about it a few years ago.

I wrote an article in March 2016 when I claimed that Oil and Gas were really at 2.5 while industry was going 4.0 [Link] I was concerned about the lack of urgency and technology progress. I also called out the contribution of Collette Cohen as being one of the few that seemed to get technology. She is now director of the Oil and Gas Technology Centre.

The OGTC were referred to in this article [Link]

In October, the non-profit Oil & Gas Technology Centre (OGTC) in Aberdeen in Scotland, announced the next phase in its autonomous robots project with Total of France, which is developing what it calls the world’s first offshore work-class robot. The first phase of the work saw Austrian firm Taurob create a robot to conduct visual inspections at Total’s Shetland gas plant and the Alwyn gas platform in the North Sea. A second-generation version will have a stronger chassis and a heavy-duty arm that will lift objects and turn valves. It will be tested by Total and Equinor of Norway, the research initiative’s new partner.

“A lot of our work on hazardous environments focuses on whether we can avoid sending people into those areas in the first place,” says Stephen Ashley, head of OGTC’s digital transformation solution centre.

Another article coined the phrase Oil and Gas 1.4 which is a clever take on the combination of an old-age industrial organisation embracing new digital technologies within its core business. I think I like this term better than my 2.5 one.

This article [link] makes the point that the new technology is prevalent in some areas of the business, but that the new frontier for production might be the application of technology to find economic ways of enabling enhanced oil recovery. 

Unmanned rigs are now commonplace, complex operations are monitored from a single control room, leaks and emissions of greenhouse gases can be identified by drones and satellites, removing much of the need for direct human inspection. Numerous technologies are being applied in ways that can reduce cost and improve productivity.

The key question, however, is whether the digital revolution can answer the sector’s biggest challenge: how to secure future production. Oil demand is not falling. There may be 7m electric vehicles on the world’s roads but there are also 1.2bn vehicles with internal combustion engines.

[…]

One answer must be for companies to make the most of assets they already hold. Across the world the typical recovery rate from a conventional oil or gasfield is only 35 per cent.Even after decades of production giant fields such as Prudhoe Bay in Alaska or Ghawar in Saudi Arabia still contain billions of barrels of oil. Recovery rates have slowly risen and provinces such as the North Sea, originally expected to close at the end of the last century, continue to produce oil and gas. In Norway recovery rates are typically 50 per cent — well above the world average but still leaving half the resource base undeveloped.

The point at which recovery becomes uneconomic, ie when the cost of enhanced recovery is greater than the value of the oil, is a serious constraint.

What I’ve found really interesting this year is how irrelevant the oil and gas industry seems to have become down here in London. What I mean by that is that Oil and Gas seemed to be at the crux of things in a way that, say, copper mining and concrete production wasn’t. It used to be a cool place to play with technology, travel the world and to make a bunch of money. I think those days may be over (though some predict a spike in prices around 2025). Now no-one here cares about Oil and Gas at all.

Where I am seeing a lot of action and excitement is around Solar and Wind. I thought for a while it was just me becoming aware, but now I’m onvinced that it was a sea change and it really is picking up. And the cost-curve of Solar is particularly striking.

I urge you to have a look at Tim Harford’s article on Solar [link]. As always he has an ability to grasp the implications of what he sees in ways that other’s don’t. He looks a PV cells – how in 1980 Solar was about $100 per watt ($10.000 to light a light bulb). It is now already below $0.25 / watt and falling. Utility scale production is now looking to provide generation at below $0.015 per KW/h. [link]

The thing about Solar Panels is that they are a pure manufacturing play. Once created they just sit there and make energy. No moving parts, no plat to really operated as such. We have been, and continue to be, very good at manufacturing standard products in standard factories.

Sometimes the learning curve is shallow and sometimes it is steep, but it always seems to be there.

In the case of PV cells, it’s quite steep: for every doubling of output, cost falls by over 20%.

And this matters because output is increasing so fast: between 2010 and 2016 the world produced 100 times more solar cells than it had before 2010.

Batteries – an important parallel technology for solar PV – are also marching along a steep learning curve.

The learning curve creates a feedback loop that makes it harder to predict technological change. Popular products become cheap and cheaper products become popular.

And any new product needs somehow to get through the expensive early stages. Solar PV cells needed to be heavily subsidised at first – as they were in Germany for environmental reasons.

More recently China seems to have been willing to manufacture large quantities in order to master the technology.

Watch this space, it’s just getting cheaper, better and faster. This is where the action is – I just don’t know how to play the opportunity yet.

 

Machine Learning – more learning….

As an addendum to last week’s post about machine learning – here is an article by the BBC : https://www.bbc.co.uk/news/technology-48825761. This describes a story about an amazon employee who built a cat-flap. Fed up with receiving “presents”, he made this clever device to recognise whether his cat has come home with prey in its jaws. If it has, it refuses to open and the cat must stay outside.

I thought it neatly encapsulated some problems of machine learning I am finding, and also pointed to some possible features where this technology could be applied to generate more value.

The training problem and need for clean data

It took 23,000 photos to train the algorithm. Each had to be hand sorted to determine whether there was a cat, a cat with prey etc. etc.

This is like the oil and gas industry in that it needs a lot of clean training data that may not be available without a lot of manual input.

The Bayesian stats can work against you

The frequency of event-occurrence in this case is once every 10 days. The maker ran a trial for 5 weeks (so should have seen 3-4 instances in that trial, though in this case it’s stated as seven). There was one false positive and one false negative – giving an error rate which may be around 20% (though there are not enough samples to have a lot of confidence). If the algorithm continues to learn and say that the cat uses the flap 5 times a day on average. This means, in a year it will have 1,825 additional samples from which 35 will be positives of which 7 will be false and 1790 negatives of which 358 will be false-positives. Manual correction will be required 365 times (i.e. per day on average) and the learning rate will take about 12 years to duplicate the original training set. I don’t know, but I suspect there are diminishing returns on adding new data so how much smarter it will be in 12 years I’ve no idea.

Disclaimer – a good statistician will know my maths above is not quite right, but the principle is.

Do you trust the alarm? Do you take notice?

So in this example, quite like oil and gas operations, the issue was getting hold of clean training data. The event being detected was comparatively rare meaning that a lot of false positives are likely. In the example above an “alarm” would have sounded 365 times and 28 occasions it would have been real. With the sparsity of events the this means that the algorithm will not learn very fast and I think the alarms will be ignored.

So where can the applications be better?

Distributed learning

Parallel learning helps build better predictive models. if we had the same cat-flap for every cat, and every owner corrected the false signals and right algorithm could learn quickly and disseminate the results to all, this would speed the learning process. Self-driving cars are a good example of where this is possible, and google-search is great example of the power of parallel experience.

Products and services impossible for a human

Situations where there is so much data that manual processing is impossible. Here I don’t mean that you can collect so much data on a manual operation that is ongoing that you cannot analyse all the extra information. What I do mean is that there is intrinsically so much information it would be impossible to analyse by hand and never has been. So an ML approach is the only one possible. For instance looking at real-time changes patterns in data networks.

Simple situations where it’s expensive and boring for a human

Automated first-line help systems, call screening, password resetting etc. These are all tasks where humans can do them, but they are simple tasks which are too boring for smart people to do, where automated help can often provide a better experience. And where “sorry I didn’t get that, did you say yes?” is only mildly irritating not the cause of major corporate loss.

Conclusion

There are places that machine learning will be revolutionary, but I suspect that much of ML will be either embedded to make normal tasks a bit easier – such as auto-spell checking, voice recognition etc. Or they will tackle classes of problem such as IT security, or on-line shopping behaviour where there is inherently a lot of fast-moving data and manual monitoring is simply not feasible nor fast enough to work.