Throughout our previous articles in our Swings and Roustabouts series, we spoke of digital transformation in the oil and gas industry and how important it is for companies to embrace it. In this episode, our 7th installment in the series, we take a look at 5 challenges that oil and gas companies face when trying to implement digital transformation initiatives, and how they can overcome these.
While there are challenges for companies to overcome when implementing digital transformation initiatives, the benefits make the effort worth it. Some of these benefits include:
- Driving down the cost of production.
- Moving from a predictive to a preventative maintenance model, thus reducing maintenance costs, decreasing asset downtime and extending the life of the asset.
- Enabling the monitoring of production targets on a well-to-well basis.
- Decreasing the occurrence of HSE incidents.
- Driving financial and operational excellence within the organization.
Given the current oil price environment, it’s easy to see how these benefits can be the difference between surviving and thriving in the market.
Challenges to digital transformation
1. High investment of time and personnel
Many oil and gas companies have implemented some type of digital initiatives, but most have not been able to digitally transform the entire organization. In their report “Not your father’s oil and gas business,’’ PWC refers to this as an “end-to-end rewiring” that taps into digital’s full transformative power. To realize the full benefits of digitization, companies need to do this “end-to-end rewiring” and this requires significant investment of finances and labor. As can be seen below, digital transformation yields greater returns for companies as it is deployed to more areas of the business.
When the oil price was more favorable and profits were higher, there was little incentive to go through the effort and expense of digital transformation initiatives. This means that with a currently depressed oil price and tighter margins, the digitization that needs to be in place, is often not. As mentioned previously, digital transformation drives down the cost of production which would be a boon to any oil and gas company in this price environment. While there may be less appetite to invest in digital transformation, as returns may not immediately be evident, companies need to consider the longer term impact.
2. Siloed and decentralized business structure
The structure of many companies within the oil and gas industry creates a challenge for the implementation of digital transformation. The independence of business units and growth through mergers and acquisitions has resulted in siloed localized management structures and diverse legacy systems, making the transition to digital solutions more challenging.
The structure of how the industry operates also raises challenges for widespread digital transformation. As many companies are involved in key activities throughout the value chain (from exploration, through production, transportation and refining), it is difficult to gain consensus for change with these interdependencies. These siloed structures particularly create challenges for internal IT teams, which will be discussed more in depth below. BCG suggests that companies can overcome these challenges by treating digitization as any other large business transformation, and starting by creating a bold digital vision led from the top based on a balanced digital roadmap.
3. Offline and remote environments
A lot of field work that is done in the oil and gas industry takes place in remote locations with little to no connectivity. As many software systems require an internet connection, this can pose a challenge to companies hoping to roll out new digital tools. The collection and analysis of data at the wellsite is essential to the successful implementation of digital initiatives.
Companies would need to provide satellite connectivity at these sites, or employ the services of vendors that provide digital tools that work seamlessly offline or with degraded connectivity. JourneyApps is one of these companies. Reinventing the wheel through internal IT teams places an unnecessary burden on teams that typically do not have the bandwidth to build comprehensive offline data synchronization tools. The right tools exist in the marketplace today, as long as companies are deliberate in selecting the right providers.
4. Change management
While almost all oil and gas executives agree that digital transformation is important, the fact that it can cause great disruption is a concern. The digitization of a company disrupts value chains, organizational structures and operational processes. Change brought on by the digitization of processes can be disruptive to an organization and this can be a real challenge for companies. Therefore, companies need what Go Contractor calls “digital tenacity.” This is a strong willingness to invest in and embrace digital technologies. A company’s leadership needs to embrace digital technologies to ensure that it is implemented properly.
For companies to overcome the challenge of organizational resistance to change, digital technology should be placed at the core of the business strategy to show that transformation is a high priority for the company. Along with this strategic leadership approach, there should also be a shift in organizational culture. This requires everyone in the company, from top to bottom, buying into new ways of operating made possible by technological change. To ensure a successful change management outcome, employees and contractors should be properly trained and taught the organizational culture of the company, including all relevant new technologies and practices.
5. The limited bandwidth of internal IT teams
Internal IT teams in oil and gas companies usually have very limited capacity. These teams are having to spend a lot of time maintaining core business systems such as ERP and CRM systems. This means that they have little time for business digitization needs. When these teams do find capacity to work on digital transformation, they find themselves ‘reinventing the wheel’.
With new technologies continuously being introduced into the market, IT teams are having to constantly build new solutions to stay competitive. Many times they are building solutions that are already available on the market. They are essentially spending time solving problems that have already been solved. This is where companies need to be able to take a step back and reaffirm the fact that they are oil and gas companies, and not software companies.
Companies can overcome this challenge of limited IT bandwidth and spending time working on solutions that already exist by working with a vendor that can take on this workload. If companies would prefer to still have internal teams build digital solutions, they need to be equipped with the right tools. Companies need to allow their teams to build on a platform that allows for quick building of robust industrial solutions.
While not an exhaustive list of challenges that oil and gas companies face when implementing digital transformation initiatives, this list attempts to identify those that are most common. As with most business transformation initiatives, challenges will arise, but the benefits of digital transformation make these worth overcoming. Especially in the current price environment, companies need to cut costs and drive operational excellence to ensure they stay competitive. Implementing digital initiatives is a robust strategy to achieve these objectives.