Jan 05 2020

7 Digital Transformation Challenges for Oil and Gas Companies

If there’s any industry ripe for digital transformation, it’s the oil and gas industry. And yet when you look at companies that attempted, progress is slow and inconsistent. Millions of dollars have been wasted on aborted or poorly-executed digital transformation programs, to the point where they were probably better off not having tried it at all.

The organizations were simply not prepared for the digital transformation challenges exclusive to their industry. Even challenges that could also be found in other industries have different implications for oil & gas and therefore require different solutions.

Let’s have a look at the unique digital transformation challenges that every oil & gas company will have to overcome to stay competitive in 2020.

Implementing across global oil & gas locations

Oil & gas companies do business all over the world. ExxonMobil alone operates in at least 38 countries, with hundreds of different branches, sites, stations and facilities in their portfolio. The decentralized nature of these operations makes it difficult to roll out digital transformation programs in a timely or consistent manner.

To further complicate things, each site will have its own unique set of considerations that determine how effective--or ineffective--the transformation will be. Environmental factors like weather and temperature, for instance, impact equipment performance, durability, and reliability. Distance and accessibility determine how quickly and conveniently upgrades can be pushed to the location. Staff will need to be trained on the new technologies and procedures, and this can’t always be done remotely.

Then you have to contend with the sheer scale of the digital transformation. As an example, installing a smart sensor in one site would cost peanuts and involve little effort. Multiply that by a hundred sites, and now you’ve got a logistical and financial headache.

Slow rollout, fast obsolescence

As demonstrated in the previous point, digital transformation programs will take a lot of time to roll out; especially if they involve remote locations like oilfields. This doesn’t even take into account the time it will take to conceptualize, scope, draft, pitch, review and fund the plan in the first place.

The potential consequence of such a lengthy rollout? Untimely obsolescence of the digital solution. We’re not talking about the technology itself going out of date (that will be covered in the next point). Rather, the nature of the core business problem will have shifted in such a way that the solution is no longer appropriate. The transformation could have taken so long to implement that someone else found a different way to solve the problem, thus rendering the entire digital transformation program irrelevant.

A glacial rollout will eliminate any value that a solution would bring to the organization--regardless of how new or high-tech it is.

Technology phases in and out

In the above case, the digital transformation program failed because the need wasn’t there anymore. But it most certainly happens that technology phases out while the program is still being developed or implemented.

This kind of situation can occur when the digital solution being proposed is dated, to begin with. There’s an increased likelihood that the transformation program will have been in development so long that tech has since advanced. On the other hand, the tech being used in the transformation program might just be a fad--shooting up in popularity and usage, but fading into irrelevance just as quickly. Or perhaps the technology being leveraged is advancing so fast that new and better versions arrive at a rapid pace. Internet devices may be a hot item at the moment, but who knows what digital technologies will take the spotlight a decade from now?

Another scenario might be if the company is using a legacy application and doesn’t want to move much beyond what it’s already comfortable with. In that scenario, the transformation program is merely a token gesture that doesn’t move the company forward all that much. It merely advances the tech forward just enough that it makes one or two key improvements to business practices but doesn’t cause a major stir with users and stakeholders. As you can imagine, this kind of half-hearted transformation program will not last the oil & gas company very long. It has comparatively minor benefits and should be considered a poor return on investment.

Data fails to influence decision making

Big data on its own cannot help oil companies. A digital transformation team must always make relevant data available to key executives so that they can make informed decisions as to what the program should prioritize. The goal of the exercise is for management to prioritize solutions that will increase customer value and satisfaction, whether directly or indirectly.

Unfortunately, the reality is that executives can (and will) make decisions based on completely different and seemingly unrelated factors. Sometimes management will decide based on their own idea of what the company should prioritize. While this can sometimes work for visionaries and startup entrepreneurs who have more freedom to accept or ignore whatever data they are given, oil & gas companies have to be more circumspect and only rely on proven data to influence their decisions.

There are also situations where looking at the data leads to the wrong conclusions. This can happen when management is not given complete information or chooses to focus on one particular set of numbers while ignoring those that don’t support their assumptions. Advanced analytics isn't helping the company in this case because the company is ignoring what the data is telling them. The end result is a digital transformation that either solves the wrong problem and/or solves the problem poorly.

Low digital maturity rating

Digital maturity can be defined as an understanding of the value of technology innovations, as well as a strong tech-oriented internal culture. Digitally mature companies are data-driven, have a flexible IT system and possess a respect and familiarity for technology at all levels of the organization.

Sadly, this does not describe the oil and gas industry as a whole. In fact, according to Deloitte, the oil and gas industry is rated a mere five out of ten in terms of digital maturity.

This is a huge challenge for any digital transformation program because it means that there may be a strong internal resistance to any new technology or processes being introduced. This resistance stunts the adoption of the new solutions, which blunts their effectiveness, which in turn generates poor results, and then cycles back to management not seeing the value of the transformation and becoming even more skeptical than they already were.

Low digital maturity may even create conceptual problems for the digital transformation. Lack of appreciation for technology may make it harder to propose innovative solutions, and skepticism may lead to watered-down transformation concepts that are politically acceptable but so limited as to make no difference.

Archaic and clunky workplace practices

Despite all of the promise and proven benefits that digital transformation can achieve for an oil & gas company, it cannot turn an entire business around on its own. It has to be supported by modern and efficient work practices that complement both the philosophy behind the transformation and post-transformation work process itself.

Companies in the oil & gas sector that adhere to old and archaic work practices are deliberately hampering their own efforts at success.

For instance, upper management might still insist on receiving reports on paper, making notes on them, and having those notes transcribed and circulated to the rest of the management team. This process is a waste of both paper and time. A data visualization tool that provides advanced analytics in real-time is a much better way to receive this kind of information, and there are digital technologies that make it easy to share feedback with others.

The workforce isn’t exempt from this kind of technology prejudice. A surveyor, for instance, could insist on using old-fashioned tools and resort to transcribing notes with pen and paper or--god forbid--from memory, when he could use an IoT-capable surveying tool that uploads information directly into a cloud database.

The resistance to digital transformation might not necessarily be due to the technology itself, but instead out of fear of change. That’s why change management is such a vital part of any digital transformation effort. Any program that doesn’t take it into account is doomed to fail, just from users who don’t know how the new way will ultimately help them. Only by adopting new and customer-focused work methodologies can a business effectively use technology to improve operational efficiency.

Lack of technical expertise and leadership

Digital transformation will be difficult if there is a lack of technical expertise within the organization, both from the leadership side and the resource side.

Technical knowledge is not universal--a fact that many decision-makers fail to grasp. Technological expertise in one field doesn’t necessarily translate to expertise in another (for example, app development versus database management). Yet digital transformation programs continue to be staffed by resources who, while they do their best, don’t have the required knowledge or experience in the transformation solution to know how to implement it effectively.

Deep technical knowledge isn’t as critical a quality when it comes to leadership roles, but you do need a leader with experience in leading technical projects and who is comfortable working with new or niche technology. An effective digital transformation leader will know how to be a mediator. A mediator, in this case, is good at communicating technical concepts and challenges from the team in a way management can appreciate, and in turn, translating management direction and concerns to the transformation teams.

Weak leadership will also result in lengthy review cycles as stakeholders dither and nitpick. Scope creep is another symptom of weak leadership and can drive up costs to an alarming degree. Worse, scope creep can cause the digital transformation program to stray from its original mission, resulting in a half-baked solution that attempts to accomplish multiple goals but fails at its primary one.

But how about if an oil & gas company hires contractors to perform the digital transformation, instead? The program can still fail; even with external resources to lead and execute. Stakeholders or company subject matter experts that aren’t tech-savvy or are tech-resistant can impede the fact-finding and approval processes.

Going through a successful digital transformation

Oil & gas companies are just as susceptible to digital transformation challenges as any other industry. The difference is in the nature of those challenges and how they relate to how oil & gas companies operate.

An experienced digital transformation team can overcome--or at least address--the challenges listed above if they have the following:

Firmly defined digital transformation goals. The broader and more generic the digital transformation campaign is, the less likely it is to adequately solve problems. Specific goals will help focus the transformation team’s effort and lead to an effective solution that will bring value to both customers and the business.

Access to data and reporting tools. A transformation team that does not have access to relevant data will be like a man wandering in the wilderness. Data will determine the challenge that the transformation program needs to solve, the best way to solve it, and whether or not the problem needs to be solved in the first place. Data--and its proper presentation--will influence management decisions and will help determine how much support and resource the transformation team gets.

Internal resources and expertise. Transformation teams work best if they are both experienced working with the technology being implemented and intimately familiar with the company’s operations. Not only for the sake of handling the technology itself but for thinking about how to apply the technology within the context of the oil & gas company’s operations and culture.

Unwavering management support. A digital transformation program that is publicly supported by upper management will be able to more effectively draw on internal resources and request cooperation from affected departments. Without that kind of support, a transformation team would be more likely to encounter resistance and internal interference.

In conclusion

Oil & gas companies operate on an immense scale, which increases the difficulty of digital transformation challenges that are already major, to begin with. But the payoff is just as big and will show tangible user benefits (and corporate profits) years, or even decades, into the future.

These challenges, large as they are, are still manageable provided you give the transformation teams the right resources, management support, and authority to cut through the red tape and bring your operations into the new century. You will be better equipped to take advantage of new business models while strengthening your core business.