Technology

The expert view: Learning to thrive in the age of cheaper oil through digital innovation

It's been twelve months since Business Reporter last convened a meeting of senior figures from the oil and gas industry for a round table breakfast briefing. Back then, discussion was dominated by the oil price and when it might rise.

A year on, executives gathered for another briefing at London's Savoy hotel. This time the low oil price was taken as a given. Conversation was instead focussed on what could be done in this new environment.

Digitalisation offers opportunities for cost saving and innovation, said Juergen Maier, chief executive of Siemens UK, who hosted the briefing. However, he said that digitalisation typically faces three main obstacles. First was the leadership necessary to drive it. Second was the need to increase the pace of adoption, particularly in oil and gas, which lags other sectors. And third was how to maintain innovation in this new environment.

It is an environment dominated by uncertainty. Those present believed oil prices would remain low, although with greater volatility. One attendee, from a major global bank, said that he expected to see shorter cycles, with prices rising and falling more quickly.

Participants discussed how business models were changing too, as industries moved to a service model. They said the oil and gas industry must keep a pace as businesses change their models.

For example, said an executive from a major oil firm, drivers who use Zipcar probably don't worry about what fuel they use. As renters, they expect Zipcar to keep the car in good working order. As such business models proliferate, consumer brand loyalty will decline and oil firms will have to focus more on B2B branding.

Meanwhile, businesses are becoming more complex. Ben Sheath of Siemens said major aerospace organisations point out that it was no longer possible for one person to understand the interactions between all the systems in an aircraft. Now, the various systems that keep a plane in the air are so complex that nobody can oversee them all. This kind of complexity is becoming the norm in every sector.

Digitalisation can also drive innovation by identifying opportunities to remove cost or to add investment. Better monitoring of systems, for example, can reduce maintenance costs by preventing unnecessary repairs or enabling repairs before the need is otherwise apparent.

Mr Sheath said digitalisation can empower companies to create new business models, for example by aggregating data and using it to create apps for customers or suppliers.

The aerospace and automotive sectors in the UK have remained competitive with international rivals by using technology and agile labour in a smart way, said Mr Maier. This enabled them to respond to change quickly and flexibly. Businesses in all sectors need to develop a strategy for agility.

One attendee said that companies need to be clear about their advantages and invest there. That doesn't just apply to IT investment, though as another attendee pointed out - business investment is replacing IT investment. Everything the business buys today is full of technology and sensors.

Dealing with this uncertainty is made harder by entrenched conservatism within the business. This isn't surprising - several attendees pointed out that large organisations have a great resistance to change and struggle to disrupt their own business. That is simply how they are built. However, all present agreed that things must change.

It is hard to make big bets on a single innovation in an uncertain environment but if you don’t disrupt yourself then, sooner or later, you will be disrupted by a competitor, probably without warning. The leader must determine, as far as possible, where these threats might come from and encourage people in his or her team to innovate in ways that could mitigate against them.

That means creating an environment in which they feel safe to take risks and where their incentives align with innovation or, at the very least, do not act to discourage them from innovating.

You can’t lead a business today unless you understand digital, said one attendee. The days when a leader could rely on a digital expert within the organisation are gone.

For innovation to work, said Mr Sheath, your company culture and business strategy need to be aligned to enable you to respond to new technology and business models. This is particularly important as the workforce changes. For example how do you allow controlled risk taking, and support employee aspirations to work for a company that is making a difference.

Diversity is important too. A management team that is entirely the same gender, age, ethnicity and social background will not generate the variety of ideas that a more diverse team will produce.

Larger companies, said one attendee, would do well to hire a VP of Change and make the need to innovate a part of the organisational strategy.

Perhaps the best advice for uncertain times came from a senior executive at a major oil firm. He advised attendees: “Plan for the worst and hope for the best.”

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