24 Apr How to build a digital strategy for oil and gas
The oil and gas industry knows that it needs to step up its digital game, but with a lot of choices to be made, how do you set your digital strategy?
The oil and gas industry continues to labour under a sustained low price environment, resulting in constraints on capital spending and pressure to reduce operating costs. This pressure will not dissipate anytime soon.
Companies must react to this low price environment alongside growing demands of environmental stewardship, forcing them to find new avenues to effectively alleviate these pressures. One such avenue is through the adoption of digital technologies, an opportunity which a number of other industries, including oil and gas as have begun to embrace.
These technologies present new ways to operate while still being sensitive to the specific context of each company. However, as these digital solutions are still emerging and are at varying stages of development, it is important to understand how and where the most impact can be achieved through investing in them. Consequently, it is becoming more and more valuable for oil and gas organizations to develop a digital strategy.
What is Digital Strategy?
Digital strategy, broadly speaking, is the set of reinforcing choices that direct an organization’s actions towards integrating digital technologies. These choices are informed by an understanding of the organization’s journey towards becoming more technologically enabled. In addition, it is crucial to understand how the company’s needs pair with the nuances ofeach technology’s return on investment (factoring not just cost but also time and effort to implement).
The aim of digital strategy is to realize the organization’s strategic goals by enabling it to make consistent and well-informed decisions regarding the integration of digital technologies across the various dimensions of the organization.
Why Digital Strategy for Oil and Gas?
As this period of sustained low prices is pushing companies to re–evaluate their strategies and business models, this downturn also presents one of the more prudent times to invest in digital technologies. These technologies allow for more cost-effective scaling of activities than historic processes and solutions, and can satisfy a variety of purposes with continuously improving flexibility. This means that organizations can replace legacy systems and processes with customized digital technologies that provide more value through better scaling of output-to-costs than historically possible. In other words, digital technologies will help to keep costs low, even when there is an increase in operations (and the potential to return to the inflated cost levels of earlier times; a concern we hear often).
However, these technologies do require significant investments to implement and the relative value of each of these technologies will vary across different organizations. So, for oil and gas leaders that are being tasked with achieving the highest return possible on limited capital budgets, there is a need to assess where efforts are best served and investments are best placed.
To illustrate how important a digital strategy could be to oil and gas companies, consider a midstream operator’s hypothetical option to invest in a fleet of drones versusa mobile 3D printer. The drones could automate the monitoring of assets and mitigate risk as well as improve maintenance scheduling whereas the 3D printer could bring specialized repair parts on-site within hours versus days or weeks through the regular supply chain. These are two highly impactful but very different options, and if an investment in only one is financially feasible, how should that choice be weighed?An informed choice requires understanding how the current value propositions of each solution, as well as their relative cost and effort to implement, align with the organization’s priorities.
How Should Oil And Gas Build A Digital Strategy?
Oil and gas companies can begin to develop a digital strategyy asking a series of questions and ensuring that each response is reinforcing of the others. The key questions to consider within a business strategy are:
- What are your goals and aspirations?
- Where will you play?
- How will you win in chosen markets?
- How will you configure your business
- What are your priority initiatives?
In our experience we have found that…
- The most robust strategies are those in which the ‘how to win’ reinforces the ‘where to play’ and vice versa
- The most satisfying strategies are those in which the ‘where to play’ and ‘how to win’ choices have the potential to meet the desired goals and aspirations
- The most sustainable strategies are those in which the ‘where to play’ and ‘how to win’ choices are buttressed by appropriate, distinct, and reinforcing capabilities, organizational systems and initiative programs
To understand how digital plays into these strategic choices, an organization should first identify what digital means in the context of its business strategies and second, apply effort into embedding digital technologies into those strategies.
This means that building and executing on a digital strategy will differ in size and scope for organizations across the hydrocarbon value chain. Therefore, the emphasis should be towards considering what technologies can practically offer the best returns, and how those investments should be planned and executed.
For example, consider the situation of a producer with thousands of operating wells, with a business strategy of maximizing production while minimizing unplanned well downtime. They identify the potential use of data analytics programs and tools to review and compare downhole pump performance across sites. Without a robust system in place for capturing and evaluating data from the pumps and their operating context, the value of analytics may be diminished. In this case, an initial focus on information architecture that is then followed by some form of data analytics program or tool would be more impactful.
Essentially, a clear digital strategy expressed through a series of choices, combined with an understanding of where and how digital can impact the business, will result in successful and sustainable digital technology investment.