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Digital is hard to sell, hard to  scale and low margine. So what's the attraction?

Digital is hard to sell, hard to  scale and low margine. So what's the attraction?

Stuart R Broadley FEI, CEO, EIC (Energy Industries Council)

 

Since 2017, the need for faster adoption of digital technology across the energy industry has been a hyper-topic of conference organisers and consultants, but the reality persists that operators are stubbornly cautious about digital technology.

Recent statistics (source EIC Survive & Thrive) back this up with only 26% of UK energy supply chain companies investing in the development of digital technology as their primary growth strategy in 2020, compared with 32% in 2019, showing its popularity as a growth strategy is already waning.

Oil & gas and nuclear operators remain extremely risk averse, preferring a “small bites of the elephant” adoption approach with digital rather than “boiling the ocean”. Many industry leaders are poorly trained in digital, at risk of being ineffectual as leaders of digital talent and too concerned about taking unnecessary risks.

Digital can quickly become “nice to have” rather than “must have”. How much is anyone willing to pay for “nice to have”?

The answer is not much... selling digital solutions to a risk averse, poorly trained and price-sensitive customer is HARD; certainly not a way to increase a supplier’s prices, or margins; indeed, it can have the opposite effect.

In other infamous sectors, totally transformed and disrupted due to digital (Uber, Amazon, DHL etc), lower prices and margins are normal, but the scale, volume and cost/process efficiencies have allowed ultimately high profits and market dominance.

“dot.com” businesses, now hugely profitable, themselves took a long time to get to profit originally. This is a lesson for all companies wanting to adopt digital strategies in the energy sector; indeed it will arguably be even harder in the energy sector, as there is little true disruption (yet) - more evolution than revolution.

Digital scale up brings the value - but scale is hard to deliver in energy markets; energy companies are typically made up of many independently managed projects and facilities, located in hard to access locations, poorly connected, with high operational risks, and often managed by distributed and autonomous business leaders. This is not an easy B2B environment in which to scale up in.

And yet, after all the bruising of three years hitting the digital wall, the industry continues to look to digital for answers to innovation, efficiency improvement, cost reduction, safety, emergency response, seamless collaboration, accelerated diversification and most recently as a “must-have” solution to managing in a COVID world.

It seems that it is still worth persevering with digital – as a technology developer and operator, and there are some established lessons that can help you smooth the road to success and avoid over-promising and under-delivering.

Focus on finding out and then solving the customer’s specific pain point, rather than offering a one-stop-shop digital service for all. Once the pain point is successfully healed, use this initial success as a “Trojan Horse” to then open more opportunities, and build on the new insight, relationship and data transparency.

Avoid tendering, by working instead on dozens of smaller projects, with fast fixes and lead times of weeks and months, not years. Limit yourself to “90 days from data to value”. If the budget owner is not committing after 90 days, move on to the next digital opportunity.

The renewable sector is far more advanced with digital technology adoption, so the risk-aversion is far lower but so is the chance of winning is also lower, as they are likely to already have partners and technologies in place.

For oil & gas and nuclear, collaborate with Tier 1 EPC Contractors where possible, as they are currently highly motivated to find new partners to access the latest, greatest technology as they search for new routes to differentiate and increase margins.

Finally, diversify across as many sectors as you can. With tight margins and erratic energy market behaviours, de-risk your business by offering your digital talents and technologies to as many sectors as you can. No longer feel loyalty to just oil & gas or just energy, but instead look beyond to sectors like defence, infrastructure, chemical, marine, pharmaceutic, even sports; all are fair game and important routes as you strive to de-risk, grow and innovate.

Read the latest issue of the OGV Energy magazine HERE.

Published: 12-11-2020

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