Point of View

Radical Operating Model Transformation in Oil and Gas

January 23, 2018

A multitude of forces is reshaping the oil and gas industry, including social and political pressure in conjunction with technology advances, economic shifts, and the need to address the energy transition to lower carbon emissions. This energy transition will have an immediate and tremendous impact on the oil and gas industry and will be amplified over the next decades. Key dynamics in the market include:

 

  • The rise of natural gas: Natural gas has replaced coal as the cheapest source for power generation. It’s not only much cleaner, it’s now also cheaper. Solar and wind have become economically competitive alternatives, with many wind and solar projects now cheaper than generating power from coal, oil, and even natural gas. In any case, the demand for natural gas continues to grow; it is a bridge fuel in the energy transition and a big driver behind the North American shale revolution.
  • Renewable energy is a game changer: As renewable energy and storage technology is gaining traction and prices are falling rapidly, combined with countries (France, UK, India) announcing bans on cars with internal combustion engines by 2040, the race to remain relevant is heating up for oil and gas companies. Expect big investments in renewable energy, storage, and infrastructure for electric vehicles. 

  • Scale and speed of digital transformation: Digital transformation is top of mind for every oil and gas executive; particularly, scaling beyond the smaller projects and proof of concepts is the main concern we see now. Service providers need to offer end-to-end digital transformation services that can scale and guarantee speed to value. 

  • Further integration of information and operational technology: The digital oilfield, Internet of Things, and IT/OT integration will ramp up quickly in the next two to three years. The digital footprint will increase in energy operations. 


 

These trends and circumstances force the industry to re-imagine the way it operates and form a commanding platform to introduce new technologies and management concepts to change operating models, find new efficiencies, and increase speed of transformation. In an industry as complex as oil and gas, this is a monumental task. 

 

The Existential Need for Change

 

In 2016, the oil price reached lows of under $30 per barrel. The price of oil has rebounded to around $50 per barrel. In a world of high oil prices and cash abundance, most oil and gas companies let inefficiencies exist. Now there is a strong imperative to find new efficiencies, optimize production, decrease capital needs, and take advantage of data.

 

This means fixing the basics and leveraging new technologies by investing in digital transformation and new operating models. Oil and gas executives expect their service providers to play a role here, bringing more efficiency into processes, fuelling innovation, implementing new technologies, and preparing oil and gas companies for a new era.

 

Our research of oil and gas industry services consistently shows oil and gas executives’ evolving expectations and perceptions of service providers. A pivotal changing dynamic in the market is how buyers look at their service providers. With the renewed focus on outsourcing as a lever to deal with the pressures in the volatile business environment, oil and gas clients tell us they look beyond labor arbitrage and see service providers as an extension of their organization. They want deeper relationships with their providers and stronger ties forged between internal and external staff. They look at their service providers to help the organization become more flexible and scalable, ramping up and down in the cyclical business of oil and gas.

 

Outsourcing and Automation are Key Levers

As the focus of the industry continues to be on cost reduction, production optimization, operational efficiency, and flexibility, automation and outsourcing are two principal levers available to the industry. Oil and gas executives are forced to have a good look at their strategy. In the 2016 HfS Energy Operations Blueprint we noticed that leaders asked themselves these key questions:

  • What is the core of our enterprise?
  • What do we need to do internally that differentiates us from the competition?
  • What parts of our processes can we automate?
  • Can we outsource what we can’t automate?

In 2017, the effect is noticeable in the priorities of oil and gas executives, their expectations of service providers, and the emphasis on automation in engagements. Now, new questions are added:

  • How do we speed up digital transformation?
  • Who are the right partners to drive digital transformation?
  • Who are the credible innovation partners for us?

 

Digital transformation is a key imperative to oil and gas executives and ties into the essential reinvention of the operating model that HfS Research identifies as the Digital OneOffice. 

 

A New Operating Model Paradigm

 

Digital technologies are affecting all industries, but few see a confluence of technologies similar to oil and gas. These technological trends are impacting the work (processes and operations), worker (people and skills), and workplace (technologies and tools). Sensors will connect all assets to the Internet of Things, creating vast new streams of information and bridging the worlds of operational technology and information technology, adding a layer of intelligence to equipment, and creating advanced industrial control networks. Intelligent ‘things’ like drones, smart fabrics and wearables, digital twins, and augmented, virtual, and mixed reality provide a new dimension to the physical world. Automation changes the game in core industry processes as well as front-, middle-, and back-office functions. Advanced analytics are becoming more suitable for breaking open the troves of data oil and gas companies typically collect, store, and never use. They are also helpful in making sense of the exponentially growing data flows from connected equipment in operations—analysing historical data to identify patterns, learning algorithms to get smarter, and real-time, predictive analytics. The data flow continues as mobile devices and cloud computing deliver relevant and contextual information to workers in the most remote areas. All of these examples of digital technologies are relevant for the oil and gas industry and are at varying stages of adoption and maturity.

 

Creating the OneOffice in Oil and Gas

HfS uses the lens of the OneOffice (see Exhibit 1) to describe the design and implementation of the digital customer experience and the creation of an intelligent, single office to execute and support it. OneOffice requires application of technology and analytics to change experiences. It means deploying systems of intelligence to automate and improve core business processes. And improving technology systems by deploying cloud and cyber-security solutions and As-a-Service models to make them simpler, on-demand, more modern, and secure.

 

OneOffice describes the enabling technologies, such as unified analytics and cognitive automation, that enable real-time predictive capabilities and an engaging digital experience that unifies all the stakeholders across the organization: the customers, partners, and employees. The Digital OneOffice is where the organization’s people, intelligence, processes, and infrastructure come together as one integrated unit with one set of unified business outcomes tied to exceeding expectations.

 

Exhibit 1: The Digital OneOffice Framework

 

 

OneOffice is a vision—an end game for digital transformation—but it is easy to see its value for the transformational journey the oil and gas industry is embarking upon. Actors in the oil and gas industry are typically large, global, bureaucratic, and siloed organizations prone to a slower pace of decision making and change. In their quest to find new efficiencies and optimization of production, oil and gas companies are seeking to leverage a host of new technologies across the OneOffice components: natural language processing, artificial intelligence, machine learning, robotic process automation, drones, robots, augmented reality, virtual reality, mobile devices, 3D printing, sensor networks, wearables, and predictive analytics are knocking on the door. Challenges are abundant in interoperability, advanced automation, big data processing, advanced analytics, and intelligent processes, applications, and services. 

 

Let’s drill down in three critical areas of the OneOffice—Design Thinking, data, and the As-a-Service Ideals—as these are of great importance and value to oil and gas companies.

 

Using Design Thinking to Reimagine the Operating Models and Create an Innovation Culture

A challenge for every organisation is finding effective ways to organize and manage change. It all starts with a vision and a strategy. Design Thinking provides a new way to think and engage problems and new situations. It helps shift the focus from “inside out” to “outside in”, starting from the end consumer. A new HfS Research study shows oil and gas executives view Design Thinking as one of the main mechanisms for creating and supporting a digital operating model. Eighty percent identify implementing Design Thinking to help the enterprise’s talent share problems and solutions to improve alignment with customer needs as mission critical or very important (see Exhibit 2).

 

Exhibit 2: Importance of Mechanisms to Support Digital Operating Model

 

Source: HfS Research, 2018, n=24 oil and gas executives

 

Infosys Delivers Change and Innovation Using Design Thinking


A service provider that has put Design Thinking at the heart of the company’s strategy for developing solutions and managing client relationships is Infosys. We see evidence of this approach being used with oil and gas companies to reimagine processes and service delivery and spark innovation. It applies Design Thinking to address three key aspects of clients’ business: a non-disruptive renewal and simplification of their existing landscapes, introduction of new offerings and business models in a dynamic business environment, and creation of a culture of innovation in their organizations.

 

Infosys Leverages Its Design Thinking Expertise for a Super Major

Design Thinking proved to be a critical tool when a super major designed a new seamless onboarding process to create the emotion of ‘ready to fly’ for all new joiners. The Design Thinking workshops conducted by Infosys brought together over 20 participants from relevant functions including HR, IT, procurement, digital security, and learning and development. The Global HR Director encouraged participants to challenge existing ways of working and design a new end-to-end onboarding process that is simple, quick, and nimble. During the two-day session, the team used the Design Thinking methodology to understand existing pain points, form insights, and frame opportunities into four key theme: tools and enablers, people and network, learning and knowledge, and experience. The participants generated over 60 new ideas then ranked and prioritized them based on business impact, customer experience, and ease of implementation. Prototyping exercises refined and improved the ideas before they were integrated into an end-to-end journey map. The next steps included development of an implementation roadmap and associated benefits case. Implementation is likely to start with the creation of a new app for onboarding.

Creating the Data Foundation for Digital Transformation

 

It is hard to overstate the importance of creating a data foundation that ensures the consistency, interoperability, quality, availability, and accessibility of data. A robust data foundation is a prerequisite for all the promising technologies researched, considered, piloted, or scaled in operations: from classic SMAC (social, mobile, analytics, and cloud) to 3D printing, chatbots, robotic process automation, drones, machine learning, IoT, and blockchain.

 

Oil and gas executives are concerned about data quality and consistency to build the data foundation needed for adoption of technologies like machine learning and advanced analytics.

 

The oil and gas industry is rife with unstructured, dark data. Consider this example: in drilling wells, surveying the field, tracking production and performance of assets, and moving and selling the products, data is produced, collected, stored, and used—but the clear majority of the data stored is never used.

 

Turning petabytes of the exponentially growing daily influx of new data into useful digital assets suitable for machine learning or advanced analytics is a massive undertaking. This requires a deliberate, patient, and disciplined strategy, which the whole organization subscribes to. There are no shortcuts to data quality.

 

Infosys Lays Data Foundation at a Major Independent Operator

A US-based major independent operator with its strategic partner Infosys has worked to transform operations by creating a strong data foundation. The data foundation allowed this operator to create an integrated reservoir characterization solution that allows engineers to actively align operations while simultaneously and instantly running ongoing simulations on multi-lateral operations. The complexity of the numerous inputs required to provide this capability is significant and the benefit is great.  The profitability of meeting oil recovery targets in the reservoirs where this solution is being deployed are increasing as the jobs progress.  The next phase is to embed machine learning capabilities to capture the application of the engineering knowledge so it can enrich the overall awareness of numerous scenarios.

 

This solution combines data mastering, integration, simulation, and numerous engineering solutions and meets core upstream needs that were traditionally very manually intensive and not readily available to impact engineers’ decision making. 

 

It takes millions of dollars and thousands of hours just to get all the data cleaned. Add to that the ongoing effort in master data management and data governance. Making these investments is the foundation of making the digital platforms that everyone raves about work for your processes.
Creating a data foundation is a complex venture, not to be taken lightly nor executed impatiently. Failing to invest in data quality will cripple any digital transformation or effort to create seamless data flows across the enterprise. Our conversations indicate that leaders master two practices:

  • Create a pragmatic, dynamic, multi-year roadmap, and revisit it every year. Some organizations choose to work with a rolling five-year roadmap; others operate a roadmap with three horizons—five to seven years out, three to five years out, and short-term plans for the first two quarters, first half, and first year. The roadmaps need to be aspirational and pragmatic at the same time. Agility and flexibility are critical for success. Invest in research and discovery of new technologies that are relevant to your operations; fast-track those that reach the maturity that meets your appetite for risk and innovation. Pilot those technologies that hold promise for your business but haven’t been proven for scaled adoption to make sure you have a firm grasp of the technology, implementation, and implications for your people, processes, and technology landscape.
  • Sell the data foundation and its benefits. As some executives put it, data is not very exciting. Data-driven business models, advanced analytics, machine learning, and artificial intelligence are. A lot of business leaders can’t wait to reap the benefits of all the new tech they hear and read about. It’s a tough job to convince them to be patient and help them to understand that the foundation for digital transformation needs to be created first. Leaders include in their roadmaps detailed, sequential investment and benefit pairing, breaking down the big transformation into smaller, shorter-term transformations. Think of these steps as plateaus on your journey up the mountain; each plateau has its achievements and value. These increments of value creation through mini-transformation make your plans concrete, manageable, and clear to the rest of the organization. Pairing benefits to investments also make explicit the trade-offs between time and investment. If the organization needs the benefits sooner—this is the additional investment that’s needed. 

     

Infosys Delivers Real-Time Data for a Super Major

 

A super major identified three problem areas in its field operations: non-productive time, safety, and optimization.

 

Solution: To reduce non-productive time and increase safety and optimization, a multi-dimensional, conditional monitoring solution was developed to apply intense, real-time scrutiny to numerous business processes. The data solution is built upon a commercially available control system that the organization owned but drastically underutilized. The solution extracts the streaming data and applies logic and learning capabilities and then parses the information into the core workflows of a specific engineer or scientist. 

 

Benefits: The true value provided by this solution is that although the engineer and scientist only see the information that’s relevant to them, any actions they take immediately impact all other functions and allow decisions and actions to be taken based on the constant flow of inputs. 

 

The impact on reduction of non-productive time has been recorded in the tens of millions of dollars with estimates exceeding hundred million dollars.

 

The As-a-Service Imperative

 

Oil and gas companies desperately need to become more efficient, flexible, and agile. In effect, oil and gas executives are embracing As-a-Service delivery and engagement models. Reduced capital requirements; focus on business outcomes; services that bring people, process, and technology together; and plug-and-play services are some of the most attractive attributes of As-a-Service.

 

Exhibit 3: As-a-Service Economy

 

Source: HfS Research, 2018

 

HfS’ concept of the As-a-Service Economy (see Exhibit 3) includes a wide set of ideals, divided between change management ideals and solution ideals, and describes the changing nature of engagement between service providers and their clients. Change management ideals focus on the adoption of Design Thinking, creating collaborative engagements, writing off legacy, and becoming brokers of capability. Solution ideas are focused on technologies that enable intelligent automation, holistic security, accessible and actionable data, and creation of plug and play digital services.

 

The emergence and rapid growth of As-a-Service models is illustrated in Exhibit 4, the forecast and market size HfS sees for the IT Services Market from 2015 to 2021.

 

Exhibit 4: IT Services Market—Traditional vs. As-a-Service, 2015–2021 ($B)

 

Source: HfS Research Market Index, 2017

 

As-a-Service IT services, including infrastructure and application-managed services delivered in a pay-per-use or As-a-Service model, cloud platforms and professional services revenues related to transformation to cloud and SaaS, digital engagements, and a move to IT-as-Service delivery models, grew at a compounded rate of 21.8% during this time. Traditional IT services showed a compounded growth rate of -2.3% during the same period.

 

As-a-Service innovation: Infosys IT As-a-Service

 

Infosys has created value propositions for oil and gas clients that include As-a-Service ideals; bring people, process, and technology together; and give clients an on-demand, pay-as-you-go commercial model that ensures the flexibility to scale up and down with the organization’s needs.

 

Infosys Delivers IT As-a-Service Engagement to Oil Field Services Leader

 

Infosys delivered a major IT As-a-Service program on the back of its automation platform Infosys Nia and Microsoft Dynamics Oilfield Services (OFS) solution for one of the OFS industry leaders in North America. Infosys has deployed the complete IT environment—networks, servers, storage, applications, and the ERP system—in under a year. It runs the entire IT environment and charges for it on a per-employee basis. This is a large end-to-end engagement and unique in the way it is leveraging the ITaaS model to deploy a flexible and scalable IT organization to the oil field services leader. HfS Research believes this model has a lot of potential for oil and gas and will be replicated across the industry.

 

Bottom Line 

The radical rethinking and transformation of operating models in the oil and gas industry must be underpinned by the creation of a culture of learning and innovation, strong data foundations to support effective digital technology deployment, and As-a-Service-enabled agility and flexibility.

Sign in to view or download this research.

Login

Lost your password?

Register

Insight. Inspiration. Impact.

Register now for immediate access of HFS' research, data and forward looking trends.

Get Started