Are mid-sized companies at the cutting edge of digital innovation in oil and gas?
Mid-sized oil and gas companies are deploying digital technology at a rapid clip. Strategic Growth Services CEO John Young tells us how organisations of all sizes can learn from their success.
13 July 2021
When it comes to digital innovation in oil and gas, supermajors are generally seen as industry heavyweights. Equipped with enormous budgets and extensive resources, companies like BP and Total have embraced technology across the value chain to make their entire operations safer, faster and more efficient.
But does this perception obscure the strides made by smaller companies in recent years? Are agility and effective decision making just as important to a successfully executed transformation strategy? And is bigger necessarily better in digital innovation?
These are just a few of the questions we set out to answer in our first annual Axora Innovation Forecast. Featuring data and commentary from over 150 senior industry professionals, the report offers a peek at the state of digital innovation in oil and gas, from the tiniest operators to the largest supermajors.
And while size continues to matter for digital transformation, the research shows that it’s less of an issue than one may think. Mid-sized companies reported experiencing the greatest benefit from their digital technology deployments, with those employing between 250 and 999 workers seeing the most value. Respondents within this bracket also expressed optimism toward AI adoption in both the short and medium terms, citing it as the biggest growth opportunity out of 10 options.
So what accounts for the sunny outlook of these mid-sized companies, and why might they be surging in the sector's ongoing race for digital transformation?
The secret to mid-sized success
For John Young, it comes as little surprise that mid-caps are seeing such promise in digitalisation. The CEO of energy consultancy Strategic Growth Services, Young has worked with companies of all sizes over the past 30 years. In his experience, mid-sized companies tend to place a greater emphasis on agility. What they lack in resources, they make up for in speed and flexibility, and that often leads to faster decisions and rapid technology deployment.
Solutions like machine learning and AI are going to be hugely important in enabling businesses in higher-cost labour markets to deliver competitive offerings.
“It’s easier to get buy-in at a mid-sized company,” Young says. “The decision-making lines are shorter, and compared to smaller companies, there’s additional cash, so there’s cashflow available to support specific initiatives.”
In turn, digital technology enables mid-sized firms to operate more nimbly, reinforcing their natural agility. That’s particularly important in a global industry already saturated with well-funded competitors. If mid-caps want to distinguish themselves, Young observes, they can’t afford to be slow, and digital solutions give them the edge they need.
“To thrive in a very competitive marketplace, mid-sized companies have got to be agile,” he says. “Digitalisation brings that ability to be agile in the marketplace and offer a more competitive offering.”
The solutions mid-sized companies are adopting bear out Young’s point. The Axora Innovation Forecast shows that mid-caps are prioritising cloud-based technologies, modern data architecture and artificial intelligence above other products. The goal, Young believes, is to keep operations as lean and efficient as possible in line with market demands.
“Businesses in Europe are competing against low-cost labour elsewhere,” he says. “Solutions like machine learning and AI are going to be hugely important in enabling businesses in higher-cost labour markets to deliver competitive offerings.”
More resources, more problems
If agility accounts for mid-caps’ embrace of digital technology, it also explains why larger companies may struggle to adopt it at the same rate. As Young notes, supermajors are responsible for digitalising systems that affect hundreds of thousands of people, and doing due diligence across a globe-spanning organisation is bound to take more time than it would for a mid-sized firm. But there are other ways in which oil and gas behemoths’ size can work against their digital transformation efforts.
For Young, this is particularly apparent in make or buy decisions. Faced with limited cash and resources, mid-sized companies often need to buy technology off the shelf and customise it to fit their needs. Larger organisations, on the other hand, have the choice to develop their technology in-house, and with that comes internal pressures that can affect projects’ viability.
“The challenge is that companies aren’t objective enough to determine whether they should make or buy,” Young says. “It’s tough to look hard at yourself and say, ‘actually, this is not a core competency.’”
The message is clear: invest in innovation now to be ready for the future.
The wrong decision can result in a long and expensive project that leads nowhere and costs a company not only time and money, but also its competitive edge. The key to avoiding this outcome, Young believes, is to develop specific goals, clear success criteria and keep them in mind from conception through to deployment.
“You need to critically define what’s fit for purpose,” he says. “What do you truly need from this solution? Keep it specific: strategically, what is this project meant to accomplish? From there, ask whether it’s best to develop in-house, or can you modify something that’s already on the market.”
Of course, integrating multiple solutions into a global operation is easier said than done. The key to executing a digital transformation strategy of this size, Young says, is to choose an internal system that makes deployment faster and easier.
“Finding cutting-edge technology that’s available today and implementing it into your systems is the fastest way of taking advantage of digital transformation,” he adds.
What does the future hold?
It’s a lesson that oil and gas companies of all sizes would do well to learn. As the energy transition approaches, capitalising on digital transformation has become more important than ever before. Crisis breeds opportunity, though, and Young believes it will lead more companies to go digital in a more meaningful way.
“The energy transition encourages everybody to review their long term strategy and hence their delivery systems and technology,” he says. “There will be a huge challenge in managing costs, but companies will be able to adopt the most cutting edge systems to do that.”
About whether the transition will spur companies to overcome their digital transformation barriers, Young is pragmatic.
“Whenever there is such market disruption there is always risk that some companies will not adopt these new technologies quickly enough. Inevitably this will lead to the emergence of new players who are better suited to the new market environment,” he says. “Some of the slower adopters may not be the same, or even exist, in five to ten years’ time.”
The message is clear: invest in innovation now to be ready for the future. Fortunately, mid-sized companies are well positioned to do just that.
For more about the digital trends shaping operator responses to the coming hydrocarbon boom and energy transition, download the full 2021 Axora Innovation Forecast here.
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