While sentiment within the oil and gas industry remains inside the brackets of ‘cautious optimism’, caution is increasingly giving way to positivity. With the oil price steadily rising and conditions for M&A activity improving there are signs that we are entering a new, brighter phase for the industry. But will the return of confidence also mean the return of bad habits or can the prospect of digital transformation reboot the industry to guarantee long-term success?
Huge opportunities remain for the sector as we emerge out of this latest downturn but these will only be realised if the industry resists the temptation of old habits and instead applies fresh thinking to every aspect of their business. The firms most likely to survive will be those who embrace a culture of innovation in every team across the business.
On the surface, the oil and gas industry appears to be a role model for innovation with operators pushing further and deeper than ever. However, technology advances exist in silos rather than throughout the organisation of many oil and gas companies.
A recent EY survey highlighted this disconnect. It showed that 83% of U.S. oil and gas executives think the industry is excellent or good at leveraging innovative technology. When asked about applications for new technology, 64% indicated the opportunity for front end (in the field) processes. Only 6% of respondents indicated back-office processes. Perhaps unaware that adopting something like Robotics Process Automation (RPA) offers a variety of high-impact benefits in addition to cost savings, such as increased digital security and heightened accuracy and compliance. For example, outside of oil and gas, the insurance industry has made cost reductions of between 25-40 per cent by using RPA to automate standardised processes.
The splintered approach to digital transformation within the oil and gas sector is quickly becoming a major limitation to companies’ abilities to withstand commodity price volatility. In an environment where budgets are limited any proposal to invest in new digital capabilities is likely to face robust challenges. But this might be hindered by a confusion between the long-term, futuristic ambitions for the sector and the practical steps that can be taken today to improve operations. Revolutionary, front-end inventions could stand to radically improve business performance but they might be perceived as too expensive when in reality the most beneficial innovation might be a small, step-change rather than major project implementation.
Most companies have exhausted traditional cost-cutting initiatives. In particular, the tendency to resort to headcount reductions during cycle downturns is not sustainable. What’s more, reductions have led to the average age of employee increasing to 43, and significantly fewer new joiners under the age of 30. Failure to retain valuable industry experience while also attracting new talent will see workforce capabilities flounder in comparison to competitors both domestically and internationally.
At a time when we need to be prepared to accept disruption from other sectors, it is a question of how quickly, not if, the industry’s innovation mindset will change. Inspiring and supporting the workforce to be innovative will be crucial to any successful digital transformation while also offering promising career paths for individuals. Whether an experienced industry expert or someone at the start of their career they should be encouraged and championed to combine experience with fresh thinking and new technologies to build the best future for the sector and everyone who works within it.
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Gemma speaks at our next Business Breakfast focusing on digital transformation on Tuesday, September 4, at the AECC ahead of the Engenious Symposium.
Gemma Noble, EY partner