Executive viewpoint

I recently read an article in Forbes, discussing the lethargic pace of digital transformation in the oil and gas (O&G) industry. In my experience advising O&G clients on pressing business problems, and hearing pain points from our customers, I agree that the pace of digital transformation has been slow—there are structural barriers holding it back. None of these barriers are reasons to be complacent about the slow pace, but they do help us to understand it.

The digital oil field (along with its industry-agnostic cousins, “digital transformation” and “digitization”) is an umbrella term used to cover pretty much every technology solution that companies use to automate or otherwise increase efficiency. Note that this definition does not put a size constraint on how big an effort should be, to be considered a successful example of digital transformation.

The digital transformation process has five portions.

In practice, expectations of people in the industry do tend to surface. Hence, industrial companies worry about why they are not attracting the right people, why they cannot use data from different corners of the enterprise correlated together, and the different entities owning the data needed to add value to the whole operation.

Change is not going to happen overnight, and is not likely to happen from a “start from the beginning” redesign. I am quite sure that there are examples of companies building a digital oil field as a grand plan, and this will become more common over time. However, while companies are not doubtful of the value added, they are unsure where this huge investment ranks in their competing lists of priorities. To use baseball parlance, they would like to hit a couple of singles, maybe hit a double, before swinging for the fences.

I divide the digital transformation process into five parts (see the diagram on this page), the first four of which can be improvement of relatively insulated processes, while the fifth represents the next level of value capture by combining data or even insights across the organization.

These five parts are not driven by rules of physics, but they have helped me understand where operational processes are, and how we can improve them.

Data collection. We collect data on our process, most likely with an adequate level of sensorization. Data are likely stored in a centralized manner. Data are used for basic reporting, and there may be some manual modeling, but not much beyond that.

Data integrity. Not only do we collect data, we also make sure that data are clean, that they make sense, and we keep an eye on those data and fix things, as needed. This stage produces more accurate reporting, and may be used for more sophisticated modeling.

Basic analytics. We maintain our data quality, and we use it in simple ways to understand trends and set some alarms if things go out of whack.

Advanced analytics. We use our data with sophisticated first principles, or machine learning/artificial intelligence-driven models that allow us to detect subtle changes in asset/process health. We receive failure warnings with long lead times.

Combinational analytics. We use data from disparate systems to drive enterprise value, such as getting the tech with the right experience on the job, when a certain asset shows early sign of failure, or combining our maintenance manuals with our inspection reports to provide the right guidance for repair-vs-replace decisions.

O&G executives should ask their line managers to classify where each of their critical processes lie on this spectrum, and then push to move them up to the next phase. Each incremental step needs a slightly different skill set and mindset.

At SparkCognition, we generally help companies move processes from Phase 3 to Phase 4, or from 4 to 5. If you are in the earlier stages, we can help guide you and prepare you to move up the chain, but our solutions really shine in the last two phases.

If O&G executives use this lens to evaluate critical processes, they will see it pay off for the groups they manage. While huge budgets for complete digital oilfield projects will be approved during the boom years, this phased strategy is relatively independent of the economy and oil price regime.

This strategy also applies to industries beyond O&G. As companies get more digitized, they will be able to attract the right human capital, which currently is not enthused by industrial verticals. For now, I hope that this simple framework allows executives to evaluate their key processes, as they relate to digital transformation. Form has to follow function. Changes should be implemented with the right risk profile to have a chance of being implemented.