Unsustainable Change in Oil & Gas

The first part of the Human-centric Enterprise Transformation series talked about the state of digitization of Oil & Gas in Australia. This part elaborates on the potential failure of digital transformations in the Oil & Gas industry and the high cost associated with it.

 

Highlights:

• The majority of digital transformation does not meet the target business value
• This further delays industry ambitions to reach net zero carbon
• The disconnect between solutions and operations, in addition to the culture of change resistance, are the root cause of low-value digital transformation.

 

While the Oil & Gas industry has made significant investments toward digital transformation, most of these will fail[1]. This is a concerning insight considering the industry’s high cost of failure, where 1% of unplanned downtime can cost an organization up to $5mn annually and reduce labor productivity by up to 20%[2]. Even if the local industry were able to comply with the rapid digital transformation proposed by the international roadmap[3] for net zero carbon, the high rate of failures would potentially push the timeline to go beyond 2050.

Diving deeper into these failures, two root causes were identified. First, the disconnect between concept solutions and daily operations. Although the appetite for new pilot programs is high within the industry, due to the transitory nature of data, solutions deployed within pilot programs tend to be minimal in their impact as aging IT infrastructure leads to low adoption by required user groups. Over time, integrated solutions are utilized in a cursory manner or forgotten in favor of traditional practices.

Next is the industry culture that is reluctant to radical change. A typical agile approach to transformation involves an experimental, fail-fast mindset that can be seen as detrimental within a high-risk industry. Any change in Oil & Gas is generally an outcome of recent events where an issue is raised, investigated, analyzed, and approved by multiple independent parties. To rapidly change a well-established industry culture will require strong advocacy and buy-in throughout each level of the industry hierarchy.

 

[1] BCG Analysis

[2] Kimberlite

[3] IEA Analysis