Overcoming Challenges of Digital Transformation in Commodities & Energy

Earlier this week I ran a CTRM software selection program kickoff workshop. One of the key topics raised & discussed was – Why have efforts to gain value from CTRM digital transformations not succeeded?

“According to research, the three biggest digitalisation priorities for the commodities & energy sector in 2021 are cloud-based applications (47%), data platforms (44%) and AI (27%).”

Cloud-based applications 47%
Data platforms 44%
AI 27%

Lessons: The Obvious & Not So Obvious

Commodity & energy companies have learned many lessons from their frustrations, especially over the past two years. 

The long-term lessons learned have become almost clichés now that they have been repeated so often:

  • Focus on the business case, not the technology.

  • Listen to and delight the users.

  • People, process, and behavioural change are just as; if not more important, as technology.

  • Do not let the perfect be the enemy of the good; instead, fail fast and learn fast.

  • Transformation takes effort, whether digital or not.

All of these lessons are true but are only the tip of the iceberg.

Commodity & energy companies sometimes overuse being different as a crutch to explain why innovations from other industries (or even their direct competition) cannot apply to them. They do however face different circumstances from the financial institutions that led the next wave of digital and had business models that entailed largely non-physical, easily scaled transactions.

What makes digital value difficult to achieve in the commodities & energy industry?

  • Physical infrastructure. Commodity and energy businesses are embodied in heavy capital such as generation plants, storage facilities, offshore platforms, rail logistics, port terminals or pipelines. This makes operations, and therefore profit generation, fundamentally difficult. Technology investments must meet a high bar of proof that they are worthy of integrating into these difficult operations.

  • Safety. The industry pays enormous attention to safety, but incidents still occur – As a result of living under regulatory scrutiny for more than a century, companies are averse to risk and try to control it through detailed and rigorous processes. This makes them slow to change.

  • Culture. Commodity & Energy Company Mindset = A love of large, comprehensive projects, a premium on finding the perfect solution up front, detailed planning to the highest degree, and a preference for rigorous analysis and process over fast judgments and flexibility. A digital transformation is not the same as building an oil refinery or operational mine site!

  • Heavy dependence on 3rd parties. I don’t think this needs too much elaboration…but I will say that the work of energy & commodity companies depends on an extensive and fragmented supply chain.

  • Global reach. These companies go where the resources are. Location, legal and operating environments in different regions fluctuate dramatically. People’s capability, reliability, size, and cost vary. Supply chain maturity is an issue. 

Other industries contend with one or two of the issues above; the commodities and energy industry deals with them all. Each factor encumbers movement. Taken together, these challenges create massive inertia when it comes to digital adoption and should all be considered as you start to talk about your CTRM selection approach.

We have developed a digital transformation journey that breaks the barriers to innovation and unlocks large-scale value for the future. I’ll talk more about building a successful CTRM Transformation Roadmap in my next post.

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About the Author

Jason Novobranec is Implementary’s Chief Operating Officer.

With over 20 years of Consulting, Program Management & Senior Leadership experience, Jason has delivered initiatives for large multi-national / multi-regional organisations as well as SME’s and is an expert in shaping solutions to fit a customer’s project needs.

“CBH has engaged Jason Novobranec of Implementary as a consultant on our Commodity Trading and Risk Management project. He has returned great value with his breadth of knowledge in the area and his experience in working with many of the prospective providers.

We have found his approach to be thorough, forthright and definitive while respecting the views and approach of his client.”

Mary Karborani

IT Application Services Manager | CBH Group