How to respond to the challenges of digital transformation in commodities and energy

Your digital transformation journey should tackle three practical principles to achieve success:

• Own instead of just sponsoring.
• Do more than create tools – transform whole workflows.
• You don’t have to execute the transformation all at once. Break it up into bite-sized pieces.

These three principles give life to every step of the digital transformation journey.

Own instead of just sponsoring

Most energy & commodity companies have a matrix of business units, which run the operation, and functions (such as IT, finance, or procurement), which provide services to the businesses. Usually, businesses, not functions, have the power. Digital transformation can only happen if businesses take responsibility for transforming themselves.

Almost invariably, they don’t. The mindset of business executives has evolved over the years, but still not enough. Two years ago, business leaders relegated digital to the sidelines as an Information Technology project and made the office of the CIO/CTO responsible and accountable for it. Today, they recognise the value of digital but still treat it as a visionary experiment. 

Corporate leaders hail the promise of digital technology and fund it lavishly, but they make it the purview of new digital incubators or centres of excellence rather than line operations.

Business units will not commit to digital transformation unless they have skin in the game. Being a sponsor and providing funds signals interest, but it does not generate a sense of accountability. If all a business does is fund a digital service that another group must deliver, it can remain at arm’s length as a dispassionate judge of someone else’s work.

Beyond funding, business units should first integrate digital technologies into their formal business and operational targets. This has a dual benefit. On one hand, it forces the business to take accountability for creating value & on the other hand, that accountability also gives the business the power to shape digital initiatives to reflect true priorities, not the fanciful dreams of technologists.

Business units should commit the time and talent of their top tier people. Typically, business leaders who view digital innovation as a sideshow shield their stars from digital efforts and refocus them on the traditional moneymakers: making the big trade, signing power purchase agreements, operating the supply chain more efficiently, and so on. But if a business wants to turn digital into a moneymaker, too, it needs to put its best people on the case.

Your Top Operators know the culture of the business, know the operation, and have good judgement about how to make changes. They are the most credible champions of a digital effort since they are widely respected, and they also have the capability to be creative about the future. Obviously, a business cannot afford to keep its best talent focused indefinitely on digital innovation, but by cross-pollinating between digital and core operations, they will eventually become one and the same.

The funding commitment must be right. Digital transformation depends on deep operational change—weaving technology into operators’ daily lives, streamlining processes, and radically accelerating the pace of activity. Those changes are subject to fits and starts and reversals, so it is hard to predict which changes will succeed or fail and how best to adjust. To make all this work, businesses should devote a big block of funds that covers a long time and gives digital efforts room to experiment toward transformational change.

Do more than create tools – transform whole workflows

The prevailing approach to digital innovation in commodities and energy is to create “point solutions,” which apply technology to narrow uses without fundamentally changing how people work. Energy and commodity companies succumb to point solutions partly because they have delegated digital to the Information Technology function, which operates through a technology lens and lacks a mandate to redefine how other functions do their work. 

Additionally, commodity and energy executives are prisoners of precedent: when they hear “digital,” they conjure images tools to digitise the existing process rather than a wholesale reimagining of the process.

Point solutions are not meaty enough to change behaviours or mindsets, they often digitise poor processes rather than improve them, they get smothered by the status quo, and they optimise targeted needs instead of the whole system.

Your digital transformation requires a forceful reimagining of how people work—and the only way to do that is by rewiring entire end-to-end workflows. Workflows can be defined in a variety of ways, but they should reflect the main vectors by which a business generates value. Examples include production optimisation in upstream oil and gas, real-time turnarounds in refineries or petrochemicals, and plant operations and field maintenance in power and resource sectors.

Focusing on end-to-end workflows is vital for success in digital transformation:

• It launches a deep rethinking of how an operation works, which generates the creativity and momentum required for true transformation and points everyone toward a shared goal.

• It makes all digital efforts subservient to an ambitious business vision. To transform a workflow, a business is forced to define a vision of the future state. Digital technology only enters the picture as an enabler to help make the vision a reality.

With this approach, businesses find it easier to define digital initiatives that actually lead to transformation, not just incremental gains. Moreover, they can easily prioritise digital investments: out of the 1,000,001 ideas their organisations dream up, only ten really contribute to the future state vision—the rest get dropped. Finally, they can more easily rally the organisation around the effort, because the benefits of digital become more obvious—even to sceptics.

Break it up into bite-sized pieces

Inertia will resurface over and over. Energy and commodity companies routinely try to plan every aspect of their digital efforts up front. Despite lip service to agility and modularity, they aim for engineered perfection. All of that planning and perfection leads to helplessness when momentum lags or unforeseen problems emerge during a transformation.

With digital technology, the right answer is hard to lock in right away. For one thing, technology changes at a rapid rate—current trends could become obsolete in less than 12 months. It’s impossible to know what will work until it’s underway—building something real, giving it to users, and testing it against reality.

A digital transformation is best advanced in bites. Select a digital solution, co-create it with real users, get it into those users’ hands quickly, and let them start using it to generate value—and by the same token, let them get excited by it. Learn from the experience, and play those lessons into the next push. If a need to adjust arises, multiple pivot points are available. This approach offers repeated surges of action and progress to continuously break inertia.

The numerous merits of the bite-sized method have been validated many times over by energy and commodity companies that have adopted it.

One benefit is that it delivers business value and creates supporters quickly, which generates self-perpetuating momentum for the digital transformation. And as we have seen, momentum is everything.

A second benefit of the bite-sized approach is that it forces practicality. Time pressure focuses the mind on what matters.

Finally, there is simply no substitute for experience. People often struggle to understand the full value of a digital initiative on paper, no matter how well described or planned. It’s only once they see the reality that they grasp the potential. 

A couple of concerns about the bite-sized approach are worth considering. The first is that it leads to one-off solutions that cannot scale. In your digital transformation journey, reusability and scalability both factor into decisions from day zero—about defining the future-state vision and about delivering the first minimum viable products. When done properly, we have seen MVPs scale up to new business units and masses of new users with 80 to 90 percent of the original code unchanged.

That said, the concern over scalability may be a red herring. A digital program can be re-geared to scale, even if scalability was completely ignored in the past. For example, a leading electricity generation company had worked to transform multiple workflows but had proceeded in silos. Each team invented its own approach to user access, business rules, data integration, and so on. As a result, a user who started in one workflow could not seamlessly move into another workflow— as the user base grew, this element became a real challenge. But to achieve interoperability and unlock scale, the company did not have to suffer months of agony reworking code. Instead, it simply took a two-week “step back” to revise the workflows to act as an interconnected whole, identify the reusable components that were common across workflows, and set up the integration patterns to allow for API enablement of data flow between systems. All it took was two focused weeks to reposition the effort for scalability, and it provided a huge accelerant. The company was able to go from two workflows to four to eight in parallel in about six months, and improved efficiency by more than 30 percent through automation and reuse.

A second concern with the bite-sized approach is that it may work for digital product development, but not for establishing technology foundations, developing capability, or changing culture, which require more planning and longer time frames.

This notion has been repeatedly disproved by experience. When it comes to technology, energy and commodity companies have tried laying all their foundations up front (enter the dreaded “data lake”), but nobody races to use them. When it comes to capability, they have hired a gaggle of pedigreed data scientists and said, “Go forth, mine the data, find the money,” but most of those new hires sit around waiting for a purpose. When it comes to culture, they have run interminable workshops, but never get beyond classroom theory.

By contrast, the bite-sized approach tries to advance the trifecta of business value, technology platforms, and culture and capabilities through each step of the transformation—not in theory, but through delivering on a specific business need. Any time a technology choice or a hiring push is made, it is made because it is necessary to deliver on an immediate business need. Cultural changes come from actual changes to how people work and interact with each other across the operation.

Commodity & Energy companies are right to take digital seriously; it is important for their future success, and it is imperative for global economic growth and environmental care.

For the time being, digital transformations in energy and commodity companies will largely focus on operations. That scope is hard enough and has plenty that needs to be addressed. But in successfully reimagining operations—and building digital capabilities along the way— these companies will open the next horizon of digital opportunity and truly disruptive business models. We are only at the beginning of the journey.