How to respond to exponential change in the energy industry
Moving from risk to opportunity
The pace of change is exponential. How does this impact the energy & resources industry? What does exponential change imply for the control frameworks of organizations? And how to benefit from exponential change?
Arthur Kramer - 30 May 2017
False sense of control
Exponential change can cause severe disruption in any industry. The E&R industry has been exposed to significant cost pressures, new technological developments and high public expectations on a transition to renewable energy. E&R companies that have not fully assessed the current pace and impact of change might create a false sense of control, based on a notion of a more stable business environment. A false sense of control is even more dangerous than facing risks and acknowledging that the organization may be unable to handle them. Therefore, more and more Energy companies are making a fundamental shift from controlling organizations to creating the ability to respond.
Resilience and response
So what does such a system of resilience look like? First of all, E&R companies need to be aware of the pace of change, rising insecurity in the market and the fact that classic control frameworks are not as effective anymore as they used to be. In addition to focusing on diagnostics and prevention, frameworks should develop resilience capability such as stress testing and interactive simulations.
Rembrandt’s ‘Night Watch’
For instance, let us have a look at effective protection of famous works of art. Rembrandt’s ‘Night Watch’ might be the most valuable piece of the Dutch heritage. However, contrary to the ‘Mona Lisa’ in the French Louvre, it is not hidden behind bulletproof glass – any visitor could try and touch it. Yet if they did, they would immediately be overpowered by the nearly invisible guards protecting it, carrying toolkits to prevent any damage from e.g. acids. In fact, they would probably have been identified as high risk individuals as soon as they entered the Rijksmuseum, based on an analysis of facial recognition, criminal record, and suspicious behavior.
Trust and data
This is the kind of vigilance and resilience that is required to be in control in times of exponential change. It is based on trusting your business owners, and providing them real-time with data that is tailored to their needs. At Deloitte, we call this Risk powers Performance. Rather than providing assurance through checks and balances in predefined scenarios, this approach enables the business to act with the insights that are being provided. It also means moving from descriptive analytics to predictive and even prescriptive analytics: “on this refinery we expect an unplanned shutdown to occur within the next month, please act as follows”.
From risk to opportunity
It also means: not being a victim of exponential change, but using its options to your benefit, such as providing real-time information, better analyses and improved business information based on Big Data and smart analytics. This approach pushes the ownership of control back to the business. E&R companies are able to move from the inherent uncertainty that exponential change brings, to technological opportunities. In other words: from risk to opportunity.
The power of ‘the crowd’
It is also important to acknowledge that new IT companies are often much more effective and agile than corporates. The power of ‘the crowd’ quickly catches up on new solutions and offers more superior solutions than in-house developments. In order to stay ahead of the competition, even large corporates increasingly consider off-the-shelf, market-based solutions.
Opportunities for oil and gas companies
Naturally, working with off-the-shelf solutions offered by various suppliers also bears risks, such as the risk of having to interface many more different systems or the vendor dependency risk. But the opportunities (agility and innovation power) simply outweigh the risks. Take for instance the enormous opportunity related to vast amounts of unused data provided by millions of sensors offshore. Oil and Gas companies will focus on core activities such as exploration and production but will largely outsource solutions related to data analysis and process automation.