Successful innovation in the oil & gas industry – how it works
Ten essential types of innovation
Oil and gas companies have become incredibly successful because they have solved complex challenges. However, if they want to remain successful, they should reinvent themselves and expand their innovation focus beyond product innovation.
What is the discipline of effective innovation and what can the oil and gas industry learn from truly innovative companies? Those were two of the key questions at the Deloitte Oil & Gas Conference last June, in Roterdam. To answer the first question: truly successful innovators manage innovation as a portfolio of ambitions and resource their efforts accordingly. They know where to play, how to win, where to invest and where to expect returns. They go beyond product innovation and discern ten types of innovation. Also, they treat innovation as a discipline, so for instance they create a smart metric system and valuation methodology that reflects the ambition.
Ten types of innovation
Now let’s focus on these ten types of innovation, which are more elaborately described here. When discussing innovation, we tend to think about product innovation only, whereas we should consider a much more diverse set of innovation types, consisting of profit model, network, structure, process, product performance, product system, service, channel, brand, and customer engagement. These ten types each have a material impact on a firm’s competitiveness and its ability to engage its customers. Some of them may be more relevant to a particular business than others, but key is to remember that there are in fact ten of them and that they are mutually reinforcing.
To answer the second question: there are inspiring examples of effective innovation in many industries, one of them being the unmanned aerial vehicle program that was developed by a global leading manufacturer of e.g. defense, space and security systems. This company is very conscious of what its customers need in order to be effective. Therefore, instead of simply developing drones for one of their customers, they developed a system for persistent surveillance. It does consist of drones and drone maintenance, but also of a number of other piloting, data analytics and recognition services that provide real time intelligence for decision advantage.
Looking beyond product innovation
This approach to innovation offers great opportunities to oil and gas companies. Most players in the industry have been focusing almost exclusively on product innovation (better formulas) or process innovation, to realize greater efficiencies. Many of them have largely neglected innovation around customer engagement, brand, service, and networking. Although there is a nice example of more extensive innovation from the energy and resources industry – an energy solutions provider that sells solar energy as an investable asset. This company raises capital through crowd funding, aiming at individual investors at a time when home ownership is declining and credit restrictions are strong.
Reinventing the industry
In a way, the current situation in the oil and gas is similar to the tobacco industry 30 years ago. Oil and gas companies have become incredibly successful because they have solved such complex challenges. Yet the world is changing at an incredibly rapid rate, with major shifts in all industries. If oil and gas companies want to remain successful, it is about time to focus on more types of innovation than product and process innovation and learn how to reinvent themselves.
Understanding the customer
Where should they look to innovate? A good start might be customer experience, reframing the market opportunity based on what customers want, focusing on what customers will require in the future, and investing in future solutions instead of only focusing on and investing in the products that are being sold now. Examples such as the above show how to make their customers’ problems their own problems and understand how they can help their customers improve their profitability and efficiency.
Organizing innovation internally
The areas that need focus should be supported by the right incentives within the organization. The sales organization and the R&D department need to work together in order to discover what their customers really want and how to deliver these products and services. Also, finance and risk professionals should be involved in the early stages when the company starts to sketch out its future business models and profit drivers. This can be a competitive edge, as it saves time in the final stages of the commercial transformation. That, in fact, is the discipline of effective innovation – and the answer to rapid changes in all industries, including gas and oil.
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