Digitalise Not Digitise: The Key to Successful Growth in the Energy and Chemical Industry
Andy Howell, CEO of KBC, reflects on how he has taken KBC from a small consultancy firm in oil refining to a global leader in digital solutions across the Energy and Chemical industry. He calls on the energy and chemical industry to Digitalise or risk becoming obsolete. As an avid owner of a Kawasaki ZZR Ninja racing bike, Andy knows all about being fast-paced and agile, but at the same time understands the sustainability and responsibility that his small children are demanding from the energy sector.
Growing up I loved to fix things and I always knew I wanted to be in science and engineering but didn’t know how this could translate into the real world. It was the wise words of a teacher that pushed me to pursue a career in Chemical Engineering. At Cambridge University, studying for a master’s degree, I got my first insight into how technology drives continual change and improvement. I don’t think any of us back then realised how that would accelerate to modern day.
Prior to my current role at KBC and after working for a number of big oil companies, I took on a role at Hyprotech, a very small, innovative and fast-paced software company in Canada. Here I experienced probably the biggest learning of my career – the need for creative and innovative thinking closely coupled to quality processes. After being posted to many exotic locations around the world including Africa, Asia, Americas and the Middle East, I was more than ready to put my learning into practice and jumped at the chance to return home to London UK and accept the role of CEO at KBC.
Before I joined KBC, the company was known as a small consultancy firm, that offered unique techno-economic advice to the process industries, primarily oil refiners. I had a vision, born from my experiences at the likes of BP, Schneider and Schlumberger to shift the dial and move the company into the 21st century. We soon began an effort to further the acceleration of commercial software technology that both supported and captured the essence of our consulting business, and within three years, I’d completely overhauled our business processes.
While a lot has changed for KBC as a company during my eight-year tenure, one thing that has become increasingly clear is that the Energy and Chemical industry is in desperate need of a shake-up. It is at or near the bottom of every industry digital maturity league table. The only thing that seems to stop it being relegated is that it constitutes the basic building blocks of consumerism. Global citizens maintaining their daily lives require energy and an immense array of basic, specialty and consumer chemicals to satiate their wants and needs. And so, the industry continues to stumble along from one boom cycle to bust with less and less stability.
Digitalisation will be key to boosting efficiency
To drive the much-needed shake-up within the industry, and stay ahead in today’s highly competitive market, energy and chemical companies must look to boost efficiency by driving costs down and drive sustainable energy production up. In the long term, demand for oil is not going to go up – it is going to be, at best, stationary, expected to peak within the next 20 years. Energy usage is already starting to be supplied by other sources, so it doesn’t take a genius to work out that norms will be challenged. Despite 1980s hype around ‘peak oil’ the industry has done an excellent job using physical equipment technology and processes to access stranded and expensive resources. The next wave of improvement will come from digital rather than physical assets. The only way for the energy and chemical to thrive is by harnessing digital technologies in order to streamline processes and drive down costs. Being agile to respond to market change and accurately deliver products to the market, at the right time, is essential.
Contrary to popular belief, Digitalisation isn’t an overhaul of all existing technology, yet there is a lot of outdated technology that is resulting in inaccuracies, lulls in productivity, waste, and safety implications. Digitalisation is the outcome orientated application of technology driving safer, more reliable and profitable operations of the asset lifecycle and value chains, breaking down organisational silos.
The collapse of oil prices in 2014 was a further wakeup call for the industry, but the Energy and Chemical industry still remains very conservative when it comes to innovation. Whilst its processes are more complex and there’s more risk involved, there are simple, yet high-impact Digitalisation initiatives that companies can get started on today.
Many within the energy and chemical industry still remain uncertain over exactly what is meant by Digitalisation. The main issue being that for many the concept of “Digitalisation” is being confused with “digitisation”, the process of converting information into digital format. How can decision makers take their digital leap if they keep tripping over the use of “digitisation” and “Digitalisation” and the subtle but deep implications of the differences?
What we can learn from the music industry…
Take a look at the music industry 30 years ago – this is a very apt analogy of what is happening in the Energy and Chemical industry today. While this sector appears to stand miles apart from the process industries, there are many similarities when it comes to both commoditised format and its service to audiences.
In the 1980s music digitised when CDs replaced vinyl, but the business model didn’t change, only the format. People still bought a physical disc and manually inserted it into a player. It included all the songs on it, even if you didn’t want them all, and if you wanted to share it with people, you lent it out. Big corporations determined consumer choices, and music genres and selections were limited. Our relationship with the vendor was unchanged with digitisation. We still went to the shop and we still paid a lot of money and we had to know what we wanted.
Skip forward and Digitalisation has taken over. Music is no longer delivered on a physical medium – you buy a right to play music track-by-track, which could be assigned to any player. The music host then intuitively learns your preferences and suggests other music you might like and even sells you concert tickets direct to your inbox. The industry has also become more democratised, whereby the music of unknown artists can be found in seconds, heard and bought as easily as global popstars, and music genres became more fragmented as the seller can segment their market. The early fears of the music industry of Digitalisation have proven to be unfounded and today music is more vibrant and more accessible than ever with higher revenues and lower costs.
Digitisation vs. Digitalisation
In much the same way in the 1980s, the energy and chemical sector digitised when digital control systems replaced pneumatic and electronic replaced analogue. This generates data directly addressable by software applications rather than the past model, which was to read strip charts by eye to gather data, run calculations by hand on paper, communicate by mail, phone and radio, and buy from catalogues. But when the initial change came, it was “digitisation”, not “Digitalisation”, and energy companies were left questioning what tools to buy and how to use them and what business processes needed to change.
Digitisation is simply a change of format from analogue to digital, but essentially business as usual. Digitalisation, by contrast, has a far greater outcome-oriented ambition. It is the scalable application of the digital technologies and alignment of the organisational capabilities with digital information at the core, which we believe, the process operation should have and master in order to achieve operational excellence. Digitalisation focuses on buying outcomes, becoming supervisors of problem solutions, not merely data gatherers.
If done right, Digitalisation can generate revenue, improve business performance, solves problems that could not be solved before, empowers personnel and makes them more effective. It builds a culture with digital information at the core.
Now is the time
Digitalisation has been enabled by rapid growth in technology capabilities and the acceptance of new business models. Most in the Energy industry are only just beginning their Digitalisation journey, but some are already embracing it and are pulling themselves ahead of the rest.
To help those at the beginning of their Digitalisation journey we have designed a five-stage Digitalisation Roadmap. When applied to a given operating challenge, the roadmap reminds us what to consider in order to recommend, design and build the applications and capabilities needed to achieve and sustain excellence. Following it will ensure you overcome the barriers to success.
Wherever you are on your Digitalisation journey, there is a Digitalisation project you can start today that can be completed quickly and will have massive impact. For example, if you are just starting, then a readiness assessment is for you; if you are well on your way, then an energy management and optimisation project would be right for you, or maybe you have something else in mind. If you have already started and are suffering some setbacks due to data issues or unclear or changing objectives or people skills, then you can run a readiness assessment or develop your KPI stewardship program in parallel.
Digitalisation creates and sustains competitive advantage, and those who are not Digitalising now are being left behind – they will be consumed in the market place. It’s clear that now is the time to Digitalise. Since 2000 around 52% of Fortune 500 companies have merged, failed, delisted or disappeared. This pace of business change has never been more volatile, and I invite you to be the highly tuned racing machine of the Energy sector.
