Early adopters must explore new business models to leverage growth opportunities.
In his recent book, “The Three-Box Solution” (Harvard Business Review Press), Professor Vijay Govindarajan outlines the three-box approach to lead innovation. In the accelerated approach to managing business transformation in the age of hyper disruption, his formula is simply characterized as maintaining a balanced approach to thinking in boxes when it comes to re-inventing your business:
Box 1- Focus on the core for peak efficiency and cash generation.
Box 2- Move forward by escaping the traps of the past and letting go of practices and businesses that are beyond their prime.
Box 3- Develop breakthrough ideas and focus on generating profitable impact from them.
“A judicious mix of efforts in the three boxes will help the industry manage the transformation journey”
A judicious mix of efforts in the three boxes will help the industry manage the transformation journey. The challenge for the industry is focusing on Box 2 and Box 3 when all the chips are in Box 1.
This could be the characterization of the O&G industry in its both early days and today as we face an existential crisis. Frost & Sullivan launched the Benchmarking 1.0 initiative focused on innovation practices (i.e., Box 3 activities, well before the good professor’s book was published), a few years ago. But as oil began its roller coaster into the 30s and lower, it was clear that the industry needed to look into Digital Transformation as well; i.e., Box 2. Frost & Sullivan launched the Benchmarking 2.0 initiative to understand the challenges, opportunities, and vision for digital change. Digital transformation has been viewed by many in the industry as a way to overcome the recent issues.
Factors like aging workforce and assets, global volatility of prices, margin pressures, and exponential increases in threat vulnerabilities (also known as the A.G.E. factors), drive the vision for Totally Integrated Digital Oilfields (TIDO). At the fundamental level, the 3Rs of the O&G industry are resource, recovery, and reliability. Enabling technologies like Internet of Things, LTE, cloud, and edge computing hold the promise of helping the industry accelerate the digital transformation vision, making sense of the real-time operational metrics that matter and leveraging advanced predictive analytics to deliver sensory edge insights.
Interestingly, Frost & Sullivan’s Benchmarking 2.0 study findings boxed the industry into the three categories of Enterprise Digitizers, Selective Digitizers and Non-digitizers.
• Enterprise Digitizers: Companies in this category had developed an enterprise perspective of digitization, characterized by a willingness to partner with one or more solution providers with a strategic technology vision. Their biggest pressure point was increasing margins and advocating the need to invest in innovative technologies with current cost pressures.
• Selective Digitizers: Respondents in this category wanted to pursue digitization, yet were selective due to investment and cost constraints. Change management was a challenge and was slowing down the adoption of new technologies and processes.
• Non-digitizers: Respondents in this category were overcome by significant profitability challenges and cost constraints. The costs of network upgrades and access were pain point for many of these companies. The focus on survival was being balanced with the competing priority of extending the life of aging infrastructure.
The take away is that despite the need to think of Box 3 approaches, all respondent categories were challenged with trying to maintain a balance between Box 1 (focus on the core) and almost contrasting Box 2 and Box 3 activities/priorities.
WALK the Talk
The time to think about digital transformation is well before calamity strikes. Better late than never and never waste a good crisis–use the current challenge and market circumstances to drive a fundamental transformation.
Across the board, over the next 12 months, ensuring a response to evolving cyber security threats was a critical issue even though a significant focus was on compliance to regulations. Enterprise Digitizers and Selective Digitizers were focused next on leveraging Big Data and analytics for improved performance. There was significant interest in on-demand analytics to provide critical insights. Analytics was also likely to migrate to cognitive analytics in the next 18-24 months. The Non-digitizers were more focused on selective investments to improve networking and communication infrastructure.
Based on the survey findings, there was clear need for the industry leaders (the Enterprise Digitizers) to share their success and milestones with others in the industry (i.e., the Selective Digitizers and Non- digitizers) to accelerate the journey toward digital transformation and the vision toward TIDO.
While the general industry mood was to conserve financial resources, the current global volatility and industry health has driven home the message that there is no harm in continuing to think inside the box–but change the label. Professor Govindarajan’s strategy might well be what the industry needs.
CIOs, CFOs, and CEOs must be willing to explore business model changes and leverage ecosystem solution providers’ approaches, like platforms and cloud-based analytics, and monitor advanced persistent threats as we embark on this journey toward digital. Early adopters will gain the advantage, whether oil prices rebound or stay low.