The oil business needs to explore more effective ways of capturing the benefits from technology it imports from other industries. With the explosion in high-tech, there are more opportunities than we can evaluate. Unfortunately, the current system of adoption is not developing the most valuable applications.
The rate of change is accelerating and developments in computers, telecommunications, robotics, automation, and bioengineering will soon be available to the oil industry. Many recent industry breakthroughs including 3D seismic, visualization, real time systems, micro-robotics, and artificial intelligence had their origin in the information technology (IT) industry.
The costs of IT keep plummeting as further breakthroughs continue. While this should be good news for an industry looking for new ways to cut costs and increase productivity, the current approach to developing new applications requires too much time, does not produce the desired results, and does not take advantage of technologies with great short-term potential.
The impact of new technology on the oil industry is evident in the accomplishments of the last 20 years. Still, most companies in the industry place a low priority on technology development, evidenced by the relatively small budgets and absence of a cohesive approach for developing new applications. In addition, there is a discrepancy between many companies' stated technology objectives and the way resources are allocated.
M&A fallout
In public interviews, press releases, and annual reports, the CEOs of almost every major company in the industry convey a commitment to using new technology. There is sincerity in their desire to carry out this objective, but often restructuring through mergers and acquisitions takes precedent over high-tech, cost saving solutions. Ironically, about 60% of these mergers and acquisitions (M&A) events will fail to increase shareholder value or create a competitive advantage, according to a study conducted by Delloitte Consulting.
The answer clearly is not to cut workers, but to cut waste. High-tech solutions can make existing operations more efficient while differentiating a company, helping to define its competitive advantage in a way simple cutbacks will not. To take advantage of these innovations we need a method of managing the adoption of innovative technology that provides better results than we have achieved in the past.
The last 20 years have brought enormous innovation to the oil industry. Technology has helped solve many problems and enabled the industry to do what was previously unimaginable. Remarkable changes have brought about greater recovery rates and lower costs to many areas thought to be marginal or untenable. The list of successes in seismic, drilling, completion, and production technology is long and growing. And yet, there has been a widespread recognition that the research and development conducted by the industry is not providing satisfactory results.
Process is key
What effect would it have on the return on investment and net present value calculations if we could cut in half the time needed to develop technology into application: If it promised to reduce Capex and Opex by 30%? If the technology had the promise of making a deepwater play economical?
The industry has imported the "technology." Now, it needs to import the process of developing it into applications. Managing the adoption of innovative technologies (MADI or NPP) is a process that has been used successfully by US companies (Bell Labs, IBM, P&G, Johnson & Johnson).
The process should be similar to that used by the venture capitalists - evaluating and developing technology "deals" based upon a clear and realistic criteria for selection. The process involves a disciplined approach that systematically looks for opportunities to innovate and to manage the risk.
There is an inclination in the industry, and a mandate in difficult times, to extend what we feel comfortable doing and not to venture "out of the box." The opportunities likely to create the greatest value will not come from performance improvements or minor innovations, but from new processes that go far beyond existing boundaries.
- Joint industry projects or direct alliances between oil producers and services companies can be used to obtain performance improvements of existing products and processes.
- Innovation requires the existence and development of entrepreneurial management. The entrepreneurial spirit displayed in the exploration for hydrocarbons needs to be carried over into "exploration for applications for new technology."
- New paradigms can bring great value to companies that commit to specific technologies and who have the entrepreneurial strategies needed to bring innovations successfully to market.
Entrepreneurial management
The basic principles and practices enumerated by Peter Drucker in his work on innovation and entrepreneurship are worth revisiting. The definition of the "policies, practices, and measurements that make possible entrepreneurship and innovation" are still valid. Drucker defines the "dos and don'ts," removal of impediments, creation of proper attitudes and tools, and the structure needed to innovate successfully.
The petroleum industry is violating many of these principles and there are some key unresolved issues that bring up many questions. Is it reasonable to expect an oilfield service company to obsolete an existing product line in order to provide an oil producer with a lower price - without ensuring that the service company receives an adequate return? Does an oil producer really want to outsource the development of key technologies - the producer's future - to an oilfield service company that may become a competitor?
We need to manage the innovation process to overcome some of the present inefficiencies in the development of new technology, and capture the value of these innovations in a much shorter time.
Neil De Guzman
President & CEO
IIC Technology
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