Do Oil and Gas Boardrooms Lack Digital Focus?
In a previous post, we summarised the key findings of a recent McKinsey report on ‘The Oil and Gas Organisation of the Future’.
Advances in digital technology, according to the report, are disrupting old ways of working, providing opportunities for significant improvements in productivity. Automation and cloud connected equipment, in particular, are leading to a data explosion in the industry. Successful oil and gas companies of the future, according to McKinsey, will need to develop advanced analytic skills to derive actionable insight from the wealth of data being generated. They will need to digitally transform traditional ways of working, implementing new, decentralised, agile, flexible and fast moving organisational structures to act quickly on this data.
While the report presented a strong case for digital transformation, little was said about the implementation barriers in ‘getting there’. Most oil and gas executives we talk to are less concerned about disrupting organisational structures or business models. Their main focus is on improving technical and operational capabilities building on the large, untapped potential of existing data; continuous improvement using more advanced analysis techniques rather than holistic transformational change as recommended by McKinsey.
There is also a related question to ask – is digital transformation being given the priority it deserves in oil and gas boardrooms, or is it still considered of secondary importance? Digital transformation requires a strong vision agreed at the very top of an organisation. Does the oil and gas sector have board level digital leadership capabilities to drive transformative change?
A number of recent studies have pointed to an emerging digital leadership and digital skills shortage in the industry. These are summarised below.
In a follow-up post, we will discuss in more detail the way in which data driven actionable insight can be used to implement effective change management and continuous improvement within the sector.
The Digital Leadership and Digital Skills Challenge in Oil and Gas
Digital transformation is not just about technology. For most organisations, it represents a massive change in the ‘way things are done around here’.
If oil and gas companies are to succeed in moving to more agile organisational structures and ways of working, as recommended in the McKinsey Report, a new breed of senior executive will be required – ‘Digital Leaders’. Senior executives who can combine high level business knowledge, experience and understanding with the ability to develop digital transformation strategies fully aligned with and supportive of agreed business goals and objectives. Leaders with the confidence and personal skills to drive disruptive organisational and operational change.
While some innovative leaders are already performing this role, serious questions are now being asked regarding the sector’s preparedness for radical change due to an emerging shortage of digital skills.
Recent reports by GE and Rigzone, the hub website for the industry, warn of a digital talent shortage in oil and gas. With low oil prices accelerating retirements and departures by experienced workers, fifty percent of the workforce could retire by 2025, taking decades of domain knowledge and experience with them. Given the current financial constraints on hiring, the industry does not have a comparable pipeline of younger, tech-savvy workers to fill this gap.
In particular, as digital becomes core to everything the industry does, there is an urgent need to attract millennials who possess the software skills needed to manage the new systems replacing manual and repetitive tasks with automated, rule-based decision-making. Digital transformation will only take place with the right leadership and skill sets in place including data scientists, software developers, business analysts and project managers, according to both reports.
Similar concerns were expressed in a recent paper by Russell and Reynolds Associates, an executive talent company with specific expertise in the oil and gas sector. Their report, entitled ‘The Digital Future is Now: Executive Talent Implications of Digital in Oil & Gas’, warns of a growing digital skills and leadership problem. Based on a survey of over 3,000 respondents across a range of industries only a third (35%) of respondents from oil and gas stated they have the right people to execute digital strategies. Only 27% per cent observed that they had the right organisational structure in place to take advantage of digital opportunities.
The top three barriers to digital transformation identified by the survey were all people related: lack of digital expertise and skills; insufficient management bandwidth; and leadership’s perception of digital strategy as being of secondary importance.
As digital technology moves from the periphery to the core of the industry, the demand for tech-savvy talent will continue to grow as oil and gas companies increasingly look for digital leaders to guide transformation. While there is recognition that digital skills are urgently required at leadership level to take full advantage of emerging growth opportunities, a survey of 100 board members from the 10 largest US oil & gas companies, found only 3 senior directors with any technology experience and none with digital experience. There is also an urgent need to provide digital skills training to the existing workforce to ensure proper integration of new digital and old technologies.
Finally, a report from Bain & Co, one of the world’s largest management consultancy businesses, provides interesting insight into the people aspect of ‘Becoming a Digital Oil and Gas Company’, especially the growing requirement for leadership skills in data analytics. The report argued that most oil and gas companies are not capturing the full potential of their data, failing to generate actionable insights or make better and faster decisions based on data.
There are three main reasons for this: the failure to develop an integrated digital strategy built around data analytics; the failure to connect information ﬂows in ways that will actually improve how the organisation operates (an issue to be examined in more detail in our follow-up post); and the failure to invest in people.
The latter is seen as the most common pitfall in unsuccessful transformations. Executives should assess their team’s current capabilities and develop a plan to manage change and improve technical expertise. Assuming that front line staff will automatically embrace new processes and digital technologies is a dangerous assumption to make. Change-management programs and digital staff capabilities are needed to help smooth the transformation, according to Bain.
As always, comment and feedback are very welcome.
Is your organisation facing a digital leadership and digital skills crisis?