Digital advances have pushed oil and gas operators to deeper waters, remote reservoirs and unconventional plays. On the surface the industry appears to be a role model for innovation. But that’s not always the case. Technology advances exist in silos rather than throughout the organization of many oil and gas companies. And one doesn’t have to look hard to find business operations using outdated means of data entry, for instance, despite ample innovations to replace them.
A recent EY survey highlighted this disconnect. It showed that 83% of U.S. oil and gas executives think the industry is excellent or good at leveraging innovative technology. When asked about applications for new technology, 64% indicated the opportunity for frontend (in the field) processes. Only 6% of respondents indicated back-office processes.
This unfocused approach to digital transformation is fast becoming a serious hindrance to companies’ abilities to withstand commodity price volatility. Most companies have exhausted traditional cost-cutting initiatives over the past couple of years and must now take a hard look at their operating models.
Executives know the industry tendency to resort to headcount reductions during cycle downturns is not sustainable. Sources estimate nearly 400,000 layoffs in the industry occurred following the 2014 oil price drop, repeating a pattern established with previous pricing cycles. Companies need to find a means to break free of this reaction to squeezed margins. That’s where digital transformation comes in. New innovations can deliver real sustained value to the bottom line.
But where to begin? Robotic process automation (RPA). The name calls to mind a vision of robots managing a production line, but in reality RPA is customized software designed to execute business processes. This digital labor includes accessing and gathering data from different sources, moving data from one system to another and checking data consistency.
The business case
Cost savings and improved margins are the primary motives for many oil and gas companies to embrace digital innovations. In fact, 77% of U.S. oil and gas executives identified cost (i.e., reduction, effectiveness, economics, profit and efficiency) as the primary driver of technology adoption. Digital labor is one innovation proven to deliver on this promise.
RPA offers a variety of highimpact benefits that contribute to cost savings. These include:
- Reliability: The system is operating around the clock. There are no gaps in service;
- Right-shoring: Virtual systems allow geographical independence;
- Accuracy and compliance: The right result, decision or calculation is always made at the right time;
- Control: Detailed activity logs are accessible;
- Retention: Employees are freed from administrative tasks to focus on value-added activities;
- Consistency: Automating activities with digital labor eliminates the change management implications based on the way processes have always been performed;
- Scalability: Systems can ramp up or down to match demand peaks and troughs; and
- Security: Digital labor can’t be phished nor click on nefarious email links, and robots won’t write their password on a sticky note and put it on their monitors.
The immediate reaction to any new innovation is often skepticism over the cost of investment. The good news for executives is that tapping into the benefits of RPA is relatively inexpensive, and pilot implementation can be completed in four to six weeks. What’s more, companies can begin to see a return on investment almost immediately due to the agile approach to development.
Research shows that the cost-saving opportunity increases too with experience and continued advancements in robotics tools. In 2015 Mindfields calculated that RPA used across sectors for key processes such as front-office functions, finance and accounting, supply chain, and human resources provided average cost savings of 17%. By 2020 it is predicted that this number will jump to 42%.
That’s a business case that should resonate with most executives. The next question is how to get started.
A measured approach
Setting out on the digital labor journey is easier than expected. Companies can begin their strategy with targeted introduction of RPA that guarantees a quick win and justifies investment. That means identifying and applying RPA to a small, specific set of tasks that revolve around data entry and routine work and that are rulesbased. From there companies can gain proof of value. Then, once initial pilots are complete, companies can expand the program to benefit other areas of the business and impact more complex value processes.
This approach helps support the broader cultural shift required in the organization when introducing digital labor for the first time. Easing in to the new model gives leaders and employees alike the chance to witness small-scale benefits and buy in to a new way of working.
Impact on workforce
RPA implementation raises questions over the future of the oil and gas workforce. Digital labor works in any function where employees are carrying out manual tasks. These tasks are typically time-consuming and don’t put employees’ skills or experience to work. By digitizing these tasks, companies can both improve performance and free people to focus on value-added or customer-facing activities. If used effectively, each implemented robot can eliminate work for three to four employees. That’s significant savings of time that can be used differently in the organization.
As organizations see efficiencies as a result of digital labor, they will have to determine whether or not they want to redeploy their employees to other projects or take the hard savings. Nearly two-thirds of executives acknowledge that new technology will require companies to retrain and redeploy existing employees. More than half also believe digital labor will create opportunities and necessitate hiring new talent.
The introduction of RPA also changes the skills needed in the workforce. More than 80% of executives acknowledge the industry will need to develop an educated, highly skilled workforce over the next 10 years in contrast to a mass workforce. Human resource professionals will have to work with their organizations to redesign existing roles and identify new competencies required for the future.
The skills needed to operate in a more digital environment won’t necessarily be unique to the oil and gas sector, however. Companies will need to compete for the same technologically savvy talent with several other industries. And attracting the talent to oil and gas will require companies to bridge a growing divide between the industry and younger generations. The EY survey results show that Generation Z and Generation X are the least trusting of the workforce. To complicate matters further, 56% of U.S. oil and gas executives think the industry only does a fair or poor job of attracting young people.
The strategic and cultural shifts to a new digital workplace are well underway in many industries. That doesn’t mean the opportunity has passed for oil and gas—quite the contrary. Companies looking for the next level of efficiency improvements and cost savings can choose to embrace automation. At a time when budgets and workforces are stretched thin, companies need to stop talking about digital transformation and start implementing. Why not start with RPA?
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
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