To understand how the practical application of Internet of Things (IoT) technologies can potentially transform traditional operations and create value for businesses, just look to the oil and gas sector. Digitalization of oil fields began in the industry years ago. And now that sensors are more affordable, even small and midsize companies have the ability to track, in real time, data generated from assets ranging from oil wells to pipelines to truck fleets.
The IoT opportunities for oil and gas are diverse and abundant. In fact, a recent report by Research and Markets forecasts that the global oil and gas IoT market, which includes analytics, platforms and devices, will grow to nearly US$31 billion by 2026. Among the factors expected to fuel that growth are the sector’s shortage of skilled talent, the increasing number of cyber attacks it’s facing, and its aging infrastructure. IoT technologies can help oil and gas companies address these challenges.
However, while oil and gas firms generally have been at the forefront of IoT technology adoption, many companies are now experiencing “IoT inertia” in two key areas: digitizing other parts of their business and managing the growing volumes of IoT-related data effectively. Ironically, some of the same issues expected to drive the expansion of the IoT in the oil and gas sector — skilled labor shortages, cybersecurity and technological constraints — are contributing to this state of inertia.
Lack of Skilled Labor
As oil and gas companies face the so-called “Great Crew Change” underway throughout the energy industry, they are racing to recruit millennial talent not only to replace seasoned workers for many roles but also to assume new jobs essential for the digital era — like data scientists and business analysts. While IoT technologies can ultimately help these firms to overcome labor shortages in certain business areas, such as field service, they still need specialized tech talent to help them get the most from IoT initiatives and big data.
Investing in leading-edge technology will also help oil and gas companies attract in-demand workers. Talented people aspire to be contributors in a contemporary, dynamic and digitally focused business with its best days ahead, rather than be bound to a slow-moving dinosaur of a company that is not structured to be innovative and dynamic even though it may have a strategy that asserts it will be.
Oil and gas infrastructure, like all critical infrastructure, is a prime target for hackers. Cyber attacks and malware targeting industrial control systems, and the SCADA systems used to manage them, are becoming more sophisticated, frequent and persistent. Unsecured IoT devices and applications offer entry points and pathways to these critical systems — and to business networks and processes that may span a company’s global operations — so appropriate configuration and diligent management of these solutions are a priority.
That’s a big ask of oil and gas companies, which typically have low cybersecurity maturity and limited IT resources. That’s why so many firms in the industry have been slow to expand their use of IoT technologies beyond the field. It is also true that many of these technologies aren’t built with security in mind, and companies are often reliant on vendors to make critical updates to their products. Robust procedures around the testing and rollout of these tools is thus essential.
While IoT technologies can help oil and gas companies improve operational efficiency, that opportunity is often foiled by an outdated communications infrastructure that doesn’t support IoT connectivity. Many oil and gas firms also lack the cloud-based infrastructure and advanced analytics tools needed to extract relevant information from the raw data sets coming from the growing population of machine sensors, and turning it into information the business can act on.
Lack of interoperability and standardization of devices and solutions are other hurdles to broader IoT adoption by oil and gas companies. The technology firms themselves are hindering progress toward IoT commercialization by developing solutions independently of each other and using different platforms and frameworks. These current practices impact all industries trying to broaden their use of IoT technologies to enhance business performance, not just oil and gas.
Focusing on Near-Term Gains to Achieve Long-Term Progress
Further evidence of the intense push-and-pull that energy companies are experiencing as they look to digitize is found in the latest Executive Perspectives on Top Risks Survey from Protiviti and North Carolina State University’s ERM Initiative. Ranking second among the top five risks for this industry: Rapid speed of disruptive innovations and/or new technologies within the industry may outpace our organization’s ability to compete and/or manage the risk appropriately, without making significant changes to our business model. And ranking third: Resistance to change may restrict our organization from making necessary adjustments to the business model and core operations.
The speed of innovation and the resistance to change are colliding, and that is contributing to the IoT inertia at many oil and gas companies. Companies aren’t moving fast enough to adopt IoT technologies and apply them in new ways, and as they amble, new developments in the space — and opportunities — are passing them by. At this pace, they will not be able to keep up with change, let alone drive it and differentiate themselves.
Our discussions with these businesses have helped us to identify another factor lending to IoT inertia: They are trying to plan too far into the future.
Companies that develop long-range plans — three to five years out, or even longer — for adoption and application of IoT technologies may inadvertently undermine their success by trading flexibility for certainty. IoT technologies are evolving rapidly. So, too, is the IoT itself. That means overly ambitious and complex plans for IoT and other digital transformation efforts aren’t likely to hold up, even on a short timeline.
We suggest that oil and gas companies create strategies for progress that are centered on achieving well-defined goals within short time frames — a more agile way of thinking. For instance, an oil and gas company that wants to explore the use of IoT technologies to improve worker safety could equip a crew at one location with wearables that provide real-time alerts about potentially hazardous conditions or violations of safety procedures. Launching a pilot program will allow the company to determine whether these types of devices should be rolled out to other sites, which types of workers benefit most from wearing them, and how the business can best use the data from these devices.
That’s just one example of how an oil and gas company could start laying a foundation to help take its use of IoT technologies to the next level. Our recent white paper on the IoT outlined some of the opportunities for oil and gas firms as they evolve into digital companies: improving rig uptime and oil recovery rates, reducing oil spillage, and reducing costs are among them. IoT technologies can also help businesses in the sector to innovate and to increase efficiency through advancements in pressure, temperature, flow rate monitoring, and more. But without a viable strategy that will allow them to make measurable progress toward their IoT goals, these companies will continue to struggle with IoT inertia.