During the last year have I been involved in many discussions on digitalisation, particularly on its possible effects on the oil and gas industry. There is no doubt that digitalisation will impact all industry, the hard part is guess how.
Most of the discussions have been on how digital technology will impact industrial value chains and the production and consumption of goods, including oil & gas. Basically, how to do the things we already to more effectively. What has been less visible is how digital capabilities can be used to create new revenue streams. How can we use digitalisation to redefine industrial borders.
My favourite example of what this might mean is Amazon. They started out as an online retail book store. To build the store they needed a data centre, which they built and learnt to operate. Then they discovered that others also might need a data centre, and they developed AWS (Amazon Web Services). Today AWS represents a business in its own right targeting a different market than the original retail book store. This is the effects of digitalisation.
What can we learn from Amazon? The main lesson is to understand that digital skills can have value outside your primary line of business and that the introduction of digital capabilities blurs the boundary between supplier and consumer. Digital capabilities will change the power balance within industrial value chains and avoiding becoming the easiest replaceable middle man become a race in its own right.
The second thing to grasp is that within digital being a first mover has value in itself. For a competitor to catch up with Amazon on cloud services today is not easy. The third thing is that digital capabilities require continuous development with high frequent deliveries. This is very different from the business models used within long term CAPEX based industries.
A totally different effect of digitalisation is that actionable data has a value in its own right and that data enables new business models within existing industries. A good example is seen within the aircraft engine industry where actors as Rolls Royce and General Electric do not sell engines anymore, but they lease engines to the airliners on outcome based contracts.
What has made this possible is the real time monitoring of the engines, combined with condition based maintenance and the ability to optimise spare engines across airliners. A Boing 737 is a Boing 737 independent of airline.
The same model is applicable for other industries as well. Move sales from physical products and time and material services to outcome based services that includes leasing of physical machinery. The effect is reduced upfront capital expenditure and payment as fraction of produced value from the asset.
To take advantage from these opportunities requires that industrial enterprises adopt´s Internet thinking, and starts to develop and exploit their digital capabilities and assets.