By: Silvia Rigato, Strategy Managing Director and Middle East Energy lead Accenture and Rami ElDebs, Energy Strategy North America Accenture
Cloud is a paradigm shift in computing, offering seamless and flexible access to virtually infinite computational power. With cloud, companies can employ applied intelligence and respond to their business and market needs at speed and scale. They can accelerate innovation, drive business transformation as well as streamline operations, and reduce costs. For all these reasons, cloud is now a “must-have” capability.
The energy industry has witnessed remarkable disruption over the last decade. The abundance of resources has pushed prices lower, while the world’s accelerating pivot to non-fossil fuels has made oil a less attractive commodity. The convergence of supply and demand issues has caused returns to tumble and positioned the energy sector as the worst-performing industry in the S&P 500. Equity prices continue to erode at three to four times the rate of the broader market. And the share of companies in the S&P index has fallen from 15 per cent to less than 3 per cent. It’s no surprise that debt levels and bankruptcies are up, and investors have moved on, looking for safer shores.
COVID-19 and the OPEC+ nations’ desire to preserve market share have compounded all these challenges.
Crude oil demand fell nearly 20 per cent in the second quarter of 2020 due to massive road and air transportation disruptions and a weaker economy overall. Continuing economic uncertainty and excessive amounts of oil in storage are sure to keep a lid on commodity prices for the foreseeable future. Against this backdrop, the industry is now at an inflection point. The days of energy companies holding on with incremental performance improvements are over. Reinvention is required – one that can multiply the Return on Capital Employed (“ROCE”) by 2-3 times and make companies agile, resilient, competitive, and sustainable. And that’s where cloud comes in.
Cloud transforms the energy industry in two major steps. First, it breaks the data and technological silos that have hindered the industry’s transformation, by providing instant connectivity and scalable computing power at a lower cost, and integrating data sources typically housed in siloed on-premise systems. Second, it supercharges the newly integrated enterprise with differentiating capabilities such as artificial intelligence and machine learning, opening the door for unconstrained innovation. As the amount of data continues to proliferate—or rather explode—at energy companies, these analytical and artificial intelligence capabilities will become even greater necessities.
Cloud touches every aspect of the energy industry. Upstream, midstream, and downstream value chain elements can be run more efficiently, with higher margins. Capital projects can be streamlined, accelerated, and managed much more effectively with less waste.
Retail segments can take full advantage of customer insights and apply new tools like cloud-based scenario modelling to optimise everything from pricing to product placement. To reap maximum benefits from cloud, energy companies must transform the “old core” while exploring new business models. First, they must build elastic cloud-hosted computing infrastructures with a pay-as-you-go model. Second, they must transition from their legacy core applications (both enterprise and core business) to cloud-native architectures to take maximum advantage of integrated processes and data, e.g., moving to a cloud-based enterprise resource planning (ERP).
In parallel, they should consider pursuing an entirely new platform and applied intelligence-powered value propositions.
There has never been a better time for energy companies to begin their cloud journeys. In fact, on top of the transformative value that cloud unlocks, the market for energy companies is ripe. Cloud providers have matured their energy-specific offerings and are competing for market share with innovative deal structures that may alleviate energy companies’ initial migration investment. Irrespective of the commercial structure the deal may take, a cloud journey done right typically self-funds itself within 3 to 5 years.
Of course, there will be challenges along the journey to cloud. There always are. But those challenges can be overcome. The right strategy and leadership commitment at the front-end are essential, as are a new operating model, a well-planned implementation roadmap, and the proactive management of new ways of working that cloud introduces to the organisation.
Regardless of the form your journey to cloud may take, there is no time to wait. There are four key steps that energy companies can start taking today to launch their cloud-enabled transformations:
- Business objectives: Start by defining clear business objectives for cloud, from technology cost reduction to business process transformation, and new industry transformation propositions
- Sourcing strategy: Design a sourcing strategy for cloud, deciding which processes to keep running on-premise and which processes to migrate
- Current applications: Access your existing applications for cloud readiness and decide which to re-platform, discard, or migrate as-is
- Operating model: Develop an operating model that encourages the use of analytics and new ways of working
This column first appeared in the November issue of Pipeline Magazine