Feb-2019

What the Energy and Chemical industry should learn from the music industry

The Energy and Chemical industry is in desperate need of a shake-up. It is at or near the bottom of every industry digital maturity league table.

Duncan Micklem
KBC (A Yokogawa Company)

Article Summary

The only thing that seems to stop it being relegated is that it constitutes the basic building blocks of consumerism. Global citizens maintaining their daily lives require energy and an immense array of basic, specialty and consumer chemicals to satiate their wants and needs. And so, the industry continues to chug along.
 
The collapse of oil prices in 2014 was a big wakeup call which fortunately spurred on a lot of innovation. But the Energy and Chemical industry remains very conservative. Yes, its processes are more complex and there’s more risk involved, but there’s low-hanging fruit in many places. Digitalization doesn’t require an overhaul of all technology, but nonetheless there’s lots of outdated technology that is resulting in inaccuracies, lulls in productivity, waste, and always the potential for serious events. Plants that do not adapt risk losing ground to the competition and being consumed by the market.
 
There is little doubt that digitalization of the asset lifecycle and value chains will drive safer, more reliable and profitable operations. But how can decision makers take their digital leap if they keep tripping over the use of “digitization” and “digitalization” and the subtle but deep implications of the differences?
 
Shifting the needle
Looking at the music industry, a sector that stands miles apart from the process industries, you may think, but there are many similarities when it comes to both commoditized format and its service to audiences. In the 1980s music digitized when CDs replaced vinyl, but the business model didn’t change. People still bought a physical disc and manually inserted it into a player. It included all the songs on it, even if you didn’t want them all, and if you wanted to share it with people, you lent it out. Big corporations determined consumer choices, and music genres and selections were limited.
 
Skip forward and digitalization had taken over. Music was no longer delivered on a physical medium – you buy a right to play music track-by-track, which could be assigned to any player. The music host then intuitively learns your preferences and suggests other music you might like. And the industry became more democratized, whereby the music of unknown artists could be found, heard and bought as easily as global popstars, and music genres became more fragmented as the seller can segment their market.
 
From analogue to digital
This is a very apt analogy of what is happening in the Energy and Chemical industry today. In much the same way in the 1980s, the sector digitized when digital control systems replaced pneumatic and electronic for analogue, to generate data directly addressable by software applications. The past model was to read strip charts by eye to gather data, run calculations by hand on paper, communicate by mail, phone and radio, and buy from catalogues. But when the initial change came, it was “digitization”, not “digitalization”, and energy companies were left questioning what tools to buy and how to use them. The business model was for the owner to buy stuff and make it work themselves to solve their problems.
 
Digitization is simply a change of format from analogue to digital, but essentially business as usual.
 
Digitalization, by contrast, has a far greater outcome-oriented ambition – it is the scalable application of the digital technologies and alignment of the organizational capabilities with digital information at the core, which we believe, the process operation should have and master in order to achieve excellence. Digitalization focuses on buying outcomes, becoming supervisors of problem solutions, not merely data gatherers.
 
If done right, Digitalization generates revenue, improves business performance as well as process, solves problems that could not be solved before, empowers personnel and makes them more effective.  It builds a culture with digital information at the core.
 
Digitalize now
Digitalization has been enabled by rapid growth in technology capabilities and the acceptance of new business models. Most in the industry are only just beginning their Digitalization journey, but some are already embracing it and are pulling themselves ahead of the rest. Digitalization creates and sustains competitive advantage, and those who are not Digitalizing now are being left behind – they will be consumed in the market place. It’s clear that now is the time to Digitalize.