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Industrial Internet of Things

Data Driven, the 4th Industrial Revolution – Impact on the Hydrocarbon Industry, Part 5 of 5: Benefits for the Entire Value Chain; Concluding Thoughts

Published on 12/19/2016 | Strategy

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Sugato Ray

An Entrepreneur at heart, I'm a data science professional with a flair for driving disruptive change in organizations through domain exploration and the use of next generation technology. Being an engineer by qualification, critical thinking and analytical skills are my core strengths. A strong advocate of the "Business Backwards" approach, I look at business pains first, and then drive the technological innovation required to address them. I possess strong communication skills, and can convey ideas both effectively and persuasively. I am culturally sensitive and thrive in multi-cultural environments thanks to my transnational (India, Singapore, Germany, USA) upbringing. I am also an avid musician and have keen interest in diverse interdisciplinary topics. 

IoT GUIDE

Overview

Benefits for the Entire Value Chain – One Key Example

Like I mentioned before, benefits of IoT aren't only confined to Refiners or Hydrocarbon producers. Players in the entire energy and manufacturing value chain can benefit tremendously from it. Let's look at a couple of examples from the equipment manufacturer’s (OEM) perspective. These examples/use-cases are generally applicable to oil field service providers (i.e. drilling, fracking, etc. service providers). 

A pretty traditional business model is followed by most OEMs:

The entire Equipment Lifecycle Management process is more-or-less aligned to this structure. Now, there are generally some critical things that remain invisible to the equipment manufacturers:

There is an inspector 24/7 with each equipment, process and plant unit: 

IoT can be seen as a dedicated inspector in front of every asset. At the least, it can alert on any excursion beyond limit. At this bare minimum level, IoT matches the capabilities provided through period inspection. In fact, it betters periodic inspection by providing 24/7 monitoring. A logical next level of augmentation is to now use the data to run physics models residing in the Excel sheets of reliability and maintenance engineers. The analysis that was done periodically, can now be done continuously providing a much more granular and continuous supervision of assets. The 3rd logical augmentation is to use the historized and archived data (many a times in conjunction with other data, such as engineering data, laboratory analysis of lubrication oil, etc.) for deeper insights through algorithmic leanings (known-unknown analytics) capabilities to predict unwanted events (e.g. failure). 

The above mentioned three layers of benefits are in the value side. On the cost side, there is immediate reduction of unnecessary routine inspection cost, reduction in maintenance and life-cycle cost, major reduction in risks and hazards especially if the assets are in hazardous zones, capability to offer your equipment as services (PaaS – Product as services) lowering the capex driven entry barrier. 

While IoT will not eliminate human inspectors, it will definitely help to drastically reduce, prioritize and allocate resources properly. This is already very common in the airlines industry.

The fourth logical extension is to carry out fleet analytics to understand the performance of your equipment under varying conditions and under varying operating practices:

What is the spread of defects, faults, or failures across all my customers or sites?Equipment Manufacturers supply to multiple customers. Understanding the spread of problems can help them highlight defect hotspots and understand what is causing them. Is there operator negligence leading to device failure? Are my devices being used as per my defined guidelines? Are the equipment being pushed beyond safe operating envelops? Are the input materials and lubrication as per specification? With visibility into these aspects, equipment manufacturers could potentially save millions of dollars in cost associated with warranty and servicing.

Are ambient conditions affecting performance?Each piece of equipment is thoroughly tested before it goes operational on the field. Multiple scenarios are simulated to understand what it can handle and what it cannot. However, a controlled testing environment is never the same as the field. Zinedine Zidane did not become the greatest footballer of all time by playing Fifa 97 on his playstation. Performance on the field is a different ball game altogether. Understanding the correlation between the actual operating conditions and performance levels can help surface causal factors of issues and answer critical questions such as “Should alarm threshold levels be re-calibrated for certain sites/environments?”

How do I create new revenue streams?

The standard OEM business model may not be strong enough to allow OEMs to march through this Energy crisis unscathed. IoT can help fortify their business by enabling new growth opportunities such as:

Value-Added-Services (VAS) such as remote monitoring, predictive maintenance, etc. for OEMs to sell to their customers

Automatic spare/upgrade recommendations for customers based on equipment lifetime and operational requirements (Increased cross-sell/up-ell opportunities)

Performance Benchmarking services through Data Syndication across all equipment – "Why is pump X performing worse than pump Y although they are operating in similar environmental conditions?"

Product as a Service (PaaS) business model that overcomes the capex approval barrier and delay from the end user side.

 

Concluding Thoughts

Being a startup guy, I cannot conclude my discussion without talking about a very important topic, i.e. “Democratization of Technology”. Technology is a major disrupter and equalizer, and this disruption will be much bigger than the disruption created by Henry Ford through model T. Just at its very onset, there are morbid proofs such as Kodak, Borders, Blackberry (RMI), etc. It is a Darwinian world once again where being biggest does not ensure survival. The companies who will adapt and embrace new technologies and the disruptions brought by it, will survive.

If one just looks at the top five companies by market capitalization (S&P 500) from 90’s to today (2016), industrial giants such as GE, IBM, too big to fail banks such as CITIBANK, giant retailers such as Walmart, and hydrocarbon major such as Exxon Mobil, SHELL, BP, Total, etc. are now replaced by Apple, Google (Alphabet), Microsoft, Amazon, Facebook, etc. Many of these disruptors did not even exist in the 90’s. As per CB Insights (https://www.cbinsights.com/blog/), in 2014, just in Silicon Valley, 1631 startups were funded to the tune of U$ 26.8 Billion. 16% of this money went to Seed or Series A funding distributed over the 55% of the deals (897). If just 1% of these startups become disrupters, then we are probably looking at 9 new disrupters just from the class of 2014. India could produce the 10th from its very own Silicon Valley, Bangalore.

What it all indicates that changes are inevitable and the choices are rather binary, adapt and turn it into opportunity or die. This is true for all enterprises both in B2C and B2B space. The changes are quite evident in B2C space, and B2B is at the tipping point. Over the next few years, we will see lot of changes, disruptions and completely new business models.

The democratic Republic of IoT essentially presents an opportunity to observe the three commandments pertinent to any organization operating anywhere in the Value Chain:

1.   Increase Profitability

2.   Drive Growth

3.   Reduce Risk

In order to prepare for the changes promised by IoT/Big Data, organizations need to answer 4 key questions:

Is my leadership fully aware of the technologies, trends and its potential impact?

Do I have a competent team of thought leaders who understand technology and its impact on business model, value chain, business manufacturing processes, workflows, organization structures, people, etc.?

Are my domain experts well prepared to drive changes in her/his domain such as distillation, cracking, utilities, maintenance, planning, scheduling, supply chain, etc.?

Do I have a technology and innovation facilitator who will educate, consult and guide us through the journey?

The way companies have a management board, they will need a “technology board” who will help organizations to embrace the changes in informed and creative ways. The interpretation of information, in fact ALL information, and its translation to value generating actions, is the essence of the 4th Industrial Revolution. Given the ethereal nature of the business, taming the data beast and getting on a healthy diet of precise and actionable information is essential for surviving the perennial energy quest.

Thank you for your time. Hope you enjoyed the series.

This article was originally posted on LinkedIn.

Tips:

Being a startup guy, I cannot conclude my discussion without talking about a very important topic, i.e. “Democratization of Technology”. Technology is a major disrupter and equalizer, and this disruption will be much bigger than the disruption created by Henry Ford through model T. Just at its very onset, there are morbid proofs such as Kodak, Borders, Blackberry (RMI), etc. It is a Darwinian world once again where being biggest does not ensure survival. The companies who will adapt and embrace new technologies and the disruptions brought by it, will survive.

If one just looks at the top five companies by market capitalization (S&P 500) from 90’s to today (2016), industrial giants such as GE, IBM, too big to fail banks such as CITIBANK, giant retailers such as Walmart, and hydrocarbon major such as Exxon Mobil, SHELL, BP, Total, etc. are now replaced by Apple, Google (Alphabet), Microsoft, Amazon, Facebook, etc. Many of these disruptors did not even exist in the 90’s. As per CB Insights (https://www.cbinsights.com/blog/), in 2014, just in Silicon Valley, 1631 startups were funded to the tune of U$ 26.8 Billion. 16% of this money went to Seed or Series A funding distributed over the 55% of the deals (897). If just 1% of these startups become disrupters, then we are probably looking at 9 new disrupters just from the class of 2014. India could produce the 10th from its very own Silicon Valley, Bangalore.

What it all indicates that changes are inevitable and the choices are rather binary, adapt and turn it into opportunity or die. This is true for all enterprises both in B2C and B2B space. The changes are quite evident in B2C space, and B2B is at the tipping point. Over the next few years, we will see lot of changes, disruptions and completely new business models.

The democratic Republic of IoT essentially presents an opportunity to observe the three commandments pertinent to any organization operating anywhere in the Value Chain:

1.   Increase Profitability

2.   Drive Growth

3.   Reduce Risk

In order to prepare for the changes promised by IoT/Big Data, organizations need to answer 4 key questions:

Is my leadership fully aware of the technologies, trends and its potential impact?

Do I have a competent team of thought leaders who understand technology and its impact on business model, value chain, business manufacturing processes, workflows, organization structures, people, etc.?

Are my domain experts well prepared to drive changes in her/his domain such as distillation, cracking, utilities, maintenance, planning, scheduling, supply chain, etc.?

Do I have a technology and innovation facilitator who will educate, consult and guide us through the journey?

The way companies have a management board, they will need a “technology board” who will help organizations to embrace the changes in informed and creative ways. The interpretation of information, in fact ALL information, and its translation to value generating actions, is the essence of the 4th Industrial Revolution. Given the ethereal nature of the business, taming the data beast and getting on a healthy diet of precise and actionable information is essential for surviving the perennial energy quest.

Thank you for your time. Hope you enjoyed the series.

This article was originally posted on LinkedIn.

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