Digital Innovation in Energy: Getting the Fundamentals Right
The accelerated pace of digital innovation over the past half-decade has brought on a multitude of new technology. From Robotics, Artificial Intelligence, and Augmented Reality to Predictive Data Analytics, Blockchain, and Digital Twins, technological capabilities are getting more and more sophisticated at an increased rate. Digital innovation in the Information Technology world has led to frequent disruptions in the Energy world, pushing organizations further and further out of routine practices and structures. In such a dynamic business environment, it is easy for an organization to misinterpret digital innovation and implement new technology ineffectively. In order to avoid the pitfalls of misinterpreting digital innovation, an organization must first get the fundamentals right.
So how can a business navigate through disruptive innovation in the market while remaining competitive?
Digital and Technological Innovations in the Energy Industry
Digital Oilfields are analyzing enormous sets of quantitative and qualitative data produced from an off-shore oil rig. Renewables, distributed generation, and smart grids are redefining the way we procure and transmit power. Blockchain technology with smart contracts are changing the way we think of energy trading back offices. Digital innovation has led to increased knowledge, insight, and capabilities for firms in the energy industry. The latest advancements have allowed successful organizations to align technology with the strategic and commercial objective of the business.
The table below highlights some of the innovative technologies that have impacted the energy industry over the past few years.
Oil and Gas
The table shows a multitude of digital and technological innovations that are transforming the energy landscape and changing the way firms operate. However, the items above only represent a fraction of the innovations that are currently in the market. If you also consider the innovations that are still being developed or made accessible for enterprise, you can get a sense of just how rapidly the industry is evolving.
Organizations within the industry typically fall into three camps when faced with digital innovation:
In order to avoid being in the third camp where businesses lose value after implementing new digital technology, you need to ensure your organization has the appropriate fundamentals in place.
Getting the Fundamentals Right
Building an organization with strong fundamentals is paramount when faced with frequent digital innovation. Strong fundamentals allows an organization to navigate through disruptive innovation and onboard new technology effectively. An organization has a strong foundation when its strategy, people, processes, technology, and culture are identified, defined and aligned. For purposes of this document we will review the technology aspect of the foundation – the IT fundamentals.
Investing in fundamental IT capabilities allows for a firm to make precise and prudent decisions in a disruptive market. Robust capabilities in data governance, automation, IT risk management, and network infrastructure provides an organization with a foundation that enables the successful implementation of digital innovation.
Having strong IT fundamentals starts with the successful use and management of data. The current business environment demands we record, analyze, and leverage every piece of relevant data we discover. In previous years, access to capital and resources was the key differentiator in the energy industry. Now, the main driver of competitive differentiation is access to information. The firm who can gather and exploit the correct data in order to produce asymmetrical market information or discover cost-saving tactics will have a significant advantage in the market. Since data is critical to core business operations, it is necessary for an organization to invest in data governance as a fundamental IT pillar. Having a robust data governance program ensures that an organization
- Retains quality data that can be easily accessed, shared, and stored when digital innovation disrupts the market
- Has the correct data and the corresponding algorithms in the right places for impactful analysis and action
For example, you can’t automate power plant maintenance without the right data and a model which can analyze the data and produce something actionable as an output. The right data means the power plant has the correct array of sensors to collect the relevant data. A good model would house an algorithm that interprets the data and creates an analysis of what maintenance is needed. Useful data would then be available to power automated action by delivering a report or work order. A data governance program facilitates clean data as well as useful data for reporting and automation.
Running new and innovative technologies or processes with unreliable or incorrect data is highly inefficient and a poor allocation of resources. Using historical smart meter data to forecast retail consumption for the next year is a practical application of the smart meter technology. However, if the firm employs sub-par data practices with very little governance in place than the smart meter technology is useless because the integrity of the data is questioned. There have been brilliant innovations regarding business intelligence over the past few years that have relevant and practical application in the energy industry. Advancements in AI combined with advanced data analytics has disrupted the market with innovations such as augmented reality and digital twins. It is imperative to invest in data governance now to prepare for when the next wave of disruptive innovations impact the industry.
Technology-enabled automation is another capability that is fundamental to an organization's foundation. Automation is essential because it is where most of your IT-based ROI comes from. The overall IT function has fundamentally shifted from a cost center to a strategic revenue contributor largely due to the automation of business processes. This is because automation directly leads to
- Cost savings – Automation replaces manual labor, eliminates redundancies, and reduces the number of steps in a process while increasing operational speed, accuracy and reliability
- Value add - Automation of processes enables an organization to focus on its core business by automating non-core operations such as maintenance, invoice processing, payroll, etc. The automation of trivial, repetitive tasks allows people to focus on delivering value to the customer.
Let’s take the above power plant maintenance example where IoT sensors were collecting data for a maintenance report. Though having the sensors collect data that is run though a model for a useful maintenance report is a good use of automation, the process can be further automated for greater efficiency. An automated analysis that shows a need to fix something can automatically create a script of what components needs which type of maintenance and then kick off a work order into the SAP/Oracle/propriety IT system. Even further automation can enable drone use for simple maintenance, superseding all human involvement for optimal results. Automation logic can also be used in this scenario to kick certain maintenance into a queue for human review if something critical is at risk or if the cost is over a predetermined threshold.
Automation also has a lot of indirect benefits. Machine to machine interaction stemming from automation leads to the capture of data that wasn’t previously recorded. This leads to greater business intelligence and insight, which increases the accuracy of predictive models and enables better decision making. Automation also lays the groundwork for more advanced technologies. Artificial Intelligence is more easily enabled when automation provides a foundation. While automation largely includes software that follows rules-based programming language, AI is designed to simulate natural intelligence. A robust AI-enabled IT operating model is designed to seek out patterns, learn from experience, and make situational-based decisions based on enormous volumes of data. However, in order to achieve to this level of business insight, a firm must first invest in the IT fundamentals.
IT Risk Management
Data integration and process automation means a lot more sensitive data is exposed throughout the enterprise. Having the right controls and protocols around your data and processes is essential for security. The energy industry needs to be ready for sophisticated cyber-attacks which means careful planning and heavy investment around important assets. An organization will not be able to take advantage of any digital innovation if the business is constantly under attack. You can read more on the different types of cyber-attacks and how to prepare for them by clicking here.
The final IT fundamental discussed is the design and structure of your network architecture. Investing in innovative technology could potentially be a waste if your network architecture is not designed to leverage these technologies. A common theme amongst innovative technology today is that the technology is largely decentralized. Edge Computing brings computational power to the edges of the network and unlocks the power and potential of decentralized tech such as Blockchain, Artificial Intelligence, and Internet of Things.
Edge Computing is a type of IT architecture in which data is collected, processed and analyzed along the peripheries of the network. It is an alternative topology to how current networks are structured in most enterprises. In a typical enterprise network, data computation and analysis is housed within the center of the network. Data is collected throughout numerous endpoints and is routed to a central cloud server for analysis. Edge Computing turns everything inside out. Processing power is redirected to the edges of the network next to the resource-poor devices that need it the most.
Centralized cloud computing is not conducive to recent digital innovation of decentralized technology. The user experience from these technologies is degraded due to the number of systems that are required to run effectively in order for the technology to be optimal. For example, in order for a forecasting team to map out real-time demand data coming from a smart fuel pump, the local internet connection, internet service provider, IT backbone, and central data server need to be functional, effective, and aligned. If one component of the IT chain fails, the data coming from the fuel pump is compromised and the IoT-enabled device is rendered useless. If each component has 99% availability, and there are 10 different IT components in the centralized system, there is only a 90% probability the system will be functional at any given time. This is, of course, unacceptable as a 10% failure rate is too high for any sustainable operation. The more we push business activity to the edges of the network in a central cloud configuration the more we start seeing operational issues such as higher network failure rates, data volume and velocity limitations, and latency.
Redesigning network infrastructure to fit the current business environment is important since it allows for the optimal function of decentralized technology. Edge Computing enables your organization to take advantage of the next big digital innovation by structuring your network in a way that facilitates technological advancements no matter where they occur.
Sia Partners is consistently on the cutting edge of where business meets technology. Our capabilities in the energy industry include data science labs where we house propriety models and algorithms which can be used to unlock powerful insight into your organization. We have created several cutting edge consulting bots which can be used for automation, AI, business intelligence, and advanced data analytics. From weather and climate to optimizing power rates and visualizing load curves, we have a variety of bots that can optimize your organization. You can view our current bots by clicking here.
Disruption is inevitable in the energy industry due to the frequency of digital innovation. Getting the fundamentals right is critical when navigating through a disruptive market. For further information on how Sia Partners can help, please contact us.
- https://www.businessnewsdaily.com/5791-virtualization-vs-cloud-computing.htmlSource 5