Information Industrialization: Digitizing business relationships for energy industry companies – Part 2

ByRashed Haq

Large-scale uncertainty, regulation and shifts in the competitive landscape are placing enormous pressure on energy firms’ existing operating models.

Click here for Part 1 of Information Industrialization: Digitizing business relationships for energy industry companies

Business utilities for the energy industry can connect information among producers, traders and asset operators. The business utility platform depicted in Figure 1 connects shippers and operators to exchange data across the energy logistics value chain. In this example, a trading organization connects to the business utility to send trade confirmations (to be sent to counterparties), and once scheduling is done, it forwards all nominations for all modes of transport.

These will be sent to the respective operators, such as pipeline, terminal and rail companies or marine vessel companies. Their confirmations come back through the utility.

Similarly, any associated inspection or agent nominations are sent to and received via the utility. Finally, invoices from each service provider are passed through the business utility back to the trading organization. This connects multiple companies across the value chain through a single network to efficiently exchange the information necessary to perform multiple business functions. In essence, the utility operates as a data exchange that receives information and disperses it to where it is needed, when it is needed.

Large-scale uncertainty, regulation and shifts in the competitive landscape are placing enormous pressure on energy firms’ existing operating models.

Some of the advantages of leveraging business utilities, as described above, are enhanced operational processes and increased user efficiency, and hence, more timely availability of information. Because the utility is a shared resource, there is higher overall efficiency due to economies of scale and elimination of duplicate systems. This also gives each business the potential flexibility to increase or decrease costs based on business volume (rather than headcount, IT system investments, etc.). Over time, improved efficiency and access to timely information can lead to further benefits, such as improved supply chain with reduced holding inventory.

At the same time, business utilities can present a number of challenges. Primary among these is the complexity of change management, which requires an understanding of inter-company processes and technologies as well as the ability and willingness to make necessary changes in the B2B workflow. This happens when there is more than one autonomous decision-maker and any change decision requires collaboration between the business utility and its customers.

The energy industry is primed for business utilities. Industry-wide utilities are already emerging and will accelerate over the next decade to provide specialized services to help energy firms make the transformation. Business relationships across producers, traders, consumers and asset operators already exist, but with much of the information exchange happening point-to-point and often manually.

Similarly, the necessary technologies such as reliable bandwidth, cloud-based infrastructures and data security already exist. The next step is the transition of traditional relationships into digital interactions, without requiring every company to build its own infrastructure and processes—particularly when it doesn’t offer a competitive differentiator.

The information industrialization of energy firms is a multi-dimensional effort that must start at the executive level and flow throughout the firm, encompassing relevant departments and functions. Each company needs to validate that the benefits of business utilities outweigh the costs. Open discussion of the perceived versus actual benefits and costs is needed to address misconceptions about the strategic value of the business utility. Additionally, successful implementation of a business utility will require agreement by all companies on standards, business practices and processes around what information needs to be shared, and the invested equipment and human resources.

At the organizational level, support from senior management is essential for cross-organizational readiness, since adoption will require a fundamental cultural shift. Energy companies embracing information industrialization may need to establish a key role within the company to help drive and maintain transformation: a senior executive whose main focus is to implement the vision of an industrialized organization. This Chief Industrialization Officer (CnO) would have C-suite sponsorship, strong operational experience and the business acumen to effectively work across the lines of business, operations and technology functions while breaking through organizational silos with ease.

Leveraging modern technologies to digitize business relationships through information industrialization makes sense for energy companies because the benefits outweigh the costs. In an era of unprecedented change, the time is right for firms to work together to develop and capitalize on the benefits of business utilities, which will help improve their own returns and make them more agile.

Rashed Haq is a Vice President of Business Consulting at Sapient Global Markets. Based in Houston, Rashed specializes in trading, supply logistics and risk management. He advises oil, gas and power companies to address their most complex challenges in business operations through innovative capabilities, processes and solutions.

Click here for Part 1 of Information Industrialization: Digitizing business relationships for energy industry companies

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