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Going Horizontal: Thinking Differently about Your Assets with the MD of Accenture Digital

Posted by Adam Stead | 02-Feb-2018 16:29:13

Coal, oil, gas, mining; these industries have long been dominated by a few massive players. The price of their product is so volatile, and the barriers to entry so high, that they are very difficult to break into. These are highly regulated industries with deep impact to global economy, so many different angles need to be covered before change occurs.

But the status quo cannot be maintained forever. Fossil fuels produce greenhouse gases which trap heat in the atmosphere, and a growing political consensus aims to reduce their consumption. What these organisations sell is mostly finite; and as the price of drilling for oil or gas rises, and the price of producing electricity drops, one school of thought says that the market will begin to lose momentum to alternative and more sustainable energy sources.

Hugo Pinto is the MD for Accenture Digital and he deals directly with the oil and gas sector. His job is to square this circle. I found him to be a genial, energetic man, who talked with liveliness about the distance these businesses must cover. Gas might well be doing well at present; but given the challenges on the horizon, businesses must be proactive.

‘The tendency of technology is to shrink in size shrink in cost and increase in capability

Putting your foot on the gas

Hugo began with a caveat. ‘The shift will not happen overnight. It’s not like consumer markets. A new iPhone comes out, and everybody buys it… You can just about do that with cars. But to change operating models, logistics fleets, ships, airliners, industrial units has a lot of dependencies… the market’s not going to end abruptly.’

That said, ‘there’s a really good video that I love mentioning which is when the CEO of Nokia was announcing selling the mobile business to Microsoft in 2010 in which he says, crying, “we didn’t do anything wrong, but we still lost.”

‘Whatever is the digitisable way of producing energy - which is probably electricity from a physics and supply chain perspective – will win out.’

'A good reference that speaks to this point is this concept from Peter Diamandis called the 6 D’s.'

‘There’s less infrastructure and investment required to move or re-allocate electric energy than any other kind of energy. It’s easier. It’s also easier to produce electric energy from a varied number of sources.’

‘I recently saw that even office windows can be replaced with photovoltaic units that provide energy. Apple’s office has that already. So it’s not that expensive nor difficult. These things are just becoming available cheaper and faster.’

And while Tesla and others might not yet have made sufficient progress with battery capacity and durability to fully replace other means of power, progress is underway. ‘There are going to be natural pressures that will push disruption in those industries to increase the pace of transformation’ Hugo added.

For example, ‘5G networks have an even bigger challenge to be able to generate more energy from each of the antennas that they have in place, those require big breakthroughs for the volumes required, which will need to explore other options in the production and storage of energy.'

This faith that improvements will continue are underpinned by a simple principle. ‘The tendency of technology is to shrink in size shrink in cost and increase in capability.’ It’s a case of following the lines out.

‘In my overall opinion, I think as soon as some of the deadlines that the Nordic countries have established for the full green fleet arrive… we’ll probably see a massive acceleration of that adoption.’

What, then, should the oil and gas giants do?

 

Going Horizontal

Part of the answer will be to diversify. Hugo’s key contention was that these industries must abandon one-product vertical models and think creatively about the assets they have. The assets include more than the raw material and infrastructure; their data, their workforce, their skillsets.

‘They have large field force operations in different locations, because it’s still a very engineering-intensive operation. I wonder what are other types of services that these field forces can provide to other types of assets, in other types of industries. All of these open opportunities to think and act like Amazon did when they built AWS as a business, not just as internal capability.’

‘Information can be massively useful, even to your competitors. So the model that you see of Google, Apple, Facebook and Amazon; the frenemies model, of cooperating in some areas while competing in others; that will actually start applying in other industries as well.’

These organisations are united not only by their size but their business model. Using platforms and “owning” the space in which a product is offered, or data is shared, or skills are exercised, has proved successful. Platform companies have gone from obscure curiosities to the largest companies in the world. As such, platform strategies have seeped slowly into the corporate consciousness. When talking about cars, maybe one should be thinking of the car as a device and a platform. When talking about utilities, maybe one should be thinking about physical buildings as an ecosystem. When thinking about an ecosystem of data and expertise, one should think, what services can I place on top of that?

Platforms have previously been an interesting concept because to some extent you can monitise the contained activity; now, because you also own all of the insights produced therein, and the relationship with the users that own the data, you can broker and enable new value propositions. And Hugo’s ideas about going horizontal seem closely tied to some key ideas about platform businesses. Asked what drives this process, he answered:

‘I think the awareness of data that allows you to measure physical world activity. [That’s] point number one,’ he said.

Point number two was more complex. ‘The real difficulty of digitising your business and putting it on a platform is that it’s really difficult to understand what’s happening outside of that platform.’

But ‘if you leverage the ecosystem of devices that people naturally use,’ the data you collect begins to accrue intrinsic value. You can know:

‘How long did that person spend in that location working on that asset with this type of equipment and consuming these types of materials? ... If you can translate that into data, you can standardise it. You can say, for this type of asset, this is on average how much material you need, this is the type of talent you need to provide at work, and this is the type of response time you have.’

The rest writes itself.

‘If you have this standardised information’ he argued, you’re in a position to ask, “is this actually better thanwhat all my competitors are getting on their KPIs for managing this sort of process?” Most probably they will be far better: more economic, more efficient, and happening in real-time.’

‘If you’re presently able to manage some things out on the field, you’ll be able to manage other things as well. Health and safety, for instance, which is mandatory. Auditability and transparency, if you think about government, and regulators, and things that you need to ensure exist.’

‘As you start digitising to measure these ancillary processes’ Hugo argues, then you will slowly accrue those competencies as an asset. ‘the surface of identifying, booking, managing, reporting, and even paying the settlement of the work with the payment and the invoicing, that’s something that could be done by a platform. Essentially, I just described Amazon marketplace to you. Right?’

Right. But if oil and gas do need to find new revenues, the new businesses will have to be strong enough to lose their original asset. The shop attached to a service station providing crisps as well as petrol arguably constitutes horizontal capabilities and an ecosystem. But the only reason anybody would want to go to that shop is to buy the petrol. The challenge is building an ecosystem strong enough that it might survive if the original product was to wither away behind it, becoming instead a services organization for small retailers.

It’s no longer acceptable for you to not do something to challenge your own business.

The home as a platform

Gas is not bought in service stations in the UK; it is delivered to users as a utility. It exists in the context of a market but that market is not fluid. Companies like uSwitch even routinely attempt to persuade people to “switch” for savings because the passive nature of bill-paying and gas consumption mean people fail to exercise their market right; to go to the best provider.

This could change. In the context of platform thinking, the home becomes a platform. Who owns that platform, and how are utilities offered in it, is an important question. Electricity companies, gas companies, ISP providers, and smart home devices which can measure and optimise a home’s expenditure, or the household’s behaviour, all compete for ownership of how utilities are offered to the customer. How will you buy your utilities services in five years time?

Hugo argued that some proactive competitive thinking is required to prevent market share loss. ‘The biggest risk for all utilities and most legacy businesses is disintermediation.’

Isn’t it difficult to get heavy industries thinking about UX and B2C “customer journey” concepts?

He laughed at that. ‘It’s difficult it’s painful and it’s expensive. That’s the best way to define it,’ he said. But ‘whatever the customer adopts, that’s the thing that companies in the Utilities space, as well as in oil and gas, which are no different, need to adopt.’

‘It’s no longer acceptable for you to not do something to challenge your own business. And that’s not because of shareholders per se. It’s because of customers.’

‘Consumers and consumer expectations and needs are moving much faster than they did 10-20 years ago, even five years ago.’

The Smart home ecosystem in particular will revolutionise what it is possible to offer people in this space. Hugo imagined devices with a clear proposition to a customer: ‘we can help you manage your consumption much better. On top of that, if you put this device in your parents’ home, we’ll actually give you a wellbeing monitoring service which leverages the data used by their water consumption, for instance. And we can create smart alerts that actually detect if your parents don’t get out of bed in the morning, for instance, and trigger an alert for someone to check on them.

From the consumer side, the issue becomes trusting the third party attempting to leverage the platform for their own benefit. An Amazon Echo tasked with buying something – how are the customer, the brand and retailer all represented in the transaction? Is the hypothetical smart home company surveilling your parents doing so for their own benefit? Should an ISP allocate more bandwidth to online services which pay them money?

From the business side, the question is more about who gets to own the platform in the first place. It is theoretically possible that the answer could be gas companies. But the danger is that what has happened in retail will happen to utilities. I found myself skeptical that gas companies could ever iterate a consumer platform to the same competence that a smart device company could.

In retail, Amazon is now too big to ignore. For most vendors it is simply unacceptable to not sell through them. They command too great a portion of the market. Which means that they can dictate the price. One can imagine something similar happening in utilities.

‘At the minute,’ Hugo said, ‘all of these utilities are services providers. They still have the channel open with the customer. A chatbot could advise you on the best tariffs every three months. That is within reach for anyone in the industry today.’

‘So the question is, to what extent do you prioritise giving your customers the best option even if it’s not the best one for you?’ Or do you prioritise carrying on ‘doing what you do’ and focus on refurbishing the back office?

‘You can’t really force cultural change...You can set a vision, create the conditions, and wait for it to happen. But you can’t force it.’

Leaping the coming hurdle

It seemed like a complex response to some of the challenges facing heavy industry, many of which have not yet arrived. I was struck by Hugo’s proactivity. These must be difficult conversations. His aim, he said, is to ‘help clients build a position where they have a role to play in the digital ecosystem of the future. And ultimately, if they find a few good options of what their role in the future might be, to help figure out how to actually pivot wisely towards that.’

And even, he dares to hope, to ‘make actual money'. They’re companies. They’re there to actually create value. Both for their shareholders and their customers.’

But repeating today’s profits tomorrow will require some big changes. Either finding a new product which matches the company’s competencies, or fighting tooth and nail to secure control of the channel to the customer across utilities. As a point of philosophical principle, one hopes that people are able to change when faced with adequate incentive.

‘You can’t really force cultural change,’ said Hugo. ‘You can set a vision, create the conditions, and wait for it to happen. But you can’t force it.’

 

Topics: Thought Leadership, Case Studies & Interviews

Written by Adam Stead

As Research & Content Producer, Adam finds and publishes up-to-date expertise regarding how disruptive technology will drive change business and life.

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