The energy and chemical industry is a conservative one. Its processes may be complex and there’s more risk involved, but its outdated technology is in need of an upgrade if companies are going to move into the digital age. It follows a similar path to the one the music industry took in the 1980s, through to the present day. The industries both digitized 30 years ago and are now digitalizing.
Here, Duncan Micklem, SVP Strategy and Marketing at KBC, looks at what the process industries can learn from the music sector in bringing operations into the 21st century with a Digitalization strategy.
The energy and chemical industry is in desperate need of a shake-up. The collapse of oil prices in 2014 was a big wake-up call which fortunately spurred on a lot of innovation and companies began to somewhat conservatively move into the digital age. But the sector remains hesitant.
There is little doubt that Digitalization of the asset lifecycle and value chains will drive safer, more reliable and profitable operations for companies. 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?
An example of Digitalization in business: The music industry
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 has taken over. Music is now scarcely delivered on a physical medium – you buy a right to play music track-by-track, which can be assigned to any player. The music host then intuitively learns your preferences and suggests other music you might like. And the industry has become more democratized, whereby the music of unknown artists can be found, heard and bought as easily as global popstars. In addition, music genres have become more fragmented as the seller can segment their market.
A similar story of industrial Digitalization in the energy and chemical industry
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 and Digitalization: In detail
Digitization is simply a change of format from analogue to digital, and while the advantages of digitization can be seen, it’s 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.
Further advantages of a Digitalization strategy
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 marketplace. It’s clear that now is the time for Digitalization.