The concept of servitization is not a new phenomenon. The term was formally defined in the 1980s , but its essence— bundling service packages with products to add value—goes back several decades earlier, with the introduction of the “power by the hour” concept of Bristol Siddeley, a British aero engine manufacturer later acquired by Rolls Royce. Despite its presence for more than half a century, servitization has recently come to the fore as a shaping force in a range of industries, including oil and gas.
A number of factors have driven this recent renaissance in service provision and development, including globalization, high market volatility and a rising pressure for innovation as a means of attaining and sustaining advantage in increasingly competitive markets. A recent study by the University of Cambridge points to six principal drivers for its momentum:
- 5–10 percent increase in service revenue
- Maintenance cost reductions of 25–30 percent
- Fuel consumption reductions of 10 percent or more
- Reduction of CO2 emissions by 10–15 percent
- Increasing data gathering (e.g. volume, quality, data types)
- Increasing and improving access to information
Having a focus on service is not new in oil and gas. The industry doesn’t typically use servitization as a term, but for a very long time has focused on service management and asset management as two perspectives of the same activity.
When companies do asset management, they’re performing maintenance on their own equipment. On the other hand, service management involves one company servicing another company’s equipment. In the sector, an array of service companies make up the ecosystem surrounding the oil and gas operators, and they all deliver services. This set-up is how a large part of activities are managed in the industry; however, the execution of those activities is changing quite rapidly.
SERVITIZATION: WHY IS IT TRENDING?
Digitalization has been part of the oil and gas landscape for some time; for example, equipment has been delivered with sensors for condition monitoring to collect data on asset performance. While the industry may not be as mature as others in leveraging this data, that gap is beginning to close. The convergence of IT and operations is materializing much more rapidly now, and this will make a big difference in the industry going forward. Since the recent economic downturn, companies in the sector have had to do more with less, and technology is providing them the opportunity to make the changes to do so in a good way.
So what’s required of oil and gas companies who want to servitize their business? Like any other major innovation in the industry, servitization means that enterprises will need to confront change to be able to grasp the opportunities it presents. Some of these will be technology-based. The Cambridge study found consensus among capital equipment manufacturers (CEM) on five key technology requirements to enable servitization in the future:
- PREDICTIVE ANALYTICS to predict specific failure modes
- REMOTE COMMUNICATIONS to resolve issues from a distance
- CONSUMPTION MONITORING to create customer-specific service offerings
- PUSHING INFORMATION to employees/customers via mobile platforms
- MOBILE PLATFORMS to access business software remotely for maintenance techniques, product details, etc.
Businesses will need to assess the individual value of these and other technologies for their operations to ensure medium-term service competitiveness.
SERVITIZATION IN PRACTICE
The degree of service is rising across oil and gas because of what technology now enables. Instead of just offering a service level agreement (SLA) or service contract on equipment provided, OEMs will now guarantee asset uptime. This changes the business model companies are working under.
Consider assets per se: the nature of their ownership is changed in this new model. It used to be that an asset would have to be bought, and then the company would buy the services necessary to maintain the asset. Now they can lease the asset and buy delivery of what the asset provides.
An example of this shift is the recent arrangement announced by GE Oil & Gas and Transocean, in which GE will provide condition-based monitoring and maintenance services for pressure control equipment on seven of Transocean’s rigs over the next 10 to 12 years. The agreement builds on the new service model GE introduced to address the industry’s shift toward maximizing productivity and lowering operating costs while maintaining operational flexibility. By investing in equipment uptime and performance, GE shares the responsibility with Transocean. This changes the traditional offshore drilling paradigm.
The benefit for an industry under high-cost pressure is that risk is shared in a different way. Instead of tying up capital in equipment, the idea of equipment-by-the-hour or equipment-as-a-service is gaining currency among operators.
Another example of servitization is seen in Shawcor’s Simulated Service Vessel (SSV), which simulates service conditions experienced by subsea insulation coatings. Through this vessel, Shawcor simulates deepwater service conditions for insulated pipe, flexible pipe and custom-coated subsea structures by controlling both water and pipe temperatures and applying pressure to the water surrounding the insulation coatings. By simulating these conditions and measuring the heat flow and compressive creep of the insulating material, it can advise pipeline design engineers of both the thermal efficiency and depth rating of insulation.
Other areas of service change that technology is driving in oil and gas include:
- Condition Based Maintenance (CBM). Because assets are now “intelligent,” companies are moving to do maintenance as required by the asset, when required by the asset. The maintenance approach is now surgical, not palliative, with maintenance execution being deferred until the moment of need, saving time and materials.
- Data-driven drilling. GE and Maersk Drilling are collaborating on a program that uses advanced algorithms and sensor data to increase productivity and cut maintenance costs. The program creates a “digital twin” of the drilling operation that enables the use of advanced programming to identify inefficiencies or failures before they happen. Maersk is also working with a Danish software provider to help customers understand the capabilities of their drilling rigs through a virtual reality headset that “transports” the user onto the rig, allowing him or her to move around from the comfort of the boardroom. This technology allows them to display their capabilities without logistical, cost and safety issues that often make it impossible to provide customers with a first-hand experience of an offshore rig.
WHAT’S NEXT AND HOW to GET THERE
For those oil and gas companies looking to add innovative service and asset management capabilities to their offerings, the benefits are straightforward, including enhanced revenue, better margins, sustainable business growth, predictable income streams and higher levels of customer satisfaction. Among the requisites for leveraging the technology that is enabling the dynamic development of service as a fundamental business driver, the most essential is an integrated, full-featured enterprise software solution that includes enterprise resource planning (ERP), enterprise asset management (EAM) and service management.
In the oil and gas sector, IFS has been providing this solution for years. If an organization is setting up a new activity in an area of the world where it hasn’t been before, IFS can help to meet all necessary requirements (via the cloud, for example, or a business model that scales up fast). IFS’s industry expertise and knowledge about what is necessary to operate successfully is part of the value it brings—and that is built into its software.
NOTES
- www.sciencedirect.com/science/article/pii/0263237388900333
- http://cambridgeservicealliance.eng.cam.ac.uk/news/ServitizationTechnologies
- Ibid, Cambridge.
- www.genewsroom.com/press-releases/ge-announces-transocean-performance-based-service-agreement-283529
- www.shawcor.com/technology
