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Energy & Commodities

3-Part Roadmap for Digital Transformation in the Energy Industry

Global pressures and price volatility have intensified the need to address the sector’s three critical challenges: efficiency, agility and growth.

Joseph Tabita and Martin Davy

Executive summary:

  • Digital transformation gives energy trading organizations the opportunity to unlock value and realize untapped potential
  • This three-part roadmap helps organizations understand how they can digitally optimize and build streamlined, adaptive and future-facing processes
  • Organizations should improve efficiency, work toward agility and prioritize innovation

In recent years, war in Europe, extreme weather incidents, global inflation and health crises have delivered powerful economic shocks to world markets. Yet these seismic events have only sharpened the critical challenges that energy trading organizations were already facing: how to increase revenue, become more agile and cut operating costs.

Now more than ever, identifying the most effective ways to reduce costs, improve operations and move faster to capture new opportunities will decide their future. Markets are being restructured; supply chains need to be reimagined. Energy and commodities trading groups will therefore want to address customers and opportunities that have gained in strategic value as a result of these crises and to leave markets that have been undermined by it. If they are to succeed, they must embrace digital transformation in energy trading.
 

Energy and commodities trading groups will therefore want to address customers and opportunities that have gained in strategic value as a result of these crises and to leave markets that have been undermined by it. If they are to succeed, they have no choice but to transform themselves.


Proven strategies

The industry starts from a position well behind other major sectors, notably banking and retail, as well as the leading consumer technology firms, which have all undergone rapid digital business transformation over the past few years. The experience of these pioneers highlights some standardized approaches that can be quickly adopted, speeding up the process for those that follow. Other issues, such as the ability to hire the right talent and skills or to move quickly within existing governance norms, need home-grown solutions that reflect digital transformation priorities.

Commodity trading markets are unlikely to see a revolution in terms of business models. But the relatively slow progress of digital business transformation in this sector means that a major opportunity remains in play—removing low-value processes, which frees up the organization’s money and talent to focus on areas with the greatest potential for value creation. This allows more of the organization’s intellectual firepower to be used for activities where it can achieve a competitive edge.

Other activities need to become much more efficient and automated. Too much of the upside of digitalization remains untapped. There is too little automation, too many data silos, too many in-house data centers and too many off-the-shelf IT packages with overlapping functionalities, and not enough consistency of process and technology across participants in the market.

The missed opportunity

So, while the business opportunities in the coming months may reside in topics such as asset and inventory optimization and a truly agile supply chain, this article focuses on the approach that energy and commodity trading groups need to adopt to successfully overhaul their technology. This needs to be a priority, and this technical roadmap sets out three steps trading organizations should be focusing on now.
 
The order provided here is not rigid. Although some steps must necessarily come first, others can run in parallel and many organizations have taken steps along this path already. However, to achieve the business objectives that lie behind this digital business transformation—increasing efficiency, building their organizational capability and accelerating innovation to tap new revenue streams—organizations must make progress in all of these steps:

  • Improve efficiency
  • Unlock agility and insights
  • Enhance value creation

Efficient organizations are digitally optimized and streamlined. To achieve this, trading organizations should:

Migrate to the cloud: Moving from in-house compute and data storage to the cloud will bring efficiency and performance gains, as well as cost savings. This is the critical first step in unlocking resources to reshape and refocus the organization. Cloud is the foundation on which the entire transformation strategy is built. It is also a key ingredient in allowing IT organizations to be agile in the support of new values.

Prioritize software as a service (SaaS) and platform as a service (PaaS): Once they have migrated their tech infrastructure to the cloud, trading organizations must take advantage of SaaS or commoditized PaaS propositions to drive efficiency and scale benefits for standardized, high-frequency processes such as transaction processing and reporting, invoicing, etc. These activities are not business differentiators.

Consider the move to cloud to optimize outcomes

The ability to adapt and interpret data ensures that organizations are future-facing and dexterous. Unlocking agility and gaining insights means organizations can:

Move to modern ways of working: To move faster and do more, organizations will need to adopt modern engineering practices, especially the agile approach and product management. Start with IT then become truly multidisciplinary by collaborating with business teams and functions in this way. Doing this in combination with the removal of data silos will provide the insights and speed that the business needs.

Prepare for technology transformation: After engineering the right approach—and the cost savings released by migrating to the cloud and to SaaS and PaaS—organizations will be in a position to fund projects that support their unique competitive advantages in targeted markets. Modern data engineering combined with APIs will bring universal access to all the organization’s data, and pivot IT towards analysis and intelligence and away from transaction management.

Discover how companies can transform from the inside out

Trading organizations that exhibit adaptable, technologically driven ways of doing business are ones that will grow by unlocking value. To enhance value creation, organizations must:

Enable innovation: This is the time for trading organizations to focus on how users in their business consume data. Doing this means releasing the organization from its current way of operating, in which IT departments are gatekeepers to the organization’s data and the tools to analyze it. Instead, once all data is readily available, the key step is to enable business units to decide for themselves which reports they need, what analysis adds the most value and what workflows are most efficient and effective. The aim must be to enable data analysis and the generation of business intelligence to happen as close to the individual businesses as possible. IT needs to provide the tools, not the analysis.

Embrace the next wave of transformation: Having moved to a modern technology roadmap, organizations should start to consider the emerging technologies that are likely to provide the next wave of transformation. Could the organization cut costs and better collaborate with counterparties by harnessing shared ledgers to manage transactions that are currently managed in-house? Could it manage the entire life cycle of its contracts in a standardized, external marketplace? Can it tap new revenue streams by finding ways to monetize its intelligence, algorithms, software and data, perhaps through new platforms or marketplaces?

Learn more about creating value through innovation-fueling capabilities

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The aim must be to enable data analysis and the generation of business intelligence to happen as close to the individual businesses as possible. IT needs to provide the tools, not the analysis.


Conclusion

Commodity and energy trading groups have a long way to go if they are to use digital business transformation to help them reorient their operations and emerge from the current market crisis well-positioned for the future. There are big opportunities here for organizations that have already embarked on the listed steps, which are supported by a virtuous circle of efficiency gains in the early stages that help to fund investments that secure the next stages of the transformation process.

No matter the global conditions, modern trading organizations should be following this route to enhance efficiency, agility and growth. The lesson learned from other industries is that those who digitalized most have been able to better respond to changing requirements, challenges and new business models.

As a digital business transformation partner, Publicis Sapient helps organizations navigate this journey one step at a time.

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Joseph Tabita
Joseph Tabita
Senior Vice President
Martin Davy
Martin Davy
Senior Vice President Engineering

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