The engineering, procurement, and construction (EPC) industry face new challenges as technology adoption begins to separate winners from laggards. Many EPC companies see the vast opportunities they can achieve by implementing an overall digital strategy.
A SHIFT IN THE INDUSTRY
At Arundo, we’ve had the great fortune to work with some of the top global EPCs as they react to market forces and shape the future of their industry and the industries they serve. There have been several shifts in the industry increasing the importance of tech in EPC. I’ll go through some of them below:
1 ACCELERATION OF LONG-TERM INDUSTRY TRENDS
Independent of the current business cycle, the EPC industry is under massive pressure to reduce costs, standardize offerings, reduce mega project overruns and find more recurring sources of revenue. The implications of this include the need to increasingly centralize engineering work in low-cost geographies, make offerings more repeatable through increased digitization and knowledge capture, the broad/deep application of analytics to better manage risk and increasingly the deployment of digitally supported performance oriented operations and maintenance contracts.
Digitally savvy providers will be better positioned to follow customers through the lifecycle of the assets, rather than a handoff after build with limited customer engagement, except asset enhancements or turnarounds until decommissioning.
2 SHIFTING BUYING CRITERIA
Customers are in some cases making traditional purchase decisions based on the digital qualifications of the EPC even when those qualifications aren’t directly relevant to the purchase itself. The buyer rationale in some cases is the notion that the presence of digital sophistication denotes a form of risk management and "future proofing" of either the solution delivered or the survival of the vendor itself. Digital is also portrayed as an important lever to be able to have more sustainable operations for both EPCs and their customers.
3 IMPORTANCE OF OPERATIONAL TECHNOLOGY (OT) IN EARLY DESIGN
Over the last couple of years, technology line items have begun to be funded within early engineering phases of projects with two implications:
- Digital vs. physical investment trade-offs: Engineering companies that bring a robust digital capability to market will be able to work with operators and funding vehicles to make trade-offs between investments in molecules vs. electrons. In other words, they'll increasingly work with owners to model the best trade-off between automation and less sophisticated equipment with more traditional human-in-the-loop decision support systems.
- EPC influence in the technology buying cycle: Earlier lifecycle work on the interplay between digital and engineering design will mean that EPC companies have increasing influence over technology decisions. If they have the relevant capability we can expect to see new growth markets for system integrators who can bring the relevant domain expertise.
4 EMERGING (NON-TRADITIONAL) COMPETITION
Technology-centric providers that can "cherry pick" high margin work with a more digitally intensive offering are emerging. The implication is that EPCs must drive technology into their business, and either have relevant offerings or an ecosystem and "way to buy" for traditional large customers. If not, they’ll be at risk of disintermediation for traditional services.
THINGS YOU NEED TO CONSIDER MOVING FORWARD
These changes lead to a set of challenging, but potentially existential questions EPC organizations need to address as they consider their future:
- How do we leverage our trusted position in the value chain? Particularly related to being an integrator of service companies serving operators, but also the data that moves among all the parties?
- Do we have the right commercial model(s) (e.g. T&M vs. fixed price) that not only drives internal adoption of technology solutions that reduce topline, but differentiate us against the competition and put us ahead in the productivity game?
- How do we grow customer-facing "deep tech" competencies that carry the understanding of our business? Which model should we use to do so?
- Build internally
- Build externally (e.g. JV or subsidiary)
- Are we organized internally with the right incentives to drive internal adoption, and also to put in front of customers with credibility?