- By Sandy Vasser
- Executive Corner
Summary
A company can take several different approaches when developing new automation technologies related to purchased production equipment. But all approaches are not created equal. Automation is not a core technology for most businesses, meaning most companies do not design and manufacture automation systems. However, automation is a very important and necessary tool for any company that depends upon an automated process to manufacture or produce its final products. The intellectual property (IP) related to the development of automation is a valuable asset that can change not only one company, but an entire industry.
My experience is in the upstream oil and gas industry. Before my retirement, I led a team of instrumentation, control, and electrical professionals within ExxonMobil Upstream. We partnered with our suppliers and engineering firms to develop new enabling technologies and project delivery practices and procedures for capital projects. Here is what I learned about the advantages and disadvantages of three approaches to automation project development:
- Approach 1: Owner works with a single supplier and develops new technologies specifically for internal company use only. The owner owns the IP or shares the IP with the single supplier. The owner decides whether to only use the technology internally to achieve an advantage over its competition or to sell the technology for others to use. In the latter case, the technology is typically sold to users who are not direct competitors. This is a very exclusive approach that brings changes to only the single owner’s company or the few companies that purchase the technology.
- Approach 2: Owner works with a single supplier and develops technologies that the single supplier can sell to its other clients. The single supplier owns the IP.
- Approach 3: Owner works with all the suppliers that can develop the technologies, and all the suppliers can sell the developed technologies to all their clients. Each supplier owns the IP for the specific technologies it develops. This is a very open approach that can bring changes to multiple industries.
Pros and cons
Each approach has advantages and disadvantages. Approach 1 can and has been very beneficial to companies with large automation staffs. They can develop technologies that only they can use, and these technologies can and have provided strategic advantages over their competition. However, there are downsides.
First, the single supplier that is manufacturing the technology will only be selling this technology to one client. That gives the supplier little financial incentive to develop a low-cost solution, to develop and maintain expertise on the technology, to sustain the technology, and to continuously improve the technology. Typically, the user or client must develop the expertise in-house to sustain, maintain, and improve the technology. The user may also have to develop internal expertise to deliver the technologies to all its new facility projects. Lastly, the single user does not learn from the experiences of others using and improving the technology.
Companies that routinely develop technologies this way must continuously grow their automation organization to support all their exclusive technologies. This results in a continuously growing automation organization that depends upon an aging workforce for the technologies not supported and sustained by the single supplier.
In the case of approach 2, the supplier can sell the technology, but has no competition in developing and manufacturing the technology. Competition provides an incentive to lower the cost of development and manufacturing, and also to accelerate the development of the technology.
With approach 3, a company may lose some competitive advantage by not having exclusive use of the technology, but it realizes a number of other benefits. First, with all the possible suppliers developing a version of the technology, competition is maximized. This competition accelerates the development of the technology. It also ensures the lowest possible price for the technology. Second, the technology becomes an industry technology that will be sustained, cost effectively maintained, and continuously improved by the manufacturers and not the users. Lastly, with multiple users, all user companies benefit from the collective experiences.
The competitive advantage of a technology does not come from just having the technology. The competitive advantage comes from how it is applied, how broadly it is applied, and how the technology is integrated with other related systems. A company can have the technology but not use it properly, not use it broadly at all facilities, or not fully integrate it within its systems. A technology can be an industry solution, but only a few companies may fully benefit from the solution.
Approach 3 in practice
I can give a real-life example of the benefits of approach 3. For decades since the beginning of project work, project teams have dealt with the historical ways that automation systems were installed. The historical ways included marshalling cabinets to separate field wiring from the wiring connected directly to automation I/O and controller cabinets.
Historically, all junction boxes, marshalling cabinets, I/O cabinets, and controller cabinets were individually designed such that no cabinet or junction box was identical. For a large facility, there could be 500 cabinets and junction boxes related to the automation system that had to be engineered and manufactured separately. Every time a change occurred—such as the addition of a single instrument loop—literally hundreds of drawings had to be changed to reflect the simple addition.
For smaller projects, this approach was acceptable or at least tolerable. For large, megaprojects, this approach was unacceptable. It created many delays from the almost unending changes, demanded adding resources to support the number of changes, extended the project schedules, and dramatically increased the cost of the project. Simply perfecting this historical approach or using the very best engineering contractors and suppliers would not fully mitigate the historical problems. Totally different technologies and approaches to executing projects were absolutely necessary.
The group I managed before I retired wanted to challenge all the historical methods to deliver automation for major projects. Rather than developing proprietary solutions only for our company, we felt we needed to change the industry. We wanted the solutions to be adopted by all our automation suppliers, including ABB, Emerson, Honeywell Process Solutions, Schneider Electric, and Yokogawa. We also wanted all the engineering, procurement, and construction (EPC) firms to adopt and perfect the execution of the new solutions. The only way to do this was to change the way all participants in oil and gas projects delivered the projects.
Incentivizing suppliers
We engaged all the automation suppliers, defined in detail all the historical problems with delivering automation for major projects, and encouraged them to develop the necessary solutions with one prerequisite: the solutions developed could not be ExxonMobil-only solutions. The solutions developed had to be products that could be sold to all the supplier’s clients. Because we created a very competitive environment and the market for the new solutions was all industries that relied upon automated processes, all the suppliers were incentivized to develop the necessary solutions in an expedited and cost-effective manner.
Every one of the suppliers developed a version of universal I/O, eliminating the need for marshalling cabinets. They developed completely standard and smart field junction boxes and standard control cabinets that could all be ordered with a part number and mass produced for a project. They developed virtual commissioning of complete systems, eliminating the need for staged checkout of systems, and they developed automatic commissioning tools.
All these technologies and tools are now used by thousands of companies that are clients of each of the suppliers. These were truly industry-changing technologies and delivery methodologies. ExxonMobil benefited greatly, because all automation suppliers and almost all EPCs used by ExxonMobil have adopted them.
Clearly, approach 3 is not a one or the other decision by companies when it comes to automation projects. Many different approaches can be used by a single company depending upon the technologies and the applications involved. However, my personal opinion is that developing industry-changing solutions has a lot of immediate and long-term benefits, and the exclusive use of proprietary technologies should be limited to select core applications and technologies.
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