A critical component of the supply chain for capital-intensive industries, such as oil field services and equipment (OFSE), is the reliability of business-critical equipment. The stakes are high: interruptions or failures in equipment functioning could result in costly downtime – or worse, loss of life, as in the case of the BP Deepwater Horizon blowout. Original equipment manufacturers (OEMs) like General Electric (GE) have historically provided and serviced this equipment through contracts offering emergency and routine maintenance.
As lower oil prices put pressure on OFSE providers and automation technologies become more available and reliable, many companies are investing in digitalization to increase efficiency and reduce supply chain costs. Most are slowly climbing the learning curve, struggling to sift through the vast amounts of data being collected. For example, on an oil rig with 30,000 sensors, only 1% of the data are examined – and this information is used primarily to detect and control anomalies, rather than for optimization and prediction, where the greatest value lies.
For companies struggling under the weight of big data, the question they must answer is whether to build data analytics capabilities internally, or outsource. As they weigh their options, fast movers in the OEM space have an opportunity fulfill this need and become better supply chain partners for their customers.
The new, digital GE: More “skin in the game”
GE is making a big bet on digital, shifting its business model away from its traditional heavy machinery and manufacturing focus toward one with analytics at its core. Recognizing the challenges of big data analytics in OFSE, GE sees an opportunity to position itself as a long-term commercial, operational and technical partner by forming performance-based alliances with its customers around digital solutions.
In the near-term, the new model is taking form in service agreements that enable GE to increasingly “share outcomes with our customers,” aligning incentives and reducing some of the friction in the supply chain through data transparency. For example, a 2016 service agreement with Diamond Offshore Drilling transferred full accountability for the performance of the blowout preventer systems under contract to GE – the first of its kind in the industry. Diamond Offshore captures and shares data through GE’s monitoring and analytics solutions, with which GE performs condition-based monitoring to anticipate and reduce unplanned downtime and better manage maintenance schedules and spare parts inventory.
Simultaneously, GE is investing heavily in the buildout of Predix, a cloud-based “Industrial Internet of Things (IIoT)” platform. The vision for Predix is to model an entire system of equipment, solving simultaneously for optimization of each part of the system as well as the system overall – a feat which, if successful, will transform a customer’s operations to a new level of efficiency and performance. GE has high growth expectations for Predix, having targeted revenues of $100 million in 2016 and charting a course toward $4 billion in revenue by 2020. Further bolstering this effort, GE announced in October that it will partner with Microsoft to integrate Predix with Microsoft’s Azure cloud platform, focusing initially on oil and gas and mining companies.
Building new capabilities and managing cybersecurity risk
To enable the shift toward its digital future, GE will need to fundamentally change its organization to build new technical capabilities. Recruiting and retaining top programming talent to write software for Predix has been a challenge for GE given its manufacturing heritage. To date, GE has relied heavily on partnerships with developers such as Tata Consultancy Services, Infosys, Wipro and Capgemini to design and write Predix software and applications. However, for GE to fully own the Predix platform and its broader digital strategy in the long-term, it will be important to acquire and retain its own software talent, as well as re-train and develop its existing talent base.
Beyond managing its talent base, GE will need to manage the cybersecurity risk associated with its cloud platform Predix. Given that Predix will be collecting data from and communicating with heavy machinery around the world, the stakes for a cybersecurity attack are quite high. GE has already incorporated a number of security measures to protect the Predix infrastructure and its users, though these will need to be regularly scrutinized and upgraded on a continuing basis.
Will OFSE embrace the new GE?
As GE invests heavily in digitalization to better partner with OFSE providers, potential obstacles loom: Given the industry’s intense focus on safety, how much control and oversight of their equipment will they be willing to give up – particularly in the early days when GE is “working out the kinks”? What happens when operators disagree with the recommendations of GE’s predictive analytics? The answers to these questions will determine whether uptake is fast – as GE predicts – or slow.
 McKinsey & Company, “Unlocking the potential of the Internet of Things,” June 2015, https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/the-internet-of-things-the-value-of-digitizing-the-physical-world, accessed November 11, 2017.
 “Diamond Offshore and GE Oil & Gas Enter into Industry’s First Performance-Based Subsea Blowout Preventer Service Agreement,” PR Newswire, February 8, 2016, https://www.prnewswire.com/news-releases/diamond-offshore-and-ge-oil–gas-enter-into-industrys-first-performance-based-subsea-blowout-preventer-service-agreement-300216265.html, accessed November 11, 2017.
 McKinsey & Company, “GE’s Jeff Immelt on digitizing in the industrial space,” October 2015, https://www.mckinsey.com/business-functions/organization/our-insights/ges-jeff-immelt-on-digitizing-in-the-industrial-space, accessed November 11, 2017.
 “Diamond Offshore and GE Oil & Gas,” PR Newswire.
 Dan Woods, “What Is GE Predix Really Building?” Forbes, September 28, 2016, https://www.forbes.com/sites/danwoods/2016/09/28/what-is-ge-predix-really-building/#6c807e613c5b, accessed November 13, 2017.
 Steve Lohr, “G.E., the 124-Year-Old Software Start-Up,” New York Times, August 27, 2016, https://www.nytimes.com/2016/08/28/technology/ge-the-124-year-old-software-start-up.html, accessed November 12, 2017.
 Alwyn Scott, “GE, Microsoft to announce deeper industrial internet partnership,” Reuters, October 25, 2017, http://www.reuters.com/article/us-ge-digital-microsoft/ge-microsoft-to-announce-deeper-industrial-internet-partnership-idUSKBN1CU2BH, accessed November 13, 2017.
 Lohr, “G.E., the 124-Year-Old Software Start-Up.”
 GE Digital, “Predix: The Industrial Internet Platform,” (PDF file), downloaded from GE website, https://www.ge.com/digital/sites/default/files/predix-platform-brief-ge-digital.pdf, accessed November 12, 2017.