The TIK centre of the University of Oslo recently completed a project studying the interaction between the petroleum industry and suppliers and the value creation. The SIVAC (Supplier Industry and Value Creation) project used an innovation system perspective to examine the interaction between different companies as a driving force for innovation and value creation. The project webpage has a link to the final report (in Norwegian), publication list, and a video summary (in English). There was also a book published that summarises the findings.
Innovative and dynamic petroleum sector
The starting point for the SIVAC project was that it was believed that the petroleum industry in Norway had received little attention from innovation researchers, and there was a reputation for it being conservative and little innovative. The project however concluded that the Norwegian petroleum sector was both innovative and dynamic, and more heterogeneous in its composition than expected. It was found that many of the companies involved had their roots in other sectors and had activities in many different markets.
The SIVAC researchers noted that public financing for petroleum-oriented research is mainly directed towards technology development and R&D. However their interpretation of the industry in the SIVAC project concluded that the most important barriers to diversification were not about the adaptation of products and technologies to new markets, but to matters relating to organisation, culture and strategy. As a consequence the project promoted the importance of further social science studies of the petroleum sector.
Sharing of risk and profit - different business model
Another finding from the project related to the sharing of risk and profit. Since the technical solutions are very specific and must satisfy strict demands on safety and quality the customer takes the risk and the profit. This is in contrast to other innovative markets where the costs, risks and profits are more evenly distributed. The close interaction between the oil companies and the suppliers gave rise to difficulties when suppliers were developing or transferring technologies to new markets outside of the petroleum sector. That they then had to finance the development themselves until it was proven required a different business model to how they operated in the petroleum sector.
During downturns in the petroleum economy the suppliers look to find alternative markets outside petroleum, but the SIVAC project concluded that these efforts tended to be rather half-hearted, and the suppliers quickly returned to the petroleum market when conditions improved. An exception may be the current innovations within digital transformations. The pace of developments was increased during the period of low oil prices, as a way to cut production costs by operating smarter. The digital transformations are continuing despite the recovery of oil prices, although some analysts still believe the petroleum sector is lagging behind other industries in terms of digital capability. Note that even though the petroleum sector has been dominating the technical employment market in Norway, they are also facing challenges obtaining employees with IT competence.
Northern Research Institute Narvik A.S.
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