Last year, LUX Chairman Laurence Ormerod co-wrote a paper with Michael Sequeira, OTM Consulting Ltd and Hani Elshahawi, Shell International E&P Inc, discussing the need for a more holistic approach to oilfield technology development. The paper, which was presented at OTC 2017, was based on the authors’ experience with innovation in exploration, production and start-ups. It highlighted the challenges facing innovation and the importance of considering product commercialisation into the process as early as possible.
One year on, we spoke to LUX CEO Emma Perfect and her experience when it comes to innovation and R&D.
Q: Laurence discusses a product’s Commercial Readiness Level as an important milestone in the development process, particularly for investors. How big a role do you think the commercialisation of a product has in the development process?
Getting commercial early is definitely beneficial. How to develop a product to make the business more scaleable features much more in our internal planning discussions now than it used to. We also work closely with our existing and potential clients and listen to their feedback; this can result in redeveloping a key product to meet expectations, as has been the case with our CoMic™ product. Having a better understanding of your customers’ needs is invaluable and feedback can be used to better direct technical developments.
Looking back our earlier projects were much more technically focused. In 2008 one project had six technical objectives, one commercial, one IP and one supply chain objective with far greater detail given to the technical sections.
Compare this to 2017, out of six working projects there were two technical objectives and four commercial objectives for each. This in part reflects the maturity of the products, but undoubtedly a better appreciation of the importance of commercial de-risking.
LUX has invested in its commercial resources and has created a commercial team, resourced its marketing function and implemented a CRM system to support business development. Three years ago, this team was a one-man-band with some consultancy support, now we have four dedicated commercial team members. This reinforces the importance we place on commercial drivers for the wider company.
Q: Laurence mentioned the importance of recognising when to abandon innovative projects. What are the challenges faced when deciding if a project is commercially viable?
LUX has a pretty good track record in terms of the percentage of our products which are now commercialised. As a snapshot, LUX has seven product developments in its portfolio – three are active (CoMic™, OMMICA™ and TraxBio™, one is on hold and three have been terminated due to funding, supply chain or technical issues. CoMic™ and OMMICA™ are fully commercialised products and we are hoping to launch TraxBio™ to the market this year. As Laurence mentioned, it is important to abandon innovative projects if they are proven not to work and we have always tried to terminate a project when prudent to do so as painful as this may be!
In the concept development phase, it can be difficult to fully comprehend the size of the market and adoption challenges. Like many companies, LUX has occasionally found itself in the situation where earlier, and more in-depth research, would have been beneficial which highlights the importance of investing time in extensive market research at the start. However, it can be very difficult to obtain the required intelligence and informative market research can be expensive. A small research project can cost tens of thousands of pounds and often in my experience the value has been questionable. Finding better ways to do market research would certainly benefit small companies like LUX.
Q: What other factors need to be considered when developing a product?
The pace at which technology matures is also an important factor, which needs to be considered. The time frame from concept to field deployment, for oilfield products, usually exceeds 10 years but this can vary depending on resources and client buy-in.
For example, LUX came up with the idea for CoMic™ in 2008, we received funding in 2009, secured the patent in 2010 and its first deployment was in 2012. Since being used in the field we have redeveloped the product based on industry feedback and launched the latest version of CoMic™ in 2017.
OMMICA™ took four years to launch and we are hoping to launch TraxBio™ this year, pending further field trials. TraxBio™’s route to market has been accelerated in comparison to our other products because it is an adaption of a more mature technology, but also because we have built learnings from commercialisation of our other products. The idea for TraxBio™ was conceived in 2015 and first trialled in 2017.
Q: How closely do you work with the supply chain at this stage?
LUX works closely with its clients, both existing and prospective. Having a better understanding of what end users want and why, should be given much more focus to capture the information but also to better direct technical development. In our case it isn’t always about the end user appetite, but also about the commercial model which can determine the viability of the product. The supply chain is critical in this.
For example, who will deploy it? Will it be us, our agents or other third parties and what impact does this have on exclusivity, additional logistics, training, stock, QC controls, market size and managing other parties? We’ve underestimated this aspect of commercialisation in the past to our detriment; it should definitely be considered earlier in the process so companies can be more proactive and less reactive.
Q: You’ve mentioned the factors which need to be considered and the supply chain complexities, are there any other notable challenges?
Other challenges faced during the development process which could assist with commercial decisions is the restricted access to performance and production data which makes it difficult for us to quantify the value in our products.
We are rarely provided comparative data and often not given feedback on how our products compare, or what value they have brought. When we are given data, we are almost never allowed to use it externally in case studies or publications to help us demonstrate the value our products can add to operations. This is frustrating, as it is essential data our other customers looking for when considering our products. I don’t believe this challenge is unique to LUX but is an industry wide problem.
I also often hear comments made that technology should be in the field much earlier during the development process. I broadly agree with this; there can be a tendency for technical teams to want everything to be perfect before it is allowed to leave the lab. However, it is a tricky balance as often you get one shot with a client. In oil and gas these clients are putting significant resources into trialling something new and even a non-invasive, low risk trial will have costs associated with staff and logistics. Hence the balance between providing a prototype, which might have too great a risk of issues, and a more polished product, which will take longer and which, ironically, often needs the learnings from a field deployment. It can be a difficult judgement call.
Q: What are the benefits of developing innovative products as an SME compared to larger organisations?
I think SMEs are typically more agile, efficient and less costly (time and resource) than in house or academic development. The decision-making process tends to be quicker as there is less bureaucracy, less politics and everyone is focused on achieving the same goal.
However, there are many demands on time, especially for management. Ensuring sufficient financing is extremely time consuming, for LUX there have been some years where months of the senior managements time has been absorbed into finance raising which results in less time to manage and drive the business forward. This also has a knock-on effect as uncertainty over finances means less effective decisions are made to cope with the short-term nature of the situation, for example how to resource projects.
The smaller team in an SME also means a smaller breadth of knowledge and this can hamper the business. Whilst external expertise can be sought, and this is something which should be encouraged, more often it involves learning from scratch, which is not efficient.
One example is in logistics and exporting; our experience is that internal expertise must be built to understand and deal with the complexities of importing and exporting. It takes time, adds complications, risk, distracts management, and in this case directly impacts end users and consequently the company’s reputation. Larger companies and institutions, on the other hand, will likely have teams of people dedicated to this business function. For SMEs this is completed by a small team in addition to the business’s finances, HR, logistics, general operations, marketing, sales, technical development, market assessment. For SMEs there are upsides, such as more transparency and quicker decision making but the downsides include more distraction and dealing with more risk in the business model. How this risk is managed is key to the successful development and commercialisation of products.
Despite the challenges, and because of the knowledge accumulated and the impact one can have in a small business, I wouldn’t want to work anywhere else.