New, innovative, and exciting technologies emerge every day, and we constantly hear about how these new technologies are going to disrupt particular sectors of the economy. Disruptive innovation is becoming commonplace and businesses are scrambling to evolve and adapt to the new environment.
Yet another vital economic sector is under pressure to adopt new technologies in order to remain relevant and competitive. According to a report published by the McKinsey Global Institute earlier this year, technological innovation is challenging more than ever how the natural resource sector has traditionally sourced commodities and forcing those involved to rethink their business model.
There is no doubt that our current global society depends heavily on natural resources to drive not only modern business practices, but also our way of life. To feed this need for commodities such as oil or coal, corporations and businesses involved in the natural resources sector have historically followed “a dig-and-deliver” business model, with an emphasis on large capital investments and stockpiling enormous quantities of the best quality assets they could extract. This influential sector has been absolutely vital to the global economy, especially since the so-called 2003-2015 Commodity Supercycle, where spending on resources such as oil, natural gas, coal, iron ore, and copper were above six percent of the global GDP for the second time in a century.
Increasingly, as McKinsey reports, natural resource companies are facing huge, continual losses as demand for natural resources, specifically oil and thermal coal, decline further. This decline can be attributed to a combination of expected macroeconomic factors, but also to less expected effects due to new advances in technology that are pushing natural resource productivity to become more efficient and more environmentally friendly. Energy efficient technologies at home and in the workplace drive down consumer need for most commodities, while new innovations such as underwater robots, drones, and data analytics raise productivity for natural resource producers. Over the next two decades, it is likely that oil, coal, and iron ore will reach their peak demands, and the global GDP will no longer be as intensely influenced by the natural resource sector. With this changing landscape ahead of them, the only way natural resource producers can plan for success is to shake off their long-held tradition of slowly embracing change and become more involved in technological innovations and the exploration of other sources of energy.
The question now is, how will the natural resources sector deal with this new trend of decreased commodity demand? Countries and corporations alike will have to step up and work together to guide the economy through this disruptive time and ensure that innovative technologies are adopted and embraced to generate higher productivity and economic savings. Governments can push for a greater emphasis on a portfolio approach to energy policies, opportunities for citizens to develop the right skills needed for the future, and help manage energy transitions efficiently and effectively. At the same time, natural resources and energy focused companies will need to behave more like innovative technology giants, who have already begun to invade this sector. They will need to become more agile, move faster, think differently and embrace holistic change, as well as hire new, non-traditional job roles such as data scientists, statisticians, and machine-learning specialists.
Contributors - Hana Carrozza and Catherine Chen