As EPCs Brace for Impact of COVID-19, Digital Transformation Becomes Critical

As EPCs Brace for Impact of COVID-19, Digital Transformation Becomes Critical

Owners Have Been Announcing CAPEX Pullbacks That Could Hit Engineering Firms Hard

April 02, 2020

My last visit to Asia was in early February, as the world was waking up to the threat and reality of COVID-19. When I went to check into my hotel in Seoul, the reception staff began the process by taking my temperature. During breaks in meetings at the hotel, staff would wander in and randomly take the temperature of participants, carefully noting results on a clipboard. By the time I was on my flight back to Boston, the potential scope and scale of the coming storm was starting to become apparent.  

Even before the impact of COVID-19, the economic recovery in the engineering, procurement and construction (EPC) industry could accurately be termed “fragile.” While backlogs were growing and work was becoming more diversified across energy, chemicals and green projects, there were many in the sector that were still struggling with weak balance sheets, too much debt and dreadfully low net margins.

Now, with most owner-operators announcing significant reductions in capital spending programs for next year, there is likely to be an outsized impact on the engineering firms that do the bulk of the process industry’s project work.

Prior to the global Coronavirus outbreak, most EPCs were either initiating or contemplating digital transformation initiatives that executives viewed as imperative to improving productivity and reducing risk. So now what happens to those initiatives? It remains to be seen if they move forward full steam ahead, or if they are curtailed or tabled all together in favor of near-term responses aimed at surviving yet another shock to the system.


Digital Transformation at EPCs

Digital transformation (DX) initiatives have been in full swing in the owner-operator arena for several years, but for EPCs, similar initiatives were just getting under way. It’s really been in the last year that we’ve started to see organizations re-shuffled, executives reassigned and budgets aligned to these transformation initiatives.

We’ve seen many examples of owner-operator driven DX, often aimed at moving closer to the concept of an autonomous plant. But what does DX look like for an EPC?

Based on responses to a recent AspenTech survey, EPC digital transformation activities are, at least in part, being undertaken with the objectives of increasing productivity, delivering cost savings and improving customer satisfaction. And, in speaking with customers across all global regions, the highest priority area to be addressed under DX is consolidation of software and technology portfolios, followed by digitalization of remaining applications and business processes, spanning from administration to project delivery.

Critical to this effort is the ability to find and re-use data across the organization, and eventually across their ecosystem of vendors, sub-contractors and consultants. Other areas of focus include better management of risk, diversification into new sources of revenue and attracting new talent.

As an example, one North American EPC has begun the process of reducing their engineering software and technology portfolio from over 160 distinct products down to less than 30. The remaining pieces will be connected, with data flows automated. Their goals are to better support project delivery across multiple domestic offices and one international office, be more responsive to customers and reduce costs.

My meetings in Asia that first week in February revealed a very similar mindset. We met with newly formed DX teams and executives in Japan and Korea eager to discuss how Concurrent Engineering and our partnership with Hexagon could support their digitalization initiatives. Importantly, just as with the example of the North American firm mentioned above, the approaches to DX were comprehensive and thorough and were backed by a willingness to break things down and re-build, rather than simply “paving over the cow paths.”


Back to the Future

It’s likely that we’re about to enter yet another deeply challenging period for EPC firms, and no one knows how long this will last or how long it will take for the level of economic activity and mobility to rebound to pre-Coronavirus levels. Meanwhile, the data points we do have, in the form of announced CAPEX reductions by owners, will undoubtedly take their toll on the beleaguered engineering and construction sector. Expect some projects to be slowed down or even canceled, along with increasing competition and yet another round of consolidation.

Having spoken with multiple EPC customers that are forecasting productivity increases in the neighborhood of 30-50% from digitalizing their design and engineering workflows, the urgency around DX will likely only increase. Those that have not begun or are planning to defer these initiatives due to the current situation do so at a high risk of not being able to compete with those who more aggressively pursue digital transformation.

AspenTech has gained considerable experience in enabling our customers’ digital transformation strategies, for both owners and EPCs. Please contact me if we can be of any assistance to you in this unprecedented and challenging period. We have a unique combination of technology, domain expertise and partnerships that can help you accelerate your transformation, regardless of where you are on your journey.


To learn more about how you can leverage our technology to achieve operational goals, please read our executive brief Optimize Asset Design and Operations With Performance Engineering.

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  • 3 years ago

    Construction companies should be mindful of their frameworks, to stay away from dangers and have the option to contact proficient assistance before things deteriorate. A debt of gratitude is in order for this article!

  • 3 years ago

    Construction companies should be mindful of their frameworks, to stay away from dangers and have the option to contact proficient assistance before things deteriorate. A debt of gratitude is in order for this article!