McKinsey believes digitisation can provide a competitive edge in metals, but we think the impact will be even bigger for OTC energy.

In a recent article McKinsey outlined how the digitisation of operating models provides a huge opportunity for early adopters in metals trading to differentiate themselves and establish a competitive edge, and how laggards may fall victim to progress.

We agree with both their diagnosis of the problem and the solutions, but think the opportunity is even bigger for OTC energy markets.

Traders in both energy and metals rely on relationships and broker networks, but use manual and non-standard processes to make decisions and manage trade flow, communicating via analogue channels like messenger chat and voice box.

The time spent managing these data flows ultimately decreases time spent on more strategic endeavours, and becomes harder to manage the more pressure is placed on traders to respond quickly to changing market dynamics.

“Digitisation provides opportunity for traders to […] focus on building strong relationships and identifying new opportunities.”

McKinsey then goes on to outline the quickest wins and key areas where operating models need to be updated.

  1. Consolidate fragmented data for collaboration: Consolidate and aggregate data from fragmented sources such as phone, email etc. to get everyone working from one source of truth, facilitating collaboration.
  2. Automating price calculation: Reduce time spent manually managing models in Excel by standardising price and value calculations.
  3. Digitise reporting: Digitisatising reporting and approvals with counterparties, ideally through 3rd-party document digitisation.
  4. Systems integration: Integrating across platforms reduces manual manual work and costs, as well as facilitating collaboration by providing a single source of truth.

“Digitisation provides further opportunity to enhance competitiveness and grow revenues and profits by improving trade operations support.”

Upgrading these four areas not only provides a competitive edge through enhancing speed and quality of decision-making as well as profitability, it also decreases operating costs by between 19% – 28% (McKinsey).

As traders in energy markets face increasing pressures and volatility, the opportunity is a no-brainer, the only barrier is changing mindsets. Both the Tallarium and McKinsey take is that those who fail to adapt will be outcompeted by those who do.