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The lost CIOs of oil and gas

The lost CIOs of oil and gas

How to demonstrate the value of IT in this production-driven industry

A recent Ernst & Young study discovered that CIOs in the oil and gas industry feel more excluded in their organisations than tech bosses in other industries. They were somewhat dissatisfied with their remit, ability to influence broader company strategy, and people’s perception of the CIO role.

This is not surprising given the peculiarities of the oil and gas value chain. Most of the heavy information lifting is done in the control systems layer. A premium is placed on specific domain knowledge such as reservoir modelling, and fewer transactional events in production process – result in a smaller IT group.

Software-as-a-service (SaaS) delivery models have also widened the gap between the business manager and the CIO. Cloud vendors can now engage business managers directly and only need a cursory nod from the CIO to start delivering value to the business manager.

IT infrastructure management is slowly migrating from the client to the technology supplier, further diminishing the CIOs domain.

Most CIOs realised the need to rebuild credibility and spend a lot of effort in improving their internal operation and project discipline.

For Alan Matula, Shell’s global CIO, the business needs to be at the centre of the IT agenda. He does not see IT as leading business change, but rather providing the ‘cement’ for business transformation.

In an interview with McKinsey in March 2010, Matula said: “If you don’t cement changes with IT, then over time they will erode and revert back.”

Matula advocates an IT group that understands the organisation's strategies and can use technology to improve business processes.

“[CIOs] need to be smarter around demand management and to make sure you are using only the IT that you require and are doing only the IT projects that you need to do,” he said.

Oil and gas CIOs should do three things improve business processes and strengthen IT’s overall influence on the organisation.

The first step is to understand where production impacts the bottom line. Any process that puts the business first should start with the main financial measure for production managers: EBITDA (Earnings before interest, tax, depreciation and amortisation).

A thorough earnings analysis will show which factors have a major impact on EBIDTA and could be used to select the influences which are within the control of managers: the business drivers.

Throughput and operations costs, particularly maintenance costs, are usually the main drivers in the oil and gas industry with product prices the major uncontrollable variable.

Once it has been decided which business drivers IT can improve, the historical values of these drivers can be plotted over time to determine which scenarios impact the drivers. For instance, overall equipment efficiency, a common driver, can be impacted by trips, breakdowns and maintenance shutdown extensions.

The second step is to analyse these impacts and identify opportunities where the organisation can be more efficient. There are two types of opportunities that can be derived from the impact analysis: equipment opportunities and process/system opportunities.

Part of putting the ‘business at the centre’ requires the IT group to understand equipment opportunities and take that into account when rolling out technology solutions. However, the main area where IT can deliver value is with identifying and exploiting opportunities related to business processes and systems, such as operating rounds and routine maintenance planning.

The best way to do this is too follow a root cause process mapping (RCPM) methodology. This methodology draws from incident investigation and business process mapping fields to construct an effective session that leverages business knowledge and IT skills.

Read more: Leading from the front: CFO as the ‘voice of risk’

During a highly interactive RCPM workshop, the impact of different business processes on business drivers is quantified by mapping business processes to root causes of historical and possible incidents. For instance; a major furnace trip can be caused by low fuel gas flow, which is caused by factors like lack of compressor motor lubrication or filtration failures due to dirty strainers.

These root causes can then be mapped to the operating rounds business process and the mobility system that is used to manage it.

The third step involves constructing a portfolio of initiatives where IT plans are plotted along two axes: ease of implementation and impact. These initiatives can be used to prioritise work by identifying the set of projects where IT can have the most impact given its resources.

The reputations of IT departments have been damaged in recent years because of their inability to delivery on monetary gains promised in business case documents for IT projects.

This is especially apparent in the oil and gas industry where IT projects are compared to equipment improvement projects that deliver immediate benefits like increased production.

Following the process described above not only helps CIOs focus the IT project portfolio on business needs, it also enables the IT department to construct realistic business cases based on reducing actual incidents.

By linking projects to incident causes, the CIO now has a powerful tool to measure benefits and present them in more detail to the broader organisation.

Extracting gains from ‘soft’ aspects like workforce behavioural issues will also become more important as oil and gas companies move from capital expansion to continuous improvement mode.

CIOs who can demonstrate how these soft business process improvements lead to hard gains will quickly find themselves in a position of influence.

Marco van Staden is an operations subject matter expert, oil, gas, and energy at Ajilon, an Australian consulting firm.

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