Most oil and gas companies have embarked on a digital transformation in the past few years. Many technology-enabled use cases have been identified, built, and verified. However, successes so far have been confined to small pockets. If the impact of these initiatives is to scale up, so must the underlying technologies.
Pilots can be developed in a “sandbox,” but full-scale implementation requires enterprise IT. Use cases based on automation, robotics, and artificial intelligence require vast amounts of data to be exchanged across traditional silos. Simply connecting systems point to point when required doesn’t work because the complexity and cost are prohibitive.
Instead, technology must be rapidly transformed across the enterprise to handle the transaction volumes, user expectations, and security requirements of the digital age. To do this, oil and gas companies need a strong chief information officer (CIO) with a mandate not only to change the way the business uses technology but also to transform the technology estate itself from disparate systems into scalable platforms.
Set up to fail?
Few oil and gas CIOs are set up for success in today’s digital age. IT tends to be measured on stable operations at the lowest possible cost, which translates into a CIO mandate that revolves around supporting the status quo rather than enabling growth or transformation. The oil-price downturn of 2014 intensified the squeeze on IT spending, stripping CIOs of between a third and a half of their capital expenditures.
Hamstrung by budget cuts, CIOs are doomed to disappoint an increasingly technology-hungry business. The constraints their IT organizations face are legion:
- Left out of business planning and decision making. According to a McKinsey survey, half of the businesses across industries treat IT as a captive vendor. Confined to the role of order taker, IT can’t anticipate and meet the technology needs of a rapidly evolving business, let alone shape them.
- Stripped of engineering capability. A typical oil and gas CIO focuses on infrastructure and third-party-licensed software, which represents about 40% of IT spending. Internal capabilities claim a much smaller share of the budget, with personnel accounting for only 27% of spending—far less than the cross-industry average of 37%. The outsourcing of application development increased by 50% between 2014 and 2018.
- Locked into an unsuitable delivery model. The standard model for capital projects in the oil and gas industry forces all activities into long planning cycles with sequential development and limited scope for experimentation. McKinsey's digital benchmark shows that 55% of oil and gas companies take 6 to 12 months to move from idea to implementation; 33% take more than a year. By contrast, a digital leader takes no more than 4 months to implement an average digital initiative.
- Unable to control end-to-end data flows. Data from equipment and sensors—known as operational technology (OT)—is central to many digital initiatives in oil and gas, as most use cases rely on the timely flow of operational data from multiple sources. However, most oil and gas companies manage OT via the asset operating team and lack policies and technology for sharing operational data across the enterprise. If the CIO doesn’t control the means to connect central IT to operational assets, it’s very hard for the company to make secondary usage of operational data.
In short, IT’s mandate is a limited one: keep the business running smoothly. The occasional change happens at the unhurried pace of oil and gas capital projects and touches on only a part of the digital real estate needed to deliver on the promise of performance transformation. We think it’s time for oil and gas companies to expect more of their IT—and their CIO.