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Oil and gas companies need a CIO with a mandate to transform the technology estate — McKinsey

GO DIGITAL OIL & GAS

Oil and gas companies need a CIO with a mandate to transform the technology estate — McKinsey

Oil and gas companies need a strong chief information officer (CIO) with a mandate to change the way the business uses technology and to transform the technology estate itself from disparate systems into scalable platforms, Aman Dhingra, Sverre Fjeldstad, Natalya Katsap, and Richard Ward write in their article for McKinsey Insights.

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 authors say.

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.

A new mandate for the oil and gas chief information officer, McKinsey Insights

CIOs IT organizations face multiply constraints:
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 percent 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.

Our digital benchmark shows that 55 percent of oil and gas companies take six to 12 months to move from idea to implementation; 33 percent take more than a year. By contrast, a digital leader takes no more than four months to implement an average digital initiative.

A new mandate for the oil and gas chief information officer, McKinsey Insights

Unable to control end-to-end data flows. Most oil and gas companies manage operational technology (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 tough 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.

A new mandate for the oil and gas chief information officer, McKinsey Insights

The CIO’s new mandate

According to the article, McKinsey’s survey shows that 76% of respondents agreed that IT should actively collaborate with the business. Still, only 27% felt their IT department played that role most of the time.

In a digital age, the CIO must be an equal partner in transformation with the business. That calls for a CIO who can wear multiple hats: visionary change agent, technology architect, expert builder, and provider of technology talent to the whole organization, authors say.

At many companies, CIOs are invited to react to a predefined strategy. Such an approach leaves organizations unable to capture technology synergies among digital use cases and struggling to scale up and contain galloping costs. For better outcomes, the CIO must be deeply involved in driving strategy and building alignment on bold digital transformation themes that go beyond classic technology enablement to process automation, advanced analytics, and robotics.

A new mandate for the oil and gas chief information officer, McKinsey Insights

The value of a digital transformation comes from changes in the company’s operating model, not from the technology itself, McKinsey’s experts emphasize. Cross-functional teams can deliver benefits such as reduced head count, higher barrel throughput, and improved safety outcomes.

Other than that, companies with top-quartile IT performance suffer skill gaps and struggle to keep up with the demand for IT talent, authors say.

The fierce competition for digital talent means that most oil and gas companies will continue to use third-party sourcing as part of their personnel strategy. To that extent, a company’s ability to integrate external contractors into high-functioning teams will be as critical to its success as its hiring practices.

A new mandate for the oil and gas chief information officer, McKinsey Insights

Thus, the authors believe that the CIO’s new mandate represents a fundamental shift in the role of IT from managing vendors to driving business outcomes.

For this to happen, the relationship between the CIO and the rest of the organization must be reset. The CEO must not only recognize the CIO as a partner in digital transformation but also provide the mandate and resources needed to execute on this role. In turn, performance contracts will need to be reframed to take account of the strategic and transformational objectives that the CIO is now responsible for driving.

A new mandate for the oil and gas chief information officer, McKinsey Insights

The oil and gas industry has reached an inflection point in its digital journey. To leap individual use cases to digitally-enabled performance transformation at scale, it will need to rethink its attitude on IT, the authors conclude.

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