An ‘Insight’ position paper* from McKinsey advocates a ‘New mandate for the oil and gas chief information officer’. Oil and gas companies have embarked on the digital transformation and technology-enabled use cases have been ‘identified, built, and verified’. However, ‘successes so far have been confined to small pockets’. Such pilot digital transformation efforts can be developed in a sandbox, but full-scale implementation requires ‘enterprise IT’. Use cases involving automation, robotics and AI ‘require vast amounts of data to be exchanged across traditional silos’.
‘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 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’.
Unfortunately, ‘few oil and gas CIOs are set up for success in today’s digital age’. IT is measured on stable operations at the lowest possible cost. The CIO’s mandate revolves around supporting the status quo rather than enabling growth or transformation. The oil price downturn of 2014 intensified the squeeze on IT spending, depriving CIOs of between a third and a half of their capital expenditures. Hamstrung by such cuts, CIOs are ‘doomed to disappoint an increasingly technology-hungry business’.
Oil and gas CIOs are too often ‘stripped of engineering capability’ and instead focus on infrastructure and third party-licensed software (40% of IT spend). IT personnel spend in oil and gas is low at 27% as compared with a cross-industry average of 37%. There is also more outsourcing, with a 50% hike in outsourced application development between 2014 and 2018.
Companies are moreover ‘locked into an unsuitable delivery model’ and the CIO is unable to control end-to-end data flows. Operations data from equipment and sensors is central to many digital initiatives but these are managed by the asset, without policies for sharing operational data across the enterprise. Under the old model, CIOs procured and maintained bespoke, licensed applications to serve the functional needs of the business. But opportunity in an oil and gas company is largely data-driven which requires a more holistic approach, connecting data sources to form an information architecture that both enables the digital transformation and provides just-in-time functionality and data for specific use cases.
So, what is the CIO’s new mandate? McKinsey argues that the CIO ‘must be an equal partner in transformation with the business’. The CIO needs to be a visionary change agent, technology architect, expert builder and provider of talent to the whole organization. CIO need become ‘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’. The CIO’s focus needs to shift from process and procurement management to engineering and software development ‘which will make IT look and feel less like a support function and more like an engineering discipline’.
McKinsey advocates a DevOps** approach with platforms that can respond to changing demand. This requires flexible data storage, a tool chain, and processes that enable continuous delivery and integration of new code. Additionally, a ‘new breed’ of software engineers that, works side by side with the business, will gradually obtain domain knowledge as they solve pain points from day to day. The new CIO will need enhanced leadership qualities to run the new IT organization and will (somehow) have to ‘act as a peer to the CEO and chief data officer’ in driving a digitally enabled performance transformation of the business.
* A new mandate for the oil and gas CIO by Aman Dhingra, Sverre Fjeldstad, Natalya Katsap and Richard Ward.
** McKinsey states that some industries are further ahead than oil and gas in this respect, the Dutch ING Bank, for instance, invests 20% of its annual IT budget in DevOps. More on ING Bank’s DevOps here.
Comment: McKinsey’s pitch for more CIO engagement is a resounding endorsement of Johan Krebbers’ efforts in OSDU, of which, much more in this issue. The technology underlying ING’s DevOps also echoes the OSDU call for Kubernetes and cloud-based data access. In both cases, the effort is predicated on a brave new world, where ubiquitous data access trumps the benefits of the ‘monolithic’ app, with its own domain-specific data structures and limited data sharing. This begs the question as to how much domain knowledge can realistically be ‘gradually obtained’ by programmers. Whether this is really an issue depends on whether you see the machines taking over the ‘domains’ and ultimately making the behemothic app, and perhaps the knowledge worker, redundant.
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