InformationWeek
Defining The Business Value Of Technology
September 14, 1998
IT Fuels Speedup In Energy Industry
Companies turn to ERP for year 2000 compliance as they strive to do more with fewer resources
By Stuart J. Johnston
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ENERGY With data from Hoovers Online  |
Marshall Jones, Amoco Corp.'s VP of information services, talks fast. He has to. The oil and gas business is a fast-paced industry, and there's no time to slow down, especially not now.IT departments of energy companies are being driven to move faster, too-to provide better information sooner, but with fewer staff members and smaller budgets than ever. Among the forces powering the rapid pace are the constant rearranging of the industry via joint ventures, mergers, and acquisitions; the El Niño tropical warming and other unusual weather patterns, and the approaching year 2000 deadline.
As in other industries, many oil and gas companies are replacing at least some of their legacy applications with newer packages, such as SAP's R/3 enterprise resource planning system, that don't have trouble handling dates after 1999. Texaco, for instance, installed new ERP applications largely to resolve year 2000 issues in its U.S. refining and marketing areas, according to CIO Rick Diaz.
"On top of the list is to make sure these companies are year 2000 compliant. They aren't there yet, and we're seeing a lot of them sign up for SAP and, to a lesser degree, Oracle," says Bill Miller, a partner at Andersen Consulting.
"Ten of the top 10 oil and gas companies are running SAP," agrees Andy Noronha, a senior analyst at corporate advisory firm G2 Research Inc. "Oracle is also a strong player, particularly in finance."
Adding to the pressure is the fact that 1998 has been a bad year for energy companies. El Niñ and other global weather events have driven down demand for oil and gas in the United States, while the continuing financial crisis in Asia is holding down demand overseas. Consequently, IT budgets are under severe pressure.
"Oil is trading in the $14-to-$15 range instead of the $18-to-$20 range that we've had for the past three years, and we're in one of the down years of the petrochemical business cycle, too," says Jim Crompton, principal technical adviser at Chevron Information Technology Co. in Houston.
But despite the fact that profits-and budgets-are shrinking, oil and gas companies are increasingly dependent on IT. While the scramble to make certain that all critical systems are ready when the clock strikes midnight some 15 months from now is gobbling resources and time, it's no excuse for not providing increased value to the business, say CIOs and IT decision makers across the energy business. As in recent years, there's a push to integrate information across the entire enterprise-to standardize data that may be in multiple formats and systems.
"Our whole approach to information management is something we're taking a big look at," says Jones. His statements are echoed by his peers, as competition heats up and CEOs look to their IT departments to provide unique business value to help their businesses get ahead-or at least keep up.
For that reason, some companies are gaining leverage from having already implemented their ERP packages. Granted, the work is far from done at most companies. Andersen's Miller says many companies are still rushing to get ERP packages into place in time to head off the year 2000 deadline. "I don't think they're focusing on the value proposition yet," he says. "Their strategy is, 'Let's just get it in and after 2000, we'll come back and tune it.'"
Beyond Installation To Linking
But some organizations are well along in the process and are now looking to link their ERP systems with others-from data warehousing and data mart applications to customer-relationship management programs and trading-room software. While these efforts are still in nascent stages, Amoco, Chevron, and Texaco are leading the charge.
Because of the international nature of the oil and gas industry, Texaco's refining and marketing departments are looking at data marts to provide a cohesive view of the company's businesses in many countries, says CIO Diaz. "We're also working on data mart applications to support our global human-resource initiatives," he says. "It has a lot of potential to streamline our operations, because we have as many employees outside the United States as inside it."
Amoco is also looking for its ERP system to improve many operations. He explains, "We have implemented SAP both upstream [exploration and extraction] and downstream [transport, refining, and marketing], and in April, we added our chemicals business."
Some companies are looking beyond process improvements. "The question is, 'How can I use information to better understand my business and why my customer is buying what I'm doing?'" says Chevron's Crompton.
In order to provide that integration among disparate programs and multiple data formats, many in the oil and gas industry are implementing component technologies designed to simplify links, such as the Object Management Group's Corba standard and Micro-soft's Component Object Model. Although Corba has the edge at most energy companies, Microsoft's model is coming on strong as the company begins to provide versions of Distributed COM on many platforms, including Unix and OS/390. Ultimately, companies will require the two to communicate with each other, an area Microsoft is addressing by partnering with vendors of intercommunications technologies, such as market leader Iona Technologies Ltd.
"We're probably further along with Corba than with DCOM, but we're interested in the technologies that let you have both of them, and we're hoping that will lower our integration costs," says Chevron's Crompton. Amoco's Jones agrees object technologies are key, and both are looking at Sun's Enterprise JavaBeans to further that integration.
Chevron and Amoco are also well along in their R/3 implementations and are running the specialized IS-Oil consortium applications for the oil and gas business as well as a variety of other ERP applications. IS-Oil is a common set of core business applications based on R/3 that has been subscribed to by a consortium of 21 oil companies in partnership with Andersen and SAP. The goal is to help contain costs by giving IT departments a standardized set of ERP applications.
Challenge Of Integration
It's serendipitous that so many energy companies have chosen SAP, because the companies are increasingly confronted with the challenge of integrating systems when they merge with competitors or launch joint ventures.
"There's not a lot of literature on merging two SAP systems yet," says Britt Mayo, director of IT for Pennzoil Co. in Houston, which is merging with Quaker State. How that merger turns out may help to determine the course of merger and acquisition activities across the industry. "We'll probably be one of the first mergers where both companies have deployed SAP prior to merging," Mayo says.
The growing ubiquity of SAP, as well as other ERP products, is leading IT departments to work toward optimizing the amount of useful information that can be pulled out of those systems. It also sometimes solves other problems along the way.
"ERP allows for standardization and the exchange of information, so it will allow oil companies to improve communication within the entire enterprise," says G2's Noronha. A unified view of the enterprise lets a company analyze its business and its customers worldwide.
"From a logistics standpoint, you only have to deal with one system and one relationship, instead of dealing with customers country by country," says Texaco's Diaz.
Standardization on the desktop and on smaller servers is a key trend that Noronha and others see in the IT toolkit. The desktop belongs to Microsoft. Pennzoil was an early adopter of Windows 95, which is also used by Amoco, while Chevron began to deploy Windows 95 but switched after evaluating NT Workstation 4.0.
Noronha sees a growing number of companies leaning toward Windows NT Server. "When a lot of companies implement ERP, that's a good opportunity to move to NT as well," he says.
Scalability Concerns
But while that may be true in some cases, it's not the case at Amoco, Pennzoil, or even Chevron. All three companies say NT is being used for file, print, and messaging. But when it comes to heavy-duty server-side processing, Unix and big iron still win out-hands down.
"For NT Server, scalability is still a major issue, and I don't think they're there yet," Amoco's Jones says. "With 30,000 desktops, I need to be able to manage desktops and servers centrally. Right now, Microsoft doesn't have the tools to manage a network of that size. NT on the desktop is probably three years away."
Chevron has also begun leasing its PCs instead of buying them, with each machine to be replaced every three years. To allow for more flexibility, Chevron's deal lets users upgrade to the latest hardware once during the three-year lease. After a bidding process, Chevron chose Hewlett-Packard as its vendor for the 20,000 to 30,000 PCs and notebook computers.
Some IT departments at oil and gas companies are also holding down costs and increasing competitiveness by implementing systems that let workers hold meetings over the Internet, company intranets, and extranets. Texaco has been doing just that, though Diaz declined to say what products the company is using to accomplish the task.
"Our efforts are mostly focused around increasing the sharing of skills across the organization, [and creating] virtual teams we can use to leverage our global communications systems and desktop capabilities to let people in Europe work with people in Angola, or anywhere else," Diaz says.
Regardless of the technology used, the issue remains the same: using IT to control costs while continuing to add business value. That's because, in a down year for the oil and gas business, a company's profits may lie somewhere in the middle.
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