InformationWeek
Defining The Business Value Of Technology
September 27, 1999
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Mergers Require New Efficiencies
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By Jeff Sweat
ant an idea of what it's like to compete in the energy industry? Try bulking up an elephant while simultaneously enforcing a diet. Then teach it to dance on an uneven floor.
Though the challenges aren't quite that unfathomable, energy companies are struggling to compete on an uneven playing surface. Large companies are merging into behemoths, creating issues for both themselves and competitors. Erratic fuel prices have made inventory a potential liability for all players. Through it all, energy companies are trying to keep operations lean, predict demand, and get fuel and other goods to customers exactly when they need it.
Under such market conditions, IT can be a benefit and a challenge, as mergers typically require consolidation of business processes and technology infrastructures. IT integration has been an issue for Clark Refining and Marketing Inc. in St. Louis, which includes Wood River Refinery in Wood River, Ill., among several recent acquisitions. "What one looks for in a merger and acquisition is being able to very rapidly assimilate," says Jeff Chasney, CIO at Clark, a subsidiary of Clark USA Inc. "The challenge is being able to do that at high speed."
Smaller vendors such as Clark are looking to grow through acquisitions-and divest unnecessary holdings-so they can corner a specific market segment and head off trouble related to the mergers of larger players. Exxon Corp. and Mobil Corp. are creating a monster-sized business with their merger, due to close in the third quarter, as will BP Amoco and Arco with their merger, announced in April. Those companies expect to benefit from new efficiencies and expanded reach.
Energy companies are choosing to move all parts of their business to a single technology infrastructure when possible, or integrate systems when not. Clark revamped its network of enterprise systems last year, eliminating multiple mainframe systems and moving entirely to Windows NT servers. Clark's goal was to provide a unified platform on which to build that is more manageable than legacy systems. NT won out over other contestants such as Novell NetWare, Chasney says, because the company believes it has broader appeal and more staying power. Clark also pulls new business units onto common maintenance management, financial, and payroll systems. All applications can be accessed via the Web.
Acquisitions are a way of life for the Williams Companies Inc., a Tulsa, Okla., enterprise with diversified holdings that include natural gas, propane, ethanol refining, and fiber optics. The company completed a dozen acquisitions in the past 18 months, including the purchase of energy company Mapco Inc. Williams had 27 financial systems at one point, says director of enterprise systems Doug Foster, but has reduced that number to three. The consolidation, combined with a move to standardize hardware and desktop software, has saved the company tens of millions of dollars annually. But the differences in culture and technology savvy among the different units may mean that the company can't reduce its number of financial systems further. "Given the different cultures, the challenge to bring them to common systems is more difficult," Foster says.
The consolidation of the industry also creates challenges for energy companies not involved in mergers. For example, the joining of Exxon and Mobil creates more competitive pressures for Chevron Corp., which so far has not embarked on a path of growth through acquisitions. For Chevron, IT plays a key role in helping the company compete. "There's a strong push toward becoming leaner and meaner," says Jim Crompton, Chevron's strategic account manager for upstream business units. "We have to become more nimble to compete, since someone else is going to have deeper pockets."
Part of that nimbleness is a requirement for energy companies to discover and tap new opportunities. For Chevron, that means exploring potential new oil sources around the globe, and that poses a complex set of IT challenges. The regions Chevron is exploring, such as West Africa and Kazakstan, often don't have communication infrastructures in place to feed exploration and logistics data back to the company. That leaves Chevron with the task of handling issues such as fiber connections, satellite transmissions, and wireless data transfers. The company is setting up what it calls "office in a suitcase" standards so that each of its remote operations has basic voice and Internet network connections.
New IT initiatives can also cut fat from companies competing with merged units. For Chevron, a desktop-management initiative called Global Information Link has reduced IT complexity and cost by as much as $50 million a year. The project, finished late last year, provides a standard suite of applications across a wide area network, using Microsoft's NT filing and printing infrastructure and Systems Management Server for distribution. The architecture lets users access their profiles from anywhere on the network.
Chevron's simplifying on the server end, too. It just completed outsourcing its data center to EDS and has created a shared-server environment running Solaris, HP-UX, and NT to reduce server-management costs.
Mergers, or the threat of them, aren't the only reason for efficiency. That need is built into the industry, which has suffered downward-pricing pressure and price fluctuations in the past year.
Historically the industry has assumed that fuel prices, despite cyclical decreases, will continue to go up. So it made sense to keep some fuel on hand, because odds were that it would be more valuable by the time it left the company. "At one time, keeping any inventory of oil was an asset," says Leif Eriksen, an analyst at AMR Research.
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