Squeezing Value Out of Your Information Technology Investment
Authors: Oxby B. 
Published: March 2010

Technology might be innovative and exciting but ultimately it's delivered business value that measures success. Oil and gas companies have made huge investments in information systems, networks, and infrastructure. Some projects have been successful while others have been expensive investments with questionable return.

So what's the next big wave? Collaboration? Web services? Employee portals? Enterprise application integration? Do any of these technologies matter? To squeeze value out of their IT investment, energy companies must examine how they will leverage technology in the future.

Introduction

The next technology wave is unlikely to be a flood of innovative advancements. Collaboration, web services, and enterprise application integration may be significant developments, however they will not garner the attention that new technologies have in the past. Rather a wave of newly found fiscal management for Information Technology (IT) will steal the limelight.

Many oil and gas companies have made huge investments in IT over the last decade. However, after years of escalating expenditures, the results have often been less than stellar. IT departments have been marked with the stigma of broken promises, poor customer service, and under delivery. IT is under pressure. For example:Despite record earnings in the first half of 2001, a major integrated oil company recently undertook a multimillion dollar cost reduction program slashing IT costs by an estimated 20%.A multi-year IT outsourcing deal at a major pipeline was curtailed to reduce costs.Amultinational engineering company halted the implementation of a runaway ERP implementation at the border, stranding Canadian operations on a legacy mainframe application.

Despite these challenges, IT is at the heart of the evolution of every major company in the energy sector.

Delivering Value With Information Technology

With the glamour of the dot com era behind us, we are now entering a maturing phase of IT. Gone are the days when IT managers can say to business units: "IT will build it and they will come-trust me." Sophisticated consumers of information now demand to know the magnitude and timing for business benefits from IT projects.

Strategic Resource or Cost Centre?

Many IT departments in the energy sector are managed as cost centres. This reflects positioning in an industry where production activities take precedence. To become a strategic resource, the role of IT must be clearly articulated towards enabling growth. Figure 1 illustrates the three sides of an approach for IT to deliver strategic value: Growth, Productivity, and Cost Reduction. IT has finite capacity and resources. An IT department focused solely on cost reduction will be incapable of effectively capitalizing on opportunities to enable growth or increase productivity.

To proactively position as a strategic resource, IT departments must excel in four key areas:Structure for SuccessMeasurable ResultsDefined ServiceDetermined Leadership

Structuring For Success

Effective models to strategically deliver IT services have been elusive. In many organizations, a CIO role has been created to provide standards, overall direction, and high-level budget control. Services are commonly distributed through business unit IT departments.