In creating their companies' information technology (IT) strategies, managers should consider how to implement five key technologies to reduce costs and improve their competitive position.

The digital revolution that has transformed the once-staid consumer and retail sectors is sweeping through the energy industry like a tsunami, changing everything in its wake. With each passing day, this Internet-driven revolution is radically altering traditional relationships between producers and suppliers, equipment manufacturers and end users, businesses and consumers.
In 2 or 3 years, more than 50% of all oil and gas technical services and scientific information services will be Web-based. And by 2005 the Internet will be the accepted norm for all such services. The result of this rush to an Internet-based energy industry is that many companies are finding themselves frantically trying to develop a cohesive strategy and comprehensive plan to participate in this new era. Developing such a strategy requires a better understanding of the two primary business drivers and the five key technologies creating this digital revolution in the energy industry.
Cost reduction
The biggest and most significant business driver behind the transformation is the same one that has transformed every other industry: the need to reduce costs. Fluctuating oil and gas prices over the past 15 years and the recent spate of megamergers are causing companies to review and optimize every aspect of the business.
As a result, energy companies are looking to wring out as much cost savings as possible throughout the entire energy value chain. The process starts with reducing costs in how companies explore for and produce oil and gas, including how they store and manage seismic data and other business information on prospects, wells and contracts. But the cost-cutting drive extends down the entire energy supply chain as companies work to lower the costs involved in selling and delivering end products to business customers and consumers.
Improving competitiveness
The second major business driver in the industry's move to an Internet-based environment is the need to improve competitiveness through integration and global connectivity. Speed matters to every company because relatively few good opportunities exist at any given time.
When companies identify a superior business opportunity, they must be able to quickly share and evaluate that information throughout their organization in order to capture it before another company can act. Companies that can identify, communicate, evaluate and respond to new opportunities quickly and seamlessly will characterize the 21st century. Without improvements in integration and connectivity, a company's competitive position is directly at risk.
But the importance of integration and global connectivity is also being underscored by two competing trends: expansions and contractions. At the same time that many international companies are expanding to capitalize on new opportunities around the world, they also are working to cut costs by reducing the number of geoscientists and engineers in operating units. Companies are trying to do more with less. The only viable solution is to increase collaboration by sharing information between geographically dispersed operating areas and centers of technical expertise.
Large companies are not the only ones affected. Even midsize and small energy companies are recognizing the importance that technology integration and connectivity can have on their competitive position in their respective niches. Well-integrated, quality information and intelligence that can be effectively shared throughout an organization is absolutely critical for any company, regardless of size.
Key technologies
Driven by the need to reduce costs and improve their competitive positions, energy companies face the daunting task of making multimillion-dollar investments in new technologies. In trying to decide which specific technologies are the most important and will have the greatest impact on their company and the industry, it is critical to consider the five key technologies that will impact the future of the oil and gas industry:
• expansion of global computing infrastructure;
• adoption of open standards;
• shift to data-centric management approaches;
• advancements in hosting software applications; and
• more collaborative business processes.
Infrastructure expansion
Clearly one of the key technologies is the massive growth of infrastructure computing power associated with the development and global expansion of the Internet. By some estimates, the world's global computing power and capabilities are doubling every year. Bandwidth alone has increased several hundred times in the past few years.
With its global standards and protocols, the Internet also has provided a universal way of sharing information. When combined with the expansion of the global telecommunications infrastructure (wired and wireless) and the rapid increases in telecommunications bandwidth, every industry and company has the ability to operate virtually anywhere around the world.
But the energy industry's position and role in driving the growth of the global computing infrastructure is changing. In the not-too-distant past, the oil and gas industry was second only to the US government in terms of its usage of computers and raw computing power. And while the energy industry once was one of the largest investors in computing power and telecommunications, its relative share of investment in new technology now represents only a small fraction of the total. While the energy industry will continue to be a significant user of global computing power, its role and position are changing. In the past, the industry looked within its own research labs and IT departments. Today, however, other industries are having a far greater impact on the growth and development of the global computing infrastructure. As a result, energy companies must closely monitor technology developments in other industries and then consider which ones could have potential benefits or applications to address their needs.
Open standards adoption
The second key technology affecting the energy industry in the long term will be data management based on open and collaborative standards or models.
During the past few years the industry has developed open standards like Epicentre and Epistle for subsurface, surface, engineering and business applications. The industry is in the process of developing software and applications that implement and deliver these open standards within the framework of the Internet. Internet access to open-standards-based data will have a profound effect on the industry by streamlining and facilitating access of valuable, timely information.
By comparison, most upstream energy companies have unnecessarily complex and costly approaches to managing their information and applications. They run a combination of proprietary and commercial exploration and production applications with a lot of redundancy in coverage of the various business processes. Data are generally structured and stored in separate, unique databases for each application, group of applications or business function.
Additional data redundancy is created in corporate data repositories that capture data from project- and asset-level databases. Because of decentralized IT management and assets, it is not uncommon for multiple and overlapping databases to exist within a single company.
This redundancy and complexity translates into geoscientists and production engineers spending an estimated 30% to 50% or more of their time searching for, moving, quality checking and reformatting data. Today - and even more so in the future - energy companies will not have the luxury of wasting 30% to 50% of an engineer's or geoscientist's time. The unrelenting need to reduce costs and improve efficiency and productivity just won't allow it. This will force greater adoption and use of open standards.
Data-centric approaches
The third key technology shaping the industry is the shift to a data-centric vs. application-centric approach for all data management.
Essentially, the industry is creating a framework for integration based on open data standards that eliminate the need for separate and unique databases for different applications. A data-centric approach provides one database that manages data for all applications and ensures ease of integration. The application-centric approach must change if oil and gas companies are to achieve their business goals. The business world is dynamic, and situations change rapidly. Information must be continuously updated.
The shift from application-centric to data-centric industry standards for information and application management will enable companies to improve integration and reduce costs. At the same time, the Internet, with its entire infrastructure based on global standards and protocols, is providing companies with the ability to centralize information and applications and provide those services anywhere.
The new technologies already have made it possible for companies to centralize and reduce the complexity of their IT infrastructures. Companies can store and host information and applications one time and in one data structure. Then they can provide access to that data to anyone, in real time, regardless of location. As a result, these technologies are enabling strategic breakthroughs in how exploration and production companies manage information.
Hosting software applications
The fourth technology involves improvements in application software and how they are hosted. During the next few years, we will see more companies move away from the old model of stand-alone legacy applications - each with its own separate database - and instead use applications and software that have been developed using open standards. These applications will be hosted on servers - internal, outsourced or a combination of the two - and companies will pay to use them as needed.
The past few years have seen the creation of many application service providers (ASPs) that host applications and provide them to users via the Internet or intranet. Typically the customer pays only for what he or she uses. Users have access to the latest version of the software application and are not forced to maintain or update the software on their machines. The company is able to avoid the complexity and costs associated with maintaining the latest software applications on its own infrastructure. That's a significant advantage in the oil and gas industry, where there are already hundreds of industry-specific software applications. At the same time, the rise of ASPs has been a boon for development of new software applications for the energy industry. By allowing software developers to focus exclusively on their applications, ASPs are able to develop better applications and get them to users more quickly and efficiently.
Collaborative business processes
The fifth key technology is the increased adoption of collaborative business processes as a result of new technology and a change in management styles.
On the technical side, the Internet has not only increased connectivity, it has also provided a medium to improve collaboration. Companies have discovered the value of their network increases exponentially as new users are added, as employees are better able to share their knowledge and experience. The increase in collaboration, however, also reflects a shift in the industry's cultural and management style. The need to reduce costs while improving performance has forced energy companies to consider and adopt new ways of operating and managing.
In the past, an energy company might have been able to afford having various experts in drilling, completion work or other technical disciplines stationed in various fields around the world. While even the supermajors have relatively few of those experts, the need for that expertise around the world still exists. The solution is the development and adoption of knowledge management processes that enable employees to share that expertise globally. Through increased integration and global connectivity, those valuable and limited corporate resources can be used more effectively and shared more broadly.
The energy industry is also testing the waters on expanding the collaborative process outside of individual companies. It is not uncommon for an alliance of companies drilling in the same area to share their information and experience in that area. By doing so, each company is able to reduce costs and improve productivity.
For oil and gas companies, there is no magic bullet or single solution to developing a cohesive strategy for investing in new technology. Driven by the need to reduce costs and improve their competitive positions, each company must consider how these five key technologies are likely to impact their company.