Digital Finance Broadens Roles for Oil and Gas CFOs

In the oil and gas industry, digital finance is transforming the kinds of services that finance has traditionally delivered to the business. While digital finance is helping companies unlock millions of dollars of value, it is also creating a cross-functional, collaborative workforce capable of generating new insights and improving decision-making throughout the enterprise. In the process, the role of finance in oil and gas is being redefined from recording and reporting results to guiding the course of the business. This evolution will only accelerate as newly emerging technology areas, including quantum computing and blockchain become more established.

Our global study of Chief Financial Officers in the oil and gas industry – based on in-depth interviews with corporate or business-unit CFOs for regional entities at 80 companies – found a growing emphasis on insights rather than a narrow focus on efficiency. Digital finance was initially implemented by CFOs to make finance operations more efficient through innovations such as process automation, resulting in cost savings and better controls. Efficiency is still important, but now the excitement has shifted to the way digital changes the role of the CFO and the finance team.

In our research, 5 percent of respondents said leveraging digital has cut their company’s operating and capital costs by “medium” or “high” levels, while 77 percent said that digital has created a medium or high increase in their company’s revenues. To date, exploration and production companies are achieving cost takeout, while retail and oilfield services companies are capturing top-line growth. Either way, however, the impact on margins is significant, with oil and gas companies realizing median margin improvement of approximately $600 million following digital finance implementations.

New Services and Analytics Available

Respondents cited improved speed and efficiency as the primary impact of digital on finance services. One respondent, for example, noted productivity gains of 15 percent over 18 months. Other study participants reported sharp reductions in compliance irregularities; improvements in analysis, auditing, reporting and processing, leading to greater accuracy and control; and greater service efficiency, labor intensity and quality through the adoption of automated processes.

A large majority (82 percent) of study participants credited digital with enabling new services, such as analytics pertaining to risk, credit, pricing, expenditure monitoring and the identification of cost variances. As a result, respondents reported stronger governance, higher productivity and gains in robotic process automation. Digital is also improving core finance management, improving cash collection, billing, revenue recognition and practices related to taxation.

A New Finance Workforce

Just as important, many finance executives are redefining the finance workforce of the future. Nearly two-thirds of our research respondents say they have boosted the speed, capability and efficiency of the workforce, but the greatest impact may be in areas such as greater cross-functional collaboration and the development of new structures to partner productively with the business.

Digital finance in automated reporting and real-time analyses is compressing working hours while delivering faster insights. This frees up time for finance professionals to devote to business-facing and complex activities, provided the company helps in the development of new skills needed as part of the broader digital finance implementation.

In the digital environment, work looks different, with cross-functional roles and new roles for finance professionals who are also data scientists, cybersecurity specialists or application developers. Automation redefines rather than eliminates jobs, delivering greater efficiency but also stronger capabilities in areas such as analytics.

Making the Right Investments

Our research indicates that oil and gas companies are focusing their digital investments, with well over half spending on big data and advanced analytics and traditional ERP (enterprise resource planning) systems.  Big data and analytics support real-time pattern recognition and predictive capabilities such as scenario-based modeling to help make better decisions about investments and resources. Traditional ERP solutions, meanwhile, support core processes such as planning, reporting and transactions. There is also a growing shift to next-generation ERP such as SAP S/4 HANA©.

Other areas of focus for investing include robotic processing automation (standardizing transactions while boosting accuracy and speed), machine learning and artificial intelligence, such as cognitive assistants to manage support services, queries, reconciliations and reporting. Quantum computing, which could have value in areas such as portfolio optimization and fraud detection, is on the horizon as a key area for further exploration.

Overcoming Barriers to Progress

We found that many finance executives are unsure how to overcome obstacles to digital transformation including implementation cost, skill shortages and the legacy technology infrastructure. As companies, especially smaller firms, face reduced margins and other cost pressures such as infrastructure upgrades, employee training and external services, implementation cost emerged as the top challenge for digital finance.

The second-most cited challenge was digital skills, or the lack thereof. Companies need more digital experts and people with experience in agile delivery methods to implement advanced digital platforms. After digital skills, the next most commonly cited challenge was legacy infrastructure, with outdated platforms and limited server, network and portal capacity placing constraints on advanced technology systems. And, while cybersecurity is a challenge now, respondents see it as a top area of risk over the next five to 10 years, with the potential for damage increasing as data are stored on cloud networks and shared with different departments and partners.

Getting it Done – Accelerating the Move to Digital

We see oil and gas industry CFOs at an inflection point on the journey to digital finance. Most companies are realizing some value through their digital investments, but nearly half of the companies we surveyed sit in what we would call “traditional” mode, realizing suboptimal value with average digital capabilities. The companies we call Digital Value Leaders – representing about one in four companies surveyed – are successfully pioneering digital finance to position themselves for growth, while realizing double-digit value (10 percent or greater) from their investments in the form of greater revenue growth and/or cost reduction.

In addition to improved ROI, there are other benefits associated with being a Digital Value Leader, including the ability to execute the quarter-end close an average of three days faster; to undertake forecasting an average of four days faster; and reducing days sales outstanding by up to four days.

So, in our view, the question for non-leaders becomes: Where should CFOs undertaking a digital finance transformation focus their priorities? Our research, and our engagements with oil and gas companies around the world, has helped us define three key digital finance imperatives:

• Define a bold vision. Digital finance requires a carefully considered plan and CFO focus to identify where it can help unlock value. Traditional capabilities are being transformed for new approaches to old problems, such as the use of analytics to power zero-based budgeting (the justification of all expenditures within each new reporting period). The Digital Value Leaders we spoke to have moved beyond advanced analytics, ERP systems and using RPA to create digital-powered human teams to pilot blockchain and to explore technologies such as AI and quantum computing.
• Move fast – or very fast. Cost uncertainties and capital pressures present obstacles to implementing new technologies, especially when implementation requires an agile approach that can fail quickly and/or scale quickly. Such an approach should also be flexible, to respond to changes in volatile commodity markets and in technology. Cultural change management, a key capability, can be used to help with re-skilling and re-structuring, while leadership should visibly support the transition to organizational agility.
• Collaborate for greater success. Coordinating efforts through a new approach to business partnering or delivering finance as a part of cross-functional teamwork for end-to-end, customer-centric teamwork increases the chances of a successful digital initiative. For example, CFOs can engage with industry organizations and with stakeholders in the technology sector, in education, and with government and regulators to build cybersecurity capabilities. Similarly, alliances can help shape transparent, common regulations and standards aligned with industry interests.  Partnering with academic institutions can help nurture talent for future needs.

As our research shows, digital technologies have already had a major impact on the way oil and gas industry CFOs allocate their capital, track their companies’ results and performance, and manage cash and expenditures. As new technologies such as AI, blockchain and quantum computing take hold, we anticipate that the finance function will continue its rapid evolution, with the CFO’s focus shifting from reporting and control to the optimization of investments. In this environment, CFOs making the best use of digital technologies will be well-positioned to serve as even more valued advisors and business partners.

 

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