December 2019 Oil, Gas & Chemicals - Deloitte United States...Oil, Gas & Chemicals industry December 2019 Oil, Gas & Chemicals. Contents ... management and business transformation

Save-to-transform as a catalyst for embracing digital disruptionDeloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Oil, Gas & Chemicals industry

December 2019 Oil, Gas & Chemicals

Contents

Executive summary 4

About the study 8

How is Oil, Gas & Chemicals different? 10

Firmographics 14

Oil, Gas & Chemicals survey results: Detailed insights 18

Digital and technology solutions applied to cost management in the Oil, Gas & Chemicals industry 34

Save-to-transform as a catalyst for embracing digital disruption 40

2

Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Oil, Gas & Chemicals industry

Oil, Gas & Chemicals (OG&C) companies today face a wide range of unique challenges, including subdued oil prices, volatility in the Middle East, dampening demand from the rise of electric vehicles, and trade tensions between the United States and China that affect the supply chain. Also, while it is difficult to predict the exact timing of a downturn, the OG&C industry tends to feel significant impacts early due to the wide range of businesses that use its products.

Facing these headwinds, the prevailing mindset in OG&C seems to be expanding from “save to grow” to “save to transform”—with digital technology and digital disruption emerging as key levers for cost management and business transformation around the world and throughout the OG&C industry.

The imperative to transform is starkly visible in upstream, where many companies face negative free cash flow despite rising production. The adage of value over volume will likely gain importance because new project approvals during an economic slowdown or downturn tend to be fewer, and many companies will likely be seeking to implement digital solutions as a way to optimize opex and capex. Despite the deluge of digital advances, upstream oil and gas companies have been slow to seize the opportunity. Although the prize of going digital is clear, for most companies getting there is not easy.

The oil field services and equipment sector is a critical component of the oil and gas value chain. This sector faces the need to fundamentally improve operational and capital efficiency in a returns-focused world. In the current environment, digital solution innovation and structural cost transformation are critical to both differentiation and profitable growth. Companies that find new ways to cut costs, reshape their portfolios, and invest in technology/digital innovation will be well positioned to win. Those that don’t may struggle to survive amidst the new market normal.

In the midstream sector, the prevalent Master Limited Partnership (MLP) model has always prioritized growth over maintenance. In an asset-intensive industry like midstream, maintenance capex has mostly remained below 10 percent—restricting the focus on digital upgrades. Since going digital is not always a top priority, there is a lot of ambiguity around directing digital investments appropriately, with many companies failing to capitalize on technology innovations that could address specific business needs.

The downstream sector has traditionally focused on cost and product; however, that focus may no longer be adequate for differentiation in a slowing or contracting economy. Companies will likely need to shift their focus to appealing to the digital customer by being flexible to customers’ digital needs, providing channel choices, and making interactions simple, consistent, and convenient—all of which are becoming more critical. For example, fuel providers could partner with new startups in the ecosystem to offer customers value-added services that allow them to buy and consume more efficiently.

In the Chemicals industry, companies face disruption from digital innovations that have the potential to transform the industry globally. Highly diversified companies have already begun to leverage digital technologies across many functions; however, companies need to find the right balance between overly enthusiastic investment in digital versus viewing digital initiatives as a low-key affair. Striking that balance will help enable companies to reduce costs through more efficient and interconnected processes without uprooting or overpowering their current strategic business models.

With digital innovation emerging as a critical enabler for both cost reduction and business transformation in OG&C, we are delighted to present the results from our latest global cost survey. The study includes responses from more than 1,200 executives and senior leaders around the world with direct involvement in cost management, including 68 respondents from major Oil, Gas, & Chemicals companies.

This report provides an up-to-date view of the cost management practices and trends shaping the future of the OG&C industry and global business. It also takes a detailed look at how the latest digital technologies and cost management strategies are acting as a catalyst for transformation in a world being actively redefined by digital disruption.

We hope you find these insights useful and look forward to hearing your thoughts and feedback.

Foreword

Sam Balaji Global Consulting Leader

Omar Aguilar Strategic Cost Transformation Global Market Offering Leader

3


Executive summaryHow is OG&C different?

Cost management patterns in OG&C resemble the global survey results. Over the next 24 months, 69% of OG&C companies plan to undertake cost reduction initiatives, slightly less than the global average across industries (71%).

The future revenue outlook in OG&C is almost as optimistic as the global average across industries. Over the next 24 months, 81% of OG&C respondents have positive expectations for revenue growth; however, that percentage is somewhat lower than the global average across industries (86%).

Expected implementation rates for key digital technologies are significantly higher in OG&C than globally, except for business intelligence. Over the next 24 months, implementation rates for digital technology in OG&C are expected to be higher than the global averages across industries for automation (+23%), cognitive technologies (+10%), and cloud (+13%), but lower for business intelligence (-10%).

Digital leaders in OG&C have a big impact on technology implementation, surpassing the global average. On average, OG&C companies with a designated digital leader have a much higher level of technology implementation (+190%) than companies without one. The impact in OG&C is even greater than the impact of digital leaders globally across industries (+118%).

The save-to-transform mindset is similarly prevalent in OG&C as globally. The save-to-transform mindset is characterized by a simultaneous strategic focus on sales growth, cost reduction, product profitability, technology implementation, and digital enablement. According to the survey, the save-to-transform mindset is similarly prevalent in OG&C and globally across industries. OG&C responses were slightly higher than the global averages for sales growth (+3 percentage points), cost reduction (+6 percentage points), product profitability (+2 percentage points), and digital enablement (+3 percentage points), but lower for technology implementation (-9 percentage points).

OG&C survey results: Detailed insights

Cost reduction is particularly prevalent among Chemicals companies.

69%OG&C companies are slightly less likely than the global average to pursue cost reduction initiatives (69% in OG&C versus 71% globally across industries). The Chemicals sector respondents are more likely to undertake cost improvement than the Oil & Gas sector.

75%Chemicals

68%Oil & Gas

Cost programs in OG&C have a high failure rate similar to the global average.

82%OG&C companies failed to fully achieve their cost reduction targets, according to the survey results—nearly identical to the global average across industries (81%).

Cost targets in OG&C tend to be in the midrange.

67%The large majority of OG&C respondents have cost reduction targets of 10–20%.

68%Oil and gas companies tend to have more aggressive targets, compared to:

59%in Chemicals.

4



Commodity price fluctuations are the top external risk. In OG&C, the top-rated external risks are:

68%commodity price fluctuations

66%political climate

62%currency fluctuations

The Chemicals and Oil & Gas sectors have very different cost reduction drivers. In OG&C, cost reduction drivers vary widely between the Chemicals and Oil & Gas sectors; also, the drivers are expected to evolve significantly over the next 24 months.

Strategic priorities align with save-to-transform.Top-rated strategic priorities over the next 24 months:

75%sales growth

75%product profitability

74%cost reduction

72%digital enablement

OG&C expects to continue emphasizing strategic cost actions. Looking ahead to the next 24 months, OG&C respondents expect to continue emphasizing strategic cost actions (including both in-process and planned actions).

76%strategic actions

70%tactical actions

Companies in OG&C have been slightly emphasizing strategic cost actions over tactical cost actions. In contrast to the global results across industries, OG&C companies slightly emphasized strategic cost actions (32%) over tactical cost actions (28%) during the past 24 months. However, the overall OG&C results were strongly influenced by Oil & Gas respondents; respondents from the Chemicals sector strongly emphasized tactical cost actions. Tactical actions tend to produce incremental improvements and relatively small cost savings, whereas strategic actions have a much broader and deeper impact.

Talent is the top internal risk.The top internal risk for OG&C companies is recruitment, development, and retention of required talent (25%), followed by lack of regulatory, legal, and management controls (24%). Internal risk ratings by respondents in the Oil & Gas sector were generally much higher than those of respondents in the Chemicals sector.

Capability development in OG&C resembles the global results. Development of cost management capabilities in OG&C resembles the global average across industries. Automation was the most commonly implemented technology both in OG&C and globally.

This broad set of balanced priorities typifies the save-to-transform mindset.

Past revenue growth was highly positive but future expectations are more moderate. Surveyed OG&C companies have a highly positive growth outlook, with Chemicals sector respondents particularly positive (92%).

87%OG&C reported revenue growth over the past 24 months (compared to 86% globally)

81%expect revenue growth over the next 24 months (compared to 86% globally)

5

Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Oil, Gas & Chemicals industry Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Oil, Gas & Chemicals industry


Cloud leads the pack. In OG&C, the most widely implemented technologies covered by the survey are:

50%cloud

25%business intelligence

15%automation

12%cognitive/AI

Cloud is also the most widely implemented technology globally across industries (49%).

High levels of technology implementation are expected in the future.In OG&C, expected implementation levels are significantly higher than the global averages across industries for three of the four technologies covered by the survey. The technologies expected to be most actively implemented in OG&C over the next 24 months.

76%automation

69%cognitive/AI

The technologies expected to be least actively implemented are:

53%cloud

53%business intelligence

Digital leaders make a big difference, especially for business intelligence and cloud.

+190%OG&C companies with a designated digital leader have a much higher level of technology implementation (+190%) than those without one.

In OG&C, the positive impact of a digital leader is particularly high for business intelligence (+263%) and cloud (+235%).

Digital and technology solutions applied to cost management in OG&C

Most technology implementations meet or exceed expectations.

85%OG&C respondents had their expectations met or exceeded when implementing each of the technologies covered by the survey.

Top reasons for applying digital technologies. In OG&C, the top reason for applying both cloud and RPA is to tighten data security and improve business control. For RPA, two other reasons that tied for the top spot are to reduce costs and improve productivity, and to increase revenue. The top reason for applying cognitive/AI is to reduce costs and increase productivity.

Lack of an effective ERP system is the top barrier to successful cost reduction. In OG&C, the top-rated barrier to successful cost reduction is lack of an effective ERP system (68%). Globally across industries, implementation challenges are the top barrier (65%).

Lessons learned.The top lessons learned in OG&C and globally across industries:

No. 1invest in technology improvements to enable data availability, reliability, and decision-making processes

No. 2design a solid tracking and reporting process

No. 3assess, validate, and adjust targets reasonably to reflect reality throughout the implementation phase

Cost management maturity in OG&C is lower than average.Overall, the percentage of OG&C respondents that rate themselves high maturity is lower than the global average (35%).

28%OG&G

27%Oil & Gas

33%Chemicals

6


Automation and cognitive technologies are leading the way.Cost management practices and approaches have grown increasingly sophisticated over time, with digital solutions—although still maturing—now representing the most advanced level of cost management. Automation and cognitive are two technologies being implemented much more aggressively in OG&C than globally across industries. Also, investment in technology improvements was cited by OG&C respondents as the top lesson learned over the past 24 months.

Save-to-grow.In the recent past, most OG&C companies were operating in save-to-grow mode. Cost and growth were the main business levers, with talent (including capabilities) as another key component. In this mode, cost reduction was a high priority, with cost savings used to fund growth initiatives and strategic investments that support a differentiated business strategy.

Save-to-grow expands into save-to-transform.Many OG&C companies are now shifting into save-to-transform mode, with the save-to-grow mindset expanding to include a strong focus on digital enablement and implementation of technologies. This shift can transform a company and help it capitalize on digital opportunities, while at the same time positioning the business for potential adversity that may be on the horizon—such as an economic downturn or credit crisis—using digital innovations to unlock new levels of cost savings, efficiency, and financial performance.

Save-to-transform as a catalyst for embracing digital disruption

7


Deloitte Consulting LLP (Deloitte or Deloitte Consulting) engaged Dynata to conduct a global cost-management survey to better understand business leaders’ perspectives on current and future cost-reduction initiatives within large companies, multinationals, and other companies that are representative of the industries and regions surveyed.

Study objectives

Understand factors, approaches, actions, and targets related to cost initiatives

Assess the effectiveness of the cost actions, including lessons learned from previous efforts

Understand the drivers and scope of past and future cost initiatives

Provide context on how digital disruption and advanced digital technologies are affecting cost management

Assess industry results, and provide insights on different behaviors related to cost reduction

MethodologyData was collected through detailed online surveys conducted between November and December 2018.

January February March April May June July August September October November December

About the survey

FirmographicsThe global survey of more than 1,200 executives and senior leaders with direct involvement in cost management decisions and actions included 68 respondents from the Oil & Gas and Chemicals sectors.

88



9

Most findings from this year’s global cost-management survey are directionally consistent across all industries and geographic regions. However, there are a handful of key differences between the OG&C results and the global survey results, which include data from all industries.

How is OG&C different?

1010


0

10

20

30

40

50

60

70

80

90

100

Likely Neutral Unlikely

71%

69%

68%

75%

20%

19% 20

%

17%

12%

8%

13%

8%

Global OG&C Oil & Gas Chemicals

Likelihood

% o

f tot

al r

espo

nden

ts

75% of Chemicals respondents plan to undertake cost reduction initiatives compared to 71% globally

Exceededgoals

Met goals Did notmeet goals

Lessthan 10%

10% to lessthan 20%

Morethan 20%

Cost targets Success analysis

0

10

20

30

40

50

60

70

80

90

100

30%

29%

27%

42%

37% 43

%

43%

42%

24%

31%

25%

17%

% o

f tot

al r

espo

nden

ts

0

10

20

30

40

50

60

70

80

90

100

5% 4% 2%

14%

13%

14%

0%0%

82%

81% 84

%

0%

% o

f tot

al r

espo

nden

ts

84% of Oil & Gas respondents failed to fully meet their targets, compared to 81% globally

59% of Chemicals respondents reported targets of 10% or more

Cost management patterns in OG&C resemble the global survey results, with small variations between OG&C sectorsOver the next 24 months, 69% of OG&C companies plan to undertake cost reduction initiatives, which is similar to the global average across industries (71%). In the Chemicals sector, 75% of the surveyed companies plan to undertake cost reduction initiatives; however, the percentage of Chemicals sector respondents with cost reduction targets of 10% or

higher is below the global average (59% in Chemicals versus 68% globally across industries). In the Oil & Gas sector, cost program failure rates are higher than average, with 84% of respondents failing to fully meet their cost reduction targets (versus 81% globally across industries) (see figure 1).

Figure 1. Cost program likelihood, targets, and success analysis

The future revenue outlook in OG&C is slightly less positive than the global average across industriesOver the next 24 months, 81% of OG&C respondents have positive expectations for revenue growth; however, that percentage is somewhat lower than the global average across industries (86%) (see figure 2).

Figure 2. Revenue performance and expectations

0

10

20

30

40

50

60

70

80

90

100

Increased Remained the same Decreased

86% 86%87%92%

7% 6% 7%0%

7% 7% 7% 8%


Past 24 months

% o

f tot

al r

espo

nden

ts

Increase Anticipate flat top line Decrease

Next 24 months

0

10

20

30

40

50

60

70

80

90

100

86%81% 80% 83%

8%12% 14%

0%6% 7% 5%

17%

81% of Oil, Gas & Chemicals respondents anticipate an increase in revenue over the next 24 months, compared to 86% globally

11


Global OG&C

% o

f tot

al r

espo

nden

ts

43% 42% 37%

In process of implementationNot implemented but planned

Business intelligence(not including cognitive or AI)

Cloud solutionsAutomation: Robotic process automation

Cognitive technologies: AI and machine learning

38%

24% 24% 20%

14%

22%

26%

19% 15%

39% 39%33%

54%43%

34%38%

62% 63% 59%

47%

76%69%

53% 53%

-10%

+23%+10%

+13%

0

20

40

60

80

100

Sales growth

Cost reduction

Balance sheet management

Productprofitability

Organization and talent

Technology implementation

Digitalenablement

% o

f tot

al r

espo

nden

ts

72% 75%71%

92%

68%74%

83%

71%

61% 60%64%

42%

73%75% 75%75%68%

58%

68%70% 73%67%

62%61%69% 72% 73%

67%


The save-to-transform mindset is similarly prevalent in OG&C and globallyThe survey results show the save-to-transform mindset is similarly prevalent in OG&C and globally across industries. This cost management philosophy is characterized by a simultaneous strategic focus on sales growth, cost reduction, product profitability, technology implementation, and digital enablement.

OG&C responses were slightly higher than the global averages across industries for sales growth (+3 percentage points), cost reduction (+6 percentage points), product profitability (+2 percentage points), and digital enablement (+3 percentage points), but lower for technology implementation (-9 percentage points) (see figure 3).

Figure 3. Strategic priorities (next 24 months)

Expected implementation rates for key digital technologies are significantly higher in OG&C than globally, except for business intelligenceIn OG&C, implementation rates for digital technology over the next 24 months are expected to be higher than the global averages across industries for automation (+23%), cognitive technologies (+10%), and cloud (+13%), but lower for business intelligence (-10%) (see figure 4).

Figure 4. Implementation of technologies (next 24 months)

12


0

10

20

30

40

50

60

0

10

20

30

40

50

60

Automation: Robotics Process Automation

Average Cognitive technologies: AI and machine learning

Business intelligence (not including Cognitive or AI)

Cloud solutions

29%

17%

37%

29%

29%

39%

13%

29%

57%

53%

17%

30%

17%

118%190%

222% 190%63%

129%263%

77%235%

No designated leader

Designated leader

Global OG&C

16%

10%

9% 8% 10%

8% 8%

100%

% o

f tot

al r

espo

nden

ts%

of t

otal

res

pond

ents

Digital leaders in OG&C have a big impact on technology implementation, surpassing the global averageOn average, OG&C companies with a designated digital leader have a much higher level of technology implementation (+190%) than companies without one. That impact in OG&C is even greater than the impact of digital leaders globally across industries (+118%) (see figure 5).

Figure 5. Impact of a designated digital leader*

*Averages calculated for global and Oil, Gas & Chemicals results are weighted averages

13


FirmographicsGlobal information was collected to provide meaningful insights across regions and industries. Among the OG&C companies that participated in the survey, the Oil & Gas sector had the largest number of respondents (56), followed by the Chemicals sector (12) (see figure 6).

Figure 6. Respondent breakdown by industry and sector

Industry breakdown:Total respondents (%)

OG&C sector breakdown:Number of responses by sector and region

27%

13%

7%2%

12%

18%

21%

Oil & Gas

Mining

Chemicals

Power & Utilities

OtherWater & Waste Management

Consumer and Industrial Products

Financial Services

Technology, Media and Telecommunications

Life Science and Health Care

Energy and Resources

Public Sector

Other

Total

28

9

58

48

4

10

157

Canada

South Africa

APAC

Europe

LATAM

USA 8

1

20

21

4 1 5

2 1 1

22 19 2 2

8 6 16 5 3

2 2 4

4 16

Regarding statistical validity, sample for OG&C, at a confidence level of 95%, has a margin error of less than 10%. For Chemicals, the smaller dataset results in a higher margin error (28%). Therefore, Chemicals results have been presented only in cases where considered relevant and directionally valid.

14



Management-level breakdown(% of respondents by level)

Management-level breakdown(% of respondents by level and region)

21%

41%

10%

28%

Executive Management (enabling functions)*Executive Management (business units)**President, CEO CFO, COO

ChemicalsOil & GasOG&C

21%

28%

10%

41%

32%

13%

36%

25%20%

67%

8%

41% of responses werefrom executive management positions, followed by 21%

from President or CEO roles,28% from CFO and COO roles

and the rest from business unit executive management.

Only leaders and executives with direct involvement in cost-management decisions were included in the survey; 51% of OG&C respondents were executive management, 28% were CFOs and COOs, and the remaining 21% were Presidents and CEOs (see figure 7).

Figure 7. Respondent breakdown by management level

* Executives Management (enabling functions): VP or above in finance, logistics, IT, HR, marketing, etc.** Executives Management (business functions): VP or above business units, regions, or countries

15

The majority of OG&C respondents (72%) reported revenues of $1 billion or more (see figure 8).

Figure 8. Respondent annual revenue (US dollars)

$200M toless than $500M

OG&C Oil & Gas Chemicals

0

10

20

30

40

50

$500M toless than $1B

$1B toless than $5B

$5B toless than $20B

$20B toless than $60B

Over $60B

13%15%

11%

25%

16%

8%

24%27%

8%

29%27%

42%

15% 14%17%

4% 5%

0%

Note: The survey was conducted in local currencies. For analysis purposes they have been converted to US dollars.

16



Lessthan 1,000

0

10

20

30

40

50

1,000to 2, 499

2,500to 4,900

5,000 to 9,999

10,000to 24,000

25,000to 49,999

50,000to 99,999

Morethan 100,000

6% 5%8%

16% 16% 17%19% 20%

17%20%19%

17%18%

16%

25%

11%

17%

9% 10%

0%

9%

3% 4%

0%

OG&C Oil & Gas Chemicals

40% of Oil & Gas respondents had more than 10,000 employees, compared to 42% in chemicals

Within Oil, Gas & Chemicals, 59% of respondents had more than 5,000 employees

The majority of OG&C respondents (59%) had at least 5,000 employees (see figure 9).

Figure 9. Respondent employee headcount

17



18

Likely Neutral Unlikely


71% 69%

% o

f tot

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espo

nden

ts

0

10

20

30

40

50

60

70

80

68%

75%

20% 19% 20%

12% 13%

17%

8% 8%

69% of Oil, Gas & Chemicals respondents plan to undertake cost reduction initiatives

1

21

2

2

2

3

33

Survey findings1 On average, 69% of OG&C respondents plan to undertake cost reduction initiatives, slightly lower than the global results

across industries (71%).2 Respondents in Chemicals are the most likely to undertake cost reduction (75%), higher than the Oil & Gas average (68%),

the overall OG&C average (69%), and the global average across industries (71%).3 In Oil & Gas, 13% of respondents are unlikely to undertake cost reduction initiatives, higher than the percentage in

Chemicals (8%) and globally across industries (8%).

Cost reduction is particularly prevalent among Chemicals companiesOG&C companies are slightly less likely than the global average to pursue cost reduction initiatives (69% in OG&C versus 71% globally across industries). Chemicals sector respondents are more likely to undertake cost improvement (75%) than are respondents in the Oil & Gas sector (68%) (see figure 10).

Figure 10. Likelihood of cost reduction

19


Survey findings1 On average, 67% of OG&C respondents plan to undertake cost reduction initiatives of 10% or more, similar to the global

average across industries (68%).2 The percentage of respondents with targets above 20% is higher in Oil & Gas (25%) than in Chemicals (17%).3 Oil & Gas has a lower percentage of respondents with targets below 10% (27% in Oil & Gas versus 42% in Chemicals).

10% to less than 20% More than 20%

30%

% o

f tot

al r

espo

nden

ts

0

10

20

30

40

50

60

70

Less than 10%

27%

37%43% 43% 42%

24%17%

25%

Most Oil, Gas & Chemical respondents (67%) reported targets above 10%

31%

42%

29% 11

11 2

2

3

3


Cost targets in OG&C tend to be in the midrangeThe large majority of surveyed OG&C respondents (67%) have cost reduction targets of 10% or more, with 43% having targets in the range of 10 - 20%. Respondents in Oil & Gas tend to have more aggressive targets, with 68% pursuing cost reduction of 10% or more (compared to 59% in Chemicals) (see figure 11).

Figure 11. Cost reduction targets

20


Survey findings1 The overall failure rate for cost reduction programs in Oil, Gas & Chemicals is 82%, similar to the global average across

industries (81%).2 Thirteen percent of Oil, Gas & Chemicals respondents met their cost reduction goals, similar to the global average across

industries (14%), largely driven by the Oil & Gas (14%) results.

Met goals Exceeded goals0

10

20

30

40

50

60

70

80

90

100

Did not meet goals

81% 82%

5% 4%14% 13%

% o

f tot

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espo

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ts

Global OG&C

40%

1 1

2

22

Cost programs in OG&C have a high failure rate similar to the global averageAccording to the survey results, 82% of OG&C companies failed to fully achieve their cost reduction targets—nearly identical to the global average across industries (81%) (see figure 12).

Figure 12. Cost program success and failure

21


Survey findings1 Over the past 24 months, Oil & Gas respondents had a lower percentage of positive revenue results (86%) than did

respondents in the Chemicals sector (92%). 2 Chemicals has a higher percentage of respondents expecting a decrease in revenue over the next 24 months (17%), more

than three times the percentage for Oil & Gas (5%).3 The survey results show a decline in growth expectations for respondents in Chemicals (-9 percentage points).

0

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86% 87% 86%92%

7% 6% 7%0%

7% 7% 7% 8%

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100

Past 24 months

% o

f tot

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espo

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ts%

of t

otal

res

pond

ents

Next 24 months

Increased Remained the same Decreased

Increase Anticipate flat top line Decrease

11

3

86%81% 80% 83%

8%12% 14%

0%6% 7% 5%

17%2

2

3


Past revenue growth was highly positive but future expectations are more moderateOver the past 24 months, revenue growth in OG&C was highly positive (87%), similar to the global average across industries (86%). Chemicals respondents reported particularly positive revenue growth (92%). However, revenue

growth expectations over the next 24 months are down both in OG&C overall (81%) and in Chemicals (83%), lower than the global average (86%) (see figure 13).

Figure 13. Revenue performance and expectations

22


Survey findings1 Commodity price fluctuations (68%) and political concerns (66%) are the two top-rated risks among OG&C respondents.2 Globally across industries, cybersecurity (62%) and digital disruption (61%) are the two top-rated risks.3 Commodity price fluctuations are seen as a bigger threat in OG&C (68%) than globally (59%).

Sector-specific findingsA Oil & Gas – Political climate (68%) and commodity price fluctuations (68%) are the top-rated external risks in Oil & Gas; in

stark contrast to the global results across industries, cybersecurity (59%) is the lowest-rated external risk.B Chemicals – Commodity price fluctuations are the top-rated risk (67%); credit risks are the lowest-rated (25%).

Commodity price fluctuations are the top external riskIn OG&C, the top-rated external risks are commodity price fluctuations (68%), political climate (66%), and currency fluctuations (62%). Globally across industries, cybersecurity is the top external risk (62%) (see figure 14).

Figure 14. Top external risks

Political climate Macroeconomic concerns Currency fluctuations Commodity price fluctuationsCredit risks Cyber security concerns New market entrants Digital disruption

0

10

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30

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50

60

70

80


% o

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A

B

B

3

59% 59% 58% 59% 57%62%

57%61%

66%

59%62%

68%

57% 57%60% 60%

68%

61%

66% 68%64%

59%64% 64%

58%

50%

42%

67%

25%

50%

42% 42%

23


Lack of strategic plans or execution to provide clear direction to the business

Liquidity and financial position to support business plans

Recruitment, development and retention of required talent to support business initiatives

Reliability and functionality of information systems to support business processes and decisions

Lack of controls, processes and systems to ensure business continuity

Lack of regulatory, legal and/or management controls

0

10

20

30

40


% o

f tot

al r

espo

nden

ts

BA

A22 1 1

23% 23%25% 26%

24%22%

15%

22%25%

22%

16%

24%

16%

23%

29%27%

18%

27%

8%

17%

8%

0%

8% 8%

Survey findings1 Talent (25%) and lack of controls (24%) are the two top-rated internal risks for OG&C.2 Globally across industries, information systems (26%) and talent (25%) are the top internal risks.3 Internal risk ratings by OG&C respondents tend to be lower than the global averages across industries.

Sector-specific findingsA Oil & Gas – Talent is the top-rated internal risk (29%); lack of strategic plans/execution is the lowest-rated (16%).B Chemicals – Liquidity/financial position to support business plans is the top-rated internal risk (17%).

Talent is the top internal riskIn OG&C, the top internal risk is recruitment, development, and retention of required talent (25%), followed by lack of regulatory, legal, and management controls (24%). Internal

risk ratings by Oil & Gas respondents were generally much higher than those of respondents in the Chemicals sector (see figure 15).

Figure 15. Top internal risks

24


Survey findings1 The three top-rated strategic priorities for OG&C respondents over the

past 24 months were digital enablement (78%), product profitability (75%), and cost reduction (69%). Globally, sales growth (73%), product profitability (73%) and technology implementation (73%) topped the list.

2 Over the next 24 months, the top-rated strategic priorities in OG&C are sales growth (75%), product profitability (75%), cost reduction (74%), and digital enablement (72%). Globally, product profitability (73%), technology implementation (73%), and sales growth (72%) topped the list.

3 In OG&C, the ratings for sales growth increase significantly from the past 24 months to the next 24 months (+9 percentage points).

Sector-specific findings over the next 24 monthsA Oil & Gas – The top-rated strategic priority is product profitability (75%),

while technology implementation is rated lowest (61%).B Chemicals – Sales growth is the top-rated priority in Chemicals (92%);

balance sheet management is lowest (42%).

Strategic priorities align with save-to-transformThe save-to-transform cost management approach uses cost reduction to fund investments in growth and transformational digital technologies, while in turn using many of those same digital technologies to boost the efficiency and effectiveness of cost reduction programs.

In OG&C, the top-rated strategic priorities over the next 24 months are sales growth (75%), product profitability (75%), cost reduction (74%), and digital enablement (72%). This broad set of balanced priorities typifies the save-to-transform mindset (see figure 16).

Figure 16. Strategic priorities

% of total respondents

Sales growth Cost reduction Balance sheet management Product profitability

Organization and talent Technology implementation Digital enablement

Glo

bal

Next 24 monthsPast 24 months


Oil

& G

as

69%61%

73%

69%73%

69%

73%71%

59%75%

70%66%

82%

66%71%

64%75%

70%61%

73%

71%68%

61%

73%

68%73%

69%

72%


OG

&C

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

Chem

ical

s

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

69%54%

75%

66%68%

78%

66%58%

33%75%

50%75%

58%

67%83%

42%75%

58%67%67%

92%74%

60%75%

68%62%

72%

75%

-11%

+43%

+37%

1

1

1

3

1

1

1

3

2

2

2

22

2

C

D

D

A

A

B

B

Comparison to the past 24 months

C Oil & Gas – The focus on digital enablement is expected to decrease by 11%, but remains high.

D Chemicals – The focus on cost reduction and on sales growth are expected to increase by 43% and 37% respectively.

25


The Chemicals and Oil & Gas sectors have very different cost reduction driversIn OG&C, cost reduction drivers vary widely between the Chemicals and Oil & Gas sectors; also, the drivers are expected to evolve significantly over the next 24 months (see figure 17).

Figure 17. Cost reduction drivers

Survey findings1 In OG&C, the four top-rated cost reduction drivers over the past 24

months were increased international growth opportunities (65%), changed regulatory structure (63%), unfavorable cost position (62%), and required investment in growth areas (62%). Three of those drivers were also among the top four globally across industries: investment in growth areas (66%), international growth opportunities (63%), and changed regulatory structure (59%).

2 In OG&C, the top-rated cost reduction drivers over the next 24 months are investment in growth areas (72%), international growth opportunities (68%), and changed regulatory structure (63%). Globally across industries, the top-rated cost reduction drivers are investment in growth areas (67%), intensified competition (66%), and international growth opportunities (65%).

3 In OG&C, the focus on investment in growth areas is expected to increase by 10% from the past 24 months to the next 24 months.

Sector-specific findings over the next 24 monthsA Oil & Gas – The top-rated cost reduction driver is investment in growth

areas (73%); reduction in consumer demand is the lowest-rated (54%).B Chemicals – The top-rated cost reduction drivers are investment in

growth areas (67%), and international growth opportunities (67%). The lowest-rated is decrease in liquidity (25%).

Comparison to the past 24 months

C Oil & Gas – Decrease in liquidity is expected to rise by 26%; investment in growth areas is expected to rise by 24%.

D Chemicals – Changed regulatory structure is expected to rise by 16%; decrease in liquidity is expected to fall by 57%.




52%56%59%

66%65%

63%

52%50%

63%66%

59%59%

64%

59%63%63%64%

73%

59%68%

54%53%

57%61%

67%66%65%

55%


+26%

+24%

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

51%

62%63%62%

59%

65%

56%58%

58%50%

75%58%

67%

42%

25%

50%58%

67%50%

67%

42%56%

60%63%

72%57%

68%

51%

Significant reduction in consumer demandDecrease in liquidity and tighter creditUnfavorable cost position relative to peer group

Required investment in growth areasChange regulatory structure

Intensified competition among peer group

Increased international growth opportunities

A

A

B

B

B

Glo

bal

Oil

& G

as

OG

&C

Chem

ical

s

-57%

+16%

1

1

1

11

1

1

3 3

C

C

D

D

222

22

2

26


Survey findings1 In OG&C, the most commonly developed capabilities are automation (51%), new policies and procedure (47%), and

improved ERP infrastructure (46%).2 Globally across industries, the most commonly developed capabilities are automation (48%), cognitive/AI (42%), and new

policies and procedures (41%). 3 Zero-based budgeting (ZBB) continues to be the least developed capability both in OG&C (12%) and globally across

industries (12%).

Capability development in OG&C resembles the global resultsDevelopment of cost management capabilities in OG&C resembles the global results across industries. Automation was the most commonly implemented technology both in OG&C and globally (see figure 18).

Figure 18. Capabilities developed over the past 24 months

Created a new executive position and/or full-time positions to drive cost management

Set-up or improved ERP infrastructure

Developed or implemented automation technologies

Developed or implemented cognitive and artificial intelligence technologies

Implemented new policies and procedures and strengthened the compliance mechanisms

Improved processes for forecasting, budgeting, and reporting to enable effective cost management

Implemented zero-based budgeting or process

0

10

20

30

40

50

60

Global OG&C

% o

f tot

al r

espo

nden

ts

2

2 2

1 1

1

3

34%

41%

48%

42% 41%

34%

12%

3

12%

31% 31%

43%46% 47%

51%

27


Companies in OG&C have been slightly emphasizing strategic cost actionsIn contrast to the global results across industries, OG&C companies slightly emphasized strategic cost actions (32%) over tactical cost actions (28%) during the past 24 months. However, the overall OG&C results were strongly influenced by Oil & Gas respondents; respondents from the Chemicals sector strongly emphasized tactical cost actions (see figure 19).

Tactical actions tend to produce incremental improvements and relatively small cost savings, whereas strategic actions have a much broader and deeper impact. Examples of strategic actions include: centralizing business activities (action 1 in the chart); structurally reconfiguring the business (action 2); and outsourcing/offshoring (action 3).

Figure 19. Implemented cost reduction actions over the past 24 months

Note: Respondents who had implemented those actions were selected for this question.

Survey findings1 The three top-rated cost reduction actions implemented in OG&C over the past 24 months were streamlined business

processes (38%), increased centralization (35%), and outsourced/offshored business processes (34%).2 The two top-rated cost actions implemented globally across industries were streamlined business processes (37%) and

improved policy compliance (37%).3 Unlike the global pattern across industries, respondents in OG&C—especially those in the Oil & Gas sector—have focused

more on strategic cost actions than tactical cost actions (32% strategic versus 28% tactical).

Sector-specific findingsA Oil & Gas – The most commonly implemented cost action was outsourced/offshored business processes (34%); the least

commonly implemented was aligned incentives to cost reduction objectives (16%).B Chemicals – The most commonly implemented action was streamlined business processes (67%); the least commonly

implemented were changed business configuration (17%) and implementation of automation/cognitive technologies (17%).

Averages

Global Oil & GasOG&C Chemicals

32% 26% 38%32% 32% 33%

% o

f tot

al r

espo

nden

ts

3 3

2 21

11 A

AB B

B

35%31% 31%

36% 37% 37%

32% 32%30%

35%

28%

34%31%

24% 24%

32%30%

16%

33%

50%

67%

42%

25%

17%

25%

38%

32%34%

27%23%

25%

18%

32%30%

50%

17%

34% 28%

Action 1 Increased centralization – Integrated business units and functions into the corporate center

StrategicAction 2 Changed business configuration – Divested underperforming assets, adjusted number of products/services, geographies, customers, etc.

Action 3 Outsourced/Off-shored business processes to low cost service providers

Action 4 Streamlined organization structure – Increased spans of control, and modified reporting relationships

Tactical

Action 5 Streamlined business processes

Action 6 Improved policy compliance

Action 7 Reduced external spend by leveraging scale to source purchased materials/services and reduced demand for materials and services

Action 8 Implementation of specific automation or cognitive technologies

Action 9 Aligned incentives of executives or employees to cost reduction objectives

28


OG&C expects to continue emphasizing strategic cost actionsLooking ahead to the next 24 months, OG&C respondents expect to continue emphasizing strategic cost actions (76% strategic versus 70% tactical, including both in-process and

planned actions). Outsource/offshore business processes (action 3) is the top expected action in OG&C (80% in-process or planned) (see figure 20).

Figure 20. Expected cost reduction actions over the next 24 months

Survey findings1 In OG&C, the cost actions most expected to be implemented over the next 24 months are outsource/offshore

business processes (80% in-process or planned) and streamline organization structure (77% in-process or planned). 2 Globally across industries, the top expected cost action is change business configuration (65% in-process or planned). 3 OG&C respondents expect to continue emphasizing strategic cost actions (76%) over tactical cost actions (70%).

Sector-specific findingsA Oil & Gas – The top-rated cost action to be implemented over the next 24 months is streamline organization

structure (78% in-process or planned); the lowest-rated is reduce external spend (63% in-process or planned).B Chemicals – Similar to the global results across industries, the top-rated cost action for Chemicals is change

business configuration (91% in-process or planned); the lowest-rated are increase centralization (58% in-process or planned), outsource/offshore business processes (58% in-process or planned), and streamline business processes (58% in-process or planned).

Averages

62% 61% 76% 70% 71% 70% 69% 70%3 3

StrategicIn process of implementationNot implemented but planned35

%

% o

f tot

al r

espo

nden

ts

46%

63%

56%

56%

46%

56%

44%

46%

28%

42%

19%

12%

44%

21%

24%

43%

16%

21%

42%

18% 21

%

46%

16%

19%

40%

19% 19

%

43%

18%

24%

41%

22%

48%

59%

43%

55%

45%

55%

43%

43%

29%

13%

23%

23%

23% 20

%

20% 23

%

33%

83%

33%

58%

50% 58

%

50% 58

%

25%

8%

25%

8%

8%

17%

17%

25%

Global Oil & GasOG&C Chemicals

2

1 11

A A

B

B B B

Action 1 Increased centralization – Integrated business units and functions into the corporate center

StrategicAction 2Changed business configuration – Divested underperforming assets, adjusted number of products/services, geographies, customers, etc.

Action 3 Outsourced/Off-shored business processes to low cost service providers

Action 4 Streamlined organization structure – Increased spans of control, and modified reporting relationships

Tactical

Action 5 Streamlined business processes

Action 6 Improved policy compliance

Action 7Reduced external spend by leveraging scale to source purchased materials/services and reduced demand for materials and services

Action 8 Implementation of specific automation or cognitive technologies

29


Lack of an effective ERP system is the top barrier to successful cost reductionIn OG&C, the top-rated barrier to successful cost reduction is lack of an effective ERP system (68%). Globally across industries, implementation challenges are the top barrier (65%) (see figure 21).

Figure 21. Barriers to successful cost reduction

Survey findings1 In OG&C, the four top-rated barriers to successful cost reduction are lack of an effective ERP system (68%), erosion of savings

due to infeasible target setting (66%), poorly designed reporting/tracking (60%), and implementation challenges (60%).2 Those same four barriers top the list globally across industries, with implementation as the top-rated barrier.3 Lack of an effective ERP system is a significantly more common barrier in OG&C than globally across industries

(+6 percentage points).

Sector-specific findingsA Oil & Gas – Similar to OG&C, the top-rated barrier is lack of an effective ERP system (70%); the lowest-rated barrier is

weak/unclear business case (57%).B Chemicals – All barriers rank equally (58%) except weak/unclear business case (50%) and lack of solution

understanding (50%).

Lack of understanding/acceptance of the solution by the audience

Erosion of savings due to infeasible target setting

Weak/unclear business case for cost improvement

Poorly designed reporting and tracking

Lack of an effective ERP system to enable date availability, decision-making, process improvement, performance management

Management challenges in implementing initiatives

0

10

20

30

40

50

60

70

80


% o

f tot

al r

espo

nden

ts

57% 57% 58% 61% 62% 65%56% 57% 60%

66% 68%60% 57% 59% 61%

68% 70%61%

50% 50%58% 58% 58% 58%

A

A

B B

11

1122 2 2

33

30


Lessons learnedThe top lessons learned in OG&C and globally across industries are: (1) invest in technology improvements to enable data availability, reliability, and decision-making processes, (2) design a solid tracking and reporting process,

and (3) assess, validate, and adjust targets reasonably to reflect reality throughout the implementation phase (see figure 22).

Figure 22. Lessons learned for effective cost management

Survey findings1 The top lessons learned in OG&C are: invest in technology improvements (78%), design a solid tracking/reporting

process (71%), and adjust targets to reflect reality (69%).2 Those same three lessons top the list globally across industries.3 Designate a full-time position to drive efficiency is a higher-rated lesson in OG&C than globally across industries

(+7 percentage points).

Sector-specific findingsA Oil & Gas – The top-rated lesson is to invest in technology improvements (77%); the lowest-rated lesson is to develop

a clear business case (57%).B Chemicals – All lessons are ranked equally for Chemicals (83%), except deploy change management activities (75%) and

designate a full-time position to drive efficiency (50%).

Designate a full-time position to drive efficiency and cost improvement initiatives

Develop, validate and sponsor a clear business case for cost improvement

Deploy change management activities to raise awareness, acceptance, and benefits of initiatives

Design a solid tracking and reporting process

Assess, validate, and adjust targets reasonably according to the reality throughout the implementation phase

Invest in technology improvements to enable data availability, reliability, and decision-making process

0

10

20

30

40

50

60

70

80

% o

f tot

al r

espo

nden

ts

1 11

2 2 2

33

A

A B

B


61%65% 66%

70% 69% 72% 68%62% 63%

71% 69%78%

71%

57% 61%68% 66%

77%

50%

83%75%

83% 83% 83%

31


Cost management maturity in OG&C is lower than averageOverall, the percentage of OG&C respondents that rate themselves high maturity (28%) is lower than the global average (35%). In the Oil & Gas sector, only 27% of

respondents rate themselves high maturity. In Chemicals, only 33% of respondents rate themselves high maturity (see figure 23).

Figure 23. Cost management maturity levels

Survey findings1 In OG&C, 28% of respondents rate themselves high maturity and 32% rate themselves intermediate maturity.2 Globally across industries, 35% of companies rate themselves high maturity.3 In OG&C, 13% of respondents rate themselves at the lowest maturity level, a percentage similar to the global average

across industries (15%).

Sector-specific findingsA Oil & Gas – The percentage of Oil & Gas respondents that consider themselves high maturity (27%) is similar to the overall

average for OG&C as a whole (28%).B Chemicals – The percentage of Chemicals respondents rating themselves high maturity (33%) is higher than the overall

average for OG&C; also, Chemicals has the smallest percentage of lowest maturity respondents (8%).

% o

f tot

al r

espo

nden

ts

Lowest High

High

Intermediate

Low

Lowest

Cost policies and procedures are continually reviewed and examined to ensure best practices around efficiency and cost management

Relevant cost policies and procedures are typically well known, and personnel are trained and generally comply

There may be written cost policies and procedures documented but not readily available and essentially not followed

Few or no formal cost policies or procedures are employed or documented, or they are significantly fragmented

35%

34%

31%20%15%

32%26%13%

29%30%14%

50%8%8%

28%

33%

27%

Chemicals

Oil & Gas

Global

OG&C

3

3

B

B

B

1 1

2

A

A

32


33


Digital technologies are having a major impact on all aspects of business in OG&C—including cost management. Breakthrough innovations made possible by digital technology are enabling companies to operate and compete more effectively in an increasingly digital world. They also have the potential to enable new levels of cost savings.

Digital and technology solutions applied to cost management in OG&C


34

Global OG&C0

10

20

30

40

50

% o

f tot

al r

espo

nden

ts


Cognitive technologies: Artificial intelligence and machine learning

Business Intelligence (Not including Cognitive or AI)

Cloud Solutions

25%25%

35%

49%

15%

12%

25%

50%

1

1

2

2

3

3

Survey findings1 In OG&C, cloud was the most widely implemented of the surveyed technologies over the past 24 months (50%);

cognitive was the least widely implemented (12%).2 Cloud was also the most widely implemented technology globally across industries (49%), followed by business

intelligence (35%).3 Implementation of business intelligence is higher globally across industries (35%) than in OG&C (25%).

Cloud leads the packAmong the four advanced digital technologies examined in the survey, the most widely implemented in OG&C over the past 24 months was cloud (50%), followed by business

intelligence (25%), automation (15%), and cognitive/AI (12%). Cloud was also the most widely implemented technology globally across industries (49%) (see figure 24).

Figure 24. Technology implementation levels (past 24 months)

35


Cloud

% o

f tot

al r

espo

nden

ts

0

10

20 30 40 50 60 70 80 90 100

OG

&C

Glo

bal

63%

43%

48%

64%

50%

41%

38%

62%

RPA Cognitive & AI

Reduce Costs and Increase Productivity

Increase revenue Enhance product/service capabilities Tighten data security and Improve business control

1

1

0

10

20 30 40 50 60 70 80 90 100

80%

57%

53%

69%

80%

80%

50%

80%

0

10

20 30 40 50 60 70 80 90 100

76%

56%

59%

68%

88%

63%

38%

63%

2

2

3

3

Survey findings1 The top reason for applying cloud in OG&C and globally across industries is to tighten data security and

improve business control.2 In OG&C, all reasons for applying RPA are equally important (80%), except enhance product/service capabilities (50%).

Globally across industries, the top reason for applying RPA is to reduce costs and increase productivity (80%).3 The top reason for applying cognitive/AI in OG&C and globally across industries is to reduce costs and

increase productivity.

Top reasons for applying digital technologiesIn OG&C, the top reason for applying both cloud and RPA is to tighten data security and improve business control. For RPA, two other reasons that tied for the top spot are to reduce costs and improve productivity, and to increase revenue. The top reason for applying cognitive/AI is to reduce costs and increase productivity (see figure 25).

Figure 25. Reasons for applying technologies

36


Unable to assess results at this point

Results according to expectations

Results below expectations

Results above expectations

Global

Cloud

29%

56%

13%

2%

Global

35%

41%

23%

1%

Global

36%

47%

16%

1%

OG&C

29%

56%

9%6%

OG&C

60%

40%OG&C 49%

38%

13%

RPA Cognitive & AI

1 2 3

Survey findings1 When implementing cloud, 56% of OG&C respondents had their expectations met and 29% had their

expectations exceeded. 2 When implementing RPA, 40% of OG&C respondents had their expectations met and 60% had their

expectations exceeded.3 When implementing cognitive & AI, 38% of OG&C respondents had their expectations met and 49% had

their expectations exceeded.

Most technology implementations meet or exceed expectationsWhen implementing each of the technologies covered by the survey, more than 85% of OG&C respondents had their expectations met or exceeded (see figure 26).

Figure 26. Results of implementing technologies

37


0

10

20

30

40

50

60

70

80

ChemicalsOil & GasOG&CGlobal

% o

f tot

al r

espo

nden

ts

In process of implementationNot implemented but planned

38% 39

%

39%

33%

24%

20%

62%

47%

59%

24%

14%

63%

54%

43%

34% 38

%

22%

19%

76%

53%53%

26%

15%

69%

54%

41%

32%

45%

21%

20%

75%

61%

52%

29%

16%

70%

58%

50%

42%

8%

25%

17%

83%

17%

58%17%

8%

67%


Cognitive technologies: Artificial intelligence and machine learning

Business Intelligence (Not including Cognitive or AI)

Cloud Solutions

2 2

3

3

1

1

11

A

A

B

B

Survey findings1 In OG&C, the most actively implemented technologies are expected to be automation (76%) and cognitive (69%); the

technologies expected to be least actively implemented are business intelligence (53%) and cloud (53%).2 As in OG&C, the technologies expected to be most actively implemented globally across industries are automation (62%)

and cognitive (63%). 3 Implementation expectations for automation are 14% higher in OG&C (76%) than globally across

industries (62%).

Sector-specific findingsA Oil & Gas – The technology expected to be most actively implemented over the next 24 months is automation (75%);

the least actively implemented technology is expected to be business intelligence (52%).

B Chemicals – Similar to the overall OG&C and global results, the most actively implemented technology is expected to be automation (83%), and the least actively implemented technology is expected to be cloud (17%).

High levels of technology implementation are expectedIn OG&C, expected implementation levels are significantly higher than the global averages across industries for three of the four technologies covered by the survey. The technologies expected to be most actively implemented over the next 24 months in OG&C are automation (76%)

and cognitive (69%); the technologies expected to be least actively implemented are cloud at 53% (most likely because current implementation levels for cloud are already very high) and business intelligence at 53% (see figure 27).

Figure 27. Technology implementation levels (next 24 months)

38


0

10

20

30

40

50

60

Global OG&C


Average Cognitive technologies: AI and machine learning

Business intelligence (not including Cognitive or AI)

Cloud solutions0

10

20

30

40

50

60

No designated leader

9%

17%

37%

29% 29%

16%

29%

13%

39%

29%

53%57%

10% 10%8%

17%

8%

30%

17%

8%

118%

190%

190%

63%

222%

100%

129%

263%

77%

235%

Designated leader

21 3

% o

f tot

al r

espo

nden

ts%

of t

otal

res

pond

ents

Survey findings1 OG&C respondents with a designated digital leader achieve much higher levels of technology implementation (+190%).2 Globally across industries, the impact of a designated digital leader on technology implementation levels is very high (+118%),

but lower than in OG&C (+190%). 3 Cloud is the technology with the greatest difference in digital leader impact between OG&C and the global average

(+235% in OG&C versus +77% globally across industries).

Digital leaders make a big difference, especially for business intelligence and cloudOG&C companies with a designated digital leader have a much higher level of technology implementation (+190%) than those without one. In OG&C, the positive impact of a digital leader is particularly high for business intelligence (+263%) and cloud (+235%) (see figure 28).

Figure 28. Impact of a designated digital leader

39


Cost management practices and approaches have grown increasingly sophisticated over time, with digital solutions—although still maturing—now representing the most advanced level of cost management. Companies that relied on more traditional cost management methods in the past are now finding that digital solutions can open the door to a whole new level of savings—as well as enable new and more innovative business models.

The rise of digital technologies and innovations is also contributing to a shift in how OG&C companies around the world approach cost management, with the save-to-grow mindset from 2017 steadily expanding into a save-to-transform mindset where investments in digital enablement and transformational technologies play a key role.

Save-to-transform as a catalyst for embracing digital disruption

40


Technology investment as a lesson learned Technology implementation over the next 24 months

0.0

12.5

25.0

37.5

50.0

62.5

75.0

87.5

100.0

0.0

12.5

25.0

37.5

50.0

62.5

75.0

87.5

100.0

68%

62% 63%

71%69%

78%

62%

76%

69%

Global Oil, Gas & Chemicals

Cognitive TechnologiesAutomation

63%

+10%

% o

f res

pond

ents

% o

f res

pond

ents

1

B+23% A

Invest in technology improvements to enable

data availability, reliability and decision-making process

Technology investment is the top lesson learned in Oil, Gas & Chemicals (78%)

Automation (76%) and cognitive technologies (69%) are the top technologies to be implemented over the next 24 months in Oil, Gas & Chemicals

1 The top lesson learned in OG&C over the past 24 months was to invest in technology improvements (78%).

A Over the next 24 months, implementation of automation in OG&C is expected to be 23% more common than globally across industries.

B Similarly, implementation of cognitive technologies in OG&C is expected to be 10% more common than the global average.

Automation and cognitive technologies are leading the wayAutomation and cognitive are two technologies being implemented much more aggressively in OG&C than globally across industries. Similarly, investment in technology improvements is the top lesson learned in OG&C over the past 24 months (see figure 29).

Figure 29. The rising importance of digital technologies in OG&C

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TurnaroundSave-to-turnaround. Focus on immediate actions to reduce costs, maximize liquidity, achieve stability, and capture savings to avoid further deterioration of the business.

FundSave-to-fund. Focus on actions that help improve cost and competitive position; avoid cuts that might inhibit future growth rebalance costs to fund investment in business strategy enablers.

GrowSave-to-grow. Enable or develop a scalable cost/business platform to fuel growth and investment in core capabilities while supporting a differentiated business strategy.

TransformSave-to-transform. Invest in digital technologies and technology infrastructure to make operations more efficient and effective, enabling new and more agile business models to prosper in a digitally disrupted market.

Turnaround Fund Grow Transform

Cost levers

Liquidity Cost Growth Growth

Cost Growth Cost Cost

Talent Talent Talent Talent

Growth Liquidity Liquidity Liquidity

Prio

rity

+

-

Save-to-growIn the recent past, most OG&C companies were operating in save-to-grow mode. Cost and growth were the main business levers, with talent (including capabilities) as another key component (see figure 31). In this mode, cost reduction was a

high priority, with cost savings used to fund growth initiatives and strategic investments that support a differentiated business strategy (see figure 30).

Figure 30. The continuum of cost management approaches

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1. Save-to-turnaround 2. Save-to-fund 3. Save-to-grow 4. Save-to-transform

Scope Narrow Broad

Competitive situation

• Losing market share • Structural operating flaws • Liquidity concerns • Flat profit growth

• Adjusting to demand levels • Growth concerns • Healthy balance sheet • Excess cash flow/reserves • High growth potential

Playbook

Defense-oriented playbook

• Short-term tactics to improve balance sheet • Cash flows • Stabilize business through any cost and/or liquidity

improvements • Compensate sales decline

Growth-oriented playbook

• Achieving profitable and sustainable growth through structural cost efficiencies and improvements

• IT investments • Innovation • Actions to strengthen performance and competitive position

Cost levers priority

Save-to-turnaround Save-to-fund Save-to-transform levers

Growth Talent Cost Liquidity Growth Talent Liquidity Cost Growth

Technology

Talent CostLiquidity

New

Low Low HighHigh Low High

Save-to-grow expands into save-to-transformMany OG&C companies are now shifting into save-to-transform mode, with the save-to-grow mindset expanding to include a strong focus on digital enablement and implementation of technologies that can transform a

business and help it capitalize on the vast opportunities of an increasingly digital world. Shifting into save-to-transform mode means that in addition to cost, growth, talent, and liquidity, technology is also a high priority (see figure 31).

Figure 31. Save-to-grow expands into save-to-transform

Save-to-transform not only helps a company capitalize on digital opportunities, it can also position the business to withstand potential adversity that may be on the horizon—such as an economic downturn or credit crisis—by using the power of digital solutions as the key to unlock new levels of cost savings, efficiency, and financial performance.

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Save-to-transform can not only help a company capitalize on digital opportunities, it can also position the company to withstand potential adversity that may be on the horizon by using the power of digital solutions as the key to unlock new levels of cost savings.

Looking ahead

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45


Conclusion

AuthorsOmar Aguilar PrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP USA: +1 215 870 0464 International: +1 267 226 [email protected]

David Izquierdo SánchezSenior Consultant Monitor Deloitte Deloitte Consulting [email protected]

Sakshi Kastiya Consultant Strategy & Operations Deloitte Consulting India Private Limited [email protected]

The survey findings—consistent with our direct experience working with leading OG&C companies around the world—highlight the continued importance of effective cost management throughout the industry.

The survey findings—consistent with our direct experience working with leading OG&C companies around the world—highlight the continued importance of effective cost management throughout the industry.

The days of $100/bbl are behind us. Across OG&C, digital technologies and innovations have the potential to deliver dramatic improvements in competitiveness, performance, operating efficiency and, increasingly, cost savings. Equally important, they can strengthen a company’s positioning for adverse future events, including economic downturns.

To protect margins in today’s lower-for-longer environment, many OG&C companies need new operating and capital cost models, along with aggressive cost reduction. However, it is important to note that cost management—which is prevalent throughout the industry—is not just a way to preserve margins. It is also a way to fund transformation while meeting Wall Street expectations and ultimately helping companies position themselves for long-term success.

Although OG&C companies face unique challenges, there are valuable cost management lessons to be learned from other industries and regions as well. According to the survey results, many of the challenges associated with cost reduction and digital transformation are common across industries. Applying those external insights to cost management in OG&C can flatten the learning curve and help companies achieve their savings and transformation goals more quickly and easily.

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US Contacts

US Strategic Cost Transformation(MarginPLUS™) Leaders

Caleb LongenbergerPrincipal Strategy & AnalyticsMarginPLUS Co-LeadDeloitte Consulting LLP +1 513 560 3407 [email protected]

Faisal ShaikhPrincipal Mergers & AcquisitionsMarginPLUS Co-LeadDeloitte Consulting LLP+1 484 885 4699 [email protected]

US Oil, Gas & ChemicalsLeadersAmy WinsorPrincipalUS Oil, Gas & Chemicals Consulting LeaderDeloitte Consulting LLP +1 303 898 4875 [email protected]

Peter BuettgenPrincipal US Upstream Portfolio Consulting LeaderDeloitte Consulting LLP +1 346 212 [email protected]

Jason BergstromPrincipalUS Downstream Portfolio ConsultingLeaderDeloitte Consulting LLP +1 404 877 [email protected]

Shawn MaxsonPrincipalUS Oilfield Services Consulting LeaderDeloitte Consulting LLP +1 214 430 [email protected]

John DixonPrincipalUS Paper & Packaging Consulting LeaderDeloitte Consulting LLP +1 704 904 [email protected]

Duane DicksonPrincipalUS Chemicals Consulting LeaderDeloitte Consulting LLP +1 203 979 [email protected]

MarginPLUS™ Oil, Gas & Chemicals Team


Faisal YousufPrincipal Strategy & AnalyticsDeloitte Consulting LLP +1 773 307 [email protected]

Chris GilbertManaging DirectorMergers & AcquisitionsDeloitte Consulting LLP +1 312 914 [email protected]

Global Strategic Cost Transformation

Omar AguilarPrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP+1 215 870 0464 [email protected]

Global Strategic Cost Transformation

Omar AguilarPrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP+1 215 870 0464 [email protected]

Global Oil, Gas & Chemicals

Duane DicksonPartnerOil, Gas & Chemicals | Global Consulting LeaderDeloitte Consulting LLP +1 203 979 2300 [email protected]

AMERICAS

BrazilHeloisa MontesPartnerStrategy, Analytics and M&A LeaderDeloitte Consultores+55 11 5186 [email protected]

Caroline YokomizoPartnerStrategic Cost Transformation | Brazil Leader Deloitte Consultores+55 11 99258 [email protected]

Eduardo RaffainiPartnerFinancial Advisory | Oil and Gas Country LeaderDeloitte Consultores+55 21 97122 [email protected]

CanadaSimon KingSenior ManagerStrategic Cost Transformation | Operations & Organization LeadDeloitte Canada+1 437 993 4087 [email protected]

ChilePablo TipicPartnerStrategic Cost Transformation| Operations Transformation Chile LeaderDeloitte Advisory SPA+569 6844 [email protected]

Daniel OrtegaDirectorStrategic Cost Transformation| Offering leaderDeloitte Advisory SPA+569 9649 [email protected]

MexicoEduardo PachecoPartnerStrategic Cost Transformation | Mexico Strategy, Analytics and M&A LeaderDeloitte Consulting Mexico+52 55 5080 [email protected]

Monica GuisaSenior ManagerStrategic Cost Transformation | Operations TransformationDeloitte Consulting Mexico+52 55 4441 6054 [email protected]

ASIA PACIFIC

AustraliaTony O’DonnellPartnerFinancial Services | Operations TransformationDeloitte ToucheTohmatsu+613 9671 [email protected]

China – Hong KongDavid Wai Kit WuPartnerFinancial Services | Operations TransformationDeloitte Advisory (Hong Kong)Limited+86 21 [email protected]

IndiaGaurav GuptaPartnerBusiness Model Transformation | Operations TransformationDeloitte Touche Tohmatsu IndiaLLP+91 12 4679 [email protected]

JapanYusuke KamiyamaPartnerMergers & Acquisitions (M&A) | Strategy, Analytics and M&A Deloitte Tohmatsu ConsultingLLC+81 8 [email protected]

Tetsuo TakasagoPartnerStrategic Cost Transformation | Operations Transformation LeaderDeloitte Tohmatsu ConsultingLLC+81 7 [email protected]

New ZealandPaul ShallardPartnerOperations Transformation | Core Business Operations LeaderDeloitte Limited+64 21 645 [email protected]

SingaporeWendy LaiPartnerBanking and Capital Markets (FS) | SEA Core Business Operations LeaderDeloitte Consulting PteLtd+65 6232 [email protected]

Global Contacts


Global Contacts

Jean-Michel PintoDirectorStrategic Cost Transformation| Strategy and Business Design Deloitte [email protected]

Guillaume PicqDirectorStrategy & Business Design | Monitor DeloitteDeloitte [email protected]

Germany

Uemit AydinPartnerStrategy & Operations | Operations TransformationDeloitte Consulting GmbH+49 151 5807 [email protected]

Stefan Van ThienenPartnerOil, Gas & Chemicals | Sector LeaderDeloitte Consulting GmbH+49 151 58073622 [email protected]

Wolfgang FalterPartnerChemicals & Special Materials | Strategy & OperationsDeloitte Consulting GmbH+49 151 [email protected]

Netherlands

Willem Christiaan van Manen PartnerOperations Transformation | Business Model Transformation LeaderDeloitte Consulting B.V.+31 6 1004 2582 [email protected]

Laurens PettenPartnerEnergy, Resources and Industrials | Monitor Deloitte Deloitte Consulting B.V.+31 6 4049 4536 [email protected]

Nordics

Tore Christian Jensen (Denmark)PartnerOperations Transformation| Nordic LeadDeloitte Denmark+45 22 20 28 [email protected]

Mikkel Boe (Denmark)PartnerEnergy, Resources and Industrial Products | Industry LeaderDeloitte Denmark+45 22 20 24 [email protected]

Anders Harritz Lund (Denmark)Senior ManagerStrategic Cost Transformation | Offering LeaderDeloitte Denmark+45 30 93 69 [email protected]

Tuomo Saari (Finland)PartnerStrategy, Analytics, M&A| Finland offering LeaderDeloitte Finland+35 84 0505 9159 [email protected]

Bjorn Grenman (Norway)PartnerStrategic Cost Transformation| Norway offering LeaderDeloitte AS+47 911 61 [email protected]

Fredrik Gillebo (Norway)Senior ManagerStrategic Cost Transformation | Operations TransformationDeloitte AS+47 917 84 055 [email protected]

Jonas Malmlund (Sweden)PartnerDeloitte Sweden+46 75 246 33 [email protected]

Ireland

Alan FlanaganPartnerFinance Transformation | Enterprise Technology and Performance LeaderDeloitte Ireland+35 314 172 [email protected]

Italy

Umberto MazzuccoEquity PartnerBusiness Model Transformation | Mergers and AcquisitionsDeloitte Consulting SRL+39 02 8332 [email protected]

Spain

Gorka BrionesPartnerStrategic Cost Transformation | Strategy and Business Design Deloitte Consulting, S.L.+34 9 1443 [email protected]

Felipe RequejoPartnerEnergy, Resources and Industrials | Energy Consulting Leader SpainDeloitte Consulting, S.L.+34 60987 2453 [email protected]

SwitzerlandAntonio RussoPartnerAnalytics and Cognitive | Consulting Offering LeaderDeloitte Consulting AG+41 7 9102 4673 [email protected]

United Kingdom

Lorraine BarnesPartnerCore Business Operations | UK LeaderDeloitte MCS Limited+44 77 6589 [email protected]

EUROPE

Austria

Alexander KainerPartnerStrategy, Analytics and M&A | Austria offering LeaderDeloitte Services Wirtschaftsprüfungs GmbH+43 664 805 372 [email protected]

Belgium

Catherine HannossetPartnerStrategy & Business Design | Strategic Cost Transformation offering lead + 32 494 56 68 [email protected]

Ben Desmet DirectorStrategic Cost Transformation| Strategy & Business Design Deloitte Belgium+32 496 72 77 [email protected]

Croatia

Zlatko BazianecPartnerStrategy and Business Design | Consulting Country LeadDeloitte Croatia+385 1 2351 [email protected]

France

Olivier PerrinPartnerBusiness Transformation | Monitor Deloitte Deloitte France+33 6 87 14 17 [email protected]

Alexandre KuzmanovicDirectorStrategic Cost Transformation| Business Transformation Deloitte [email protected]


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December 2019 Oil, Gas & Chemicals - Deloitte United States...Oil, Gas & Chemicals industry December 2019 Oil, Gas & Chemicals. Contents ... management and business transformation