• Cognizant 20-20 Insights
Oil and Gas IT Game Plan
How to survive and thrive mergers and acquisitions,
divestitures and separation.
Introduction
The challenges and opportunities arising in the oil
and gas industry – including elasticity in the cost
of crude, increased competition, new and unconventional shale gas discoveries and a stringent
regulatory environment — are forcing companies
to merge, invest, divest and swap assets. By
realizing that exploration/production and
refining/marketing are different businesses that
need specific skills and shareholder alignment,
companies are now able to chart a course to
become stand-alone entities with clear, separate
operations.
Moreover, the recent discoveries of unconventional shale oil plays and their transformation
to major crude oil production centers have led
major O&G corporations to acquire assets and
merge smaller players to exploit these reserves.
These market dynamics have encouraged leading
integrated O&G companies to follow a two-fold
strategy:
• More
closely align operations to the market
and free up shareholder value via a split in
their upstream and downstream operations.
• Acquire the assets of or merge with smaller
players that have interests in unconventional
sources and upstream assets.
cognizant 20-20 insights | april 2012
This paper discusses our view of the typical
challenges faced by IT groups during merger,
acquisition, divestiture and separation (MAD&S)
scenarios and the best practices to overcome
those challenges.
Challenges Faced in the
MAD&S Landscape
For the oil and gas industry, the IT issues arising
from mergers, acquisitions, divestitures and separations can be immensely complex. Companies
within the sector are more vertically integrated
and have longer value chains than companies in
other industries.
Based on our experience working on large-scale
programs with O&G clients, some of the key
challenges for the IT organization in the MAD&S
space are:
• Program management
• Application and data management
• Testing and validation
• TSA and vendor contracts
• Organization and change management
• Infrastructure
MAD&S Challenges
Ma Progr
nag am
em
ent
r
ndo
Ve
and cts
As tra
TS Co n
Impact on business process as part of divestiture
and identification of process hand-offs.
Incomplete understanding of data requirements
and data transformation needs.
Segmenting and management of “as-is”
Poor senior executive
applications vs. applications that require
engagement and/or alignment
modifications.
through the separation phase.
Meeting short-term application
Lack of rigorous separation and execution
needs while transforming
Lack of TSA and SLA rigor and formality due to false
plans considering Day 1 through Day 3.
applications for future state.
comfort in “same parent” relationship between parties.
Absence of a dedicated transition/
Application
Underestimation of time and effort required to review and
program team to drive delivery.
& Data
renegotiate new contracts.
Significant distraction from BAU activities
Absence of strong project management overseeing the
and resulting lack of focus on customer.
contract separation process critical for Day 1.
Weak governance and controls to ensure
Poor approach to categorization and
visibility and accountability across the program.
prioritization of vendor contracts.
MAD&S
Lack of a thorough change management
plan and approach.
Weakly managed or poorly orchestrated
communication strategy.
High Complexity
Medium Complexity
Infrastructure
Int Sepa
egr rat
atio ion
n T or
est
ing
Absence of clear indicators to determine the
success of the change management process.
&
Unclear future-state design for the separated
companies, including decisions regarding shared services.
ion
zat
ani ge
Org Chan
CHALLENGES
Insufficient focus on business readiness as
initiatives near completion and transition to BAU.
Lack of people bandwidth and knowledge management.
Weakly managed communication, underutilization of assets
and disruption of existing processes.
Absence of end-to-end test data management and unpreparedness
for the specific data requirements pertaining to MAD&S.
Issues with testing infrastructure planning,
management and deployment.
Absence of a central governance model overlooking
the testing for MAD&S activity.
Maintaining data and
system security.
Complicated application and
infrastructure environment, with
Ineffective tool management and utilization
poor understanding of critical
aiding in the MAD&S activity.
dependencies.
New company data center set-up
(sizing, capacity, contracts).
Indecision regarding business and application changes
and subsequent delays to hardware and software orders.
Figure 1
Program Management
• Transparent
review and reporting: Tracking
the status of the program and providing a
consolidated view of progress is of great
importance during execution of MAD&S activity
due to the complexities involved. Maintaining
key management information from the board
level down and reporting on key actions and
decisions enable an open and consistent information flow within the organization and hence
are imperative for successful operation of the
program management function.
The success of MAD&S depends on proper
planning, an effective program management
office (PMO) and clean change management that
straddles IT and business needs. In our view, key
challenges in running a successful PMO are:
• Lack of senior executive engagement
throughout the separation/merger phase.
• Absence of a dedicated transition/integration
team to drive delivery.
• Lack
of rigorous separation and execution
planning, coupled with diminished focus.
• Budget tracking: The scale of the MAD&S activ-
ity and the intricacies of the transactions make
it necessary to ensure proper management,
tracking and reporting of program finances and
making certain that all projects remain within
budget and that remedial actions are taken
when budgets are under threat.
• Following
the deal announcement, a lack of
focus on keeping the current business running.
• Weakly managed/orchestrated communication.
Success Factors and Best Practices
• Governance
& organization: First and
foremost to IT program management success
is a pragmatic and structured framework
for driving decisions and providing strategic
direction. Project/workstream owners need to
be brought together to ensure that projects
are properly set up and benefits are clearly
articulated.
cognizant 20-20 insights
• Planning and tracking: A consistent approach
to program planning and tracking provides a
consolidated view of the program roadmap and
enables full control over outcomes.
• Proactive
risk and issue management: For
any MAD&S activity, a speedy and robust
mechanism for dealing with program-wide risk
and issue planning is highly recommended for
successful execution of the initiative.
2
• Dependency
management: Proactive mitigation of the risks arising due to project delays
can be achieved by identifying, tracking and
managing cross-project and cross-workstream
dependencies.
• Communication
and stakeholder management: With multiple stakeholders and more
than one organizational entity involved in the
MAD&S activity, consistent flow of information
not only guarantees faster decision-making
but also removes ambiguity of actions and outcomes. Implementation of a proper communication plan disciplines the engagement and management of stakeholder inputs to the program.
• Change
control: A robust change control
mechanism for tracking changes to project
plans, estimating the impact and taking action
not only minimizes delays to the program but
also provides consistency in information and
decision flow within the organization.
• Resource
management: Availability of the
right people at the right place and the right
time is vital to a successful PMO. This is why
an overall resource plan is needed that aligns
the supply of resources and skills with the
demands of the program.
• Project
assurance: Key issues of individual
projects and common concern across the
program can critically affect the progress of
the program; hence, an independent challenge
and assurance function that helps identify
and resolve these issues is of paramount
importance.
• Vendor
management: The involvement of
multiple parties in the program with hand-offs
at different milestones makes vendor
management an integral facet. This is to ensure
a rigor in the procurement and management
of subcontracted third-party products and
services and streamlined communication and
engagement.
• Project
standards: Ensuring adherence to
standard approaches, tools and techniques
to support project delivery not only provides
great economies of scale in the long run but
also provides certainty of quality outcomes at
every step of the program.
• Delivery: Iterative development ensures rapid
delivery and risk minimization, as well as factor
learning and improved re-usability.
• Benefits
management: Value-to-business is
the key driver behind any program. Hence,
planning and tracking the delivery of benefits
and results arising from the program and
ensuring that the investment delivers the
required return to the business is critical to the
evaluation of such initiatives.
Application and Data Management
MAD&S introduces many challenges with respect
to migration of applications, data and functionality changes to incorporate the organization’s
goals (see Figure 2).
Data Management Challenges
Knowledge of the System
Short Turn-around Time
Understanding the data and the
underlying business rules are proving
to be the primary reasons for delays
and the resulting escalating costs.
Typically, there is a need to freeze the data entry in
the production system while separation is being
performed; as a result, there is a need to minimize
downtime as much as possible.
Managing Sensitive Data
Data
Separation
Challenges
Data separation activities may require
movement of sensitive data. Security
and legal requirements may prevent
sharing of sensitive data with an
oshore IT partner.
Ensuring
Data Integrity
Multiplicity of Interfaces
This is the main challenge of an integrated
separation effort. If “n” application systems
must be directly interconnected, it will
produce n*(n-1) connections, or interfaces.
There is a need to ensure data
integrity, as the database schemas will
change; business entities will change to portray different
functional meaning; and the format and usage of data
captured in the new system can be totally different.
Figure 2
cognizant 20-20 insights
3
Business vs. IT
Business Point of View
IT Point of View
Degree of business process shared between
upstream and downstream companies
Shared infrastructure
Functional dependencies between the two
entities
Shared applications
Common roles (business and IT staffs
performing job functions for both companies)
Number of interfaces between applications
Common customers
Shared data between upstream and downstream
business entities (i.e., enterprise BI)
Figure 3
Based on our experience with O&G clients, key
challenges for application and data management
include:
• Impact on business process as part of a split or
merger and identification of process hand-offs.
• Segmenting and management of “as-is” applications vs. applications that require modifications (projects).
• Impact of data requirements and data transformation.
Success Factors and Best Practices
There are four key steps to successful data
management in a typical MAD&S scenario (see
Figure 4):
• Analysis and strategy for data separation
• Preparation
• Execution
• Stabilization
Key considerations for data management include:
• Meeting short-term application needs while
transforming applications for future state.
• Establishment of standards through a homogeneous representation of data across various
data sources.
Business and IT groups have different points of
view for data separation complexity (see Figure 3).
• Source application availability and criticality
• Target application
• Process complexity involved
• Volume of data
• Data quality
Data Migration Framework
Value
Creators
Benefits
Steps Involved
Assess & Profile
Cleanse
Transform
Load & Verify
•Assessment study
•Source and target study
and gap analysis
•Extensive data profiling
•Sensitive data masking and
split
•Identify and plug data
inconsistencies
•Data quality checks
•Fill data gaps to enable
data split
•‘As-is‘ and ‘to-be’ mappings
and templates
•Usage of migration tool
•Initial bulk load
•Validation of the
migrated data
•Delta-load the spilled
or missed data
•Early detection and removal
of redundancies
•Assured data quality
•Minimal data volumes
•Assured data quality
•Evolution of standards
if none exist
•Faster template-driven design
•Rapid script development
•Faster execution of one-time
data migration tasks
•Assured load
completeness
•Data profiler
•Data generator
•Metadata manager
•Data profiler
•Code generator
•Code reviewer
•Data comparator
•Data reconciler
Figure 4
cognizant 20-20 insights
4
Separation/Integration Testing
Success Factors and Best Practices
MAD&S requirements introduce the need for considerable changes in applications (multiple small
projects) and thus the requirement for testing
various components/applications of the entire IT
portfolio. The different types of testing involved
in typical MAD&S scenarios include:
The key to address the above challenges lies in
the following best practices:
• Business scenario/process end-to-end testing,
including integration with non-SAP applications.
• Functional testing of core ERP transactions.
• Testing of interfaces between ERP and other
applications.
• Security/role-based testing.
• Break-point testing.
• Supporting user/business acceptance testing.
• Automation assessment, recommendation,
• Building a scalable testing model to cater to the
needs of separation or integration testing built
on goals, KPIs and metrics to determine the
progress and health of the program.
• Implementation
of consistent and repeatable
testing processes.
• Identifying
structured methods to determine
the amount of testing.
• Adoption of solution accelerators and
techniques to streamline and enhance the
testing process.
• Implementation of tools and infrastructure to
provide greater business value while significantly reducing the time and effort involved, as
well as the amount of manual errors.
development and execution.
• Performance testing.
• Data conversion testing.
Figure 6 illustrates a core-flex resourcing model,
along with the various critical elements to address
the separation/integration testing scenario.
In our view, the typical challenges in separation/
integration testing are around the six components
of people, process, governance model, infrastructure, data and tools (see Figure 5).
TSA and Vendor Contracts
The IT organization faces multiple challenges in
building Transition Service Agreements (TSA) and
Testing Challenges
People
•Availability of SMEs and over-allocation of business users.
•Flight of knowledge risk.
•Scales of economy not exploited.
Process
•Possibility of disruption of existing processes due to organizational/BU reprioritization.
•Variation in test coverage and risk prioritizations.
•Unidentified and unutilized accelerators and best practices.
•Weakly managed /orchestrated communication.
Governance Model
Infrastructure
•Absence of a centralized testing body.
•Lack of single ownership and accountability due to BA’s and developers’
focus on separation-related activities.
•Downtime of test environments.
•Constant struggle to get infrastructure team’s attention on a priority basis
for non-production environments.
•Capacity planning issues when it comes to multiple test environments.
•Lack of planning separation-specific test requirements around infrastructure.
Data
•Unavailability of test data.
•Absence of data migration/validation tools.
•Unpreparedness for separation-specific test requirements (data migration).
Tools
•Lack of interactive and effective medium for sharing and collaboration.
•Absence of an integrated 24x7 testing delivery dashboard/analytics.
•Absence of regression/risk-based testing tools that can accelerate rate of testing.
•Lack of on-demand ad hoc automation tools/utilities to expedite testing process.
•Unavailability of updated test scripts for less frequently used applications.
Figure 5
cognizant 20-20 insights
5
Core-Flex Resourcing Model
Core-Flex Staffing Model
Test analysts
Package experts
Test manager
and functional
consultant
Inputs
Lower costs and faster time-to-market
through optimized utilization
of offshore resources.
Dedicated team builds expertise
over time.
Automation/
performance
Integration,
automation and
functional
testing teams
PApplication
PProduct
PIntegrating systems
PRequirements specifications
PHardware/software needs
PEnvironment set-up details
Ramp-up (with an
induction program)
Cognizant Flex Team
Cognizant Resource Pool
Ramp-down
>
>
Cognizant Core Team
Knowledge Repository
Common Tools &
Infrastructure
Central Repository
• Build and retain knowledge
leveraging the central repository
• Institutionalize knowledge
• Better regression test coverage
• Efficient knowledge transfer
Outputs
• Reduced effort through reuse
of common frameworks, templates
and data repositories
• Maximize test automation
• Optimize tool licensing requirements
P Test process models
P Benchmarks
P End-of-test reports
P Metrics reports
P Causal Analysis & Report
P Learning (CARL)
Standard Processes
• Higher system quality
• Better planning and estimation
• Rigorous metrics collection
• Continuous process improvement
Figure 6
contracts during MAD&S scenarios. Based on our
experience, the key challenges faced include:
• Determine
• A poor approach to categorization and prioriti-
• Identify
zation of vendor contracts.
• Underestimation of time and effort required to
review and negotiate new contracts.
• Absence of strong project management overseeing the contract separation/merger process.
• Lack of TSA and SLA rigor and formality in a
separation scenario due to false comfort in
“same parent” relationship between parties.
criticality of the contract and
estimate time to complete necessary actions.
appropriate negotiations structure
(owner rep, user rep, etc.) and decision-makers
for each contract.
• Determine
roles and responsibilities (legal
review, structuring and negotiation, business
review, etc.).
• Establish timeline for required actions.
• Execute contract split/merger.
• Track progress of all applications/projects with
respect to the agreed-upon TSAs.
Success Factors and Best Practices
We follow a structured approach to managing
the TSA and contracts, which is critical to the
successful delivery of any MAD&S program.
Ideally, a project manager with significant
sourcing experience should lead the overall
contract separation/merger effort, focusing on
the following key activities:
• Develop an inventory of contracts/TSAs.
• Review
terms and conditions and categorize
contracts into logical groups (i.e., unnecessary, covered under affiliate agreement, new
contract required, etc.).
Organization and Change Management
Organizations have to adapt to multiple changes
during the MAD&S initiatives. Based on our
experience, the IT department faces the following
challenges:
• Unclear future-state design for the separated/
merged companies, including
regarding shared services.
• Weekly managed or poorly orchestrated communication strategy.
• Lack of a thorough change management plan
and approach.
cognizant 20-20 insights
discussions
6
A Pragmatic Approach to Change
Key Outcomes:
• Stakeholder assessment
matrix
• Change readiness survey
• HR policies and procedures
• Summary Matrix
Communication Analysis, Planning
and Content Development
Change
Management
As-Is Organization Review
Business Change and
Readiness Assessment
Analyze/Syndicate Organization
Business Change
Impact Assessment
Organization Design
Change
Management
Stakeholder Identification
and Analysis
Organization Design
Plan for Change
Organization Model/
Structure Asessment
Deploy New Organization
Change
Management
• Communication materials
• Organization transition
materials (organization
transition plan and
organization transition
tracking)
• Performance support
materials
Sustain and Monitor
Organization Design
Organization Design
Change
Management
Key Outcomes:
• Communication plan
• Business change impact
assessment results
• To-be organization
structure
• To-be governance model
To-Be Organization
Design and Governance
Implement Organization/Change
Launch & Execute
Communications
Key Outcomes:
Ongoing Communication and
Communication Evaluation
Key Outcomes:
• Support plan
• Communication
evaluation report
• Deployment
evaluation report
Monitor, Support
and Evaluate
Figure 7
• Absence of clear indicators to determine the
• Downstream data center setup (sizing, capacity,
• Insufficient focus on business readiness as ini-
• Disaster
success of the change management process.
tiatives near completion and transition.
contracts).
recovery and business continuity
services (to prevent potential loss of important
assets such as data, hardware and software).
Success Factors and Best Practices/Approach
A pragmatic approach to planning, analyzing,
implementing and sustaining/monitoring of the
organization and change management process
is necessary for the successful delivery of the
programs (see Figure 7).
Implementing the Infrastructure
The backbone for a successful MAD&S planning
is implementing a robust infrastructure. There
are multiple challenges in infrastructure planning
during a MAD&S scenario:
• Business and application changes/indecision.
• Safeguarding information security by aligning
security policies.
• Complicated
application and infrastructure
environment.
• Consolidation
of technical architectures to
reduce cost and complexity of IT environment.
Figure 8 displays the scenario in terms of
separating the legacy environment into two
separate companies.
Success Factors and Best Practices/Approaches
• Assess infrastructure dependencies.
>> Start with TOGAF-based reference framework.
>> Develop infrastructure dependency list.
>> Eliminate redundant hardware and software.
• Consider migration alternatives.
>> Single greenfield.
>> Dual greenfield.
• Develop phased migration plan.
>> Technology dependencies.
>> Regulatory constraints.
• Delayed hardware/software orders (due to late
placement or late delivery).
cognizant 20-20 insights
7
Separation into Two Companies
Current Production
Environment
Downstream
Company
Upstream Company
• Retire Legacy Servers
• Develop New Environment SAN
• Establish Core Services
• Migrate Dedicated Servers
• Migrate Virtualization Candidates
Downstream Company
• End-State Goal
> Separate Infrastructure
Figure 8
• Implement transition plan.
>> People.
>> Process.
>> Technology.
Conclusion
MAD&S poses multiple IT challenges for O&G
companies; however, taking a structured
approach and engaging the right partners to
bring in learning and best practices can guide
organizations through those challenges and help
in successful delivery of the initiatives.
The key areas of action when embarking on an
MAD&S endeavor are:
and licenses to ensure compliance.
• Management
of the creation, execution and
extrication of TSAs between the upstream and
downstream companies.
• Provision
of resources (consulting and
technical) across different skill sets required to
deliver projects or manage the overall program.
• Management
of critical dependencies/impact
on in-flight projects and smooth execution
without interruption.
• Provision of expertise in defining and executing
data separation strategies, testing factories
and other core technical concepts.
• Empowerment
of the CIO to proactively
support and communicate with the C-suite
regarding critical MAD&S issues related to IT.
• Definition of scope, identification of projects
and development of plans for the MAD&S
program.
• Enablement
of the IT PMO in orchestrating
split/MAD&S in a challenging environment
and integration with enterprise goals while
minimizing risk.
• Guidance,
prioritization and management of
the separation/integration of all IT contracts
cognizant 20-20 insights
It is vital for organizations engaging in MAD&S
activities to work with trusted partners with
industry knowledge/expertise and experience
from previous IT MAD&S projects to ensure
greater transparency, increased reliability and
efficient execution of the programs.
8
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in
Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry
and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50
delivery centers worldwide and approximately 137,700 employees as of December 31, 2011, Cognizant is a member of
the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing
and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.
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