Which way are they headed?

I heard an interesting theory today. The topic of discussion was "why oil companies are just now beefing up general IT." The theory of why this is so is based on something called "informational asymmetry." What this means is that the less someone knows about something the more they will discount its value either out of suspicion or perhaps apathy, e.g. a used car that is for sale - buyers become suspicious.In the mid 1980's, the oil industry went from a functional model to an asset-based model. In other words, every action and decision was based on the incremental impact on Return on Assets, Return on Equity. As this operating model prevailed, oil companies began to outsource shedding a great deal of institutional knowledge that didn't revolve around the drill bit. IT for example became something more outsourced and upward mobility within the organization for IT personnel was stifled. As a result, these institutions lost their capacity to contemplate the value of new technologies. This was not the case around the drill bit...but in several other cases it was. Thus the asymmetry gap widened and the value of general IT was, at a level, discounted. So after several years after watching the non-oil world do some very interesting things with general IT (operational intelligence, business process management, etc.) we are starting to see this in the oil world. The theory would hold that the passage of time and the industry's observations of the actions of the rest of the world with regard to general IT have narrowed the asymmetry gap.Nonetheless, we further observe in the oil and power sectors that they run in packs. So how does the pack form and what gets it going a certain direction. The answer we hear over and over in Houston is the pack forms around a bell cow. Find the bell cow make them happy and the rest of the world will follow. In essence, this works to dissolve information asymmetry as well. In the oil sector, service companies (Halliburton, Schlumberger, Baker Hughes) are viewed much like counselors to the oil companies...they need this type of hand holding today as a result of their restructuring actions in the mid-80's. The trick is this..to identify the bell cows in the industry, determine if a heard is forming, and figure out which way they are headed...

The Pack

A pattern emerges. In the energy world it seems to show itself over and over. Reputation is more important than technology. I have watched two companies compete for E&P customers. They offer virtually the same product using off-the-shelf components. They are, in fact, a communications services provider. They don't sell for less and yet the seem to be taking market share from everyone. Why?

They are not arrogant; they answer the phone when it rings; they do what they say they are going to do. Sounds like a good service provider. In the upstream energy sector nothing else has really mattered over time but price among conventional service providers. One dollar cheaper gets you the business.

The reason this doesn't really apply to IT in energy is that those who procure for general IT are different than those who procure for conventional drilling project services and general IT is not so commoditized within energy as the regular service companies. We are at a point of market adoption of general IT tools in the energy sector and so price is less important. Maybe IT is becoming more empowered and they don't want to fail and so, again, price is less important. What I think the market is really telling me (us) us that the value of new, faster information flow is so great price is not the issue.

Whatever it is..oil companies seems to rely on each other's satisfaction and when they agree...you had better hope you are standing in the correct square or else your future is going to be ugly. They are a pack.