McKinsey Digital / BCG Platinion: Oil & Gas Upstream Technology

An important part of the case is that the interviewee must understand what is meant by “competitivity issues”.

In the client’s case, unit costs are quite high and their workers are not getting things done as quickly as competitors. This means the client has to hire many employees and pay a lot of contracting hours to do twice as much as other firms. The competitivity issues do not involve loss of clients, but rather process inefficiencies.

The root cause is that our client’s processes and supporting systems, such as software and technology, are very complex and old by industry standards.

A good candidate should recognize the following:

• It’s likely problematic that a system designed and intended for one part of the business has been converted – it is likely, not fit for purpose
• There are likely significant inefficiencies from the separation of users and managers of this IT system (i.e. users in the Pacific, and managers in the US)
• There are also likely added inefficiencies from the separation of developers (India and Finland)

Like any IT system, these two systems are supported by an IT department. Users of the system submit issues and change requests and look to the IT department to resolve them.

The current process is as follows: any office would submit change requests into a central system, which is then prioritized and organized by US-based IT business analysts. These tickets then go to India for development, then back to the US analysts for testing, then back to the office that originally submitted the ticket for acceptance testing.

• This entire process takes about 8 weeks
• All of these change requests are submitted through an IT system and handled in an excel document

The candidate should note some of the following:

• 8 weeks is far too long to resolve issues – an Agile process would take 2-3 weeks
• This process is very lengthy and clearly has too many hand-offs, increasing both delays and the likelihood of poor solutions
• The US probably does not have the best idea as to which enhancements/changes are actually the most important, as they’re not close to our client’s needs – the work is outsourced to them
• The US office is likely a chokepoint with a lot of delays as they have competing priorities from across the companies
• The client is split across three different time zones, so any communications or clarifications generally add an extra day
• Excel is a poor method for handling IT tickets – there are numerous issues in regards to change tracking, simultaneous access, reporting, and management

The candidate should recommend any of the following:

• The client could look into replacing the current IT systems (with upstream-specific ones)
• The client should invest in a ticket management/tracking system such a Jira or ServiceNow
• Processes should be streamlined so that the US as a middleman is cut
• Required resources could be brought onshore to Indonesia/Australia
• It’s odd that testing goes back to the US, it should be done in India in parallel with development or by the office that raised the issue/enhancement

Exhibit 1 lists where our client’s employees are, and the percent of upstream business operations attributed to each office. IT resources are currently located in the US (Business analysts) as well as Finland and India (Developers). If the candidate needs clarification, you can tell them that, if IT resources were co-located, we would increase that location’s business operation profits by 10%.

The candidate should calculate the business impact of co-location in Australia and Indonesia respectively.

The candidate should note that there is an annual co-location benefit of $80 million for Australia and $20M for Indonesia. A good candidate would then want to consider the cost of re-location (in terms of paying workers potentially higher salaries, moving costs, etc.)

Exhibit 2 provides a breakdown of where the client’s IT employees are currently located as well as their salaries (we can assume these are the primary costs to consider).

The candidate should opt to calculate the existing costs of the current system, as well as the costs of the newly proposed system. (A good candidate will realize that only half of the current # of developers are needed to replace the India contingent, given they are 50% as productive.)

Recommendation

The candidate should come to the conclusion that the client needs to colocate the business analysts and developers in Australia. While this will cost $13.75M more in added employee wages, there will be a colocation bonus of $80 million, resulting in a $66.25 million net benefit.

Risks

There are risks in the client’s ability to find qualified employees in Australia and to effectively conduct knowledge transfer. In particular, there are risks that the transition period would be both long and difficult.

Next Steps

The client should gain a better understanding of the Australian IT market to determine if the required skillsets exist. They should evaluate whether hiring locally or bringing in offshore developers is a better approach. Additionally, they should prepare a transition plan that ensures a smooth handover in both system knowledge and business processes.