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This case study examines how Petroleos Mexicanos (Pemex) is moving forward toward digital transformation to increase its profitability, operational efficiency and competitiveness in the oil market, enabled by the energy reform in Mexico. The findings are the result of a series of interviews conducted by IDC analysts with both participating organizations that discussed the challenges, lessons, and achieved benefits.
Digital transformation has become a common discussion for all sizes of industries to create disruptive changes in:
To succeed in digital transformation, the business model should be focused on the capability to operate and interact through different channels with customers, vendors, and partners, with the support of a converged collaboration and communications strategy. The results are efficiency in operational processes, consistent information management, increased business performance, and improved customer experiences.
Since the Energy Reform, Pemex has faced a new situation with competitors and more strategic partnerships in the production and distribution processes, both in Mexico and foreign markets. Consequently, the company decided to engage in the digital transformation process to become more agile, efficient, competitive, and customer-centric to end-consumers and distributors.
About Petroleos Mexicanos
Founded in 1938, Petroleos Mexicanos, known as Pemex, is a state-owned organization in the oil industry with annual income of over US$1.7 billion and average daily production of 1.9 million crude oil barrels in 2017. Its corporate structure is extensive and complex, comprising seven subsidiaries: Pemex Exploration and Production, Pemex Drilling and Services, Pemex Industrial Transformation, Pemex Logistics, Pemex Ethylene, Pemex Fertilizers, and Pemex International. With over 125 thousand employees, it is ranked 8th oil producer, 7th oil trading company, and 15th refining company worldwide. Regionally, it is the top producer of phosphates and 5th producer of petrochemicals.
Pemex’s 2017–2021 Business Plan is in progress with a guiding principle: increase profitability based on business strategies and the flexibility provided by the Energy Reform.
Over the last 80 years, Pemex created a heterogeneous IT infrastructure. Every subsidiary had its own Information Technology area with different management and technology strategies. This resulted in multiple legacy systems, over 700 applications (some duplicated, and in different versions), telephony equipment of different brands or obsolete, in-house or proprietary software, and unattended IT rooms for critical operations. Furthermore, IT staff has presence in more than 200 sites along a wide geography with scarce local IT support. The costs of ownership, maintenance and renewals were rather high.
Back in 2010, Pemex decided to consolidate every IT area into a single Corporate IT Direction, with three deputy directors to achieve the following objectives: cost reduction, data consolidation, and unified solutions for every subsidiary to take advantage of economies of scale.
Due to the macroeconomy, oil prices dropped down at the same time the increase in US dollar exchange rate drove rising prices in supplies. The Energy Reform became an added concern to the company when the opening of the market brought additional participants in the value chain. Therefore, Pemex had to change its role from being a single player to stand out from its competitors by turning into a competitive and efficient organization. After conducting a thorough diagnosis of the IT infrastructure, Pemex realized the need to modernize networks and telephony equipment, consolidate sites into centralized management to monitor and detect risks remotely, reduce the number of IT vendors, and move to the cloud to optimize infrastructure and costs.
The company called for a bidding process to seek a partner with a comprehensive portfolio. After a series of strict selection processes, Huawei won, and, since then, has been able to accompany Pemex on its way to digital transformation.
Rodrigo Becerra Mizuno, Chief Information Officer, Pemex, said: “For 80 years, Pemex used to buy, deploy and maintain its IT infrastructure, we had to change that approach.”
The Information Technology area used to be perceived as merely a back-office function, managing infrastructure, hardware (computers and peripherals), software programs, networking, and telephony equipment. To change this perception, the CIO team facilitated digital workshops with the participation of the CEO and the rest of the company’s C-level executives. This approach was essential to generate buy-in, since most employees at Pemex have worked for numerous years with the same tools and applications, similarly to other oil and gas companies in the world. The cultural challenge was the first one that had to be addressed: to ease the adoption of the new business model and technology infrastructure.
A diagnosis was also necessary to understand the infrastructure situation. The legacy and obsolete voice and data networks and equipment — some older than 20 years — were difficult to manage or update. Most of the devices were unable to interface with business applications and other communications tools. In addition, offshore and expanded geography throughout the value chain made it difficult to deploy network and communications infrastructure.
Ten data centers, each one occupying an average area of 260 square meters, needed continuous updates, management, cooling, and direct supervision. The associated costs were high. Moreover, some sites were located nearby risk areas and needed a disaster recovery strategy to guarantee business continuity.
Thereby, the IT area had to overcome expectations with well-defined milestones and short-term results. Five key initiatives were defined to implement digital transformation in Pemex:
Huawei has the capabilities to fit the needs of Pemex with a flexible business model, experience, and end-to-end solutions already applied in the oil industry.
Pemex has been implementing Huawei’s IMS solution (IP Multimedia Subsystem), with mobile data and messaging based on openness and innovation principles. End users can access the business applications with same functionalities and features from their mobile devices or desktops. Right now, there are IP phones (7950 and 7910) and video phones (8950) installed, supported by SBC Gateway (AR2220E), core switches (S12708), access switches (S5720), and core routers (NE40E-X8).
“Campus networking has an impact on the value chain, from upstream, to downstream, logistics and mainstream operations. We have to deliver efficient communication services,” said David Herrera, IT Services Manager, Pemex.
To support the applications and IMS, with services warranties and business continuity solutions, Pemex has acquired units of FusionModule800 Smart Small Data Center. By the end of 2018, these mini-datacenters will be implemented in Pemex facilities, including TARs, hospitals for employees and oil refineries which can be monitored remotely through a mobile phone or an intelligent management system.
The workloads in the mini-datacenters are diverse:
Huawei implemented the knowledge transfer and training to help Pemex become autonomous in the installation of operating systems, configuration, partitioning, copy, and virtual machine implementations. Huawei has also provided advisory and implementations services to Pemex on best practices in the oil industry, becoming a business partner in their digital transformation.
Aurelio Lagarda Fierro, Deputy Director of IT Services, Pemex, said: “The next-generation communications devices enable efficient management. We do not have to manage large and separated rooms to deliver voice and data services. Now we can tell our end users ‘your office applications run on your mobile devices too’.”
Digitization of the business is a continuous and evolving process. It involves disruptive changes in the enterprise ecosystem and IT architecture. This needs to be supported by digital competencies to implement innovation in products, services and business models to improve efficiency and customer experience.
The digital transformation in Pemex is still in progress, but the results are becoming evident:
Rodrigo Becerra Mizuno, Chief Information Officer, Pemex, commented: “We optimized the business operations with converging systems, reducing square meters, maintenance costs, power, and cooling. Our staff is now more focused on Pemex’s core business.”
Expectations for the Future
Pemex expects to implement the largest digital transformation in Latin America, and to become a world-class competitor with full digital business. The plans include the implementation of:
For IDC, the digital transformation is the capability to create a repeatable model to innovate business, products, and services to improve productivity and customer experiences.
This Pemex case study is an example of the steps organizations should take to embark on such a transformation:
1. The starting point is a diagnosis of the business based on the leadership, all-round experiences, work spaces, operating model, and information management.
2. The involvement of business leaders is crucial to align the transformation initiatives to the business objectives.
3. Enable connected workers and partners with digital interfaces.
4. Modernize the technology infrastructure to support the new business model.
5. Rely on advice and partnership of experts in disruptive technologies to evaluate the appropriate moment to adopt them into your organization.
6. And, finally, be prepared to restructure the business for continuous innovation.