This case study examines how Petroleos Mexicanos (Pemex) is moving forward to the Digital Transformation to increase its profitability, operational efficiency and competitiveness in the oil market, opened 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.

The Digital Transformation has become a common discussion in many industries of all sizes to implement disruptive changes in:

  • Leadership to develop the vision for a digital business transformation.

  • Omni-experience to attract and increase customer loyalty.

  • Information to gain a competitive advantage.

  • Operating model to perform more effective and responsive business operations.

  • Worksource to transform the way in which talent is accessed, connected or boosted in a digitized economy.

  • Safety to perform critical business operations, and protect information assets.

To succeed in the 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 convergent collaboration and communication strategy. The results are efficiency in the operation processes, consistent information management, increased business performance and improved customer experience.

Since the Energy Reform, Pemex has faced a new scenario with competitors and more strategic partnerships in the production and distribution processes both in Mexico and foreign markets. That is why the company decided to engage into a 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 above US$1.7 billion and average daily production of 1.9 million crude oil barrels in 2017. Its corporate structure is extended 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 1st 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.

Previous Situation

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.

As per the macroeconomy, oil prices dropped down at the same time the increase in US dollar exchange rate drove to 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 process, 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.”

Business Challenges

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 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 & 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 communication infrastructure.

Ten datacenters, 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 the business continuity.

Thereby, the IT area had to overcome the expectations with well-defined milestones and short-term results. Five key initiatives were defined to implement the Digital Transformation in Pemex:

  • Migration to cloud computing: Moving from Capex to Opex to a pay for what is used in capacity, storage, and platforms.

  • Next generation communications: Implementing convergent and unified communications.

  • Robust information security: Protecting data assets in both traditional and cloud infrastructure.

  • Optimization of business applications: Adapting to the new business model.

  • Digital Workspace: Providing users access to productivity tools and applications anywhere and anytime consistently, with the same features in desktop and mobile devices.

Implemented Solution

Huawei has the capabilities to fit the needs of Pemex with a flexible business model, experience and end-to-end solutions 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:

  • SIC – a commerce system to control billing, loading, dispatching.

  • Health control system at hospitals.

  • Diverse industrial applications at refineries.

  • Crude oil quality systems at drilling facilities.

  • Volumetric monitoring of distribution at TARs.

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 communication 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’.”

Obtained Benefits

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:

  • IMS is an added value for Pemex with auto-attendee capabilities that offers a convergent communications experience with low-cost routing and integration, interoperability, scalability, network management, and billing system.

  • Convergent communications have helped to optimize the Internet bandwidth (same for voice and data) and to use intelligence tools to monitor and prioritize traffic.

  • The next generation communication tools and switches enable efficient management and deployment of resources. End users have benefited from integrated messaging, videoconferencing, voice and data with business applications, accessing from mobile devices or desktops.

  • The standard and pre-assembled mini-datacenters with rack, batteries, air conditioning, storage, and monitoring systems have helped Pemex to save energy and install faster in different facilities conditions. The monitoring through web interface helps to manage operations remotely.

  • The security levels in the cloud have prevented cybersecurity incidents. Also, anti-phishing campaigns for employees and collaborators have created security awareness.

  • The cloud approach has reduced operating costs (fewer facilities, power, cooling, hardware management) with fewer data centers while gaining more storage capabilities with security and business continuity.

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:

  • 37 thousand IP Phones by the end of 2018.

  • Analytics and Big Data, currently in proofs of concept, to empower the business for operational efficiency and information security.

  • Internet of Things for different applications, from logistics, monitoring, and control of operations (for example, to predict a possible shut-down), as well as surveillance and security measures for workers at Pemex facilities.

For IDC, the Digital Transformation is the capability to create a repeatable model to innovate business, products, and services to improve productivity and the customer experience.

This Pemex case study is an example of how organizations should embark into such transformation:

  • The starting point is a diagnosis of the business based on the leadership, omni-experience, workspaces, operating model and information management.

  • The involvement of business leaders is crucial to align the transformation initiatives to the business objectives.

  • Enable connected workers and partners with digital interfaces.

  • Modernize the technology infrastructure to support the new business model.

  • Count with the advisory and partnership of experts in disruptive technologies to evaluate the appropriate moment to adopt them in your organization.

  • And, finally, be prepared to restructure the business for continuous innovation.

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