When Jeff Steinhorn joined Hess Corp. as CIO of its marketing and refining division in the summer of 2006, he discovered within the first two months of his tenure that the IT organization had historically taken a short-term approach to project planning.
That approach did help the IT group to determine the equipment it would need to buy and the personnel it would require to support those near-term initiatives. But project plans focused on the separate needs of each business division, says Steinhorn, so there wasn’t a comprehensive evaluation of how each project might affect the overall IT infrastructure.
And it hadn’t become clear how Hess’ IT projects fit into its longer-term business objectives as the company diversified from its roots in petroleum and expanded into natural gas and electricity over the past decade.
“It became pretty clear that we needed to lay out a long-term strategy that would allow us to figure out how IT could support our businesses’ strategies over the next five years,” says Steinhorn, who was previously CIO at Linens ‘n Things Inc. and was recently promoted to corporate CIO at Hess.
The situation that Steinhorn walked into when he joined Hess is far from unique. “The bulk of CIOs are in a predicament where they come into an [IT] environment that doesn’t have a long-range plan,” says Bobby Cameron, an analyst at Forrester Research Inc.
Prior to Steinhorn’s arrival, business managers in Hess’ marketing and refining division had given the IT organization decent marks for the quality of its work and for getting projects completed. But executives told Steinhorn that it typically took too long for the IT group to implement new systems or deliver enhancements to existing systems.
Still, Steinhorn discovered that the IT organization had a wide range of other issues to improve upon. Because project work had been separate for each business division, the units’ systems often didn’t share common customer or market information, nor were they integrated with one another, says Carl Schwartz, director of planning and architecture for Hess’ marketing and refining IT group.
So, for example, a business manager in the oil supplies division could be looking at a set of pricing data that didn’t match what an energy marketing manager was seeing on his screen, says Steinhorn.
After laying out a proposal to develop a five-year IT strategic plan at an executive meeting in the fall of 2006, Steinhorn got the nod from senior management to move ahead with the effort.
But winning that support didn’t occur overnight, particularly since Steinhorn was new to the company and hadn’t yet established relationships with members of the senior management team.
To help gain backing for the strategic planning initiative, Steinhorn started within IT by tapping some well-respected veteran IT managers to join the planning team.
In his early conversations with the president of Hess’ marketing and refining division, Steinhorn pointed to those managers’ involvement, in order to emphasize that “it wasn’t just me, the new guy, who was supporting this.”
Another challenge Steinhorn faced was changing the mind-set of Hess’ business executives, who had tended to look upon the IT staff as a low-cost provider and were used to making IT investments on a considerably smaller scale. “This five-year investment isn’t huge, but it would require more investment than they were accustomed to making,” says Steinhorn.
He gained the executives’ buy-in by getting them to quantify the anticipated project benefits. “I would ask them, ‘If we did these seven retail projects, what would be the bottom-line benefits for you?'” says Steinhorn. “We did that with each of the business areas, and suddenly the costs were a tenth of what all the benefits were expected to be.”
A Strategic Platform
Hess’ IT strategic planning structure has been divided into three components. The so-called B initiative represents a business application or business process improvement effort that’s aimed at increasing revenue or generating cost savings.
Enabler, or “E,” projects correspond with foundational efforts used to better support Hess’ business applications. These include the implementation of business intelligence and analytical systems, the creation of a master data management system and the establishment of an integration framework to connect the common systems used by various business divisions within Hess’ marketing and refining group.
A third area encompasses process, or “P,” improvements within the IT organization itself, including efforts to create a standard approach to application development.
Within the first nine months of Hess’ IT strategic planning efforts, Steinhorn’s group has kicked off 17 projects and completed seven of them, including a major SAP upgrade and a reconfiguration of its retail energy system.
On the IT process side, the group developed standardized application development, project management and IT governance methodologies, and it implemented a performance tracking and scorecard system. Computer Sciences Corp. played a supporting role, serving as the project management office for the initiative.
Through the first year of the five-year IT strategic planning effort, Hess’ IT organization has already seen improvements by having a more consistent application development methodology applied across the different businesses it supports, says Schwartz.
Business-related projects are expected to deliver tens of millions of dollars in business benefits once they’ve been completed, adds Steinhorn. He pegs the start-up investments for the IT strategic planning effort at a few million dollars.
From a long-term perspective, the planning initiative “is giving us the platform and the environment to improve our ability to grow with the business and become more agile as the business opportunities change,” says Schwartz.
With a heightened emphasis on standardizing hardware and software across the multiple business units that make up Hess’ marketing and refining group, the strategic planning structure also provides the company opportunities for achieving economies of scale.
For example, the group’s three energy trading units (oil, gas and electric) currently run separate wholesale systems to help them manage their respective risks.
But that structure requires separate IT supports staff for each system. Plus, “it makes it very difficult from a marketing and refining standpoint to manage risk across three different systems,” says William Hanna, vice president of electric operations at Hess and a program sponsor for the IT strategic planning initiative.
Now, Hanna and other members of the IT steering committee are working with Steinhorn and his team to evaluate commercial wholesale systems that could support all three energy groups and determine whether it makes sense to adopt a universal system.
The improved IT-business alignment that has already resulted from the IT strategic planning initiative “has really elevated the decision-making to help decide where it’s best to invest IT dollars to get the greatest returns,” says Hanna.
Although 90% or more of Forrester’s clients claim to have long-term IT strategies in place, there are still far too many IT professionals who need to think more strategically, Cameron says.
“It’s tough for IT to get out of the mind-set of ‘this is an LDAP solution’ and think more strategically about IT,” he says. “That’s where the most exciting changes are occurring.”
Steinhorn can see it within his own organization. “It’s an equal partnership now,” he says, “where we’re going to the business and partnering on ideas.”