Prime movers in petrochemicals have been quietly making money from
e-initiatives. Daniel Thomas follows up reports that the industry
is saving billions of pounds through the smart use of Internet
technology
With the return to sobriety that followed the dotcom hysteria the
firms which ignored the "revolution" are emerging as the ones that
have benefited the most from Internet technologies. Earlier this
month, oil giant Shell announced that it had achieved savings of
£3.5bn since 1998, following a series of successful IT and
e-business initiatives.
The Confederation of British Industry and KPMG Consulting quoted
Shell as an example of best practice in their e-business annual
report, highlighting the way the company is using new technology to
meet key business objectives.
Steve Rackley, e-business manager for Shell UK Exploration and
Production, said, "There has never been an e-business revolution
strategy, we have just looked at how e-business can contribute to
the core business objectives such as return on investment. This
helps to bridge the gap between IT and the rest of the
business."
The company's move to consolidate its global server infrastructure
into a common operating environment formed the backbone for all its
e-business initiatives. Shell became its own application service
provider to deliver software to its business units from four hubs
around the world.
"We put a lot of investment in the common IT platform," Rackley
said. "This allowed us to implement some real pathfinding
initiatives, particularly in procurement and knowledge
sharing."
The implementation of global knowledge networks - online knowledge
and best practice sharing systems - has proved to be one of the
best deliverers of return on investment, generating more than £150m
in cost savings and increased revenue, Rackley said. "Knowledge
sharing allows us to compare the cost of goods and services across
the group, seeing if certain parts are paying too much for the same
thing," he said. "Because the delivery is Web-based even the
smallest [parts of the business] can log on and get the benefits."
Shell's use of e-procurement, the flagship e-business project in
its exploration and production division, has reaped financial
benefits, according to Rackley. "Even the most simple tool can
achieve a good return on investment," he said. "E-surplus, our
bulletin board for procurement staff, which allows employees to
manage inventory surpluses electronically, is a good example. The
first transaction, which was between operating units in Holland and
Norway, generated a saving of over £150,000. This paid back the
development costs in itself," Rackley added.
Internal projects such as E-surplus, online job vacancies and
Internet-based administration have helped Shell to implement its
wider e-business strategy, Rackley said. "With a workforce of
90,000 we could not just send a message from the top saying, 'This
is how you will work'. The projects have helped to raise the
awareness of e-business among employees."
Andy Tinlin, director of strategy for enabling technologies at KPMG
Consulting, said, "The main lesson from Shell is that it started
learning quickly - there was no grand plan, or open-ended
experimentation," he said. "[Business to employee] services give
you quick benefits as you are not relying on any third
party."
Shell's use of e-procurement also extends to their suppliers and
other industry companies, through the use of public marketplaces,
such as Traderanger, for the energy sector, and Elemica, for the
chemicals industry.
Shell believes these marketplaces will be increasingly bolstered by
other industry-wide online processes as firms move from focusing on
internal efficiency to broader industry effectiveness, Rackley
said. "Standards will be increasingly important as companies begin
to share business processes online," he said. Rackley puts much of
Shell's e-business success down to its rational approach. "The
focus has been wait-and-see rather than leaping in with both feet,"
he said.
A pragmatic approach will help a company to get the most out of
e-business, Tinlin agreed. "Companies should look at projects that
they can implement quickly," he said. "They must link to business
benefits - not just return on investment; changes in process and
culture have to be factored in."
Looking ahead, Shell will increasingly focus on online
collaboration, both within the group and other industry players,
Rackley said. "Emerging technologies such as Web services which
help to improve communication will help this," he said. "We have
also been seriously looking at how we can utilise mobile technology
within the business."
Web services and portal technology will play an increasingly
important role in the next few years, said Tinlin. "Most companies
recognise the importance of integration these days and portals, as
well as providing visualisation, can be used as a rapid integration
tool," he said.
Best-practice tips from e-business winners
Shell- Simple tools, exploiting the transparency and connectivity of
the Web, can deliver significant business value
- Common technology standards will be important as business focus
moves towards industry effectiveness
Exostar- Pan-industry marketplaces can benefit both buyers and
suppliers
- As well as introducing efficiency savings, marketplaces also
allow for closer collaboration
Arcadia Group
- The online channel can, and should, benefit offline outlets,
working in harmony with them
- Efficiency gains come from integrating the marketing,
fulfilment and sales processes of online and offline
channels
London Borough of Bexley- Have a holistic vision, but roll the project out
step-by-step
- Regularly communicate the benefits of the new e-processes to
employees
BP International
- A common operating platform across an organisation is the
foundation for internal e-business
- Give staff the e-tools to share knowledge and
problems.
E-business case studies
The annual CBI/KPMG e-business
report included these examples of best e-business practice
Multi-channel approach
Zoom, clothing retailer Arcadia Group's online operation,
demonstrates the multi-channel strategy that retailers should be
focusing on, the report said.
Although Arcadia, owner of chains such as Debenhams and Burtons,
expects Zoom's sales to rise to £23m next year - more than doubling
2001's figures of £9.2m - the real value of the operation lies in
its role as a service mechanism for stores, Zoom managing director
Eva Pascoe said. "Shops do not talk about the Web as a channel -
they talk about it as a customer service mechanism, providing store
locators and opening times as well as online sales. If you have
2,400 stores you are, first and foremost, a physical retailer. But
Zoom's operating costs are so low that it is a benefit to stores,
just in terms of advertising and driving people to physical
outlets."
Zoom shows that the multi-channel approach works most efficiently
when the online operation is tightly integrated with the existing
infrastructure, the report said.
Improving internal efficiency
BP International's
implementation of a common operating platform demonstrates how
e-business can improve internal efficiency as well as customer and
supplier relationships, the report said.
All of the oil giant's internal e-business activities rest on the
platform, which provides every employee with online access to
group-wide business tools and information. The platform replaced a
fragmented set of disparate IT systems, increasing transparency and
easing the flow of communication across the group, said Alan Moult,
business innovation manager of group digital business at BP. "This
alone has produced £174m in productivity gains," he said. "It paid
for itself in two years and we could not have implemented other
e-processes without it."
The platform has allowed BP to link all its production sites around
the world into a global, Web-based system that allows managers to
compare productivity levels and see where output is being "choked"
by a process.
Commitment to change
The London Borough of Bexley's
approach to e-business project implementation proves that best
practice is not restricted to the private sector, the report
said.
Like all local authorities, Bexley has been charged with making all
of its services available electronically by 2005 so it is
completely changing the way it manages information and deals with
citizens' needs. "It is not just about adding on bits," said Claire
Symonds, customer services manager for the council. "It is about
transforming the way we work." She emphasised the importance of a
holistic approach to e-business project implementation.
Bexley's approach to getting staff to buy in to the change process
demonstrates the advantage of regularly communicating the benefits
of new e-processes to employees. Although the primary driver of the
change programme is improvement of service, Bexley's project proves
that cost reductions and efficiency improvements can also be
achieved, the report said.
"It took a while to get people to understand that it is not just
about delivering services electronically; it is about streamlining
the processes behind the delivery of that service," so people could
see the advantages, Symonds said.
Online marketplaces
Exostar, the e-marketplace for the
defence and aerospace industry, proves that online marketplaces are
not necessarily dead, said the report. The marketplace, set up by
BAE Systems, Boeing, Lockheed Martin and Raytheon in 2000, has
delivered an average 20% negotiated savings off reserve price on
spend volume. Commodities auctioned have ranged in value from less
than £20,000 to over £7m.
Chris Coupland, group director of the e-business practice at BAE
Systems, said one of the biggest benefits is the ability to speed
up the procurement service. "We are seeing an 80%-90% reduction in
price negotiation times using auctions."
Exostar demonstrates how online marketplaces can also benefit the
suppliers, the report said.