The price of oil fell from US$95 in August to $45 in January. While great for consumers and a challenge for oil companies, the true beneficiaries are the management consulting firms advising clients on how to harness emerging technologies — digital, big data, analytics and cloud — to stay in business in a world with cheap oil.
TBR has been tracking consultancies such as McKinsey, Deloitte, Accenture and IBM for years and dove deep into how these companies positioned themselves to take advantage of uncertainty in energy prices and developments in information technology.
Surprisingly, energy companies have trailed badly in adopting information technologies. Similar to the healthcare sector, in which a hospital has bleeding-edge technology in emergency rooms and Eisenhower-era technology when it comes to billing, energy companies, particularly in oil and gas, have invested heavily in engineering while only slowly adopting emerging technologies such as analytics, big data and cloud. In recent years, however, the sheer amount of incoming data has propelled energy companies into the new digital age.
“We are actually getting into the oil and gas clients. Basically, this sector was quite ignored for almost two decades. We never dealt much with them before. But presently, we see a significant opportunity in the oil and gas sector, especially because we are now realizing that companies in this sector will give a lot of return for quite a long time.” — Senior Manager, Big Four consulting and audit firm, New York
According to one energy industry executive, his company has collected and stored more data in the past three years than in the prior 28 years the company has been in business. As in every sector undergoing dramatic change, management consultancies have stepped in.
Ongoing Market Trends
TBR research shows three 2014 trends continuing in 2015. First, management consulting firms have been hiring professionals and more senior-level executives to bring much-needed experience in the energy sector. Industry expertise has always been a hallmark of the top consulting firms, but TBR heard repeatedly from consulting customers that industry-specific knowledge provided a key differentiator — and consultancies responded to that market demand.
Second, 2014 included a surge in activity around Smart Grid consulting services. Nearly every vendor in TBR’s Management Consulting Benchmark touted a new client or offering centered on smart metering, smart distribution and/or smart electricity supply chain management. Lastly, consultancies found alliances and partnerships with traditional engineering companies provided expertise in energy and entry into new markets that would otherwise be hard to obtain. Accenture, for example, launched a joint venture with Siemens to deliver smart grid services.
Opportunities in Mexico
Mexico’s energy reforms take these trends into 2016. Although the Mexican government initiated the reforms prior to the late 2014/early 2015 oil price collapse, the energy industry expected the reforms would not start attracting money until 2016 and beyond, limiting the impact of the current rough (for oil companies) environment. And the energy industry further expects Mexico’s reforms will have a huge impact on the country’s energy sector and the entire Mexican economy, particularly if utilities reforms actually bring down the price and increase the reliability while new exploration opportunities attract new investments.
“Power generation organizations look to have technology consulting to maintain a proper balance between operational and maintenance activities. For smooth performance of organizations a proper coordination between the two essential departments is important. There lies an intense need to have a system that closely monitors the performance of the various components of the operational process and identifies abnormalities and maintenance requirement. In order to integrate analytic and technology consulting, we team up energy consultants with our technical consultants to work on assignments in the energy sector.”
— Senior Manager, strategy-centric consulting firm, San Francisco
In sorting through the hype and excitement in Mexico, two points stand out: 1) tax reforms – new tax regulations and policies – are cornerstones to the entire energy sector package, and few companies know taxes better than the Big Four (Deloitte, EY, PwC, and KPMG). Those firms also have some of the largest management consulting practices in the world, allowing them to bring together expertise – in taxes and consulting – in ways few competitors will be able to challenge; and 2) the two entities undergoing substantial reforms, Pemex and the Federal Electricity Commission (CFE), are going to need substantial help handling foreign investments, managing reorganization, retaining talent, and learning to be efficient – all opportunities for management consultants.
Wins and Losses
Excitement in the energy sector always comes with risks and spill-over consequences. Oil’s current low price may help consumers and the overall economy, but oil sector companies have begun shelving long-term projects and scaling back investments. Management consultancies may find strategy and operations projects, such as supply chain or digital transformations, are put on hold, dampening consulting growth overall. Those lost engagements, however, may be offset by energy companies looking to consultants for help managing the business during rougher-than-expected financial situations. The per-barrel price of oil may flow up and down, but the per-consultant price for top strategy advice almost always increases, especially when times are rough.