Mario Sánchez
CEO
Genkco
Nicolás Picazo
Nicolás Picazo
Senior Manager
Genkco
/
Insight

Critical Processes for a Productive Enterprise

Wed, 01/22/2014 - 15:22

“PEMEX’s vertical hierarchical structure works when pursuing top-down performance targets. However, employees do not just interact vertically within their structure, but also horizontally, coexisting with other areas within business processes,” says Nicolás Picazo Larrañaga, Senior Manager of Genkco. “A plethora of areas are working on a succession of activities, but headed towards the same goal.” Genkco provides Process-Based Enterprise Transformation consulting services to manage these webs of interactions within large companies such as PEMEX to improve efficiency and optimize processes. Picazo Larrañaga explains that no matter how companies are organized, interaction between different areas occurs dynamically. “Targets are often shared across different work areas while business processes are not well defined, leading to a tug-of-war. Departments disregard their own responsibilities under the guise of confusion, but continue to demand immediateness in others’ delivery of responsibilities,” adds Picazo Larrañaga. “The main consequence of this is that large companies, such as PEMEX, end up with several overlapping technological platforms that hinder the development of processes, while still allowing the vertical hierarchy to function.” According to Genkco’s CEO, Mario Sánchez de Aparicio Ibarra, this is precisely how the firm is helping the oil giant. “As a company dedicated to business consulting and competing with the largest consulting companies in the world, our objective lies in reducing the conflicts of interest and overlapping functions that currently exist within PEMEX.”

Genkco is a small consulting company that seeks to think like the large players. Based on its experience in redefining strategy, process engineering or reengineering, organizational restructuring, and information technology strategy, Genkco took on the challenge of helping PEMEX shift towards a process-based reality. Starting in 2003, PEMEX decided to adopt a management model to improve the efficiency of its business processes. The strategy was approved by Raúl Muñoz Leos, PEMEX’s CEO at the time, and has since become part of the company’s core business strategy. Implementation, however, has not been easy, according to Picazo Larrañaga. “At first the concept was an easy sell, but once the implementation phase started, PEMEX finally grasped the complexity of it all,” he recalls. “Despite the fact that PEMEX has been betting on the implementation of this system since 2003, it has taken more than ten years to fully integrate it,” continues Sánchez de Aparicio Ibarra. “A company like PEMEX, with more than 150,000 employees, takes a long time to completely transform to a process-based enterprise. It is such a large company that it is normal for people within one subsidiary to have never physically interacted with those from another. This translates to a direct lack of coordination, which produces inefficiencies and dissatisfaction.” More than ten years later, the current administration of PEMEX is pulling out all the stops to take advantage of the new opportunities emerging from the full implementation of the Energy Reform. “With the company’s restructuring being discussed in the aftermath of the Energy Reform, expectations have grown,” claims Picazo Larrañaga. “The market is also pushing PEMEX towards transformation and the supply chain keeps moving towards integrated solutions that involve both upstream and downstream activities at the same time. The industry has stopped thinking in terms of areas or departments and is now thinking in terms of integrated process executions. Companies such as PEMEX are more easily seen through the process scope.”

PROCESS-BASED TRANSFORMATION MODEL

“Instead of dividing PEMEX into its four subsidiaries and the corporate area, we have tagged processes across upstream, downstream, commercialization, planning, maintenance, health, safety and environment (HSE), procurement, and human resources among other key areas,” explains Sánchez de Aparicio Ibarra. “The horizontal-based process model does recognize the existence of the vertical hierarchy. Each PEMEX subsidiary forms a completely independent company, with its own unshared goals, separate Board of Directors, and no common ideals aside from the ones written in the corporate business plan,” Sánchez de Aparicio Ibarra remarks. “However, its subsidiaries are entangled throughout the whole value chain: while PEMEX E&P extracts the hydrocarbons, PEMEX Refining processes and transforms them, and provides feedstock for PEMEX Petrochemicals. Companies that are on the same line need to have common goals.”

Genkco’s model tries to integrate the vertical goals of the subsidiaries and the horizontal goals of processes, creating a matrix that allows the operational structure to be optimized. “Our business consists in optimizing the way in which processes that generate the supply of products and services are executed by designing the line that each process undergoes within the different vertical and horizontal structures inside a company,” Picazo Larrañaga clarifies. When dealing with the huge interwoven structure of PEMEX, integration becomes more complex, he says. “Any change within PEMEX, no matter how simple it may seem, will become complicated. You have to involve all the people, areas, and political and personal interests behind the process that is changing. More relevant changes imply more complications.” While Genkco keeps the vertical performance measurements in check, it considers the role of every component of the process. “While top-down measurements for performance are kept, a process-based structure is created to define how the interaction between different departments should take place, how problems are solved, and what the chain of command is,” Picazo Larrañaga elaborates. “Therefore, an improvement in the operation is achieved by several actors, not just one department, by learning how to think together instead of individually.”

TOWARD A RESTRUCTURED PEMEX

PEMEX suffered from major inefficiencies, as well as overlapping roles at distinct parts of the value chain. “We saw a clear example of this when we checked PEMEX’s payroll process,” Sánchez de Aparicio Ibarra reveals. “There were 17 different payroll systems across all the subsidiaries, with each subsidiary having more than one. PEMEX Gas and Basic Petrochemicals had three systems, PEMEX E&P had two, PEMEX Petrochemicals had two, and PEMEX Corporate had four. Inefficiencies such as this cause hundreds of thousands of dollars in unnecessary expenses.” Under the Energy Reform’s new framework, PEMEX is expected to reorganize in three subsidiaries: one dedicated to exploration and production processes (formed by PEMEX E&P), one focused on industrial transformation processes (formed by PEMEX Refining, PEMEX Gas and Basic Petrochemicals, and PEMEX Petrochemicals), and one related to logistics and transportation processes. Genkco’s model could accelerate this reorganization. “A live process platform enhancing internal coordination could allow any corporation to execute an organizational transformation swiftly. Within an organic restructuring, a process-based structure falls into place quicker since the steps to be undertaken are already defined. For instance, the value chain that we defined for PEMEX, along with the company’s executives, includes processes for downstream operations. This live process, officially established six years ago, includes several drafted sub-processes that link Refining, Gas, and Petrochemicals,” says Picazo Larrañaga. “If the restructuring were to happen today, PEMEX could pull out this map for the downstream processes in order to swiftly join these three subsidiaries.” While many international oil companies manage logistics and transportation through third parties, PEMEX has long been in charge of the national distribution network. Currently, hydrocarbon transportation is partitioned, with PEMEX E&P being the owner of pipeline infrastructure connecting the well to the refinery, PEMEX Refining being the owner of pipelines from the refinery to storage terminals, and commercialization branches owning the final stretch until the product reaches pump-up stations. This can cause bottlenecks, since Mexico’s refining capacity cannot store or process all the oil that is being produced. “Even if it has not officially been discussed as part of the restructuring, we have already mapped a process that entails hydrocarbon transportation,” Sánchez de Aparicio Ibarra says. “This was done following the concerns of several PEMEX directors who are looking at the possibility of sharing infrastructure and costs in the hydrocarbon transportation segment with the private sector.”

Sánchez de Aparicio Ibarra believes the impact of a job well done will be measured differently. “After all, this is a management practice, it does not really matter if we know about engineering or manufacturing,” Picazo Larrañaga elaborates. “We are dedicated to addressing the company’s management challenges, not its technical issues. It is not our job to go to deepwater to discover and produce hydrocarbons. It is our job to organize the company’s structure to be more efficient at getting to deepwater and producing hydrocarbons.”