Oil and gas companies are often run by good ol’ boy networks of businessmen whose ties go back for many decades. CFOs and heads of finance in the energy sector come from these same networks, and this means that some finance leaders aren’t on—or anywhere near—the leading edge of technology.

At a time when there are enormous changes in software delivery methods, billing models and the amount of data available to businesses, finance leaders need to oversee more than just record keeping. In the volatile energy sector, what are the risks facing companies whose finance leaders aren’t taking advantage of new technology and big data?

In the club

In an industry that’s defined by fluctuating prices and the culture of boom and bust, it’s no surprise that the management of midsized energy companies in the U.S.—midstream oil and gas, oilfield services or E&P—is a bit of an exclusive club. The oil glut and subsequent price collapse of the late ’80s created a gap in knowledge and experience between the older generation that helped build the industry and developed production and technology, and the newer generation of workers who had to learn from scratch.

Add in the fact that women have struggled to find traction, much less equality, in the energy business, and you have the classic good ol’ boy network of businessmen who’ve known each other for decades, been through tough times together and are suspicious of change, youth and innovation. As an example, until the fairly recent advances made in hydraulic fracturing and directional drilling technologies, small to mid-sized E&P companies had been using many of the same techniques for half a century.

It should also be no surprise that this cliquish mentality applies to more than just the core functions of midsized energy companies. If a midstream company was founded by someone who’s been in the business for decades, you can bet that the core team he (and let’s face it, it’s probably going to be a he) will assemble will be mostly men he’s known for years and feels he can trust. When he chooses leadership for finance, IT and other noncore business functions, he’s still going to go back to the people he knows and not opt for new blood, new ideas and new technologies. This is a shame.

Data for decisions

In an industry that’s characterized by feast or famine, rapid growth or layoffs, extra care should be taken to make sure that support functions—finance and accounting, HR, sales, etc.—are streamlined, automated and provide the right reporting and visibility. This should be the last place where inefficiencies drag down the business. Finance and accounting should provide management with the data and reporting they need to remain agile, make good strategic decisions and keep the business off the jagged rocks that are always on the horizon when the price of oil changes.

The exclusivity and advanced age of energy company executives aren’t as common in CFOs, who have become the new stewards of not only the transactional but also the transformational. Software delivery isn’t just moving to the cloud—it’s already there. Systems should be available anytime, anywhere.

Data should be accessible without the need for manual manipulation in Excel. It should be real time, and it should include operational data.
Oil and gas companies have a lot to learn from other industries: The modern CFO is tech-savvy and able to provide insights into not only accounting but also what’s working operationally and, maybe more importantly, what’s not.

Today, transactions are digital and rarely on paper. Approvals are part of streamlined, configurable workflows. Revenue is recognized automatically, and projects are managed along with accounting to ensure efficiency and profitability. A CFO who is still not sold on the cloud is a liability to the business.

Outsourcing services

Service delivery is changing as well, and the new energy CFOs and operations leaders should weigh the benefits of these new options.

Payroll and HR have been increasingly outsourced for years, and now midsized companies are seeing the benefits of outsourcing other functions, including finance and accounting. If it makes sense to move to software-as-a-service for your finance and enterprise resource planning, it might also make sense to go a step further and outsource those transactions to specialized business process-as-a-service providers who can provide specialization, best practices and the technological know-how to manage a company’s accounting on a subscription basis, with volume pricing.

This means that potentially, for the cost of one full-time employee who has to act as a jack-of-all trades and master of none, CFOs can gain the experience of specialists in accounts payable, accounts receivable, general ledger and other accounting areas. When business is booming and transaction volumes increase, the as-a-service accounting function can be dialed up to meet demand; the opposite is true when business flags. There’s no longer the need to hire and fire back-office workers as the market fluctuates.

CFOs in the software, tech, professional services and other industries understand these new, powerful trends and are already taking advantage of them. Some midsized energy companies are doing so as well. Paradoxically, software and technology CFOs and CEOs understand that moving their support systems to the cloud means they can focus on their core products and services, rather than maintaining internal IT.

Why is it that technologists understand this concept, but energy company leaders often cling to the old model of in-house servers and on-premises software?

With market volatility as a built-in challenge, energy companies shouldn’t further hamstring themselves by living in the past and doing business the old way. If the boardroom is full of good ol’ boys, make sure that, at a minimum, the head of finance is tech-savvy, and that he, or she, understands and has embraced the future of finance and accounting.

Marcus Wagner is founder and CEO of AcctTwo Shared Services LLC, a consulting firm and provider of cloud- based financial management solutions.