“The railroads collapsed because they thought they were in the railroad business, when really they were in the transportation business. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad-oriented instead of transportation-oriented; they were product-oriented instead of customer-oriented”. –Theodore Levitt
A recent front-page article at energizealberta.com website (Energy News section) had a
headline that caught my attention:
“Suncor takes flack for renewable energy investments”.
It reported how Rick George, Suncor President and CEO , “….was called to task by a
shareholder at the company’s annual meeting in May for its use of food to produce energy and its investments in wind power.”
At first glance I thought it was a case of the investor disputing the nature of Suncor’s
business. On closer look and based on what the article says the investor does not seem to necessarily disagree with Suncor’s long-term business strategy (i.e., that they are in the energy business rather than simply oil and gas business). Instead I have reason to
believe the dissatisfaction stems from tactical considerations, namely:
1) the use of corn (a food item or a product primarily used for food production) to produce biofuels (ethanol); and
2) its wind power business being at this point Suncor’s lowest-return segment.
The news item makes reference to constraints Suncor has to contend with at present and will continue to confront in foreseeable future even as they pursue the renewable energy side of the business. However, its long-term strategy clearly includes biofuels and wind energy in its business portfolio. Here’s an example of a company (a Canadian oil and gas major) that clearly sees itself as being in the business of energy as opposed to being simply in the oil and gas business.
“Oil and Gas Business” OR “Energy Business”
Oil and gas industry players are well-advised to re-examine, clarify and, perhaps, redefine the business their respective organizations are in or are supposed to be in.
One reason, of course, is the expected/predicted/projected – and still very contentious
issue of — Peak Oil and “demise of the oil age”. Some authorities honestly believe we will experience the end of the oil age within this generation.
But whether Peak Oil happens in the near future (as many observers believe it will), or is
happening now (as perhaps an equally big number of analysts think so ), or had in fact already occurred a few years back, and we are now beginning to feel the initial effects of the oil crunch (as a minority, to-date, of such observers and specialists claim) it is still expected of an entrepreneur or business strategist worth his salt to ask and keep revisiting the question: What business are we in? A correct answer determines to a large extent whether an enterprise survives, thrives and grows despite or in light of ongoing changes in its business environment.
Theodore Levitt’s celebrated article, “Marketing Myopia“, which appeared in the July-August 1960 issue of Harvard Business Review, and from which the above introductory quote is excerpted, has become a classic text in most business courses and MBA programs around the globe. It emphasizes the importance of correctly defining the nature of business an enterprise is in (or should be in).
The following highly quotable quotes (boldfaced emphases supplied) echo the wisdom of Levitt’s position on the constant need for clarity and correctness of one’s business vision:
“People don’t go into a DIY store because they need one of our drills. They go because
they need a hole in the wall.” – Black and Decker CEO*
“We do not sell underwear. We do not sell lingerie. What we sell is self-confidence
for women.” – Wonderbra internal memo to staff.*
“Harley Davidson does not sell motorbikes. It sells the concept of freedom to middle-aged men”.*
The View from “Big Oil”
I did a cursory survey of company VMOV (vision-mission-objective-values) declarations
as published in the websites of key players in the industry. By that I mean the so-called “Oil Supermajors” or “Big Oil”: BP (UK), Chevron (US), Exxon Mobil (US), Shell (Netherlands and UK), Total S.A. (France), and Conoco Phillips (US).
Interestingly, four out of the six so-called “Oil Supermajors” or “Big Oil” multi-national companies that dominate the global oil scene categorically DO NOT paint themselves as being in the limited oil and gas business, per se, but in the larger energy business. They are: BP, Chevron, Shell, and Total S.A.
The other two “big oil” companies, on the other hand, apparently position themselves as being simply in the oil and gas business, and not in the broader energy business: Exxon Mobil and Conoco Phillips. (Contrary views and corrections from readers in this regard are, of course, welcome).
BP is a good case study, I suppose, coming at the heels of the Gulf of Mexico debacle. Did you know for example that this supermajor has been at the forefront of alternative energy R&D and pioneering investments? Its renewable/clean energy arm, BP Alternative Energy, has been operating for a number of years, having made billion-dollar investments in alternative energy development and operations. It has also been reported that its alternative energy operations have, in fact, been instrumental in attracting to BP many of the best, brightest and idealistic young talents from around the globe who are committed to alternative energy development.
And, as an aside which may sound ironic, BP, long before the Macondo well blow out
event, and its cascading negative repercussions on the industry (particularly offshore oil and gas), had been touted by the prestigious MIT-Sloan sustainability group as a leading practitioner of sustainability in the industry.
Anyway, BP has clearly stated that their business“….is the exploration, production, refining, trading and distribution of energy” [boldface and italics, mine].
Their official website also declares — “Since 2005, BP Alternative Energy has invested over $5 billion in the growing markets of biofuels, wind and solar while building long term options in carbon capture and storage and clean technology”.
A statement at the company’s official site has this to say: “At Chevron, our businesses work in concert to provide the energy that drives human progress” [boldface and italics, mine].
The company has a strong global presence in the wind power and geothermal sides of energy generation and distribution on top of its main oil and gas operations.
With its focus on “[m]eeting growing demand for cleaner, lower-CO2 transport fuels” Shell is a leading light with regard to exploring and pursuing “……a range of approaches, including vehicles powered by biofuels, electricity, compressed natural gas and hydrogen fuel cells”.
Total S.A. sees itself as a “ …. leading multinational energy company…” AND “….engages in all aspects of the petroleum industry, …”; MOREOVER, Total S.A. “…has interests in the coal mining and power generation sector and is developing complementary next generation energy activities (solar, biomass, nuclear).
Observe how, interestingly enough, the company refers to alternative energy as “next generation energy activities”.
(To be continued)
My next post on the subject will focus on the result, at that time, of my informal and cursory survey of the major Canadian players in the industry– still in an attempt to find out how they define their business or what they do.
The objective of the exercise is to try and find out whether these key industry players are in fact positioned as energy players, in the broad sense of the concept, rather than limiting their business strategy to oil and gas. To me, at least, it would be helpful to gauge the extent to which such key players have actually positioned themselves to meet the continuing needs of communities, nations and societies for energy.
I recall from my high-school physics course the classic definition of energy as “the capacity to do work”. We would constantly need energy, in whatever viable, accessible,
affordable forms they come, to be able to do productive, useful work. That’s a
truism. And I don’t know about you, but I would always be interested in knowing how– if at all– key players are looking beyond the short-run and the medium-run to ensure energy supply.
My second motive is to create a sense of awareness among other enterprises in the industry, upstream and downstream, including providers of ancillary and support services ( such as my own company whose core business revolves around oil and gas software, data supply and management ). Yes, the need to realize they must also confront the question: What business are we in?”
An interesting development I have witnessed in my own backyard, for instance, is how a number of non-traditional uses or applications of my company’s products and services, or expressions of interest in them from non-traditional inquirers, have come to the fore (e.g., geothermal projects, truck fleet monitoring and dispatching, freshwater supply management, railroad company in relation to managing its land assets, etc.) I’m sure not all such business leads and inquiries would necessarily have to be pursued; still non-traditional business opportunities (and threats) emerging in the horizon form a necessary backdrop to an enterprise’s attempt to correctly answer the question: What business are we in?”
Till next blog on the subject.
*See Innovation Tools for this and similar illustrations.