"If integrated international oil companies did not already exist, there would be no reason to create new ones."
A manager of institutional capital
Herold Industry Insights, November 1994
The vertically integrated international oil company no longer represents the winning formula in the petroleum business. Instead, a new breed of tightly focused and vertically specialized "petropreneurs" are capturing most of the industry's growth and shareholder value.
Consider the recent financial performance of the major oil companies. On aggregate, the shares of Exxon, Shell, Mobil, Chevron, Texaco, Amoco, and BP lagged the S&P 500 between 1991 and 1996. For each dollar invested on January 1, 1991 in a portfolio of the majors, a shareholder would have received $2.47 in December 1996, compared with $2.64 if that dollar had been invested in the S&P 500. But investing in the petropreneurs would have been a much smarter move: on aggregate, their shares made $4.21 for every dollar invested (Exhibit 1). After adding in estimates for several privately held petropreneurs—Koch Industries, Huntsman, Arcadian, QuikTrip, NGC, and Racetrac—we find that, on a risk-adjusted basis, these new competitors created shareholder value that exceeded the S&P 500 by a whopping $17 billion.
Much of the industry's recent growth is also down to the petropreneurs. Over the past five years, the revenues of the majors have grown by only 2 percent per year on average—well below inflation. But the petropreneurs can boast an average annual growth rate of more than 20 percent, and the creation of almost $40 billion in new revenues. Several have become big players: in 1996, Enron's revenues were $13 billion, Tosco's $10 billion, and Koch Industries' an estimated $30 billion.
These diverging fortunes hint at the way in which the petroleum industry is "atomizing," or breaking up into niches where focused competitors can gain competitive advantage (see the accompanying article, "The atomization of markets"). This is a story of how skills have become more important than scale or scope, and strategic insight and foresight more important than structural position. It is also a cautionary tale for players in any business who imagine that legacy assets, vertical integration, or the sheer size of their balance sheet will insulate them from industry changes and new forms of competition.
A wake-up call
The rise of the petropreneurs is a wake-up call for major oil companies—unlikely though it may be that they will feel threatened when eight of the world's ten biggest oil companies in the 1950s are still in the top ten today (and the two that dropped out did so only because they were acquired). This kind of stability is one reason why many of the majors tend to dismiss or downplay the competitive implications of the petropreneurs' success. They argue that these upstarts are producing unsustainable results through smoke and mirrors: "rich but lucky," "they can't sustain it," and "ankle biters" are representative comments. Other market leaders probably said much the same when they first spotted the small players that later came to dominate their industries. Thus far, the atomization of the petroleum business has been mainly confined to the United States. However, petropreneurs are starting to emerge in other parts of the world: witness Coastal's purchase and turnaround of an Exxon refinery in Germany; Fortune Oil's entry as an independent gasoline marketer and energy infrastructure provider in China; and the success of Reliance Industries in India, Seven Seas in Columbia, and Arakis in Sudan. Meanwhile, many of the US-based petropreneurs, including Enron, Koch Industries, and Apache, are strenuously pursuing international opportunities as a cornerstone of their long-term strategy.
To be sure, the majors have not lost the many structural advantages that helped them attain their formidable size. But today, their ability to exploit these advantages is often impaired by insufficient skills, outdated management processes, and inadequate people practices. If the full potential of these advantages is to be realized, what's needed is an ambitious program of change—one in which the market forces that have molded the petropreneurs into formidable competitors are replicated and set in motion by the major oil companies within the boundaries of their own organizations. We describe this "self-atomization" later. First, it is important to understand exactly how the petropreneurs have succeeded in capturing so much of the industry's growth and value creation in the past five years, despite representing less than 5 percent of its market capitalization.
The new industry landscape
The petroleum industry has witnessed an unprecedented series of discontinuities during the past decade. These discontinuities—including the commoditization or growing availability of major technologies (for instance, floating production, storage, and offloading, 3D seismic, subsea completions, and horizontal drilling), increasingly efficient global spot markets, numerous strategic asset sales of commodity chemical plants, refineries, and mature E&P (exploration and production) properties, and the emergence of innovative financial and risk management paper products—have destroyed many of the advantages that the major oil companies once enjoyed and rendered many of their strengths less relevant to the marketplace. Consider the following:
Operations. Major oil companies were once able to rely on their distinctive skills at building and running operations in challenging technical environments such as Prudhoe Bay, TLPs (tension leg platforms) in the Gulf of Mexico, and world-scale olefin plants. More recently, however, the rapid dissemination of benchmarks and best practices via industry consultants and service/engineering and construction companies has reduced the competitive value of this kind of functional excellence. Indeed, industry benchmarking surveys show not only an absolute decline in costs over the past five years, but also a sharp narrowing of the spread between the first and fourth quartiles. In both exploration and production (E&P) and refining, the difference between best and worst quartile operating costs amounts to less than 1 percent of return on investment. Low cost is now a prerequisite, not a differentiator.
Capital. Major oil companies used to find their substantial balance sheets an advantage in financing big deals and projects. Today, the necessary capital is accessible to much smaller players. Apache was able to secure financing for E&P acquisitions worth nearly $2 billion. Tosco financed three large refinery acquisitions from Exxon and BP and then, despite its very high leverage, went on to spend $900 million to acquire Circle K and a further $1.4 billion to buy Unocal's west coast refining and marketing business. Despite having no business track record, Flores & Rucks was able to finance 100 percent of its initial asset base: two acquisitions of offshore E&P properties totaling $180 million.
Risk management. Major oil companies once derived a competitive advantage by using their large, diversified portfolios to manage risk. However, alliances, securitization, and derivatives are now more effective than internal diversification as vehicles for risk management; what's more, they are available to all players, lowering barriers to entry. Apache, Tosco, and Flores & Rucks all relied on these vehicles to facilitate financing. Taking the logic a step further, other petropreneurs such as Enron, NGC, and Koch have become marketers and intermediaries for risk management products.
Technology. Major oil companies used to be able to rely on technological leadership, but in many industry segments S curves are now relatively mature, and the diffusion of innovations is rapid. When 3D seismic was introduced, for instance, it provided a fleeting technological advantage in Gulf of Mexico E&P. Now every independent in the Gulf—of which there are more than 130—has ready access to state-of-the-art 3D seismic technology from vendors such as Landmark Graphics.
Vertical integration. Major oil companies were once able to capitalize on their high degree of vertical integration. However, the explosive growth in liquid spot markets in the late 1980s following the collapse of official oil prices and the deregulation of natural gas markets destroyed much of the value of vertical integration, particularly in E&P and R&M (refining and marketing). As a result, independent refiners such as Koch, Lyondell, and, for a while, Tosco can successfully compete without branded marketing; conversely, independent marketers like QuikTrip and Racetrac don't need refineries.
Scale and scope. Major oil companies were once able to count on their unparalleled scope as a source of competitive advantage. In recent times, however, the value of size and universal presence has declined steeply. In fact, diseconomies of scale often arise in today's petroleum business as organizations grow too complex to be managed effectively. Meanwhile, as IT and telecom advances shrink the world, advantages of scope are becoming ever more modest.
These discontinuities have reshaped the industry and helped to atomize its business system from three or four primary businesses into dozens (Exhibit 2). Take E&P in the Gulf of Mexico. Formerly a single business, it can now be thought of as many separate businesses. Players can decide whether to play and how to compete at each separate link in the chain. They can outsource their drilling and completion activities to integrated service providers like Halliburton Energy Services, rely on third-party pipeline and transportation providers such as Leviathan, or abolish their marketing divisions and rely on traders like NGC or Coral. Even in the traditional E&P arena, specialists are focusing on limited portions of the value chain such as exploration or late-stage production.
Together, these trends mean that there are fewer advantages to having scale and scope across the various links in the petroleum industry's value chain. Instead, the source of competitive advantage lies in excelling within the individual stages. At each link in this atomized chain, the key driver of success is changing from technical prowess and low-cost operations to commercial and deal-making skills. Unfortunately for the major oil companies, these are precisely the areas where the petropreneurs excel.
How the petropreneurs win
What do these petropreneurs do to succeed? A review of more than ten case histories over the past five years shows a consistent pattern. The petropreneurs progress through three stages:
1. Gain a toehold. Petropreneurs usually enter the industry via acquisition rather than grassroots investment. Tellingly, most of what they acquire is purchased from the majors. In the six years to 1995, the majors sold more than $13 billion in assets they viewed as nonstrategic, nearly $7 billion of which was bought by petropreneurs. Jon Huntsman, CEO of Huntsman Chemical, found that the majors' divestiture of commodity chemical assets allowed him to buy cheaply at the bottom of the cycle. At the same time, he got the previous owners to provide margin insurance that allowed him to leverage the transaction, as he had done with his styrene acquisition from Hoechst. Tejas Gas bought several gas pipelines from the majors, most notably the old Exxon intrastate gas systems in Texas and Louisiana. Having entered the market, the petropreneurs usually compete in a fairly traditional manner for a time. Huntsman initially pursued the conventional "build and innovate" model employed by key competitors of the day such as Dow, and invented the polystyrene clamshell for McDonald. Tosco operated its Avon refinery in Northern California in a relatively traditional manner for more than a decade.
Such positions serve as a platform from which the petropreneur can assemble critical capabilities that open up a broader field of view. Tosco's west coast refining position earned it credibility as an owner/operator and put it in the deal flow when Exxon sold its Bayway plant in New Jersey. Similarly, Huntsman's styrene and polystyrene assets established its credentials in petrochemicals and allowed it to be the buyer in a string of deals in the mid- to late 1980s, culminating in its acquisition of Texaco Chemical in 1993.
2. Exploit the discontinuity and build a better mousetrap. Once they have established a platform that puts them in the deal flow, the petropreneurs exploit a market discontinuity in order to develop a new way of competing. Apache and Parker & Parsley used the withdrawal of the majors from US E&P and the emergence of innovative financing and risk management products (such as long-dated gas swaps) to acquire properties and build dominant scale economies in the Anadarko Basin and Sprayberry Trend. Their concentrated operations in these previously fragmented basins gave them cost advantages which, together with their superior deal-making skills, made them the natural owners of assets divested by the majors as the industry matured and oil prices fell. When Texaco and Amoco each sold off domestic properties worth over $500 million, Apache emerged as the winning bidder.
Koch Industries exploited the emergence of liquid spot physical and paper markets in downstream refining and oil logistics to build a unique set of crude and products trading, processing, and transportation businesses. Huntsman followed up its acquisitions by cutting R&D, reducing prices so as to fill its plants, deferring maintenance, and waiting for the next up cycle. In stark contrast, the traditional model pursued by other companies at the time featured high R&D, premium pricing, and extensive technical support.
Tosco used emerging futures markets to help minimize purchase price risk as it capitalized on the rush by many traditional players to exit refining. At the time, it was one of only a few buyers on the scene. Tosco transformed operations at its newly acquired plants, running them full, operating the lowest-cost crude (and not just equity) production, and refusing to be constrained by retail gasoline needs. It also slashed costs and motivated its employees with clear goals and meaningful incentives.
In the course of developing these new ways of competing, the petropreneurs typically acquire new skills, assets, and capability platforms which then provide the basis for future expansion in a "staircase" pattern of growth.1
Enron's creation, in just five years, of a trading, finance, and risk management business worth over $250 million in annual operating income is a striking example of how effective this approach can be (Exhibit 3). Enron Capital and Trade Resources' initial gas products (sold through its Gas Bank) and early deals (such as Sithe Energy) helped it cultivate intermediation and risk management skills. Its development of the volumetric production prepayment—which allows an E&P producer to receive the expected value of its reserves in an upfront cash payment without relinquishing ownership of the asset—built financing skills, a liquid book, and a set of special relationships with such innovative independent E&P players as Zilkha and Flores & Rucks. In addition, its deployment of off-balance-sheet funds using institutional investment money fostered its securitization skills and granted it access to capital at below the hurdle rates of major oil companies. Finally, its physical trading activities gave it an enviable set of relationships and position in the deal flow, making it easier to identify and support future deals.
3. Roll it out. The third step is to take these new competitive insights and capability platforms and roll them out across new geographies and markets—a process that makes considerable demands on an organization as it seeks to broaden its skill base. In essence, this is a matter of out-executing the competition. Now that Enron Capital and Trade Resources has built a dominant position in US natural gas, for instance, it is taking advantage of the massive discontinuities created by deregulation to replicate its success in European gas and US electricity markets. Even before its recent $3.2 billion acquisition of Portland General, an Oregon electric utility, Enron's market share was more than twice that of its closest competitor in the US wholesale electricity market.
Koch Industries has brought its physical trading and micromarket management skills to United Gas Pipeline, now Koch Gateway. Building on its successful purchase of the Bayway refinery from Exxon, Tosco has acquired BP's Ferndale and Marcus Hook refineries, Circle K, and Unocal's refining and marketing business. On the day in 1996 that Tosco announced its purchase of Unocal's west coast R&M assets for $1.4 billion, the stock market rewarded it with a $540 million increase in market capitalization.
Only a handful of the petropreneurs—Enron, Koch, Tosco, Huntsman, and Apache—have reached this third stage. However, a large group of new players is at stage 2, including Chesapeake, Zilkha, UPRC, Flores & Rucks, Racetrac, QuikTrip, and Tejas Gas. At stage 1, there are countless numbers of niche players such as Arcadian and Methanex, with major positions in ammonia and methanol respectively. Some of them are sure to evolve into stage 3 winners in the petroleum industry of the future.
Most of the petropreneurs' advantages stem not from assets or structural position, but from skills and capabilities
As these examples demonstrate, most of the petropreneurs' advantages stem not from assets or structural position, but from skills and capabilities. For the most part, these are not the skills and capabilities that traditionally dominated the industry. Rather, the petropreneurs excel at commercial skills such as trading, at deal-making skills such as building acquisitions and alliances, at financial skills such as securitization and risk management, and at growth skills enabled by entrepreneurial cultures (see text panel).
In general, the majors have not built these capabilities because they have never needed them, relying instead on their traditional sources of competitive advantage. But as we have seen, these strengths have declined in value as nontraditional skills have come to the fore, tilting the scales, at least for the moment, in favor of the petropreneurs (Exhibit 4).
Can the empire strike back?
All is not lost for the major oil companies. They still have many strengths on which to build. Their international scope provides a rich deal flow. They have numerous strong market positions: for instance, Amoco in paraxylene, Exxon in LLDPE (linear low-density polyethylene), and Mobil in LNG (liquefied natural gas). They also command many strong assets (such as ARCO's unique west coast retail sites, Shell's deepwater posi-tion, and Chevron's niche refineries in El Paso and Hawaii); a wide variety of special relationships (for instance, Texaco's with Saudi Arabia via the Star joint venture); and quite a few valuable technologies (such as Exxon's in metallocene catalysis). And they are colossal: a $15 billion oil company would be considered a second-tier player.
Several of the majors are restructuring themselves so as to become more agile. British Petroleum has reorganized its global E&P business around 41 autonomous asset managers, in the process eliminating several layers of geographic and functional span breakers. Shell Oil has transformed its portfolio through a series of strategic alliances (in west Texas E&P with Amoco; California E&P with Mobil; gas marketing with Tejas Gas; and R&M with Texaco, Star, and Pemex). It has also devolved its governance: for example, its US refinery business has been reorganized into independent subsidiaries, each with its own CEO, board of directors, and capital structure. ARCO has pushed this trend even further, with minority initial public offerings for Lyondell, ARCO Chemical, and Vastar.
Despite these efforts, the majors will never be able to keep up with the petropreneurs. Autonomous business units within large companies are seldom as focused as standalone competitors. A major oil company with 20,000 employees is unlikely to be able to foster the same sense of collective ownership as a petropreneur with just 1,000. Moreover, the former's performance-related bonuses can rarely equal the incentive power of the latter's stock options. There is only one way for the majors to regain their old preeminence, reassert their structural advantages, and combat the petropreneurs: by closing the gap in commercial skills.
Time for something radical
An E&P executive from one of the majors recently had lunch with the CEO of a rival petropreneur. During their discussions, the CEO periodically peeked into his shirt pocket. After a while, this peculiar habit warranted an explanation. "I am automatically beeped whenever our share price moves by more than a quarter point," the CEO explained. "We are up 13/8ths since lunch began." The major oil company executive sat in stunned silence. His E&P "company" was larger than the entire petropreneur. But he did not know the value of his holdings, and certainly never received real-time feedback about how that value was changing. His "report cards" were less frequent, less value-based, and less likely to provide incentives to act in accordance with shareholder wealth creation.
How can major oil companies become more focused on value, acquire critical new commercial skills, and compete more effectively against the petropreneurs? As we have seen, some of the majors have recently been changing their organizational structure to push accountability further down the organization, reduce unnecessary corporate layers, and foster the formation of crossfunctional and sectoral teams. Such measures will help, but they are not enough. Organizational structures do not in themselves create value, improve skills, or open up investment opportunities.
A more radical approach will probably be needed—one that spawns dozens of imitation shirt-pocket beepers for the majors' managers, to mimic the real thing carried by that petropreneur CEO. To this end, the majors must accelerate their efforts to atomize current organizational structures, introduce relentless and objective market forces to performance measurement, and rapidly acquire necessary commercial skills. Through a tighter focus by smaller business units, a transfusion of deal-making skills, and the pressures of a real market, these organizations can unleash their creative talents to capitalize on their enormous latent structural advantages. Needless to say, however, such remedies are neither simple nor easy to implement.
Rejuvenation through self-atomization
When a company's individual parts are worth more than the whole, its managers can quickly find themselves without a job
External "atomizers" have long existed in the form of investment banks and turnaround firms that buy companies, break them up, and sell off the pieces. In the 1980s, raiders such as Boone Pickens threatened to play this role with companies like Gulf Oil and Phillips. Today, companies such as KKR act like financial institutions, while others, including Clayton, Dubilier, & Rice, are both financial and operational specialists, actually getting involved in turning around the companies they purchase. These external atomizers enforce market discipline: when a company's individual parts are worth more than the whole, its managers can quickly find themselves without a job.
Major oil companies need exactly the same discipline, but their vast scale and long asset lives make injecting it difficult. Despite huge changes in industry dynamics and a long series of rationalizations and layoffs, the majors' fundamental management practices remain largely unchanged. To be sure, improvements are being made, but the pace is too slow. It might be hastened if real market pressures could be brought to bear, but the sheer size of the companies (can you lend me $15 billion?) and a number of technical issues (including tax and environmental liabilities) prevent external atomizers playing their role.
Major oil companies need to create an internal atomizer to "buy," sell, or operate assets that are worth more to a third party than to their current owner
To instill the necessary market discipline, major oil companies need to create an internal atomizer. Its role would be to "buy" and possibly sell (or operate) any properties or assets that are worth more to a third party than to their current business unit owner.
Take the case of a small producing field in a mature onshore basin. Ask the oil company that owns the field how much it would want for such a property, and the likelihood is that it wouldn't know. Yet it should be possible to estimate the oilfield's value by using volume and cost forecasts, futures prices, and an appropriate discount rate.
It would be the responsibility of the internal atomizer to ensure that the right entity owns and operates the field. If it is worth more to another company, so be it: the internal atomizer would "buy" it from production and sell it to that company. Production would not be allowed to keep the field unless it could develop a credible plan to increase its net present value to above its market value. Similarly, if a third party were able to operate the property more efficiently, the internal atomizer would "buy" the field and outsource operations. In both of these cases, the production unit is not the natural owner of the property. However, if production claims the field is worth more to it than to an outsider, it should be held responsible for delivering the extra value.
The process of self-atomization can be divided into five steps (Exhibit 5):
Step 1: Identify and value competitive business cells
A competitive business cell (CBC) is a property or business that cannot easily be subdivided for the purpose of sale or purchase. Consider a major's E&P in the Gulf of Mexico: it might comprise 20 or more CBCs that reflect individual assets or pockets of assets. In R&M, the CBCs will generally revolve around refineries, logistics assets, and marketing areas, while in chemicals they might consist of individual product/market segments.
After the individual CBCs have been identified, they should be valued. In E&P, for example, gas and oil forward market prices (not internal commodity price prognostications) should be used in conjunction with disciplined volume and cost projections to value CBCs. Comparable transaction values should be used carefully and sparingly.
Each CBC should essentially be managed as a separate business. CBC managers should have under their control those means necessary to maximize the value of their holdings. Excessive intrusion in operational issues by corporate center management would be eliminated.
Step 2: Create an internal atomizer
To inject market discipline into what is normally an insulated system, a small internal atomizer should be formed to simulate the threat of external market forces. Such a group would report directly to the CEO, incorporate a mix of technical and financial skills, and have an external focus. In introducing market forces to shatter old practices and assumptions, it would compel business unit managers to deliver value or find their asset placed in the hands of a more natural owner and/or operator.
Step 3: Radically redesign core processes
After instilling external market discipline, a major oil company should shift to redesigning its core management processes. Typically, those most in need of attention are:
Performance management. If shareholders were running an oil company, they would want to see performance metrics that are geared to long-term increases in their own wealth, as measured by dividend payouts and share price movements. In practice, however, the performance measures oil companies use can be so complex as to be meaningless. Many of them, such as ROI metrics in E&P, are poor predictors of share price increases and tend to discourage the pursuit of projects that are attractive, but take a long time to complete.
Admittedly, no internal measure, no matter how sophisticated, can reliably predict share prices. But oil companies can go a long way in shifting toward measures that reflect market behavior. One major interviewed top analysts to learn how they predict the performance of E&P and gas marketing enterprises. It then implemented simple performance measures that attempted to mimic the analysts' metrics. After all, why use proxies for value creation when more direct measures are available?
Petropreneurs have become skilled at using creative solutions such as project financing, securitization, and convertibles to get projects completed
Capital investment. Fourth-quarter drilling splurges, the regular use of hurdle rates in excess of the cost of capital, and the use of non-NPV measures (such as current period ROI) bear witness to the problem here. Though futures and forwards are widely available, many companies still use internal price forecasts in preparing their AFEs (authorizations for expenditure). Management often employs a set of conservative investment assumptions to balance the rampant optimism in the business units that performance metrics and retrospective analyses are unable to control. As a result, fewer bad investments are made, but on the other hand, companies find it difficult, if not impossible, to grow. Meanwhile, the petropreneurs have had to become skilled at using creative solutions such as project financing, securitization, and convertibles to get projects completed. In some cases, they have also become adept at using financial structure to transfer project risk.
Human resources. In a contest where skills take precedence over assets, those with the best people will win. Here again, the majors are falling steadily behind. Ambitious employees often quit to join the petropreneurs, leaving the solid but conservative behind. To stem such losses, the majors must improve their employee value proposition and find ways to do battle with the petropreneurs in the increasingly competitive market for management talent. They must create attractive commercial career paths, provide greater managerial autonomy, and match the attractive economics of the petropreneurs with overrides, stock options, and the like.2
In many cases, the search for talent will take the majors not just outside their companies, but outside their industry. The need for commercial, financial, and deal-making skills may lead them to unaccustomed sources such as investment banks, consulting firms, law practices, and MBA programs. Attracting and assimilating a more diverse intake of people will present new challenges of its own.
Technology, knowledge, and best practice transfer. Many major oil companies perform this function adequately today, but moving to an atomized structure will force them to find newer, more innovative approaches such as informal networks and knowledge intranets. What used to be accomplished structurally via vertically integrated organizations and career paths of three decades or more must now be accomplished via processes and networks.
Step 4: Redesign the corporate center
Once a major oil company has atomized itself and redesigned its core management processes, it will need to develop new ways to add value to the sum of its parts. The corporate center must fulfill this role by means of superior knowledge management (of technologies, best practices, deal flows, and technical data), talent management (attracting, developing, and retaining the best people), and financial management (the strategic use of finance, allocation of ownership, and incentives). If it cannot, it must atomize itself in turn into a very small holding company.
Step 5: Pursue an aggressive growth strategy
Many of the majors have growth strategies on their minds, but unless they radically redesign their core processes first, these strategies will rarely be successful. It's hard to acquire an asset in an increasingly efficient market when you are using inflated discount rates of, say, 15 percent and conservative (below the forward curve) price premises. And it's difficult to teach an old organization new tricks without changing performance metrics and importing some new blood.
Stimulating growth will also mean changing a company's culture. It will call for a focus on people, not assets; for less aversion to risk and more tolerance for experiments; and for an end to hierarchy and a shift to faster decision making. And it will mean a more ambiguous, less deterministic environment—one more like rugby than relay. Successful competitors in this atomized world can be expected to pursue their growth ambitions through strategic alliances with third parties and other new types of relationship, instead of relying on traditional ownership models.3 The new world will put influence before ownership, outsourcing before integration, and relationship networks before hierarchies.
Less radical ways to rejuvenate the major oil companies do exist, of course, but many such attempts have failed in the past because of internal immune-system responses. We have deliberately proposed a provocative approach not because it produces a superior end, but because the means are more likely to shatter traditional models. The "how," in our view, has become as important as the "what."
The traditional major oil company organization has, for the most part, run its course. What worked years ago—and may still work in emerging markets or in technology-driven arenas like deepwater E&P—rarely succeeds in mature market conditions today.
If the majors are to thrive within the new industry structure, they must learn to compete in new ways. They still possess the advantages of global scope, strong brands, and valuable legacy assets. To win in the future, they must marry these strengths with world-class commercial, financial, and deal-making skills. They will also need to atomize their organizations and redesign their managing processes. Only then can the empire strike back. 