Organizations
also take journeys in their attempts to mount
significant strategic change. Examples of these
journeys include entering international markets,
downsizing, forming strategic alliances, improving
customer satisfaction, achieving quality improvements,
pioneering new technical innovations, and introducing
new products. Increasingly, a company's viability
is being determined by its ability to make such
systemic, organization-wide change happen, and
happen fast.
Traditionally, firms have approached these journeys
as if the business landscape resembled a mountain
range like the Rockies. At the outset of the journey,
the organization would scan the horizon and spot
the summit. With the presumption of clear vision,
it would set a goal and develop a precise roadmap
to achieve its end target. Clouds of resistance,
fog banks of shortsightedness, or storms of crisis
might obscure the final destination now and then.
However, the summit would still be reached if
only the organization maintained momentum and
stayed on course.
In the highly uncertain business conditions emerging
in the early 21st century, the topography of the
business environment might be more like the mysterious
Cascades than the majestic Rockies. Clouds of
swirling technological, competitive, marketplace,
social, economic, and political changes obscure
the final destinations. Until an organization
takes some action and mounts the first hill, the
size and scope of the next peak cannot be foreseen.
Business environments are too chaotic and organizational
change too complex to establish firm objectives,
fixed plans, and concrete programs of change.
Amid sometimes unpredictable, always uncertain,
and highly turbulent business conditions, an organization's
capacity to learn as it goes may be the only true
source of competitive advantage. No longer able
to forecast the future, many leading organizations
are constructing arks comprised of their inherent
capacity to adapt to unforeseen situations, to
learn from their own experiences, to shift their
shared mindsets, and to change more quickly, broadly,
and deeply than ever before. In other words, to
become learning organizations. According to Kiechel,
the notion of the learning organization is...
a very big conceptual catchall to help us make
sense of a set of values and ideas we've been
wrestling with, everything from customer service
to corporate responsiveness and speed (1990, p.
133).
The idea of the learning organization has been
around quite some time. It derives from Argyris'
work in organizational learning (Argyris &
Scion, 1978) and is indebted to Revans' (1983)
studies of action learning. It has roots in organization
development (especially action research methodology)
and organizational theory (most notably, Burns
and Stalker's work on organic organizations).
Its conceptual foundations are firmly based on
systems theory (Senge, 1990a) and its practical
application to managing a business has evolved
out of strategic planning and strategic management
(Fiol & Lyles, 1985; Hosley, Lau, Levy &
Tan, 1994), which have recognized that organizational
learning is the underlying source of strategic
change (DeGeus, 1988; Jashapara, 1993). Much of
the quality improvement movement of recent years,
with its emphasis on continuous improvement, represented
the first widespread, inchoate application of
learning organization concepts (Senge, 1990b;
Stata, 1989).
Learning organizations tend to have the following
characteristics in common (Calvert, Mobley &
Marshall, 1994; Watkins & Marsick, 1993):
* They provide continuous learning opportunities.
* They use learning to reach their goals.
* They link individual performance with organizational
performance.
* They foster inquiry and dialog, making it safe
for people to share openly and take risks.
* They embrace creative tension as a source of
energy and renewal.
* They are continuously aware of and interact
with their environment.
The label, "learning organization,"
is commonly used as if it represents a certain
type of organization, implying that it is possible
to designate certain firms as learning organizations
and, at the same time, determine that others are
not. In contrast, it seems more useful to think
of the learning organization as a model of strategic
change. In fact, the learning organization represents
the fourth version in a series of strategic change
models. The learning organization model is emerging
to help firms plan and execute significant organizational
change amid rapidly changing business conditions.
The First Three Versions:
On an individual basis, each organization learns
how to change by taking action, encountering obstacles,
and discovering over time how to overcome them.
Each version of this cycle (taking action, confronting
problems, and adjusting course) is an opportunity
for learning. In this process, organizations --
at varying speeds and to differing degrees --
become more sophisticated in their ability to
introduce strategic change.
On a collective basis, organizations have also
learned how to change over the past several decades.
It is possible to identify three broad versions
of this learning process, each of which is dominated
by a generally prescribed model of strategic change.
This model indicated the preferred methods of
how companies can best go about introducing fundamental
changes in their business.
The First Version -- Formal Planning
Focused:
The first model focused almost solely on the planning
of strategic change by senior management. Strategic
planning, as traditionally practiced, reflected
this first version approach to change, assuming
that if executives came up with excellent plans,
the plans would be easily executed, and successful
strategic change would result (Gluck, 1986; Morrisey,
1996). This model emphasized the creation of formal,
fixed planning documents through a staff-driven,
once-a-year event restricted to the most senior
executives. Underlying conventional strategic
planning was a "predict and plan" premise,
which presumed that incipient trends could be
detected through the use of sophisticated environmental
scanning methods. Based upon such advance warning
signals, the organization could get a jump on
the competition, formulating and implementing
plans that would result in a competitive advantage
when the predicted waves of change hit the shore.
This planning-dominated model of change has been
seductive for several reasons. The approach is
rational and unambiguous, rooted in the quantitative
analytical tools of management science. Moreover,
it is consistent with traditional command-and-control
forms of management, reserving planning to an
elite echelon of top management. Perhaps most
important, it promises quick action and concrete
results as specified by the planning document.
Over the years, even when companies used the
most sophisticated scanning and profound planning
methods, and even when the plans reflected brilliant
and insightful approaches to future competitive
positioning, they often failed. In reality, plans
frequently stayed on the shelf. When it came down
to the details of implementation, the desired
changes were often much more complex than originally
imagined, requiring more time and resources than
previously thought. Speed was also an issue. Many
business environments were themselves changing
at rates exceeding the capacity or organizations
to implement their plans (Henkoff, 1990). Finally,
the actions of middle managers, rather than the
words of top management, often determined how
well plans are implemented. Because middle managers
were not usually involved in the planning process,
they were often not committed to the plans and,
in fact, may not have fully understood them. Moreover,
these same middle managers frequently had essential
ideas and information that, when not taken into
account, weakened the integrity of the plans.
The Second Version -- Implementation
Focused:
A new model emerged in the late 1970s and early
1980s as an attempt to overcome the limitations
of the planning-dominated approach. It recognized
that coming up with great plans was often not
sufficient. Detailed attention needed to be paid
to how the plans were to be implemented (Fusch,
1997). For the first time in many companies, middle
managers were included in the formulation of strategic
plans, and in many cases, detailed execution schemes
were developed. Often these implementation plans
speculated about potential problems and made contingent
plans to overcome them. Increased consideration
was also given to the resources (financial, technical,
human, and time) needed for plans to happen. A
new emphasis was placed upon communicating strategic
direction to all affected employees, including
detailing any new responsibilities and tasks needed
to be performed. Moreover, greater attention was
paid to following up on plans, tracking progress,
uncovering problems, and resolving impediments
at the earliest possible point.
Nevertheless, companies still encountered many
of the implementation problems identified earlier,
such as unexpected delays, inadequate progress,
and organizational resistance. Strategic change
was clearly more complex than previously imagined.
Broad systemic issues (culture, rewards, norms,
policies, management styles, etc.) often affected
implementation. Moreover, strategic change frequently
called for skills and resources that could not
be quickly developed in the narrow gap between
planning and implementation. Senior executives
often let short-term obstacles and internal considerations
obscure their ability to provide strategic direction
to the firm. Middle managers were occasionally
resistant to the radical upheaval of past practices
because they were often rewarded for short-term
operational results, not long-term strategic successes.
Front-line employees who execute the plans often
did not understand the need to do things differently.
They were ignorant of the competitive forces,
technological changes, and marketplace demands
that were combining to make their organization's
environment so unpredictable and threatening.
Nor were they aware of the strategic objectives
the firm had established to deal with these uncertainties.
The Third Version -- Readiness Focused:
Second-version approaches often paid painstaking
attention to the details of making strategic change
happen. Still there were problems. Short-term
considerations frequently diverted attention from
long-term strategic goals. In many cases, broad-scale
resistance to change persisted, prohibiting the
initiatives from taking hold. Implementation often
continued to take longer than planned, with new
problems arising that no one could have anticipated,
given what was known at the time.
Why? Why after involving middle managers in developing
a plan for change? Why after fully communicating
the new strategic direction to everyone involved?
Why after creating detailed action plans for implementation
that included contingency measures? Why after
assigning sufficient financial, technical, and
human resources? Why, after taking all of these
steps did so many change efforts based upon the
second iteration model still encounter major obstacles?
The reason was a fundamental lack of readiness
for strategic change in the company. Rewards often
reinforced the status quo. Management styles often
clashed with the imperative to involve people
in making change happen. People from throughout
the company were often unaware of the need to
change. And strong norms and culture prohibited
change from taking form.
In response to these problems, a new model of
strategic change developed. This third version
placed as much emphasis upon the creation of readiness
for change in the organization as it did upon
planning and implementation. This new model of
strategic change recognized the importance of
three elements -- readiness, planning, and implementation.
According to the third version, any successful
strategic change was viewed as dependent on a
certain degree of readiness for the change within
the organization. As a result, it was proposed
that any attempts to introduce significant organizational
change should be prefaced by a series of steps
to enhance readiness. These steps often included
the following:
* Building awareness of the need for and communicating
a vision of the desired change.
* Creating a climate that is supportive of the
desired change by realigning organizational culture,
rewards, policies, procedures, systems, and norms
to support such change.
* Equipping people throughout the organization
with the skills needed to participate meaningfully
in planning and implementing strategic change
(Barger & Kirby, 1995). Planning tended to
be seen as a more open process, with an emphasis
on establishing general goals and direction and
using pilot programs to build commitment within
the organization. During implementation, there
tended to be more concern for engaging frontline
employees, as well as suppliers, customers, and
other key stakeholders, in working out how plans
should be executed.
Most quality improvement efforts of the late 1980s
and early 1990s illustrate the third version.
Quality improvement programs generally start with
ambitious preliminary preparations designed to
create the readiness for change in the organization.
A major focus is to build awareness of the critical
importance of quality improvement and to convey
top management's commitment to a radical new vision
of the organization's future, a vision characterized
by continuous improvement, employee involvement,
and world-class leadership in quality. Another
major target of readiness activities is to build
a climate conductive to quality improvement by
helping managers make a fundamental shift in their
management practices, adopting more participative
and facilitative styles that support employee
involvement in the continuous improvement of quality.
Still another target of preliminary readiness
activities is the retooling of the workforce through
intensive, up-front education and training in
quality improvement philosophies and techniques.
The Fourth Model -- The Learning Organization:
Today, a fourth model of strategic change has
emerged to compensate for the limitations of the
earlier versions -- the learning organization.
The learning organization can be defined as one
in which everyone is engaged identifying and solving
problems, enabling the organization to continuously
experiment, change, and improve, thus increasing
its capacity to grow, learn, and achieve its purpose
(Daft & Marcic, 1998). Some authors agree
that learning organizations start with the assumption
that learning is valuable, continuous, and most
effective when shared and that every experience
is an opportunity to learn (Calvert, Mobley, &
Marshall, 1994; Watkins & Marsick, 1993).
In one sense, becoming a learning organization
increases the size of a company's brain. Employees
participate in all thinking activities, including
strategy, with few boundaries among employees
in different departments or between the top and
bottom. Everyone communicates and works together,
creating enormous intelligence and flexibility
to deal with rapidly changing environments.
There are four defining characteristics of the
learning organization: constant readiness, continuous
planning, improvised implementation, and action
learning.
Constant readiness: Rather than building readiness
for a predetermined change, the organization exists
in a constant state of readiness, preparing itself
not for any specific change, but for change in
general, attuned to its environment and willing
to question its fundamental ways of doing business.
Unlike the third version, readiness is no longer
a one-time event designed to prepare the organization
for a specific change. Instead, readiness consists
of a perpetual state of preparedness for change
since, amid highly turbulent conditions; the organization
needs to be equipped to deal with anything and
to reevaluate past assumptions and future directions.
Continuous planning: Rather than the creation
of fixed plans by a few senior executives, the
learning organization develops open, flexible
plans that are fully shared and embraced by the
entire organization. In learning organizations,
the act of planning differs greatly from earlier
versions, which often relied on formal, written,
detailed programs and procedures. In learning
organizations, "revision" may be more
important than vision," with rigid, fixed
plans supplanted by flexible, open strategic directions.
These plans are not merely top management visions
and programs, but are fully embraced and shared
by the people involved in making them happen.
Improvised implementation: Rather than executing
plans by the numbers, the learning organization
improvises change, encouraging experimentation,
rewarding small wins, and institutionalizing success
throughout the organization.
No longer does implementation consist of the note-by-note
execution of a prescribed plan. Just as in jazz
improvision, where every performer is a composer,
in the learning organization, every member --
whether on the front line or the executive suite
-- is a strategic partner. In the fourth version,
individuals and teams act in creative and autonomous
ways to interpret the strategic direction and
make the plans happen. The actual nature of the
change gradually reveals itself through the spontaneous
and creative actions of people throughout the
organization. They coordinate and collaborate
with others in the organizations who are also
experimenting with change. Over time, successes
and accomplishments are reinforced and institutionalized,
modifying the formal structures, rewards, procedures,
and systems of the organization.
Action learning: Rather than reevaluating change
efforts only at once-a-year planning sessions,
or waiting for the slow learning that derives
from experience or the traumatic learning that
occurs from crisis, the learning organization
takes action, reflects, and adjusts course as
it goes, seeking to enhance the speed and effectiveness
by which it learns how to change.
In the fourth version, learning is not something
that just happens. It is made to happen. Learning
begins when those involved in an activity stop
and examine how things are done. In learning organizations,
attempts are made to provide frequent, ongoing
opportunities for such action-based learning.
Learning organizations do not wait for problems
to emerge or for crises to arise to compel reevaluation.
Reflection becomes part of "the way we do
things around here" and is built into the
implementation of strategic change. Through this
process, they question the original assumptions
and search for deep, system ("double-loop")
solutions to the problems.
That organizations can learn to change is a captivating
idea, with the potential to revolutionize our
understandings of competitive positioning, strategic
planning, and organizational change. There is
a danger, however, that the learning organization
will become the newest addition in a long succession
of management fads, producing its own generation
of quick-fix solutions in a box. That would be
both sad and ironic, since what distinguishes
this new model of change is the recognition that
any fixed program or plan of change is doomed
to failure. There is also the hazard that the
learning organization will be prescribed as the
ultimate cure for afflictions such as stagnancy
and surprise. However, even the learning organization
model, when perfectly implemented, will not be
a panacea for all organizational ills. Companies
will still experience problems in making change
happen, and time will assuredly expose significant
limitations of this fourth model of strategic
change. Instead, the learning organization is
best understood as part of a broad, fast-moving
current of learning that is gaining speed as it
heads downstream. The first version led to the
second, the second to the third, and the third
to the fourth.
Analyzing the oil industry is further complicated
by its labyrinthine organization. Some companies--BP,
ExxonMobil, Shell, Texaco, Chevron, Phillips Petroleum,
and Conoco--are "integrated" oil and
gas operations, involved at every stage from exploration
to refining to marketing to transportation. Others--CITGO,
Tosco, Ultramar Diamond Shamrock, and Sunoco--focus
solely on refining and marketing.
When Exxon and Mobil merged in November 1999,
it created the largest private oil company in
the world. The new mega corporation has 15,913
U.S. outlets, $233 billion in sales, and the top
spot on the Fortune 500 list. ExxonMobil sells
gas under its own name and operates the On the
Run chain of convenience stores.
Black marks: Exxon infamously refuses to pay $5
billion in punitive damages ordered by an Alaska
court after the 1989 Valdez tanker oil spill.
The company spent $2.2 billion on cleanup but
never took responsibility for the accident. Exxon
has since developed a reputation as one of the
industry's most outspoken opponents of stronger
environmental regulations. The company also spilled
more than 500,000 gallons near Staten Island,
New York, in January 1990. Fines levied against
it include:
* $4.7 million for nearly 200 violations of the
Clean Air Act, as cited by the EPA in 1998;
* $4.8 million in damages (along with Tosco) in
August 1998 for discharging carcinogenic selenium
into the San Francisco Bay.
ExxonMobil is one of the "Dirty Four"
seeking to drill in the Arctic National Wildlife
Refuge. In March, ExxonMobil suspended production
at the Arun gas fields in Aceh, Indonesia, citing
increased violence by separatist groups. Active
in the country for 30 years, Mobil has been dogged
by controversy over how much it knew about the
Indonesian military's violent counterinsurgency
campaign.
The merged company's 25-year, $3.5 billion project
to build a pipeline from land-locked Chad to the
Atlantic coast of Cameroon would cut through the
rainforest home of indigenous communities. Of
the nine Exxon and Mobil refineries Environmental
Defense evaluated, Exxon had two refineries in
the bottom 20 percent and Mobil had one.
Stance on global warming: Both Exxon and Mobil
belonged to the Global Climate Coalition. ExxonMobil
chairman and CEO Lee R. Raymond still insists
that there's "uncertainty" over whether
global warming is created by human activity or
natural causes, and Exxon has contributed financially
(along with Chevron) to public-relations efforts
that promote the work of climate-science skeptics.
Environmentalists in Europe are boycotting ExxonMobil
--known there as Esso--until the company accepts
the Kyoto Protocol. (Visit www.stopesso.com for
details.)
Green initiatives: Exxon is donating $10 million
over eight years to the Save the Tiger Fund, established
with the National Fish and Wildlife Foundation.
As a partner in American Forests' Global ReLeaf
Project, Mobil paid for the planting of a million
trees in the late 1990s.
Oil industry analysts have been saying for years
that refineries are a lousy business. Someone
must have forgotten to tell Bill Greehey.
Over the last two decades, William E. "Bill"
Greehey's San Antonio-based Valero Energy Corp.
has grown from a single plant in Corpus Christi,
Texas, to the nation's second-largest refiner,
behind ExxonMobil Corp.
ExxonMobil combined worldwide statistics
Net Income $ 8.1 billion
Total Revenues $165 billion
Average Capital Employed $82 billion
Capital & Exploration Expenditures $15.5 billion
Petroleum product sales 8.8m b/d
Service stations 40,000+
Convenience Stores 15,000
Refinery throughput 5.5m b/d
Refineries 44
Countries with refineries 24
Fuel marketing countries 120
Employees 123,000
Common Shares outstanding 3.5 billion
(Source: Company figures)
Terms of the merger
The FTC conditions ExxonMobil will satisfy to
complete the merger include:
* Exxon selling its fee and leased service stations
from New York to Maine, and assigning its contracts
with all dealers and distributors in those areas
to a new supplier;
* Mobil selling its fee and leased service stations
from New Jersey through Virginia, and assigning
its contracts with all dealers and distributors
in those areas to a new supplier.
* Mobil selling its East Boston, Mass, and Manassas,
Va. terminals,
* Mobil selling its interest in TETCO, a Texas
motor fuel distributor, selling its interests
in 10 service stations in Dallas and Fort Worth,
and assigning its contracts with distributors
in five areas in Texas -- Dallas, Austin, San
Antonio, Houston and Bryan-College Station,
* Exxon divesting its interest in 12 service stations
and a product terminal in Guam,
* Exxon selling its Benicia, Calif., refinery;
withdrawing from retail fuels marketing in four
areas -- Oakland, San Francisco, San Jose and
Santa Rosa -- and selling its remaining service
stations and assigning its dealer and distributor
contracts in the state,
* Mobil amending its base oil contract with Valero
at the Paulsboro refinery in New Jersey,
* ExxonMobil entering into long-term contracts
to supply a total of 12,000 barrels-a-day of base
oil from its Gulf Coast refineries to up to three
customers,
* ExxonMobil selling either Exxon's 48.8 percent
interest in the Plantation pipeline or Mobil's
11.49 percent interest in the Colonial pipeline,
and Mobil's 3.08 percent interest in the Trans-Alaska
Pipeline System,
* Exxon selling its assets associated with its
worldwide jet turbine lubricating oil business.
To say the 65-year-old chief executive is bullish
on refineries is like saying Texas is big. Since
1997, the company has acquired 12 refineries,
including a Texas City, Texas, plant that Valero
bought for 10 cents on the dollar.
The company picked up another bargain last year
in California, when Exxon had to unload a top-performing
refinery in Benicia as part of its merger with
Mobil.
Valero's $4 billion purchase of cross-town rival
Ultramar Diamond Shamrock, announced in May, will
create a nationwide company with 23,000 employees
and 5,000 service stations.
Valero is an old-economy company growing at a
new-economy pace: In 1999, sales topped $7.9 billion.
Last year, sales almost doubled, to $14.7 billion.
The merger will create a company that is expected
to do $32 billion this year.
Specializing in refineries that process "bottom-of-the-barrel"
crude into premium gasoline, Valero has positioned
itself to provide the cleaner-burning fuels mandated
by the federal government.
The 1990 Clean Air Act calls for different formulations
of gasoline according to the season and geographic
region. Cleaner-burning blends are required during
the summer, for example. And cities with smog
problems, like Los Angeles and Washington, must
use special - and more expensive - blends.
That demand for cleaner fuels, combined with a
domestic refining industry running at capacity,
puts Valero, according to Mr. Greehey, on the
cusp of "the perfect refining cycle."
Mr. Greehey's business acumen may have earned
the appreciation of stockholders - the company
has posted five straight quarters of record earnings
- but it's his hands-on, genial style that endears
him to employees.
The company has one of the lowest turnover rates
in an industry no longer noted for employee loyalty.
ExxonMobil CEO Lee Raymond said that the company
will see USD1 billion more in cost savings than
previously expected from its merger in 1999. He
told investors in Houston that cost reductions
totaled USD8 billion rather than USD7 billion.
With profits of USD15.3 billion last years, ExxonMobil
is the most profitable company in the USA.
The newly combined ExxonMobil wasted little time
in beginning to cut its casts and fulfill the
terms of its merger agreement following approval
from the United States Federal Trade Commission.
Less than 48 hours after the $81 billion deal
received FTC approval, ExxonMobil announced it
had sold more than 1,700 branded sites to Tosco
Co. for $860 million.
Reaction to the deal among petroleum marketers
was swift and cautious, with the merger itself
gaining favor while concerns over its long-term
impact on marketers lingered.
Two U.S. trade associations, the Society of Independent
Gasoline Marketers of America and the Service
Station Dealers of America, promised to continue
monitoring the divestiture efforts of the newly
merged ExxonMobil Corp., and any other future
merger proposals, to ensure competition and market
share within the oil industry remains in tact.
Tempe, Ariz.-based Tosco Corp. announced it reached
an agreement with ExxonMobil to purchase 1,740
of the retail gasoline and convenience outlets
and a distribution terminal in Virginia for $860
million.
The stations comprise the Exxon system from New
York through Maine and the Mobil system from New
Jersey through Virginia. They include about 686
owned or leased sites and 1,054 additional open
dealers and branded distributor sites.
"The addition of the ExxonMobil assets creates
a powerful, high-quality retail system stretching
from Maine to Florida," said Thomas O'Malley,
Tosco's chairman and CEO. "Tosco is very
well-situated from a logistics and proprietary
refining point of view to supply these new East
Coast assets."
The FTC formally approved the consolidation of
the two oil giants in late November, despite the
antitrust concerns of several trade organizations,
including SIGMA and SSDA.
"We want to congratulate Exxon and Mobil
for obtaining merger approval from the Federal
Trade Commission and wish them well in their efforts
to effectively merge two very large entities,"
said Tom Robinson, president of SIGMA and Robinson
Oil Co., San Jose, Calif. "At the same time,
we share the concerns of the Federal Trade Commission
that the ExxonMobil combination could injure competition
in some specific markets. We will continue to
monitor the situation to help ensure that the
divestitures which are required by the FTC will
be consummated in ways that will not injure competition,
and hopefully will enhance competition."
SSDA president Roy Littlefield said his organization
had already begun laying the groundwork for talks
with several companies which had expressed interest
in the sites ExxonMobil had to divest. The quick
sales to Tosco of two-thirds of those sites came
as a shock. "We were very surprised. Once
the FTC did approve the merger, we assumed it
would be a very slow process," Littlefield
said. "We had already started meeting with
prospective buyers."
SSDA's concern was not over the merger itself,
but a provision in the Petroleum Marketers Protection
Act which gives station owners the right of first
refusal to purchase their sites, a provision which
Littlefield said should apply in the case of a
FTC-ordered divestiture. "We never opposed
the merger per se," said Littlefield. "We
were concerned in the divestiture that all PMPA
rights are guaranteed."
The organization has set aside $100,000 and retained
two Washington, D.C.-area attorneys to review
the merger as it applies to PMPA and advise the
group on its next step if the right-of-first-refusal
issue is not resolved.
Littlefield did say the sales of the East Coast
sites to Tosco could signal room for that issue
to be resolved short of litigation. "Our
initial response from Tosco has been encouraging,"
Littlefield said. "In principle, they've
agreed with the issues we've raised in a letter
to them. "I think the strong Congressional
support we've received has helped us," he
added. "We were trying to meet with all the
prospective possible buyers. Now at least we know
who we're dealing with."
The FTC approved the merger after taking nearly
a year to review the proposed deal and specify
its terms. The combination creates the world's
largest privately owned petroleum company, with
total revenue of $165 billion.
The new ExxonMobil Corp. will be based in Irving,
Texas, and will force the elimination of 16,000
of the company's 120,000 jobs.
As part of the deal, the FTC required ExxonMobil
to sell more than 2,400 service stations in the
Northeast, California and Texas to ensure retail
competition where the two companies have large,
overlapping market shares.
The two companies agreed to sell about 15 percent
of their retail outlets, or 2,413 service stations
in areas where they overlap. The company will
be required to assign contracts with dealers and
distributors in those areas to a new supplier
within the next nine months. Even after the large
sale to Tosco, other companies which had reportedly
expressed an interest in acquiring some of the
divested sites included Amerada Hess, Getty, Chevron
and Canada-based Irving Oil.
Exxon also is required to sell a refinery near
Benicia, Calif., and some petroleum terminals
and pipeline assets within the next 12 months.
The required divestiture is the largest ever demanded
by the FTC.
Two days after the merger was approved, the new
ExxonMobil announced a new worldwide global structure,
in which the company said it will employ an organizational
structure built on a concept of 11 separate global
businesses.
Five of its global upstream companies, the chemical
company, and the coal and minerals company will
be located in Houston. Four global downstream
companies will be based in Fairfax, Va.
Lee Raymond, former chairman and CEO of Exxon
will be chairman and CEO of ExxonMobil, while
L.A. Noto, former chairman and CEO of Mobil will
be vice chairman.
The rest of the company's board of directors will
be comprised of six former Mobil directors and
13 from Exxon.
With 1,500 employees assigned to a transition
team for the better part of 1999, the company
said it's already completed a significant amount
of the merger work.
A new update on synergy benefits was expected
to be released in mid- December. The benefits
listed in this release were expected to be in
excess of $2.8 billion.
"Our primary objective was to create a better
company -- not a bigger company," Raymond
said. "ExxonMobil, first and foremost, is
a new kind of organization -- one that will be
able to distinguish itself in terms of its unique
abilities and performance. It is different from
either of its components and from any other company
in the energy industry today."
Raymond said the new structure will result in
a more focused approach as individual business
lines are able to prioritize opportunities and
allocate resources on a worldwide basis. It also
will lead to faster identification and implementation
of the best practices, which is critical to achieving
and maintaining competitive leadership, he said.
"A key benefit of the merger is that it allows
us to compete more effectively with the recently
combined multinational oil companies and the very
large state-owned oil companies that are rapidly
expanding outside their home areas," Raymond
said. "In addition, ExxonMobil will benefit
as proprietary technology and customer offerings
that were developed separately are shared and
further improved." Raymond said the company
may allow those who acquire its service stations
and supply relationships in most of the areas
affected by the FTC ruling the opportunity to
retain the existing Exxon or Mobil brands for
at least 10 years to help benefit consumers, dealers
and distributors. He also said Exxon and Mobil
brands, products, and other services such as Mobil
Speed pass and c-stores will remain, even in those
areas where the company is required to sell service
stations or assign contracts. Raymond said the
company will announce a revised forecast of merger
benefits that will likely exceed the $2.8 billion
annual level announced last year.
Regarding the synergy benefits the companies announced
in December of 1998, Raymond said, "At that
time, we announced an expectation that the near-term
benefits would total $2.8 billion annually, on
a pre-tax basis. Since that time, our business
transition teams have done a lot more planning
and analysis around how to combine the two companies
and, at the same time, reorganize how we manage
the business -- with a clear goal of maximizing
the company's overall performance.
We are convinced that the combined company will
achieve a higher return on capital than either
company could have done alone. "Much of what
has been done since last December has, in effect,
focused on maximizing synergy benefits. We now
have a much better understanding of what we can
achieve, how we can achieve it and how much it
could be worth. We have not yet, however, turned
that understanding into an updated forecast. Our
plan is to do some post-closing work -- with an
expectation that we will be able to announce a
revised forecast of synergy benefits by mid-December.
I will tell you that all we have seen and all
we have found during the past 10 months suggests
that the updated number will likely be higher
than the $2.8 billion annual level announced last
year.
Raymond added that the Dec. 1, 1998 projection
of a worldwide reduction in workforce of about
9,000 may also be revised in the new forecast.
He expressed concern for those employees who will
be leaving as a result of the merger, but noted
that comprehensive severance packages and job
placement assistance would be available to those
employees who are not offered positions with the
new company.
Regarding the significant organizational work
accomplished over the last year, Raymond said,
"We believed almost a year ago that this
merger was a great opportunity and, today, we
are even more convinced of that. Our clear objective
is to be the world's premier petroleum and petrochemical
company. This merger will significantly enhance
shareholder value and allow us to meet the needs
of customers for quality products at competitive
prices in the next century."
Raymond noted that Exxon and Mobil have historically
shared a number of core values that will continue
to guide the management of ExxonMobil. "First
and foremost, Exxon and Mobil shared a common
resolve to maintain the highest standards for
safety, health, and environmental care. The companies
also shared a long-term commitment to creating
shareholder value and a history of strong performance
based on efficiency, capital productivity and
technological leadership," he said.
BP Amoco buys ExxonMobil share of joint venture
On the heels of the $860 million sale of its holdings
in the Northeast United States to Tosco Inc.,
ExxonMobil announced it has dissolved its fuels
and lubricants joint venture in Europe with BP
Amoco.
The announcement was expected, as the joint venture
sale was part of the European Commission's approval
of the ExxonMobil merger.
Under the agreement, which is still subject to
review, BP Amoco will purchase Mobil's 30 percent
interest in the fuels business for about $1.5
billion, subject to adjustments. In addition,
the two companies will divide the assets of the
lubricants business broadly in line with their
equity stakes (51 percent Mobil, 49 percent BP
Amoco). "It took a significant amount of
dedication and effort on the parts of BP and Mobil
employees to develop and then make this joint
venture a success. However, in this highly competitive
industry BP Amoco and ExxonMobil have each found
new opportunities for the next century. This required
us to bring the venture to a mutually beneficial
close," said BP Amoco Chief Executive Sir
John Browne and ExxonMobil Chairman and CEO Lee
Raymond in a joint statement.
"We will end our relationship in a way that
brings fair value to both companies for the assets
involved and allows both of us to continue to
provide our customers with high-quality products
and service." The fuels part of the venture,
operated by BP Amoco, currently operates around
8,500 service stations across Europe, representing
about 12 percent of the market, while the lubricants
part of the venture, operated by ExxonMobil, has
a market share of just over 18 per cent in Europe.
Under the outline agreement, BP Amoco will receive
the service stations and other marketing assets
together with the fuels refineries at Grangemouth
and Coryton, U.K.; Lavera, France; Nerefco, the
Netherlands; and Castellon, Spain; as well as
the shareholdings in the Turkish Mersin, French
Reichstett and German Bayernoil refineries. Mobil
will receive the fuels refinery at Gravenchon.
On the lubricants side, ExxonMobil will receive
the Dunkirk refinery in France and the lubricants
leg at Gravenchon. BP Amoco will retain the base
oil refinery in Neuhof, Germany and the lubricants
leg of Coryton, together with the blending plants
at Neuhof; Ghent in Belgium; Gemlik in Turkey;
Batsons in the United Kingdom; Drapetsona in Greece;
and a 45 per cent share of the Turkish Serviburnu
plant. The remaining 10 lubricant blending plants
will be part of the ExxonMobil portfolio.
The companies have also agreed in principle to
the following general provisions for the marketing
of lubricants in Europe. BP Amoco will receive:
* all the lubricant marketing businesses in Portugal,
Spain, Greece, Gibraltar and Malta, including
the business currently branded as Mobil and the
Mobil brand for an interim period.
* All the direct commercial vehicle lubricants
business throughout Europe, including the business
currently branded as Mobil and the Mobil brand
for an interim period.
* All the BP- and Duckhams-branded passenger vehicle
lubricant business throughout Europe.
* All distributor relationships associated with
the BP and Duckhams brands.
ExxonMobil will receive: (outside of Portugal,
Spain, Greece, Gibraltar and Malta).
* All the direct industrial lubricants businesses,
including the BP- and Duckhams-branded businesses.
* All the Mobil-branded passenger vehicle lubricants
business.
* All distributor relationships associated with
the Mobil brand.
MPSI/NeuroCorp talks discontinued
North America -- MPSI Systems Inc., Tulsa, Okla.,
has announced that merger discussions have been
discontinued with NeuroCorp., New York and Houston.
Ron Harper, chairman of MPSI, said the company
will move forward with its independent operating
plan for fiscal year 2000, most of which had been
placed on hold pending the outcome of the merger.
The plan contemplates the worldwide rollout of
the Retail Explorer, which is the new retail planning
technology recently released by MPSI for its U.S.
customers.
"We are naturally disappointed that the efforts
of many people from both companies will be unrewarded,"
Harper said. "However, despite the potential
synergy, we were ultimately unable to resolve
critical business issues. Despite the temporary
setback related to the NeuroCorp. Transaction,
we intend to continue our search for new technology
and new strategic business partners which will
perpetuate that dominant customer-focused position
into the new millennium."
Ethiopia, Sicor in joint venture
Africa -- Ethiopian government leaders have signed
a $1.4 billion joint venture with U.S. firm Sicor
to develop a gas field and build a pipeline.
The Gas oil Ethiopia Project will work in a field
in the Ogaden Basin where four trillion cubic
feet of natural gas and 13.6 million barrels of
other liquids were discovered in the 1970s.
The Ethiopian government will hold a 20 percent
stake in the business, while Houston, Texas-based
Sicor will hold the remainder. The project will
include a 375-mile gas pipeline to transmit gas
from the town of Awash to the Ethiopian capital
of Addis Ababa.
Nigeria to spend $38 on oil industry
Africa -- Nigeria will increase its budget for
oil exploration and production to one-quarter
of the nation's total budget.
President Olusegun Obasanjo told his parliament
that $3 billion of the $12 billion Nigerian budget
would be devoted to oil exporation and production.
The value of the country's projected oil revenues
in 2000 are valued at $8.4 billion, which Obasanjo
said justifies the expenditure.
Obasanjo, the first democratically-elected civilian
leader in 15 years, promised sweeping social and
economic reforms to help bring most of the nation's
150 million citizens the economic benefits of
being the world's sixth largest oil producer.
"It constitutes a major source of international
embarrassment," Obasanjo said of his nation's
poverty level. The nation has been plagued by
corrupt military rule for more than a decade,
and there has been widespread speculation that
the military rulers in Nigeria plundered the oil
revenues for personal profit. Obasanjo said the
Nigerian government has recovered more than $120
million in cash, and frozen another $600 million
in foreign bank accounts.
Subway makes new inroads in Africa
Africa -- Subway Restaurants has added the flags
of Zambia and Guyana to its international Hall
of Flags after the company opened two new sandwich
shops in those nations.
Robert D'Alberto opened the first restaurant
in Zambia in the capital city of Lusaka. The Subway
is located on the first shopping mall ever built
in the nation, and is near Lusaka University on
the main road leading to Lusaka International
Airport.
In Georgetown, Guyana, the first Subway in that
nation opened with a store so busy, the original
staff of 15 had to be expanded by eight employees
in the first week to keep up with demand.
Radiant adds lighthouse to Circle K Hong Kong
Asia -- Consumers in Hong Kong are now enjoying
the benefits of Radiant Systems technology as
the local Circle K operator has begun deploying
headquarters and site management software and
Lighthouse Point of Sale in their 115 stores in
the territory.
After evaluating a number of systems available
in the region, the management of Circle K Hong
Kong chose the Radiant solution based on their
desire to provide more efficient customer service
and a centralized, more actively managed offering
of convenience products. "The Lighthouse
Point of Sale is the most user-friendly system
we have seen, making it extremely easy to implement
and easy for our store personnel to learn,"
said Richard Yeung, the Chief Executive Officer
of Circle K Hong Kong. "In addition, the
site and headquarters management software are
excellent tools that will help us better serve
consumers in this very competitive retail environment."
The solution for Circle K Hong Kong, which is
being deployed at all existing stores this year
and all new stores opening in 2000, includes a
Chinese character interface for store employees
and consumers, dual product descriptions in English
and Chinese, and an interface with the company's
financial system. This open architecture solution
runs on Microsoft Corporation's Windows CE operating
system at the sites and uses Windows NT and SQL
Server at headquarters. A Radiant Systems project
team is working in Hong Kong to maximize the speed
and value of this chain wide implementation. "We
view this chain-wide deployment of management
systems and point of sale as the beginning of
a long and exciting relationship with Circle K
Hong Kong;' said Mark Haidet, Vice President and
Managing Director at Radiant Systems. "In
addition, we're excited about this project because
it adds to our track record of successful projects
in Asia, and it demonstrates how quickly Lighthouse
Point of Sale can be made ready for deployment
in a new market." Yukos to triple oil supplies
to China
Asia -- Yukos, Russia's second largest oil company,
has announced the signing of a new agreement with
China National Petroleum Corporation and SINOPEC,
China's leading oil refinery and importer.
The agreement will increase Yukos oil exports
to China by 300 percent next year, progress on
the construction of a Siberia-Beijing oil pipeline,
and add Chinese investment in Yukos' Siberian
oil fields.
"These agreements fit within the framework
of broader intergovernmental commitments to increase
economic cooperation between Russia and China,"
said Yukos CEO Mikhail Khodorkovsky. "The
framework agreements ate to be discussed further
between Prime Minister Vladimir Putin and his
Chinese counterpart Zhu Rongji."
Yukos will deliver one million tons (7.28 million
barrels) of crude oil to SINOPEC and 500,000 tons
(3.64 million barrels) to CNPC. Under this new
agreement, Yukos shipped the first 50,000 tons
to China in December.
"We consider Russia a respected and reliable
partner, and we look forward to having Yukos crude
at our refineries," said SINOPEC vice-president
Zhang Jiaren.
The agreement will also help accelerate planning
for a $1.7 billion pipeline spanning 2,300 km
from Siberia to the Chinese capital.
SINOPEC and China National Petroleum Corporation
have also expressed interest in investing in Yukos'
Siberian oil fields under recently approved legislation
on production sharing agreements.
Reducing subsidies would cut emissions
Paris--based International Energy Agency released
a new study indicating that the elimination of
energy-related subsidies by major developing countries
could cut global emissions of carbon dioxide by
as much as 4.6 percent. By discarding price-distorting
subsidies, the report found, the same countries
could achieve solid gains in energy efficiency,
economic growth and inward investment.
Robert Priddle, executive director of the IEA,
presented the report in a press conference at
the fifth Conference of the Parties to the United
Nations Framework Convention on Climate Change.
Priddle described the study's results as "astonishing,"
and, he added, they "understate, rather than
overstate" reality.
The paper, entitled "World Energy Outlook:
1999 Insights," was produced by the IEA team
responsible for the agency's semi-annual "World
Energy Outlook." It covers eight countries
which represent more than three-quarters of the
developing world's population and account for
over 60 percent of its energy use: China, India,
Indonesia, Iran, Kazakhstan, Russia, South Africa
and Venezuela. Prices for energy consumers in
the eight countries average 20 percent below world
market prices, ranging from South Africa's 6.4
percent to Iran's 80 percent.
IEA analysts posed the question: What would happen
if energy subsidies were simply wiped out in these
countries? The answer: immediate and substantial
benefits down the line. The study is authors point
out that their findings are by no means definitive.
Nevertheless, they foresee that the elimination
of subsidies would permit the countries studied
to:
* reduce primary energy consumption by 13 percent
* increase GDP by almost 1 percent, mainly through
better economic efficiency;
* Lower CO2 emissions that cause global warming;
* Sharply reduce local air pollution.
Gains on a global level would be just as striking,
with worldwide energy consumption falling by 3.5
percent and world carbon emissions by 4.6 percent.
But the benefits of subsidy elimination would,
the study shows, extend far beyond the ecological
and climate change. It would, of course, relieve
pressure on hard-pressed government budgets. It
would enhance energy security through a decrease
in imports and the increased availability of energy
for export.
Getting the energy price right would revitalize
energy industries in all these countries, discourage
waste, stimulate the development and adoption
of new technology and a more entrepreneurial approach
across-the-board. In electricity especially, price
is the most important factor in promoting efficiency;
if artificial subsidies disappeared, electricity
in all these countries would be produced more
rationally and more profitably.
Many developing countries, including those studied
by the IEA, have already acted to reduce subsidies
and reform their energy industries. But, as the
new report documents, such actions are always
met by strong political resistance, and they can
indeed produce serious social dislocations. But,
the IEA argues, social objectives, especially
maintaining employment, can usually be achieved
more cost-effectively by measures other than subsidies.
|