A nice article in the Economist, 18 Jan 07, entitled: “Browne out“, looks at the departure of BP’s boss, Lord (John) Browne. He has been in charge since 1995, and his tenure coincides with some huge changes in the industry. These include massive mergers, the “greening” of Big Oil, and at the same time some big mess ups – “In March 2005 a fire at an American refinery killed 15 people and injured 170 more. Since then, BP has suffered corrosion and spills on its pipelines in Alaska, delays in developing new oilfields and two investigations of its trading arm for price-rigging.”
But the article makes a very interesting point: most of these issues relate to massive cost cutting that has characterised the oil industry in the past decade. Ruthlessly cutting costs eventually strips out the ability of a company to do what it has to do. It stretches staff, and demoralises them as well, often beyond their ability to cope with situations that arise. In oil companies, as in other industries, this can have catastrophic results, in the glare of public scrutiny. But for other companies, especially in the service industries and professional firms, the results can be equally catastrophic – yet unseen until the company teeters and topples.
There are only so many costs you cut, until you and all your competitors are all running on empty. In most industries, we’ve reached that point. Now, I predict, we’ll see competitive advantage coming in the form of “we’re not the cheapest, but we are the best” type approaches, as companies rebuild strategic capacity, and focus on VALUE, not just COSTS.

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