In the E&P industry, the product is the same for all companies: oil and gas, or some form of them. So unlike, for example, the automotive or pharmaceutical industry, E&P companies cannot differentiate themselves by producing a new and exciting product. Rather, E&P companies differentiate themselves based on their ability to find and produce oil and gas more efficiently than their competitors. Even though the E&P industry is in many ways unique, there are lessons to be learned from studying other industries and the characteristics of their high-performing companies.
Lessons Learned From Dell and Wal-Mart
Michael Hammer is a well-known business author who has written a number of books and articles on high-performing companies. He has studied in depth companies such as Dell and Wal-Mart, two companies that are held up as shining examples of high performance and leadership in their respective industries. What might Dell and Wal-Mart have in common with the E&P industry?
First, like oil and gas companies, these companies are not differentiated by their products. Dell is the leader in the personal computer industry, an industry the product of which is considered to be a commodity. Wal-Mart is the premier retailer in the world, but Wal-Mart does not sell unique products. In both cases, the products they sell are not easily differentiated, so these companies have had to establish a competitive advantage in other ways. Certainly, they have developed unique features in their business models and customer interface. For example, Dell has focused on a mail-order or online customer interface and delivery mechanism. Wal-Mart, on the other hand, is known for its friendly service, employee training programs, and store greeters. But surely, these are characteristics or strategies that could be replicated by competitors. Moreover, in both the computer and retail industries, competition is fierce, and margins are paper thin. What is it that consistently sets these leaders apart from their competitors in such a tough environment?
Hammer refers to a characteristic he calls "operational innovation," which he defines as "the invention of new ways of doing work." When examining Dell and Wal-Mart, one finds that these companies did not grow through diversification of businesses, nor did they grow through merger and acquisition. On the contrary, both companies have "stuck to their knitting" and have grown by systematically and organically increasing market share. They have been able to do this because they have practiced operational innovation, which has produced superior profitability compared with their competitors. For example, both Dell and Wal-Mart are recognized leaders in supply-chain management. They have integrated and innovated the processes for engaging and communicating with their suppliers, and have done so in a way that their competitors have been unable to replicate. That is because the process changes are not incremental or evolutionary; they reflect a completely new way of interacting with suppliers. They are revolutionary.