Sunday, June 5, 2016

Sometimes Less is More

I know I keep going to back my job in a lot of these discussions, however a lot of what we’ve been studying is very relevant given the current state of the natural gas industry.  I really like the article “The Coherence Premium” and the message it portrays of keeping it simple and focusing on what you do best.  This message is important for businesses and their strategies but it is also good life advice.  I’m sure we can all think of people who spread themselves too thin and then everything they do seems to fall apart.

I think for many companies, in an effort to remain competitive and at the top of their game get overly ambitious.  They fall into the habit of making short-sighted decisions to try to capture more of the market share and in turn, end up losing money.  This is something my organization has fallen victim to and now we are in a position where we need to divest quickly.  As I’ve mentioned before, my organization began as a coal company.  Coal was king for a long time and as the money rolled in, we decided to get involved in other areas of the business.  Most times we got involved in complementary ventures, but there were quite a few one-offs that didn’t make much sense.  My organization decided to get involved with the transportation of coal, so they purchased a fleet of river boats as well as a terminal at the port in Baltimore.  We also purchased large tracts of land and gas rights for areas that were projected to be profitable.  Sometimes we purchased other mines or related locations with fairly significant environmental issues where we took on the liability and expensive remediation costs.   Examples of completely unrelated investments include private jets and hunting ranches.  It got to the point where we were involved in so many, varied things that we lost our focus. 

The dramatic decline in the profitability of coal mining as well as gas prices, has forced my organization to re-evaluate our strategy.  As the article suggests many companies struggle because they worry about external appearances rather than focusing on the internal impacts.  For example, we’ve since discovered that our Baltimore terminal location has never been profitable because it didn’t charge our coal mines the true rate of exportation.  The whole terminal was operating at a loss for years.  While we know how to extract coal safer and better than anyone, perhaps we were not as well versed in the transportation of coal.  It is possible we should have instead focused on more research and development to further improve our efficiency, rather than figuring out the rail system. 

I think we fell into a common trap.  When the money starts rolling in, people want to start investing in adjacencies without really understanding the potential repercussions.  Now, my organization is having to unload assets, many of which are being sold for much less than they’re worth.  Focusing on being a coherent company also ties into sticking to your mission.  It is important for companies not to lose sight of what they set out to do.  Southwest is a great example of remaining true to your organization’s mission and culture.  Every decision they make they weigh the potential impact to their brand and determine whether it truly fits with their mission.  My organization, while faring much better than other energy companies during this downturn, could have been in an even better position if they had narrowed their scope and focused on critical ventures only.    

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