Fortune Magazine recently published the latest annual ranking of the World’s largest corporations. With greater scrutiny on the rising cost of energy, and mounting global concern over climate change with the G8 nations recently pledging to “move toward a carbon-free society”, it will be interesting to see which American and Global companies remain on Fortune’s list five, ten and twenty years from now.Consider this…as of July 10, 2008 greater than 36% of the revenue and 35% of the profits of the Top 100 Global companies as ranked by Fortune Magazine is based on the production and use of oil. This conservative accounting captures the following:
Automotive manufacturing companies (Toyota, GM, Daimler, Ford, Volkswagen, Honda, Nissan, Fiat, Peugeot, BMW) in the Top 100 global companies account for 12.4% of the revenues and 0.6% of the profits (for the total Top 100 global companies).
Oil and refining companies (Exxon Mobil, Shell, BP, Chevron, ConocoPhillips, China National Petroleum, ENI, Pemex, Valero, SK Holdings, Lukoil, Petronas, Repsol YPF, Total, Petrobras) in the Top 100 global companies account for 20.5% of the revenue and 29% of the profits (for the total Top 100 global companies).
Other energy and utilities companies (State Grid, Gazprom, E.ON, Suez) in the Top 100 account for 3.4% of the revenue and 5.5% of the profits (for the total Top 100 global companies). Note: I excluded Electricite de France from this calculation due to their large portfolio of nuclear, hydro and non-petroleum based energy generation assets.
Now, many of these firms are leading efforts to diversify their product portfolio, adding renewable energy generation to their production mix or manufacturing more fuel-efficient, alternative fueled vehicles. However, suffice it to say the starting gun on the global race to a more
sustainable future has been fired and some companies are leading the pack while others are lagging behind. This proverbial race, in this writers view, will dramatically reduce the amount of future revenue and profits derived from our existing petroleum dominated economy in years to come shifting the focus from oil to other forms of energy. This shift may prove to be transformational with regard to our reliance on oil for the production of goods and services using oil for energy production, transportation fuels, food production, plastics and medicines. It may also prove to be transformational with regard to the economy and environment – as new technologies come on line and energy production becomes more diverse, so to will the economy and capital markets. We’ve locked ourselves into a one-dimensional view of living with oil being the dominant economic and societal force shaping our industrialized world. The new economy before us will look and feel much different, as the last drops of oil are replaced with kWh’s of electricity, cleaner fuels and alternative modes of transport, production of energy and goods and services.
Future revenues and profits for some of the world’s oil-based corporate leaders may actually
increase in years to come as petroleum prices remain steady or go higher. However, the corporations that have become global behemoths from an oil dominated economy are at the peak of their civilization. For those that are not careful on how they forecast the future, they may, like the dinosaurs, face a most sudden death. For those corporations that are more evolved, market adaptation and transformation are likely paths that they will lead in years to come. This transformation is underway at some corporations: for example Toyota with hybrid-electric vehicles, Suez with 15% renewable energy generation, BP with renewable energy generation and biofuel production, Nissan with electric vehicle commitments for 2012.
In the book “World Inc.” author Bruce Piasecki introduced the concept of “Social Response Capitalism”. Piasecki’s forecast shows that corporations are increasingly taking on new roles not only in the production of goods and services but also the delivery of social needs throughout the world, often superseding the impact governments are having. The role of the modern corporation has and continues to transform, shaped by a free market economy but also by the global communities in which so many global corporations now touch and influence daily. In Friedman’s flat world the modern corporation has enormous power and influence, but only as far as consumers and government continue to value its products and services. The expectation for corporations in the past century was delivery of quality products at a fair competitive price. Today the expectation from society upon corporations reaches far beyond just the price and performance of products. Consumers are seeking corporations that are responsible to the communities they work in, to the natural environment, to future generations and to their employees.
In his book “World Inc.” Piasecki notes, “After all the complex societal and business mergers in firms and their supply chains since World War II, the "seven sisters" -- the world's largest petroleum exploration, refining and delivery companies -- have become the big five: ExxonMobil, ConocoPhillips, Chevron, BP, and Shell. Each of these world-spanning oil giants is remarkably different, yet many people still think all oil companies are generically bad, placing aggressive corporate tactics of ExxonMobil on the same level as the social change-based ambitions of Suncor Energy, BP and Shell…The question at the heart of the debate on Social Response capitalism, at the center of World Inc., is really quite simple: If competition and the desire to win are such an inherent part of our nature, can we remake ourselves and our firms -- yet again -- to better consider social need?...Projections for the success of a company are, by their very nature and the constant shifting of the marketplace, uncertain. What is certain is that we will eventually run out of oil and gas as a fuel supply to heat our homes, drive our cars, and sustain our industrial output as we know it. This is a fact. The end of this age of oil is an increasing topic of debate and concern in the boardrooms of the largest oil, automotive, consumer product, and agricultural companies.”
Piasecki goes on to define Social Response Capitalism noting, “Social Response capitalism happens when:
1. Companies restructure their operations to actively shape consumer demand by creating new products that bridge the gap between traditional expectations of performance and price and social impacts on the larger world.
2. Often this gap has been ignored in the past because it wasn't considered good business to worry about such "externalities."
3. However, today, these externalities are impinging upon the long-term viability of entire product lines that have served as the basis for our industrial economy.
4. While past efforts at becoming a good corporate citizen often focused on production techniques and efficiency, the latest twist is making better products themselves, products that respond to legitimate emerging social pressures or needs, not manufactured social needs that just spawn irresponsible mass consumerism.
5. Examples of these new social pressures include a drive to eliminate toxic chemicals in products of everyday use, a new corporate emphasis on the reuse and endurance of its products, and some early examples of pure product innovation to issues such as climate change.”
A fundamental shift in how consumers value corporations, and how corporations view their place in the world is upon us. As the price of energy, based upon an oil dominated economy increases; and as consumer and corporate tension over the economy, environment and societal needs collide; a cascading effect will begin to shift the influence of the oil economy to a more diversified and ultimately a stronger economy globally. This shift will result in tangible benefits for consumers, shareholders and the natural environment alike.
Will the composition of the Global 500 look fundamentally different in 2015, 2020, 2030 than it does today? Which firms do you believe will be the dinosaurs and which ones will evolve to compete in a more complex and responsive world?
Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com
Want to get real about the future of energy, natural resources and capitalism, go to www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.
Future revenues and profits for some of the world’s oil-based corporate leaders may actually
increase in years to come as petroleum prices remain steady or go higher. However, the corporations that have become global behemoths from an oil dominated economy are at the peak of their civilization. For those that are not careful on how they forecast the future, they may, like the dinosaurs, face a most sudden death. For those corporations that are more evolved, market adaptation and transformation are likely paths that they will lead in years to come. This transformation is underway at some corporations: for example Toyota with hybrid-electric vehicles, Suez with 15% renewable energy generation, BP with renewable energy generation and biofuel production, Nissan with electric vehicle commitments for 2012.In the book “World Inc.” author Bruce Piasecki introduced the concept of “Social Response Capitalism”. Piasecki’s forecast shows that corporations are increasingly taking on new roles not only in the production of goods and services but also the delivery of social needs throughout the world, often superseding the impact governments are having. The role of the modern corporation has and continues to transform, shaped by a free market economy but also by the global communities in which so many global corporations now touch and influence daily. In Friedman’s flat world the modern corporation has enormous power and influence, but only as far as consumers and government continue to value its products and services. The expectation for corporations in the past century was delivery of quality products at a fair competitive price. Today the expectation from society upon corporations reaches far beyond just the price and performance of products. Consumers are seeking corporations that are responsible to the communities they work in, to the natural environment, to future generations and to their employees.
In his book “World Inc.” Piasecki notes, “After all the complex societal and business mergers in firms and their supply chains since World War II, the "seven sisters" -- the world's largest petroleum exploration, refining and delivery companies -- have become the big five: ExxonMobil, ConocoPhillips, Chevron, BP, and Shell. Each of these world-spanning oil giants is remarkably different, yet many people still think all oil companies are generically bad, placing aggressive corporate tactics of ExxonMobil on the same level as the social change-based ambitions of Suncor Energy, BP and Shell…The question at the heart of the debate on Social Response capitalism, at the center of World Inc., is really quite simple: If competition and the desire to win are such an inherent part of our nature, can we remake ourselves and our firms -- yet again -- to better consider social need?...Projections for the success of a company are, by their very nature and the constant shifting of the marketplace, uncertain. What is certain is that we will eventually run out of oil and gas as a fuel supply to heat our homes, drive our cars, and sustain our industrial output as we know it. This is a fact. The end of this age of oil is an increasing topic of debate and concern in the boardrooms of the largest oil, automotive, consumer product, and agricultural companies.”
Piasecki goes on to define Social Response Capitalism noting, “Social Response capitalism happens when:
1. Companies restructure their operations to actively shape consumer demand by creating new products that bridge the gap between traditional expectations of performance and price and social impacts on the larger world.
2. Often this gap has been ignored in the past because it wasn't considered good business to worry about such "externalities."
3. However, today, these externalities are impinging upon the long-term viability of entire product lines that have served as the basis for our industrial economy.
4. While past efforts at becoming a good corporate citizen often focused on production techniques and efficiency, the latest twist is making better products themselves, products that respond to legitimate emerging social pressures or needs, not manufactured social needs that just spawn irresponsible mass consumerism.
5. Examples of these new social pressures include a drive to eliminate toxic chemicals in products of everyday use, a new corporate emphasis on the reuse and endurance of its products, and some early examples of pure product innovation to issues such as climate change.”
A fundamental shift in how consumers value corporations, and how corporations view their place in the world is upon us. As the price of energy, based upon an oil dominated economy increases; and as consumer and corporate tension over the economy, environment and societal needs collide; a cascading effect will begin to shift the influence of the oil economy to a more diversified and ultimately a stronger economy globally. This shift will result in tangible benefits for consumers, shareholders and the natural environment alike.
Will the composition of the Global 500 look fundamentally different in 2015, 2020, 2030 than it does today? Which firms do you believe will be the dinosaurs and which ones will evolve to compete in a more complex and responsive world?
Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com
Want to get real about the future of energy, natural resources and capitalism, go to www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.
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