Harvard Case - ExxonMobil: Business as Usual? (A)
"ExxonMobil: Business as Usual? (A)" Harvard business case study is written by George Serafeim, Shivaram Rajgopal, David Freiberg. It deals with the challenges in the field of Accounting. The case study is 31 page(s) long and it was first published on : Feb 2, 2017
At Fern Fort University, we recommend ExxonMobil implement a comprehensive strategic shift towards a more sustainable and diversified business model. This involves a multi-faceted approach encompassing operational efficiency, technological innovation, and a robust commitment to environmental sustainability. This strategy will be guided by a strong focus on stakeholder engagement, transparent communication, and a commitment to ethical business practices.
2. Background
ExxonMobil, a global energy giant, faces significant challenges in the 21st century. The company's traditional reliance on fossil fuels is increasingly under pressure due to environmental concerns, regulatory scrutiny, and the rise of renewable energy sources. While ExxonMobil has made efforts to diversify its portfolio, it needs to accelerate its transition to a more sustainable future to maintain its competitive edge and long-term profitability.
The case study focuses on the company's response to the growing pressure to address climate change and its impact on its business model. The case highlights the internal debate within ExxonMobil, pitting those who advocate for a more aggressive shift towards renewable energy against those who believe in maintaining the company's focus on traditional fossil fuels.
The main protagonists are:
- Lee Raymond, the former CEO of ExxonMobil, who championed the company's traditional focus on fossil fuels.
- Rex Tillerson, Raymond's successor, who initially sought to maintain the status quo but later recognized the need for a more balanced approach.
- Darren Woods, the current CEO, who has pledged to address climate change and invest in low-carbon technologies.
3. Analysis of the Case Study
This case study can be analyzed through the lens of several frameworks:
- Porter's Five Forces: The case study reveals the intense competitive pressure ExxonMobil faces from several sources:
- Threat of new entrants: The emergence of renewable energy companies poses a significant threat to ExxonMobil's traditional business model.
- Bargaining power of buyers: Consumers are increasingly demanding sustainable products and services, putting pressure on ExxonMobil to adapt.
- Bargaining power of suppliers: The increasing scarcity of fossil fuels and the growing demand for renewable resources are shifting the power dynamics in the energy industry.
- Threat of substitutes: The availability of alternative energy sources, such as solar and wind power, presents a significant threat to ExxonMobil's core business.
- SWOT Analysis: ExxonMobil possesses significant strengths, such as its vast financial resources, global reach, and technical expertise. However, it also faces weaknesses, including its dependence on fossil fuels, its reputation for being slow to adapt to change, and its history of climate change denial. Opportunities lie in the growing demand for sustainable energy solutions and the potential for technological innovation. However, the company faces threats from government regulations, environmental activism, and competition from renewable energy companies.
- Resource-Based View: ExxonMobil's core competencies lie in its expertise in exploration and production, refining, and marketing of fossil fuels. The company needs to leverage these competencies to develop new technologies and business models that support a more sustainable future.
4. Recommendations
ExxonMobil should implement the following recommendations:
- Strategic Shift: Transition to a more sustainable and diversified business model by investing in renewable energy, carbon capture and storage technologies, and energy efficiency solutions.
- Operational Efficiency: Optimize existing operations to reduce emissions and improve resource efficiency. This includes implementing activity-based costing to identify areas of cost reduction, optimizing manufacturing processes, and improving asset management.
- Technological Innovation: Invest in research and development to develop new technologies that support a low-carbon future, such as advanced biofuels, hydrogen energy, and carbon capture technologies.
- Stakeholder Engagement: Engage with stakeholders, including investors, customers, employees, and governments, to build trust and support for the company's transition. This includes transparent communication about the company's climate change strategy and its progress towards achieving its goals.
- Financial Planning: Allocate resources strategically to support the company's transition, including budgets and budgeting for research and development, capital expenditures, and employee training.
- Organizational Structure and Design: Create a new organizational structure that supports the company's strategic shift, including cross-functional teams focused on sustainability, innovation, and stakeholder engagement.
- Employee Incentives: Align employee incentives with the company's sustainability goals, rewarding employees who contribute to the company's transition.
5. Basis of Recommendations
These recommendations are based on several factors:
- Core competencies and consistency with mission: ExxonMobil has a long history of technical expertise in the energy sector. This expertise can be leveraged to develop new technologies and business models that support a sustainable future.
- External customers and internal clients: Consumers are increasingly demanding sustainable products and services. This presents a significant opportunity for ExxonMobil to meet this demand and build brand loyalty.
- Competitors: The energy industry is undergoing a rapid transformation. ExxonMobil needs to adapt quickly to stay ahead of the competition and maintain its market share.
- Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): Investing in renewable energy and other sustainable technologies can generate significant returns on investment in the long term.
- Assumptions: The recommendations assume that ExxonMobil is committed to transitioning to a more sustainable future and that it has the resources and expertise to implement the necessary changes.
6. Conclusion
ExxonMobil has a unique opportunity to become a leader in the transition to a low-carbon future. By embracing a comprehensive strategic shift, the company can maintain its competitive edge, enhance its reputation, and secure its long-term profitability.
7. Discussion
Other alternatives not selected include:
- Continuing with the status quo: This would be a risky strategy, as it would likely lead to declining market share and reputational damage.
- Divesting from fossil fuels: This would be a drastic measure that could alienate investors and employees.
Key risks and assumptions:
- Regulatory uncertainty: The regulatory landscape for the energy industry is constantly evolving.
- Technological advancements: The pace of technological innovation in the energy sector is rapid.
- Consumer demand: Consumer preferences for sustainable products and services are constantly changing.
8. Next Steps
ExxonMobil should implement the following timeline with key milestones:
- Year 1: Develop a comprehensive sustainability strategy and communicate it to stakeholders.
- Year 2: Begin investing in renewable energy and other sustainable technologies.
- Year 3: Implement operational efficiency measures to reduce emissions and improve resource efficiency.
- Year 4: Establish a new organizational structure that supports the company's transition.
- Year 5: Develop a robust stakeholder engagement program.
By taking these steps, ExxonMobil can position itself for long-term success in a rapidly changing energy landscape.
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Case Description
In September 2016, the U.S. Securities and Exchange Commission (SEC) launched an investigation into ExxonMobil's accounting treatment of its oil and gas reserves. The SEC questioned the company's decision to record no impairments of its reserves, although oil prices had declined by almost 60% since mid-2014 due to a mix of factors, including excess supply from the US, Russia and Middle East and slowing demand from China. Moreover, critics of ExxonMobil's accounting noted that competitors, such as Chevron and Royal Dutch Shell, had impaired their reserves. This followed probes, by New York and Massachusetts Attorney Generals among other state Attorney Generals, which questioned whether ExxonMobil had, for decades, failed to inform investors about potential climate-change risks. As CEO Rex Tillerson stepped down to become the Secretary of State in the new Administration under President Donald Trump, the new CEO of ExxonMobil faced many strategic questions. How should ExxonMobil invest going forward? What were the capabilities that ExxonMobil needed to develop in order to be successful in the future? Did the accounting book value of the reserves reflect economic reality or was an impairment needed?
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