Once daily oil production reaches its limit, international markets will suffer a shortage as its ever-increasing demand for fuel grows (Youngquist and Eugene, 1998).
Western societies have been governed by economic desires and wants by their individual citizens. Most individuals continue to prefer comfort and lavishness over manual work, and technological advances have facilitated and ensured such a lifestyle. Without any doubt, this desire to attain ease and luxury demands huge amounts of energy everyday. Additionally, the application of easily accessible and economic energy has allowed many countries to achieve overwhelming economic growth over the past one hundred years (Ginosar, 2007).
In this context, it is nearly impossible to imagine a life of comfort and modern technology without the existence and utilization of energy. The consequence for this immense use of energy is a reliance on external suppliers for energy, coupled with a fierce struggle among nations to control the maximum amount of energy.
Moreover, waste products as a result of energy use are rapidly destroying the environment (Ginosar, 2007). These concerns have led the American government to invest in alternative fuel, particularly ethanol.
According to reports published by the, U.S. Department of Energy (DOE) announced its intent to invest $385 million over the next four years in six bio refinery projects which will have the capacity to produce more than 130 million gallons of cellulosic ethanol per year. These bio refineries play an important and cost-effective role in producing energy and bringing it to the market, according to the Department of Energy. If the cellulosic ethanol is made available at affordable rates, it can very easily be a substitute for oil, which will not only ensure the economic security of a country but will add to that country's energy sources (Mongabay, 2007).
Experimentation with other substitutes for oil and alcohol such as biomass fuel have proven to be energy negative; that is, the necessary process of converting corn or other crops consumes 71% more energy than is obtained from ethanol, creating no net production of energy. And since crops of grains, such as corn, are required for other more traditional agricultural applications; we cannot rely on crops for energy (Mongabay, 2007).
Farmland that is used to produce energy is also likely to rapidly deteriorate. Corn production leads to erosion of soil 20 times faster than it can form in the United States. Ethanol provides a lower amount of energy per unit volume as compared to gasoline, so more gasoline needs to be acquired to make up the shortfall. It is also believed that ethanol is not environmentally friendly as it emits carbon monoxide and nitrous oxides which are dangerous pollutants (Mongabay, 2007).
The production of ethanol also leads to the harmful release of cancer-causing aldehydes and alcohol into the environment. Moreover, when production of ethanol was inspected, the chemicals and gases released into the atmosphere were found to be quite detrimental to the environment (Pimentel, 1998). As even the plowing, planting, cultivation and transportation of corn requires the use of petroleum energy, ethanol can not be considered to be a safe or non-polluting alternate energy source. (Youngquist and Eugene, 1998)
Despite research concluding that the large scale production of bio fuel cannot be considered to replace the use of oil (Giampietro and others 1997), the American government is pursuing the use of ethanol as alternative fuel quite vigorously, placing oil companies in a dilemma. Change and innovation must be the cornerstone of oil companies' strategic principals if they are to avert the competitive threat presented by alternative energy sources. This paper attempts to highlight the phenomenon of innovation and attempts to enlighten the oil industry about the use of innovation, since oil companies have become subject to increasing scrutiny and inquiry by the public and the government.
Analyzing industry environment through innovative business management
Strategic management, one of the primary concerns and tasks of general managers, includes setting the direction and goals of an oil company and allocating resources efficiently so that unwanted costs are avoided and the targets achieved (Chandler, 1963; Mintzberg & Waters, 1985). The general managers of oil companies are required to be far-sighted so that threats and opportunities for the business can be identified and its operations adjusted for these external events while putting strategies into practice. Other