Exxon Mobil and Business

Exxon Mobil The seven staircases are maximizing existing customers, attracting new customers, innovation of product and services, innovation of value delivery system, improving industry revenue, geographic expansion and stepping out into new business areas (Mckinsey, no date). Exxon Mobil has seen steep declines in its revenues in the past few years, falling from $438 billion in 2013 to $268 billion in 2015 (2015 Exxon Mobil Annual Report). This does not mean that the company has no growth strategy; Exxon Mobil's revenues are related to fluctuations in the price of hydrocarbons, especially crude.

The company also notes that "global economic growth has slowed, leading to a market that is oversupplied" (p.2), citing this is a reason for lower revenues. The company relies on attracting new customers. This may seem counterintuitive, but it's not. Existing customers already consume heroic amounts of fossil fuels, so there is little incremental gain there. Exxon invests in innovation, but this is not the key business driver for a couple of reasons. One is that innovation does not have a strong influence over the cyclicality of its industry.

The other is that with its downstream chemical business and broad geographic scope, Exxon Mobil is fairly well-diversified for a petroleum company. As such, its growth is tied far more to broader trends in energy price and consumption than to anything else it does. It is not focused on new business areas, mainly because of the overwhelming size of its core business. There is no new business in which it could invest that would make a dent in its core businesses, which are worth hundreds of billions.

Improving industry revenue is certainly a goal that Exxon has, but again, it is not sufficient to counter the power of the broader demand and price variables with respect to the income statement. Geographic expansion is basically tying into the new customers argument. The argument that Exxon Mobil makes is that the developing world still has a billion people without energy access. Pulling people out of poverty via energy access, even just for basic things like providing clean water and electricity, is something that helps the company to grow.

A billion new customers may not match the four or five billion that the company has added since the end of the Second World War, but it is still the opportunity on which the company hangs its growth hat, at least according to the annual report. This strategy is more about new customers than it is about geographic expansion. Exxon Mobil sells to most countries in the world. Adding a few in Cuba isn't going to make a dent, either.

What will make a dent is raising the living standards in those underdeveloped countries. This means private vehicle ownership, robust economies with global supply chains, and more importantly much higher per capita levels of energy consumption. This doesn't really mean new countries; it means creating new demand in its existing markets by tapping into unserved and underserved markets -- new customers -- within its existing markets. The case can be made that there is just as much opportunity in innovation, especially in alternative energy forms.

The company is right -- economic growth is tremendous opportunity. But per capita fossil fuel consumption has a poor future in the West -- whatever company that becomes the leading alternative energy innovator will be in a fantastic position through the 21st century and well into the 22nd. If Exxon Mobil's plan goes out to 2040, that might be as far as its current growth strategy will take it. There is much more opportunity in alternative energy forms, and selling more of these to its existing fossil fuel customers.

The current approach is focused heavily on the 1st Horizon, extending and defending the core business. Exxon Mobil.