By Serving Many Ethonomics Happens Naturally

Last week I flew to Bogota, Colombia for the day. My Latin American partner, AltaGerencia, had arranged for me to speak at a conference organized by Ecopetrol, Colombia's largest integrated oil company. I’ve delivered such talks often: a company gathers about 100 key clients, fills a room, I stimulate the clients to think more creatively about their businesses, and the host hopefully finishes the day with deeper relationships. 

But as I customized the session, I came to realize this one would be different. First there would be 400 people, rather than 100. These clients would come from all over the globe including India, the Middle East, the U.S., and, of course, Latin America. But more importantly, as I prepared, I learned that Ecopetrol is truly fascinating.

Ecopetrol recently transformed itself from a company that served just one stakeholder into a truly ethonomic business that serves many. This transformation has engineered a remarkable jump in earnings, profitability, and share price. We can all learn something from how this elephant learned to dance, to steal a phrase from former IBM CEO, Lou Gerstner.

Let me start with setting the context: Ecopetrol is huge. It is the largest Colombian company and one of the 15 largest petroleum companies globally. It produces over $2 billion in cash profit (EBITDA) every quarter.  While it once primarily served the Colombian market, today nearly 40% of its business comes from exports (measured by barrels per day). It has expanded operations beyond its home country into other Latin countries, the U.S., and Asia.

The company operated for over 50 years as a state-owned utility, serving one master: the Colombian government. Sure, by extension, you might say the company served the Colombian people but management answered the call of just one entity.

But in 2003, all of that changed. Ecopetrol went public.

We’ve seen that companies which serve multiple masters, striving to operate in the intersection of profitability and common good, are better off in the long-run.  Ecopetrol’s 2003 transformation offers a compelling supporting case for this view. This transformation shifted Ecopetrol’s loyalties dramatically. I had a chance to talk to Ecopetrol senior managers and several clients. What Ecopetrol did was shift their accountability to three new stakeholders:

  1. Shareholders: Ecopetrol changed from a state-run agency into a public one owned 100% by the government and then sold shares on the Colombian market. This gave all Colombians a chance to own a piece of their largest company. Indeed, my taxi driver was one of the first to buy Ecopetrol shares and followed the company closely. The company later issued shares on the New York Stock Exchange, further diversifying its accountability and transparency.
  2. Clients: the company began a series of new efforts to become more responsive to clients. The conference I spoke at was one example. Four hundred of Ecopetrol’s most important clients (major manufacturing firms, fuel retailers, plastics companies, etc.) gathered to learn about, and give feedback on, Ecopetrol’s strategy
  3. The Environment: as part of the company’s rebranding efforts, it changed its name from ECOPETROL to Ecopetrol. That is instead of being Empresa Colombiana de Petróleos (ECOPETROL), it became Eco (ecological) petrol. By simply separating the name’s first part and making it a different color, they intended to signal to the world and internally that the company stood for sustainability and environmental protection.

What we see here, if Ecopetrol executes its strategy diligently, is the transformation of an old-style, single-stakeholder firm into a more modern, ethonomic one. So far the results have been remarkable. In the last three years the company’s revenues have more than doubled to $34 billion (as of January 2, 2009) from $15 billion (in 2006), and its operating income has grown to $11.5 billion from $3.6 billion over the same period.

It’s obvious that Ecopetrol is doing several things right, so ask yourself the questions below to see how you can follow Ecopetrol’s tactics to make your own business stronger.

  1. Who do we serve?
  2. Am I serving all of my stakeholders?
  3. How can we unify the needs of the shareholder, the client and the environment? How do we create a situation in which they all win?
  4. What can we do internally to make us accountable to all stakeholders including the community and environment?
  5. How can we gather feedback showing us we are serving all stakeholders well?

 

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