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  • 09.22.09

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.
 

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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:

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  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?

 

About the author

Author of Outthink the Competition business strategy keynote speaker and CEO of Outthinker, a strategic innovation firm, Kaihan Krippendorff teaches executives, managers and business owners how to seize opportunities others ignore, unlock innovation, and build strategic thinking skills. Companies such as Microsoft, Citigroup, and Johnson & Johnson have successfully implemented Kaihan’s approach because their executive leadership sees the value of his innovative technique.

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