08/11/2018 20:38:50

Successful Turnarounds Are Rare in the Rough-and-Tumble Energy Industry: the Ones That Work Tend to Emphasize Digital, Pivot to Renewables, and Bet Big on Innovation

The Winning Transformations of ERG, Vistra Energy, and Ecopetrol, Among Others, Hold Lessons for Energy Industry Leaders, Says New Report from BCG

NEW YORK, Nov. 08, 2018 (GLOBE NEWSWIRE) -- Uncertainty has been a constant in the energy industry—evidenced by the huge swings in the price of natural resources and frequently changing government regulations, among other things. This compels successful leaders of energy companies to always be willing to dramatically change their businesses, according to a new report by The Boston Consulting Group (BCG). The report, titled Energy’s Comeback Kids, is being released today.

Despite the importance of transformation in the space, success is rare, say the authors. Of the 900 energy companies screened by BCG, only 70 had a significant bounce back in key metrics after a downturn or stagnation.

“The energy space is not for the faint of heart, but the stellar results of a few key winners’ turnarounds should have the attention of all energy company leaders that are working to sustain profitability or grow revenue,” says Ramón Baeza, a BCG senior partner and a coauthor of the report.

The companies that succeeded at their turnarounds have a few things in common. They:

  • Innovate through investments in digital tools, products, and services
  • Constantly question their portfolio mix and reject any potential “sacred cows”
  • Understand the need to go beyond one-time transformation initiatives and adopt a mindset of always-on transformation
  • Respond to increasing demand for renewable energy sources
  • Build the right workplace culture and capabilities and fundamentally change the ways in which people work
  • Reduce costs and continuously look for ways to improve margins

Six of the companies that BCG studied in depth managed to dramatically outperform not only the S&P Global 1200 Energy and Utilities Indexes, but even the S&P Global 1200 itself—and by a long shot. The following are among the notable turnarounds:

  • ERG. After an 80-year legacy of growth, the Italian energy company faced a severe downturn in the first decade of the 2000s following extreme instability in the oil market. In response, ERG launched an ambitious turnaround program, in which the company pivoted from an oil refinery business to an integrated energy company that used both renewable and conventional forms of energy. This helped lead to an increase in ERG’s share price of 46% since late 2007.

  • Vistra Energy. The Texas-based energy provider was created through the leveraged buyout of its parent company, which left Vistra with nearly $40 billion in debt. So Vistra immediately restructured, cutting general and administration expenses by more than 40% and investing heavily in innovation. The investment included technology that improved operations, such as e-bill services and voice recognition tools, and the launch of new customer-facing mobile apps. This turnaround effort allowed Vistra to reap total shareholder returns of nearly 90% in December 2016.

  • Ecopetrol. Following a 50% drop in global oil prices in 2014, Colombia-based Ecopetrol launched a turnaround, investing heavily in digital. Specifically, the company set up a data repository and aimed to link Ecopetrol’s oil wells; it also adopted digital tools to ensure quality control in the company’s pipelines and detect abnormalities in infrastructure. These digital initiatives, along with extensive downsizing and cost cutting, allowed Ecopetrol’s market capitalization to grow by 216% since late 2015.

The other three companies in Energy’s Comeback Kids that pulled off stellar turnarounds are Kansai Electric Power, Equatorial Energia, and Energisa.

“Adopting a mindset of always-on transformation, rejecting sacred cows, and focusing on culture are crucial ingredients of any successful transformation or turnaround,” says Jaime Ruiz-Cabrero, a BCG partner and a coauthor of the report. “Beyond that, within the energy space specifically, responding to increasing consumer demand for renewable energy sources, investing in innovation, and investing in digital can also reap remarkable rewards.”

A copy of the report can be downloaded here.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with offices in more than 90 cities in 50 countries. For more information, please visit bcg.com.

The Boston Consulting Group

Eric Gregoire

Global Media Relations Manager

Tel +1 617 850 3783

Fax +1 617 850 3701

gregoire.eric@bcg.com

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