Energy Careers 2005-2006: MBA Opportunities
Dr. John L. Reed
About the author: John Reed (johnlreed@earthlink.net) started in Energy in the Strategy practice of Accenture (formerly Anderson Consulting LLP). He also works with MBAs and MBA students as an adjunct professor, executive coach and licensed psychologist. He has an AB from Dartmouth College, an MBA from the Tuck School at Dartmouth, and a PhD from the University of Georgia.
Graduation and your new degree approach. You pay $3 (US) or more for a gallon of gasoline. Oil is near $70 (US) a barrel. You hear a lot about the energy industry and wonder about launching your career there. With all your questions, intelligence and fine education, you still may not know exactly where to start, what you need to know, or how to find it. This article hopefully will be a short, practical jumpstart in your successful career planning. Let’s use a simple Q&A format. Sample answers below (in quotes and italics) reflect input from experienced executives and are kept generic – for confidentiality and to minimize bias. Who can give me the best information about an energy company or opportunity? Recruiting and Human Resources professionals are helpful but, of course, may not be completely objective because of the selling side of their work. Spend time with managers, engineers and scientists with years of industry and, ideally, company experience. Talk with people doing what you think you may want to do. Be interested in their career developments and be open with your aspirations, concerns, and knowledge gaps. You’ll be more genuine and believable and you’ll get more help. Once I reach the right person, what should I ask for? You’ll make better decisions by taking every chance to go beyond published data and marketing materials to assess the industry and its opportunities – with questions like the following.
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What are the real, unwritten rules on career advancement at your firm? “Here at FGH Energy, what matters is technical expertise – or at a minimum having the right credentials. Our top executives usually have a Ph.D. or at least a masters in geophysics, math, or engineering. Sales, marketing, finance and operations are important, of course, but this is a science-driven field. We put stock in that. So MBAs with a non-technical undergrad degree know they’ll never be Chairman but also that they can make contributions and be well-paid.” “Growth here at LMN is just based on results – plain and simple. We don’t care where you went to school, really, as long as you make your numbers each time. If you miss once or twice, you’re on probation and if you miss again, your degree and alma mater won’t matter.” “XYZ Gas always takes care to select the best graduates so everyone’s education and skills are strong here. The leaders who emerge have a certain charisma, somehow. They create a vision, enlist talent, and then inspire and sustain excellence. Soft (people) skills turn out to be important and they’re hard to predict.” Your Annual Report is impressive but I would be interested in what you think the real trajectory of your firm is. Where are you headed, and why? “On one hand, we’re positioned with almost no competition in a niche that could explode in the next 18 months. Market cap could triple. On the other hand, we rely too much on our CEO John Smith. He’s awesome but we don’t have a succession plan in place and I think we’re at risk.” “I don’t see us having rocket-like increases but we’re steady. We just finished our 43rd consecutive quarter of modest earnings growth. Our model works. But since top management is almost entirely white males over 45, and we can’t duck the fact that we need to globalize and diversify our work force to maintain market position, we’ll be shaking things up.”
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“No doubt you’ve read between the lines of various Wall Street Journal articles, so it’s no secret that at LMN Oil we’ve just been through regulatory and organizational shockwaves – everything’s in flux and will be for a while. But we’ve taken our medicine, made tough changes, will be making more and, at the end of the day, our resource and asset base is still huge.” Going forward, what is your most strategically important (core) business and what are ideal qualifications for MBAs to contribute there? “We’re basically an upstream organization (i.e. finding, developing and producing hydrocarbons) so we constantly need to optimize that. Operations and financial analysis skills are always key. Everything else is basically a support function.” “As best we can tell, our future as a utility (i.e. converting latent energy into electricity) means we’ll never make money on technology. No differentiation or competitive advantage there. Deal making (marketing and trading) and government relations are king and I don’t see that changing.” How cyclical is your business? How optimistic or vulnerable are you? “Some of us got MBAs and started in energy in ’79 when oil prices danced around $80 (US). People we respected said the increases would keep going. Then prices started tanking. By ’86 we actually hit bottom. Now I work in this firm and sleep a little better because, even though (oil) price changes impact us, we can sustain things.” “We’re golden! Look at our balance sheet and stock. But I hope we stay lean and stick with the cost structure – built for prices one-half of what they are now. I’m cautiously optimistic – but I do mean cautious. No doubt - we live and die with the price per barrel and have absolutely no control over it. This sector can be ruthless in its cost drivers.” “Here’s what I know about this business – we’re an older and in some ways very mature industry also coping with recent, rapid change. People naturally respond by resisting change and going with what they know and grew up with. So we do the old ‘tried and true’ forecasting – based mostly
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on the past – and can miss the boat because our past is less relevant in predicting the future.” Some people advise me to focus on jobs with large companies – saying ‘bigger is better’. What do you think? “There are loads of niche opportunities for entrepreneurs. On the other hand, this business has been and always will be 2 things – capital intensive and cyclical. Consider working for a firm with enough capital and scale to go after (i.e. invest in) growth opportunities even in down cycles. The flipside is you also want a firm with an intelligent long-term strategy – in other words – that stays disciplined and won’t blow through capital – even in up cycles.” I worked at ABC Oil in finance before business school. Now I want to leverage that experience and my new MBA to start my own firm. You’re a successful entrepreneur – what were/are your keys to building your energy business? “Looking back, I had more than my share of plain old dumb luck. Things are different now. The rate of change speeds up each month. If technology drives the business – and that’s normal in start-ups – your priority needs to be moving from intriguing concept to product rollout faster than competitors – and faster than you think you need to right now. The same goes for moving from rollout to getting a toehold in the market.” “Traditional number crunching is fine – no substitute for analytics, I guess. But they’re not enough. Trust your gut as you dig into strategy, competitive analysis, and the value proposition. Using common sense, and imagining you’re an industry outsider, would you put your last $100,000 into this? When you boil everything down, what exactly is being brought to market that is 1) needed, 2) unique, 3) not being provided elsewhere, and 4) not expected to be provided soon by a larger, better-funded competitor?” “Remember the economic times we are in. Years ago, it may have been tougher to get any kind of outside funding. Now there are plenty of money sources but they vary a lot in quality. So every once in a while we ask ourselves about the experience, reputation and staying power of our venture
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capital firms. Are we attracting the most discriminating players? Why or why not? Smart money tends to flow to the best ideas and execution.” For philosophical and business reasons I want to explore so called “alternative” or “non-traditional” sources in the energy industry. What exactly are these? A limitation with many of these sources is cost-effectiveness so right now they only represent 4% to 6% of energy used. However, with technological advances there will be opportunities. Most people agree that, in simple English, these energy sources and their names include: • Burning biological waste to heat water to drive turbines; biomass • Pushing water down into the earth to be heated and resulting steam returning to the surface to drive turbines; geothermal • Using falling water/gravity to drive turbines – e.g. with dams; hydroelectric • Heat from sunlight creating electric currents; photovoltaic • Magnifying energy from sunlight to heat water to drive turbines; solar • Using moving water/tidal activity to drive turbines; tidal • Wind rotating blades to drive turbines; wind What is the scope of the energy industry and where do MBAs have a competitive advantage? Estimates vary but annual revenues are in the neighborhood of $1 trillion (US) globally. Roughly 10% of jobs are in management. Among these 220,000 to 250,000 energy executives, the percentage of MBAs is low compared to sectors like investment banking. However, while an MBA is not always needed for success, there are functional areas within energy that are analogous to other industries and that do give advantages to MBAs. These include investment management, banking, strategy/management consulting, sales/marketing/trading and not-for-profits. Investment banks, for example, are hiring more MBAs as commodities brokers in response to energy prices.
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The so-called ‘energy industry’ means different things to different people and, to make this situation more vague, many think the industry is expanding. There are the usual branches – oil, gas, electricity, and nontraditional/alternatives. However, at current oil prices – near $70 (US) – activity increases in areas like LNG (liquefied natural gas) and, believe it or not, oil sands. Similarly, there are at least a dozen different kinds of businesses referred to as ‘energy companies’ and this list fluctuates. Labels are confusing – even to experienced executives – so do your homework. Certainly explore the following as potential employers – banks, consulting practices, grid (i.e. transmission) operators, manufacturers (e.g. equipment), pipeline operators, services firms (sometimes confused with ‘consulting firms’; also called ‘oil services’ or ‘energy services’), government/non-profits, investment firms, oil (traditionally large) companies, startups, and utilities. How important are my degrees or courses in science or engineering? “I’m smart but I see now that without my undergraduate degree in engineering I’d be pretty lost, even with my MBA from a top 10 program. Since I had no energy experience before business school, it turns out it was a good move to take my first job in the management training program at LMN (a large oil company). Today (years later) engineering helps me understand technological tradeoffs – critical in positioning my small start-up company. Friends and contacts from my LMN years help, too.” “Believe it or not, philosophy was my undergrad major and my career at FGH Utility is moving along fine. No complaints. I’m a quick study. I had some economics in college and accounting in business school so things are going well here in the Finance Department. With FGH’s continuing education program, we keep up with ‘best practices’. I’m honing skills and feeling OK.” My schedule is tight – where can I get more data – quickly? Two solid sources – in print and on line – are Vault.com and WetFeet.com. Your career placement office may carry one or both. They are updated
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regularly and, equally important, have bibliographies of additional resources. Remember also to google subjects (e.g. LNG) that interest you. Good luck to you – investigating opportunities so you can evaluate them realistically will pay off.
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