New Approaches/New Value

By Patricia A. Woertz, Executive Vice President, Global Downstream
ChevronTexaco Corporation

Cambridge Energy Research Associates (CERA) Week 2004

Houston, Texas

It's a real pleasure to be here today and participate in this downstream panel. My colleagues at ChevronTexaco and I consider CERA Week a great forum for exploring ideas about our industry.

Now, the title of this plenary is "Strategies for Generating Value," but you all know that we really can't discuss a lot about specific strategies with competitors in the room. So, I'm happy to talk about some general issues that all businesses must consider today. And I'll focus on what's new, because I assume we're all well versed in the basic approaches we're all using to succeed – lowering costs; optimizing our refinery systems; ensuring operational excellence; greater reliability; growing markets; and, for some, churning assets.

So what is really new – or different – that holds the potential for generating greater value? I gained an interesting perspective on this question when I read a consulting service report called "Playing to Win in the Downstream." Many of you have probably read the same report.

It looks at the trends driving change in the downstream sector – and, sure enough, all the familiar words were there: refining excellence, supply chain optimization, emerging markets and new retail approaches.

At ChevronTexaco, we're certainly addressing these areas. We're absolutely committed to Operational Excellence, including achieving top-tier Solomon performance. We're constantly looking for opportunities to reduce costs. We've committed to delivering the equivalent of at least $500 million dollars in benefits by 2005 and returns of 10 percent internationally and 12 percent in the United States – doubling our international performance and sustaining 12 percent in the United States. We are transforming our business model. And, we're refocusing our refining and marketing portfolio – concentrating our investments in markets where we already have very strong competitive position – and de-emphasizing some non-strategic markets.

But, I suggest, these are really just the price of entry. They're how we survive in a highly competitive sector.

So, as I read report, the issue that really stood out for me was what was missing.

Nowhere was an acknowledgement that "Playing to Win in the Downstream" might mean playing with others. I'm not talking about consolidation. That was mentioned. And goodness knows there have been mergers large and small over the past few years.

What I'm talking about are strong business relationships – partnerships, if you will – where each is able to create more value, together, where the sum becomes greater than the parts. And I found this omission interesting because I believe that "Plays Well With Others" isn't just a good skill in kindergarten; it's also critical for success in business – any business – today.

Maybe in the past, you could go it alone, always and everywhere. You could run all your own refineries. You could market exclusively through your own outlets. You could manage your own business throughout the world.

But I don't think that's true today.

Working With Others

The global community in which we operate is at once more connected and more fractious. And, within our sector, our business is both fiercely competitive and increasingly reliant on alliances and relationships. Today, everywhere we work, we are inextricably linked to others.

The question then becomes: Can we create greater value with "others," or are they merely adversaries that force us to divide value?

If you look at the history of our industry, you certainly find examples where strong business partnerships have created mutual, lasting value. For instance, LG Caltex is one of the largest downstream companies in Asia. It's a 35-year joint venture between the LG Group of Korea and Caltex, which itself is a partnership between Chevron and Texaco begun in 1936.

Certainly, we all talk about the importance of our relationship with customers. We recognize that commercial customers must derive greater value with us than they can achieve with others. In addition, retail investors whose facilities carry our brands – as well as customers who purchase our brands – need to realize value.

Global Partnerships

But let me move beyond these traditional approaches to suggest a couple other areas that hold the promise of greater value.

The first involves partnerships within the global communities where we do business.

I believe we can – and should – work with both governments and non-governmental organizations to improve the quality of life in the areas in which we operate – and that doing so is vital to our interests. This is particularly so when you consider that, increasingly, our industry's employees work outside of the United States – many in developing countries.

The most important contributions we can make come through investment, job creation and employment. But we also have the opportunity to help build human capacity through improved health and education.

And this effort is as critical to our success as is running our refineries safely and reliably. Without it, how will we have the healthy, educated work force we need, excellent local suppliers and business associates, or a growing demand for our products?

Here are some quick examples: In South Africa, a critical, large market for us, we sponsor an AIDS education program for employees and their families that includes front-end education and extends to providing antiretroviral drugs. In the Philippines, we're helping address illiteracy through a "Classroom on Wheels." And in Angola, in an initiative that involves the U.S. Agency for International Development (USAID) and others, we have committed $25 million dollars to reinvigorate Angola's agricultural sector. These are actions which go well beyond the traditional boundaries of our business.

The Promise of Advanced Technology

Where else can we look to generate value through partnerships? How about with those we have sometimes thought of as adversaries? What about the auto industry? Traditionally, our sector has not worked with the auto sector proactively on issues that affect us all. Why not – particularly if we believe that our most advanced technology, combined with their most advanced technology, gives us both a better story to tell and the best future to unfold.

Is it improving? I hope so. I see signs of it. A study out of the University of California at Irvine has demonstrated that today's reformulated fuels, combined with the cleanest gas-burning engines, can produce tail-pipe emissions that can be cleaner than the ambient air – depending what city you're in – turning cars into "rolling air filters," if you will. How much value could we derive if we teamed up with the goal of removing the internal combustion engine from the public's list of environmental concerns?

And speaking of the environment, surely there are special interest groups we can work with to at least loosen the bind we sometimes find ourselves in. Even if such alliances existed mostly for the sake of listening, they might still create new value. These groups arise in response to emerging public concerns, and they prosper by amplifying those concerns. So, listening to them could at least give us an ear on the future and increase our ability to be proactive.

Enabling People to Achieve Their Full Potential

One last area that I want to mention is the development of our people.

This carries a new challenge for those of us with international operations. In the past, most of us – ChevronTexaco included – generally imported U.S. and U.K. expatriates to provide the management and technical skill to our operations in other countries. Today, that's changed. We need to create greater value by developing jobs for nationals, at increasing levels of responsibility.

Through one of our development programs, for example, we've helped two young women leave their home countries and take on five or six different assignments, and today they manage two of our largest lubricant facilities – one in China and one in Puerto Rico.

Of course, the biggest challenge we face is building a culture where all of our colleagues can contribute to their full potential.

Now, we might be tempted to call culture the "soft stuff," but the soft stuff is really the hard stuff. If it were "rocket science," we'd do it really well. We like science. We're great at devising the science of new processes and new technologies. But how do you influence how people think, what they aspire to and if they even care? Because, that's what culture is all about.

That's the hard stuff. And, it's also probably the one thing that can't be copied. In business today, any innovation – in fact, any strategy – can and probably will be quickly copied. But a culture – which unleashes passion and performance – can't be copied. It must be created.

I do think this is the hard stuff – harder to create and harder to measure:

  • building that human capacity;
  • fostering alliances where maybe before there were adversaries; and
  • creating a culture that unleashes potential.

They may not be exactly the topics you expected to hear about today. But they are the harder, and the more critical, challenges we face. And progress in these areas will distinguish the companies that succeed today and those that continue to generate value long into the future.

Updated: February 2004