How ConocoPhilips scaled its edge
The spin-off of Phillips 66
Globalisation and rapid advancements in technology expose businesses to more competitive threats and disruptions than ever before, creating an imperative to adapt at an exponentially increasing pace.
However, the same organisational “antibodies” which support the company’s resilience against these threats at the same time also resist beneficial change. Typically it is better to invest resources not in changing the core but in growing new opportunities at the edge of a corporate ecosystem.
New challenges require new solutions
Deloitte’s Center for the Edge helps leaders understand the fundamental changes shaping the world, navigate the short-term challenges and identify long-term opportunities to mobilise for exceptional performance.
The achievement of exceptional performance starts with the abolishment of the misguided notion that “big change requires big bets”. Through small moves smartly made, organisations can address their short-term tactical needs as well as create the fundamental, long-term changes needed to survive in a world of constant disruption. We call this new change methodology Pragmatic Pathways, it is a framework for executives seeking to embark on this difficult, but necessary transformation.
Scaling edges is one of our Pragmatic Pathways approaches that can be deployed depending on circumstances and organisational cultures. Scaling edges focusses on high-growth-potential opportunities – “edges” – with fundamentally different business practices and thus eventually transforming the core of the business.
How ConocoPhilips scaled its edge
The spin-off of Phillips 66 from ConocoPhillips is a good example where the “edge” of a company’s business becomes a new core. ConocoPhillips is one of the major players in the United States (US) oil and gas (O&G) industry. In the O&G industry, most oil majors such as ExxonMobil, BP, Shell and until 2011 ConocoPhillips are vertically integrated. This means that they have refining and marketing activities in addition to their exploration and production (E&P) activities.
The refining and marketing (downstream) activities, in recent times have proved to be a drag on a company’s E&P profits due to their low operating and profit margins. Vertical integration also leads to strategic problems which are linked to lack of innovation and flexibility. A main feature of a highly competitive environment such as the US O&G industry is increased uncertainty. To respond to such uncertainties, O&G firms need to invest in strategies to achieve both innovation and flexibility.
At ConocoPhillips, the downstream business could be considered as the “edge” of their business. To address the changing environment the board members of ConocoPhillips decided in 2011 to break the business down into two separate standalone corporations and make the downstream business the “core” of a new cooperation. The first remained as ConocoPhillips serving the production aspect, i.e. exploration and production, and the new corporation became Phillips 66 as the sole entity for the marketing and refinery side.
On 1 May 2012 Phillips 66 began trading as a separate company from ConocoPhillips. Since that, Phillips 66 has emerged as a company with great amounts of potential. There are four leading segments for Phillips 66: Midstream, Refining, Chemicals and Marketing & Specialities.
Phillips 66 is currently the only independent company that provides leading Midstream, Chemicals, Refining, Marketing and Specialities businesses. By operating with such a diverse portfolio, Phillips 66 is well positioned to capture opportunities of the changing energy landscape.