How will BP's oil spill reshape the energy sector?
Transparency and responsibility
How will BP's oil spill reshape the energy sector?: Transparency and responsibility Interbrand | Pg. 2 How will BP's oil spill reshape the energy sector?: Transparency and responsibility by Nik Stucky The oil spill in the Gulf of Mexico not only resulted in an environmental disaster of enormous scale, but it ignited antagonism toward BP's brand identity. In spring 2010 the world learned a shocking lesson about what "Beyond Petroleum" really is: an industry that operates beyond the technological capabilities to mitigate the enormous risks of the business to the environment and society. The mock logos circulating these days certainly make it clear that the brand identity of BP is in stark contrast to reality. Deepwater Horizon was not the first disaster linked to the BP brand, but the oil spill in the gulf is unprecedented in its explicitness. It reveals to the world, the real issues of the industry and its social, economical and political relevance. It also shows how an ill-conceived branding strategy magnifies the risks and increases the negative response once things go wrong. And the spill's impact is not just limited to BP � the oil industry as a whole may rethink the way it employs its brands. Meeting the incredible responsibility which rests upon these companies will require a higher profile and increased communication, not only in times of crisis. Transparency, communication and participation will become key activities and may prove more effective brand-building measures than the sponsoring of Formula One racing. The brands need to come out of their quiet position and engage with the public at large, taking a lead in providing comprehensive and relevant information to their diverse stakeholder groups. Most importantly of all, their brands must be rooted in their business realities, reflecting the very nature of the firm's activities instead of searching beyond petroleum for euphemistic branding solutions. A short review of the oil industry Unlike other sectors, the oil industry has faced a number of singular pressures that make branding a significant challenge. BP's flawed brand identity was a response to the realities of the industry, as well as recent trends within the sector. Below are some of the pressures the oil industry has faced in the last few years. Extensive vertical integration In contrast to most other industries, where brands primarily focus on customer needs, the oil industry has multiple stakeholders it must satisfy simultaneously. Upstream, the companies are pitching for drilling rights with the governments. Downstream, they compete for large international customers as well as local consumers. This makes any form of branding a complex balancing act between conflicting stakeholder interests. Pricing that's political Although most large industrial countries have adopted a pro-free-market stance, the pricing of oil and the strategic decisions of oil companies have rarely been purely economic. Oil is essential to the world's economies, so preferences about the level, direction and volatility of oil prices as well as energy security are of much national concern. The structure of the markets and the importance as a source of tax revenue are also key political issues. While OPEC is currently the most visible expression of this political dimension of the oil industry, other countries and political groups have strongly held stakes in the industry. Increased competition due to mergers Contrary to what traditionally happens when companies merge, the global trends of oil company privatizations and large How will BP's oil spill reshape the energy sector?: Transparency and responsibility Interbrand | Pg. 3 mergers among majors over the last decade are finally challenging the long established dominance of big national, Anglo-American oil companies in the top tiers of the international oil industry. On a global scale, competition is actually increasing with the appearance of new companies from emerging economies. Additionally, there's pressure on state oil firms to act in a more aggressive, commercial manner, along with further privatizations in OECD countries such as Italy and Norway. Specialized firms at every step of the value chain (particularly in the U.S.) have also added to global competitive pressure. To differentiate from new competition, international private sector firms have focused on cost efficiencies between sourcing and marketing, technological capabilities to explore and produce on the most challenging frontiers, and the scale and scope to invest in new sources of energy. Oil that is in more demand, but comes with higher environmental costs According to International Energy Agency (IEA) projections, the world could potentially consume around 40 percent more energy in 2030 than we consume today � an increase primarily met by fossil fuel resources. As oil is getting harder to find, leading firms are moving further offshore or to the Arctic and seeking to exploit oil sands and shale, further increasing environmental risk. To meet this challenge sustainably, the industry will need to step up its security measures and environmental responsibility. Future projects will become even more complex, as stakeholders will require oil business's to be more socially and environmentally friendly. The environmental cost will increasingly be factored into the price and all "customers" � the government, taxpayers and consumers � will need to share the cost. Brands in crisis, and a crisis of brands Triggered by mounting competition and increased public concerns, branding in this industry has experienced numerous developments in recent years, and some firms have pioneered new frontiers � namely BP, which found the common answer in "Beyond Petroleum," which appealed to the public and investor alike. The company has been on the forefront of developing an alternative-energy business, even changing its name from British Petroleum to BP. When BP reinvented its brand in 2002, "Beyond Petroleum" was meant to capture in words what the new brand identity does visually: highlighting the company's commitment to large investments in renewable energy and the development of a portfolio of clean technologies for the energy mix of the future. It has spent US $30 billion on exploration since 2001 and intends to invest another US $30 billion in the next six years on alternative sources of energy. To be clear, BP was by no means the only international oil company investing in renewable energy and technology, nor was the business's dependency on petroleum ever called into question. But BP was the only company turning this activity into the central theme of its brand identity and communication. The fact that renewable energy represented only a fraction of BP's business, and the recent discussions on a possible sale of these activities, raise suspicions that the business's reality did not sit comfortably under the umbrella of the brand's new identity. Was it a good positioning idea to stretch the renewable energy activities, given the fact that the business remains among the largest contributors to carbon dioxide emissions? The damage to the BP brand as a consequence of Deepwater Horizon is particularly severe for three reasons: 1. The incident is strongly associated with the brand because it represents a breach at the very core of what the brand claims to be. It is a strongly "branded" incident. 2. The accident is highly relevant for the global community, not only to those directly damaged. 3. The accident triggered an intensive discussion in all media channels, and this is not expected to fade soon as the traces will be there for a long time. The negative response is long lasting. Brands cannot prevent accidents from happening, but companies that have failed to develop strong and credible brands have a disadvantage in that they have no voice when things go wrong. A strong and credible brand is an instrument that is particularly helpful in managing incidents so they don't escalate into full-blown crises. Without it, other stakeholders will "manage" the crises � not necessarily in the best interests of society and least of all of the company. This is what is currently happening to BP. As it becomes obvious to the world that the company has stretched its brand promise too far, the company has lost its voice and credibility. In addition, BP's promise appears unsustainable in the first place, A strong and credible brand is an instrument that is particularly helpful in managing incidents so they don't escalate into fullblown crises. How will BP's oil spill reshape the energy sector?: Transparency and responsibility Interbrand | Pg. 4 damaging the company for its attempt to whitewash � or for that matter � greenwash its business. The result is increased brand risk and a complete loss of the brand's ability to serve as a platform for interaction with upset communities and nervous investors. Would that have happened if an accident occurred in BP's renewable business? At the core of the dilemma is the incompatibility of the brand's assumed position with the realities of the business. Misrepresenting the nature of the core business is not a good starting point to develop a brand. Branding in the oil industry The oil spill in the Gulf of Mexico will have an impact on the industry as a whole because the risks involved, the technological capabilities, and the installed security measures are all largely the same among the big international firms. In the eyes of the public, the Gulf disaster is to the oil industry what the financial crisis was to the financial industry. Because risks were underestimated, the result will likely be more regulation and control. But equally important, the disaster may trigger more debate about the broader relationship between energy and society. It may paint an honest picture of the predominant role of oil and gas across the globe and ensure that hopes for an immediate, boundless carbon-free, lowcost alternative are more aligned with the realities of the situation. It may also make the general public more energy literate, which will lead to changes in the perceived cost of energy and what customer expect of oil companies in regards to society. The oil spill has made it clear that there is a need for more information about the broader issue of energy, the activities of the oil industry, and the potential impact the industry's activities could have on the environment. The sector has to rethink where and how it engages in communication, as well as what its communication has to achieve and how success should be defined (and possibly measured). The engagement will need to begin at the corporate level and touch people wherever they can be reached � on social media, in schools or at work. Communications do not begin and end with a bulky CSR report. Genuine commitment is required to reach the hearts and minds of target groups. The brand plays an essential role in supporting this development. More than ever, the stakeholders need trusted partners. Conveying trust is a core function of a brand. Building brands on the basis of a genuine partnership, particularly with the public at large, will be a core capability and key competitive advantage in this industry. Given the complexity and perceived destructiveness of the business, retaining the trust and support of the customers, shareholders and the communities in which these companies operate is certainly not a simple task. Despite the existence of valuable brands in the industry, most companies struggle to develop brands as a viable guiding principal to the organization and exploit them as an effective cornerstone to interact with the various stakeholder groups. The brand's development is mostly left to the marketing departments � or worse, it falls between departments instead of moving to a central level, where it can give a face to the company's mission and inform the business as a whole. The ambivalence of the role in the organization and the lack of (credible) profile in the eyes of other stakeholders make brands vulnerable, particularly in times of crisis. Starting from within, companies will need to take their branding program a step further and employ it as the core guiding principle for the business and its employees. Clearly defined values, rooted in the core business and conveyed by the brand, can steer the organization and employees' behavior. As responsibilities and risk become "softer" � less explicit and prescribed �leadership requires a vision and role model for responsible behavior and action, enabling employees to respond quickly and equitably to upcoming issues. This translates into three goals for the brand's function within the organization: 1. The brand will need to receive a more prominent and strategic role within the firm. 2. The brand will be defined by the firm's mission and values and will act as an agent of change and inform all activities of the firm. 3. The brand's performance in the market (as measured in line with the vision and values by the perception in the various stakeholder groups) will form a key performance indicator for those employees that are influencing the company's future. The brand will need to take the notion of responsibility to the heart of the organization's behavior. A branding program does not allow deviation from the very core of the business realities and activities. It is about oil and gas and the risk and rewards of providing it. The way in which a company meets these challenges and responsibilities after "Deepwater Horizon" is becoming more meaningful than ever. Nik Stucky Nik Stucky is Interbrand's Global Practice Leader, Brand Valuation. In his role, he assesses brands in brands in qualitative, quantitative, legal and financial terms. Nik has 20 years of experience in developing and managing brands and frequently contributes to publications, lectures and broadcasting on the topic of brand valuation. interbrand.com Creating and managing brand value TM