Innovation is the Solution to Disruption

In this series, professionals debate the state – and future – of their industry. Read more here, then write your own #MyIndustry post.

It’s not an easy time to be in energy.

And, actually, it’s not an easy time to be in industry in general — although there are a few bright spots. As a businessman for 45 years, I’ve witnessed many changes, but I’ve never seen the rate of disruption and uncertainty that we are experiencing today, not just in energy but in the global business world as a whole.

For the past nine years, I have been providing private equity advisory services as the CEO of my own company, XLR-8 LLC, and I have had the privilege of working with a number of companies, large and small. Increasingly, I’m spending half my time helping them develop defensive plans, at the expense of proactive offensive plans, due to the rate of change and disruption happening throughout the world.

It used to be that we could put a plan in place for two to three years, based on strategy, structure, and people. Today, that same plan might last two to three days. Companies that have a long-term strategy are continually being confronted with short-term issues and uncertainty in the global environment. They need to pivot on a minute-by-minute basis.

Because of the amount of disruption we’ll see this year, companies will be selling off non-core businesses (such as GE’s sale of GE Capital), while others (Tyco and Johnson Controls, for instance) will be joining forces to take cost out while improving their earnings.

But back to energy. In mid-2014, crude oil prices were above $100 a barrel, but by this January they had dropped to below $30, due to oversupply and lower demand. (I’d give you the price they are today, but that will change tomorrow… ) The booming business of hydraulic fracturing has dropped 75 percent — from a high of 2,000 rigs to under 400 today. With profits plummeting, jobs are being cut, pipelines are being sold, and no one really knows when we’ll see a rise in today’s lower crude prices. I predict there will be a tremendous amount of consolidation in the energy industry this year, making even more jobs redundant.

There is a solution: We must use the benefit of one of our greatest natural resources — oil and gas — and allow additional exports. The rules that still govern these shipments were put in place during the Carter administration, and we need to open the spigot and end these restrictions. That will reestablish the job market here, add to our tax base, and help our allies if they are threatened by geopolitical forces.

Even without this change, some industries, such as the airline, chemical and auto industries, are doing very well these days. In auto, for instance, consumers are buying — and they are buying BIG — due to low fuel prices and interest rates. Since car companies enjoy a higher margin on these larger vehicles, they are able to reinvest those earnings into higher technology; safety, such as lane control; and fuel efficiency — all wins for the consumer.

That investment in innovation is key to just about any industry’s growth. Today, you innovate or you evaporate.

Unfortunately, it will be another difficult year in the job market. In 2015, the government created more jobs than did the manufacturing sector. Still, there are several key jobs out there, and you can find them in just about any industry. Here are a few:

• Data analytics expert — Market focus and customer trends have never been more critical, and businesses can and should address each customer as a sector of one. The market researcher, and the analytics expert who can synthesize the data, are key to just about any industry’s growth. These innovators can analyze consumer buying power and determine your business’ all-important trends.
• Chief risk officer — With the ever-present threat of cyberattacks, this position is critical to just about any business. Programming, cyber detection, and attack prevention are all important skills today. These days you must be able to demonstrate that your company is protected, a category that has been added to all due diligence requests.
• The non-traditional CIO — Today, this position also must be attuned to social media, and programmers must have the ability to support the digital transformation.
• High-tech innovators — Robotics and medical devices top my list of fields that seem to have some staying power.

With any job, it’s never been more critical to stay relevant and in tune with the global market. Challenge yourself every day to stay informed, and to connect the dots of the disruptors that can change your industry with the blink of an eye.

During his 45 years in the business world, Bob Nardelli has grown the sales and profits of a number of multi-national corporations including the General Electric Co. and The Home Depot, and he helped save Chrysler and its iconic brands when the American auto industry began to collapse. In addition to his board and volunteer service, he is the founder of XLR-8, LLC, Investment & Advisory Co., which helps companies identify weaknesses and improve performance. Read more about Bob at www.bobnardelli.com.