article on skilling ' s speech at the aa energy conference drive to succeed : enron prefers toyota to gm
to prosper in the new energy economy , enron coo jeffrey k . skilling says oil
and gas companies need to trash their traditional business models and instead
reshape themselves to resemble toyota when it captured the imagination and
pocketbook of u . s . consumers 30 years ago .
in a somewhat back - to - the - future treatise on how enron expects to continue
its monumental success , skilling told arthur andersen energy conference
attendees to define themselves not by their industry , but rather by their
skills base . toyota changed the u . s . auto industry by outsourcing its
production , offering customers exactly what they wanted cheaper and faster .
the energy industry has to do the same thing into the future , he told the
houston audience .
" in 1982 , the energy industry was a very rigid industry , " he said , pointing
to a similar business model that had been used by general motors and ford
motor co . those companies did every bit of the manufacturing process , keeping
all of its pieces within the corporate structure . then toyota turned things
upside down .
when a customer wanted a different radio , toyota relied on outside producers .
it didn ' t stop the production line to please the customer . and it was able to
do it faster . enron has used the same model to shape its achievements ,
packaging components for customers to save time and money . other energy
companies are now adopting that method .
in many ways , skilling said enron views itself as the toyota of the energy
industry . " we don ' t feel we have to provide all components , but package them
the way the customer wants them . this is a pervasive trend we are seeing all
over the industry . "
enron , which has had a shareholder return of 1 , 333 % in 10 years ( january 1990
to november 2000 ) , saw the changes required by new technology and
deregulation and redefined its core competencies , which grew from its
pipeline business . skilling said to remain successful , the houston - based
corporation plans to continue to morph .
" it all hinges on one good idea enron had in the 1980 s , that vertically
integrated structures had dominated our industry and the structures were
starting to break up . in the energy industry , the reason was deregulation .
fundamentally , this is a better business structure for two reasons : you can
be supplied with cheaper cost components and it allows you to change much
more quickly . "
instead of bigger energy companies , skilling said he expects to see many
smaller companies , " maybe thousands tied together electronically and
vertically . " the transformation and interaction costs are " collapsing across
the economy . " as an example of interaction costs , skilling used bank tellers .
in 1985 , it cost a bank $ 1 . 50 a transaction . to bank on the internet today ,
it costs a bank less than a penny .
this drop in interaction costs is a major reason enron finds the bandwidth
market so attractive . in 1995 , the length of time to provision bandwidth was
six to eight months . today , it ' s two to three months . and next year , skilling
predicts it will take one second .
" we will have bandwidth on demand by next year , " he said , and added that
enron plans to be the leader in the field .
similarly , long - term gas contracts in 1982 took two to three years to
execute . in 1989 , they took nine months . three years ago , they took two weeks
to execute . today , using enrononline and other similar internet trading
systems , it takes less than one second .
" all of the sudden the world has changed . we have the same manufacture cost ,
but interactive costs collapse . i think that because of this , we ' ll see the
collapse and demise of integrated energy companies around the world , "
skilling said .
to survive , skilling advised companies to " virtually reintegrate " what they
need . " if you have an old vertically integrated mind set , it ' s tough . give it
up . i know there are still power producers who are buying gas reserves . i
don ' t get it . it makes no sense whatsoever . you can get it online at the
lowest cost . if your business strategy is dependent on this , it will be a
very hard row to hoe . "
each stage of production will become increasingly competitive in the next 10
years , predicted the enron president . " you ' re not just competing against
three people in west texas , but thousands around the world . "
opportunities exist , he said , for those companies that " go with the flow and
find ways to compete . create low cost , dependable market interfaces . . . provide
packaged turnkey solutions for customers through complex structures ,
differentiation and customization . "
the only threat is from the old way of doing business , he said . " but there is
tremendous opportunity to do things for customer you ' ve never been able to
do . " he suggested a " new " energy model based on brainpower , networking ,
offering real options to customers , moving quickly and being entrepreneurial .
" at enron , this has been the whole premise : to be able to change by
responding and reacting to the environment . by getting components together
and packaging them for the customer . "
article on skilling ' s speech at the aa energy conference
drive to succeed : enron prefers toyota to gm
to prosper in the new energy economy , enron coo jeffrey k . skilling says oil
and gas companies need to trash their traditional business models and instead
reshape themselves to resemble toyota when it captured the imagination and
pocketbook of u . s . consumers 30 years ago .
in a somewhat back - to - the - future treatise on how enron expects to continue
its monumental success , skilling told arthur andersen energy conference
attendees to define themselves not by their industry , but rather by their
skills base . toyota changed the u . s . auto industry by outsourcing its
production , offering customers exactly what they wanted cheaper and faster .
the energy industry has to do the same thing into the future , he told the
houston audience .
" in 1982 , the energy industry was a very rigid industry , " he said , pointing
to a similar business model that had been used by general motors and ford
motor co . those companies did every bit of the manufacturing process , keeping
all of its pieces within the corporate structure . then toyota turned things
upside down .
when a customer wanted a different radio , toyota relied on outside producers .
it didn ' t stop the production line to please the customer . and it was able to
do it faster . enron has used the same model to shape its achievements ,
packaging components for customers to save time and money . other energy
companies are now adopting that method .
in many ways , skilling said enron views itself as the toyota of the energy
industry . " we don ' t feel we have to provide all components , but package them
the way the customer wants them . this is a pervasive trend we are seeing all
over the industry . "
enron , which has had a shareholder return of 1 , 333 % in 10 years ( january 1990
to november 2000 ) , saw the changes required by new technology and
deregulation and redefined its core competencies , which grew from its
pipeline business . skilling said to remain successful , the houston - based
corporation plans to continue to morph .
" it all hinges on one good idea enron had in the 1980 s , that vertically
integrated structures had dominated our industry and the structures were
starting to break up . in the energy industry , the reason was deregulation .
fundamentally , this is a better business structure for two reasons : you can
be supplied with cheaper cost components and it allows you to change much
more quickly . "
instead of bigger energy companies , skilling said he expects to see many
smaller companies , " maybe thousands tied together electronically and
vertically . " the transformation and interaction costs are " collapsing across
the economy . " as an example of interaction costs , skilling used bank tellers .
in 1985 , it cost a bank $ 1 . 50 a transaction . to bank on the internet today ,
it costs a bank less than a penny .
this drop in interaction costs is a major reason enron finds the bandwidth
market so attractive . in 1995 , the length of time to provision bandwidth was
six to eight months . today , it ' s two to three months . and next year , skilling
predicts it will take one second .
" we will have bandwidth on demand by next year , " he said , and added that
enron plans to be the leader in the field .
similarly , long - term gas contracts in 1982 took two to three years to
execute . in 1989 , they took nine months . three years ago , they took two weeks
to execute . today , using enrononline and other similar internet trading
systems , it takes less than one second .
" all of the sudden the world has changed . we have the same manufacture cost ,
but interactive costs collapse . i think that because of this , we ' ll see the
collapse and demise of integrated energy companies around the world , "
skilling said .
to survive , skilling advised companies to " virtually reintegrate " what they
need . " if you have an old vertically integrated mind set , it ' s tough . give it
up . i know there are still power producers who are buying gas reserves . i
don ' t get it . it makes no sense whatsoever . you can get it online at the
lowest cost . if your business strategy is dependent on this , it will be a
very hard row to hoe . "
each stage of production will become increasingly competitive in the next 10
years , predicted the enron president . " you ' re not just competing against
three people in west texas , but thousands around the world . "
opportunities exist , he said , for those companies that " go with the flow and
find ways to compete . create low cost , dependable market interfaces . . . provide
packaged turnkey solutions for customers through complex structures ,
differentiation and customization . "
the only threat is from the old way of doing business , he said . " but there is
tremendous opportunity to do things for customer you ' ve never been able to
do . " he suggested a " new " energy model based on brainpower , networking ,
offering real options to customers , moving quickly and being entrepreneurial .
" at enron , this has been the whole premise : to be able to change by
responding and reacting to the environment . by getting components together
and packaging them for the customer . "