Exxon Mobil Needs a Longer View

John D. Rockefeller has been described in many different ways: as greedy and cutthroat, as munificent and caring, as "solitary, taciturn, remote, and ascetic," in the words of author Daniel Yergin. But as a manager, perhaps Rockefeller's most indispensable quality was this: He was uncompromisingly forward-looking.

It was Rockefeller, more than any single figure, who helped revolutionize the way people in the 19th century illuminated their homes, hastening the shift from costly whale oil to kerosene -- a fuel that was, as he put it, "cheap and good."

Rockefeller's heirs recently evoked that history, as they went public with their criticism of Exxon Mobil (XOM), charging the company with concentrating too much on short-term gains and not doing enough to cultivate cleaner, renewable forms of energy for the long haul. "They are fighting the last war, and they're not seeing they're facing a new war," griped Peter O'Neill, Rockefeller's great-great-grandson.

It's not that Exxon Mobil is doing nothing to pave a path to the future. Just last week -- coincidently or not, given the Rockefellers' rebuke -- the company announced it would spend more than $100 million to complete development and testing of a technology that could cut the expense of removing carbon dioxide during the production of natural gas.

A Change Will Do You Good

Still, the controversy highlights a challenge Peter Drucker believed every organization must face head-on if it is going to survive, much less thrive: deciding what to walk away from as it endeavors to move from yesterday to tomorrow.

"To call abandonment an 'opportunity' may come as a surprise," Drucker wrote in his 1964 book Managing for Results. "Yet planned, purposeful abandonment of the old and of the unrewarding is a prerequisite to successful pursuit of the new and highly promising."

It might sound simple. But Drucker recognized that human beings are loath to let go of things. Egos are inevitably bound up in whatever direction an institution is already headed. In many cases, fiefdoms have been established -- and they are sure to be guarded zealously. Unless something has been an outright failure, it can be extremely difficult to convince folks that any change is warranted, that any existing operation should be pared back or altogether axed.

Hanging On Too Long

This is all the more true in enterprises where there is relentless pressure to get bigger and bigger. "Most common is the plea, 'We must grow; we cannot afford to shrink,'" Drucker noted, quickly adding that this argument is pure sophistry. "It confuses fat with muscle," he wrote, "and busy-ness with economic accomplishment."

Exxon Mobil, for its part, raked in $10.9 billion in profit during the first three months of the year -- its second-best quarterly showing ever -- because of skyrocketing crude prices. Yet even in cases where a particular line of activity seems to be going swimmingly, one must not get seduced into hanging on too long.

"Yesterday's breadwinner should almost always be abandoned on a fairly fast schedule," Drucker asserted. "It still may produce net revenue. But it soon becomes a bar to the introduction and success of tomorrow's breadwinner. One should, therefore, abandon yesterday's breadwinner before one really wants to, let alone before one has to."

Drucker's chief issue was resources. Any institution, be it a corporation, a nonprofit, or a government agency, has a finite amount of capacity to do anything: If you place more money and brainpower in one area, another will automatically get less.

Also-Rans and New Opportunities

With this zero-sum situation in mind, Drucker cautioned managers to be especially careful when determining what to do with the "also-rans" -- products, services, and assorted efforts that "are neither clear candidates for concentrated major work nor candidates for abandonment." In this middling category, he explained, will likely fall "today's breadwinners."

The trick, Drucker said, is to ensure the also-rans don't command resources that should be steered to initiatives with richer potential. "Only if resources are left over after the high-opportunity areas have received all the support they need, should the also-rans be considered," Drucker advised. In general, he added, the also-rans will "have to make do with what they have -- or with less. They are put on 'milking status': as long as they yield results, they will be kept -- and milked. They will, however, not be 'fed.' And as soon as these 'milk cows' go into rapid decline, they should be slaughtered."

Of course, figuring out what to abandon is only half the equation. Deciding what to zero in on next requires the same kind of discipline, the same level of focus. When seeking out a new opportunity, "don't diversify; don't splinter; don't try to do too many things at once," Drucker counseled in his 1985 classic Innovation and Entrepreneurship.

But, at the same time, what's most crucial is that you do try. As Drucker declared: "Of course innovation is risky. But... defending yesterday -- that is, not innovating -- is far more risky than making tomorrow."