Iván Martén – Senior Partner and Managing Director, Vice Chairman Energy Practice, The Boston Consulting Group (BCG)
Dr. Iván Martén, vice chairman and former global leader of The Boston Consulting Group (BCG)’s energy practice, discusses emerging trends in global oil and gas, BCG’s unique combination of analytics and interpersonal connections in its service offering, and the results of a groundbreaking new report into gender diversity in the industry.
Dr. Martén, as global leader of BCG’s energy practice, can you begin by introducing the company’s energy offering?
“To summarize in one word the future of the entire sector: uncertainty.”
BCG is a consulting firm that was founded in 1963 and the energy practice represents 15 percent of our business. We are a group of around 120 partners and we cover all aspects of the energy value chain, from oil & gas, to power generation and distribution, regulation, environmental issues, and suppliers to the sector. We advise CEOs, chairmen and executive committees on issues such as corporate and business strategy. transformation, organization, corporate development, operational improvement and efficiency in order to become a leading company able to successfully cope with the increasing uncertainties of the industry. We also focus on digitalization, which is increasingly important for the industry, and on energy and environmental regulation; helping our clients to understand the implications of different regulations and the governments to define appropriate regulation for the sector.
What are the current hot topics occupying your clients?
The major issue in recent years has been how to become much more resilient in a ‘lower for longer’ commodity price scenario. Oil & gas companies are trying to improve their efficiency in both upstream and downstream; meaning analyzing their supply chains, identifying the where cost discipline had weakened in the years leading to 2014 and, finally, trying to become more flexible and adaptive in an environment with an uncertain future. To summarize in one word the future of the entire sector: uncertainty. Because of that uncertainty, oil and gas companies need to be flexible and able to adapt their strategies and business models to become a supplier of energy in a world that demand more, cheaper and cleaner energy
The other important topic occupying the minds of energy company leaders is changing perceptions of the industry as a whole. The energy sector is often perceived as environmentally unfriendly and has a fraught relationship with communities. We need to change that perception, because the reality is that the oil and gas sector, as well as the power sector, are not part of the problem but part of the solution. They are really working to address issues related to the environment that are concerning the global population.
In 2015, you wrote in the Wall Street Journal that, “despite significant short-term challenges, including squeezed margins and collapsing activity levels, low oil prices can actually help producers of US shale oil in the long-run, creating a leaner, more profitable and more resilient machine.” What do you see as the effect of low oil prices on companies more generally and Spanish companies in particular?
Lower prices have forced companies to become smarter and reconsider their supply chains. Many gains in efficiency have been made because of different ways of interacting with suppliers that have suffered the most during the crisis. In general, the supply chain of the industry has improved even if there is still a lot to do.
There has also been a lot of rapid technological development in recent years; making the energy sector difficult to predict, as in the case of renewable energies. For example, past predictions of global solar power penetration globally have all proved incorrect and there has been a 70-90 percent reduction in the costs of solar panels and wind turbines from 1997 until now.
Spanish companies have done the same as other companies in the sector. This is a global market and companies are competing on the global scene, whether in the Middle East, Russia, the US, South America or Asia. The oil & gas and power sectors are redefining the way they are organized to be more resilient and adaptable. The focus between 2013 and 2015 was on cost reduction and efficiency improvement. Efficiency improvement continues to be important, but companies are now thinking more about the business model for the future and identifying future sources of growth. They are asking whether they should more aggressively focus on downstream operations, as many National Oil Companies (NOCs) are doing, to create employment; whether they should again re-enter the retail market and be closer to their customers; or whether they should adopt a different business model entirely and focus on renewable energy – for example to become a supplier of energy rather than purely an oil & gas company.
You have challenged the conventional wisdom that global oil demand will continue to rise strongly over the next two decades. In a Europe of lower oil demand, what role can Spain play?
Right now, we are talking about a potential peak in demand, the same way we talked about peak supply ten years ago, and many people are investing a lot of time and energy into trying to predict when this peak demand will occur. However, I do not think that this is realistically predictable. We need to understand what will impact demand; whether it be energy efficiency, unconventional vehicles, or changes in the way in which people use their vehicles. We tend to focus on electrical passenger vehicles, but these types of vehicles represent only a small segment of transportation, and very little of the anticipated oil demand growth in the coming years – we still have commercial vehicles, trucks, trains, ships, and aviation – and thus any emergence in EV will only affect a relatively limited slice of total oil consumption.
Whether or not demand decreases in the future, we need to be prepared and see what we can accelerate in terms of technology and national regulations. Additionally, we must not forget that a significant part of the demand will come from chemical products. Oil & gas based chemical products are present in our day to day life. A lot of products are made of oil, such as sneakers, of which more than 80 percent of the components are oil-based, medicines we take, toys our children play with, and so on. Demand will grow along with the use of chemicals in the future.
The situation in Spain is the same as in other countries. Demand will continue to grow – as a consequence of the economic recovery from the crisis – and the economy will become much more active. The major game changers for the sector are not in Europe, but in Asia, especially China and India. I see two reasons for that. First, demand is very much correlated with the number of people living in the world and the Chinese and Indian populations are already large and growing. Secondly, people wants to live better. People want houses, concrete, steel and mobility and these all need energy. Development of a country will always create an increase of demand for energy products.
You recently presented a report at the World Petroleum Congress in Istanbul on gender diversity, now published as Untapped Reserves: Promoting Gender Balance in Oil and Gas. Could you begin by telling us a few of the report’s key findings and why this issue is so important to the future of the industry?
This is a key issue that will go a long way to solving the problem of attracting talent to our industry. The oil & gas industry is often perceived as dirty and many people with expertise in digital technologies, for example, do not think of our industry as one in which they can develop their careers. The reality is that digital is extremely important for us and that energy companies are investing a lot in order to be fit for the future.
We also need talent to compensate for a retiring work force and to bring new capabilities that are needed in the sector. We need talent and we cannot afford to have one of the lowest percentage of women in industry compared to other industries. Right now, 32 percent of workers in the oil & gas sector are women, compared to 55-60 percent in some sectors, 43 percent in the restaurant and catering business and 40 percent in finance; we are clearly lagging behind. We cannot afford to not have access to 50 percent of the population. This is important because, firstly, we need those talented women in the industry and because women bring certain characteristics that are important such as teamwork, a diversity of perspectives, creativity, and problem solving. If we don’t attract women, we will continue in this vicious circle and the bad reputation of the sector will persist.
What would be your recommendations for the energy companies that are trying to change this gender balance?
One of the report’s most important aspects was quantifying just how important the leadership of CEOs is. The data shows us that when the male employees in the company see that gender balance is an important issue for the CEO, 86 percent of them also consider it important. When employees perceive that it is not important for the CEO however, the percentage of those who think that gender balance is important drops to 44 percent.
Leadership requires persistence because there are many unconscious biases in a company and there is a need to change the mindset of that company to accommodate different policies and achieve greater gender balance. In terms of specific measures, we need to have more women studying STEM subjects. Currently, and perhaps surprisingly, countries in the Middle East have the most women studying STEM subjects in the world. There is a source of talent that will be very well prepared to join the industry. Also, communication needs to be developed to show what we are doing in our industry to make it more attractive as a career choice for all.
In the mid-career, when we usually lose the most female talent, the percentage share of women drops from 36 to 22 percent for office roles and from 16 to 11 percent for technical roles. For this crucial mid-career stage, therefore, we need more sponsors and coaches who can help women in the company to progress and see that they are well supported. In many cases, progressive policies are already in place, but they are not well-known and not used.
Are these women leaving their roles in this mid-career stage because they feel that there is a glass ceiling in the industry?
Women feel that they don’t have role models, they don’t feel sponsored, and they don’t get promoted, often because of that unconscious bias. In terms of explaining why women are under-represented in oil and gas, managers will say that there are not enough qualified women and that they are not flexible enough. However, our survey, based on interviews with 2,000 people around the world, showed that women were more likely than men to be able to adjust their behavior to take assignments in different areas or countries. When managers say that a particular woman cannot accept a particular role, the question to ask is: did you ask her? This is a much more fruitful approach than simply assuming that because she is a woman, she will never be able to do so.
What is the main value of the report?
The big value of the report is that now we have facts. It is the most comprehensive report ever prepared on this issue because we conducted in depth face-to-face interviews with 60 top executives, we surveyed more than 2,000 industry professionals across 65 countries; and we got actual data from 38 companies across the globe that represent 25-30 percent of the industry in terms of employment. We have real world data that companies have never had before. What is not measured will not be implemented, but hopefully this will change as now we have the baseline to measure progress. BCG and WPC are committed to repeating the same survey in three years’ time – in time for the 2020 World Petroleum Congress to take place in Houston – and we want to measure how various initiatives to promote gender balance have been implemented and what has been achieved.
Do you predict to be able to see changes in that short period of time or will this be a much longer project?
It is not a three-year journey but at least it is a journey and we will be able to measure how things have changed; whether leadership and the middle management – often the major barrier – of the companies are committed. After publishing the report in July, and after the World Petroleum Congress in Istanbul, many companies have engaged in this debate around the results and are trying to define initiatives to launch in order to be more active in this area.
As the man who has helped build up BCG’s energy practice; what would you highlight as BCG’s USP and key differentiators from other business management consultancies?
“It is very important to listen to our clients and understand where we excel and where we need to improve”
It is very important to listen to our clients and understand where we excel and where we need to improve. Having been the global leader for BCG’s energy practice for nine years, plus four years previously as the European leader, and now vice chairman, I have conducted many client interviews. What I found from those numerous interviews, in a very consistent way across all the regions, is that BCG is a very good combination of two things: the analysis driven consultancy where our recommendations are based on fact and analysis, and good interpersonal connections with our clients. We aim at bringing Insight, Impact and develop Trust. We don’t work for our clients, we work together with them to find something that will be accepted and owned by them, so they are ready and willing to implement. We believe that our role is not to do a blockbuster study where we deliver the report at the end. Our role is working together with our clients, helping them to understand the logic and to enabled to repeat our analysis and own every single recommendation that we make. The combination of an analytical base with an interpersonal connection is in our DNA. One of my clients said to me once, “BCG is a fantastic partner because you combine the rationale of the formal (with your analytics) and the magic of the informal (with the interaction and trust that you create).” At the end of the day, our clients know that we are on their side, helping them to define what is relevant for them and creating both bottom line impact and lasting change.