Strategizing a way forward for a post-hydrocarbon Alberta
When your dominant export business goes away, the question to consider becomes, 'What's next?'
What do you do when a dominant export business goes away? I speak, of course, of hydrocarbons and Alberta.
Some of you will reject my question. You don't think hydrocarbon is going anywhere. But you are wrong. Hydrocarbon must go away. There's no alternative. It's too polluting. And the longer we wait, the worse the reckoning. It's only a matter of time.
Feel free to jump down to the comments to argue this point, because you will get nothing out of the next few paragraphs if you disagree.
Even in its currently reduced state, oil and gas contributes massively to Canada's economy. Alberta still has the highest wages in Canada, driving in-migration and supporting communities across the country. These good jobs come from the geology that put oil and gas here and in few other places.
Now that those good jobs can't be counted on, this is the right time to think about the future. And I don't just mean "diversification," which implies spreading our economy across multiple sectors. Instead, I'm talking about the replacement of a dominating, export-oriented industry with… something else.
Clearly, an important task in this transition is to ensure that oil and gas remains relevant for as long as possible. But that still leaves the question of what's next.
Allow me to bring a business strategy angle to the discussion.
People confuse strategy with vision all the time. Vision is the goal. Strategy is the path, accounting for the terrain and obstacles on the way. A vision of "Get the highest possible price for our oil" is still compatible with a strategy of "Don't light $2 billion on fire."
For business managers, strategy is hard. It shouldn't be. Strategy has military roots and Julius Caesar probably knew as much as Michael Porter. Examples include:
Defence is easier than offence, but you will never win by defending alone.
Owning favourable territory is worth an order of magnitude in effectiveness.
The battle best won is unfought.
All easy stuff. A good kids' soccer coach understands the concepts instinctively. Yet people, businesses, whole countries and civilizations fail at strategy all the time. Why?
One reason is that sometimes people are unwilling to do the required, needful thing. It's hard to make the case that LNG is cleaner than burning coal from one side of your mouth while screaming, "Job killing carbon tax!!" from the other.
Sometimes it's just easier hoping that the same actions at a different time will lead to different results.
Sometimes people are just lazy.
Closely related to laziness of character is the failure to understand ourselves. This is by far the most common reason for strategic failure.
We all want to believe that our talents are impressive, our children the most beautiful, the magnetic strength of our personalities undeniable. We deny our flaws. Consider the lie, "Alberta's not that cold."
Strategy starts with being very clear about our strengths and weaknesses compared to the competitive environment. Being good isn't good enough. A strength is a dominant, world-class good, and can be stood up against competitors. True strengths are rare.
Figuring out competitive strengths and critical weaknesses is a big job. Most businesses fail at it. Consider every business that says: "Our strength is our people."
No, it's not. Every business beyond a certain size has average people. If your business, or province, or country is the exception and truly does have extraordinary people, then the questions must be, "How are they extraordinary? Why is that? Is the advantage transitory or sustainable?"
And is that advantage world class?
Alberta has three people advantages. First is a young population relative to the Canadian average. Second is relatively high levels of education, especially among women. Third is strong public education performance in literacy, math, and science.
I'm not sure if these advantages together are enough to be considered dominant. Nor are they necessarily stable: young people need good jobs to stick around. Without jobs, they are gone.
Anyway, people. Sure. Anything else?
An example of something that doesn't exist anywhere else is our scenery and environment. Environmental protection doesn't just pay back as a moral good, but means opportunities to "export" that environment in the form of tourism.
Banff and Jasper attract huge numbers of tourists, and maybe there's a way to expand that further while reducing the environmental footprint.
As an aside, thinking about strengths and weaknesses strategically helps clear up decision-making today. Coal can be mined anywhere in the world. Our scenery exists nowhere else. Cutting down a unique strength in return for a commodity is stupid, full stop.
Always, in these conversations, value-added goods from hydrocarbon production come up. People tell me about carbon black, for example, or graphite production.
These initiatives depend on the cost of situating that work in Alberta compared to elsewhere. Because of our climate, building any industrial facility here costs more, and our isolation means we're further away from markets. If there's a future in turning oil into high-purity carbon, for example, those facilities will probably be located close to markets, not near the oil supply.
Other obvious strengths are sunshine and wind, which help renewable energy economics. Are they enough for Alberta to become a renewables powerhouse? Probably not: we are far from markets and electricity transportation costs are high.
Renewable energy will be great, and could lead to an amazing future of cheap power forever. But, for now, it's a local business.
Today, Alberta hydrocarbons provide energy to people in New York and Chicago. In the future, a lot more of their energy will be provided by renewables sited closer to those demand centres.
Renewables will help us decarbonize our own electricity, and help us lower our own greenhouse gas emissions, but may not be a source of competitive advantage similar to what we now have from hydrocarbon production.
Finally, let's talk a little bit about tech. We have advantages for sure, education being one. The problem with settling on tech as a strategy is that tech is not a monolith. Every tech company is different and unique in its opportunity, know-how, structure and people. They can't be lumped together.
Moreover, world class tech dominance requires a critical mass of high-quality people who are free to move around at will.
Supporting tech amounts to a people strategy, making sure that boring things like non-compete/non-solicit terms in employment contracts support free labour movement. It also requires expensive things like funding universities with basic research.
Other ideas such as geothermal energy, hydrogen, carbon capture and storage, are worth talking about. Always, a sensible beginning to any discussion about their merits should start with the capabilities we need. Is there a chance of this industry capitalizing on a competitive advantage that exists almost nowhere else?
Here's the punchline: no other business is likely to provide the kind of returns that oil and gas brought us.
Creating a new future will be very hard work. It means building strong export-oriented business in a variety of fields. Getting oil out of the ground is hard; building business to last is harder. In that sense, people reluctant to embrace transition have a point. There's probably nothing out there that makes up for the excess returns we were paid in the past.
But if that hydrocarbon past is gone and never to return, moving on is not a luxury.
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