Joseph Pratt, Exxon & The Control Of Oil

Question 1

Soon after the discovery of oil in 1863, what kind of climate was the oil business?

Answer 1

In theses early days the rapid discovery and depletion of new fields fed cycles of boom and bust, creating a chaotic environment which discouraged investors and operators

Question 2

How did Rockefeller impose his own brand of order on the oil business?

Answer 2

Financial discipline, Rockefeller used an early form of cost accounting to minimise costs. Reducing manufacturing costs radically cheapened the whole process. These strict costs controls were systematically enforced at every level and defined standards oil’s competitive advantage

- importantly, this strategy allowed the company to use internally generated funds to finance expansion, freeing it from the control of outside investors and allowing a relatively small group of like minded individuals to peruse long term goals

Question 3

Which specific business model differentiated Rockefeller’s operations from his competitors?

Answer 3

Vertical integration, an organisational innovation that became the defining characteristic of the modern petroleum industry

First, Rockefeller asserted dominance over other refining centres. He squired the largest refineries and centralised their administration, imposing his cost - cutting philosophy and increasing efficiency.

To protect his investment in refineries he built or bought pipeline transportation and cut off other plants, acquired large markets for refined goods and move into crude oil production

By the turn of the 20C Rockefeller had consolidated large segments of the oil industry into a single vertically integrated company with overwhelming market power