Stand By Your Brand
M-I Swaco -A case study of continued brand name recognition and client trust
Company buyouts and mergers in the oilfield service sector over the past several decades have dramatically changed the market position and thus the success of many companies. M-I Swaco stands out as a prime example of a company standing by their brand name and reaping huge rewards for shareholders and the companies that now comprise M-I Swaco.
The oilfield drilling fluids market has always been very competitive. At times "cut-throat" might be considered a more apt description of market conditions. However, witness the changes in market split between the big three drilling fluids companies (M-I Swaco, HAL and BHI) today. Clearly M-I Swaco's incredible growth has seen the company emerge as the world leader in its field. There are very sound reasons for M-I Swaco's leadership role, not the least of which have been the continued advanced research and development plus amalgamations with companies to strengthen market position. However, M-I Swaco's identity retention and continued management by people with real drilling fluids business know-how have been paramount in their phenomenal growth.
Baroid - Halliburton Drilling Fluids
For decades the world market leader in drilling fluids was Baroid Inc. Its name and brand was synonymous with traditional and proven drilling fluids products and services. Today the name "Baroid" no longer exists as a company, it has been buried deep within Halliburton. With an apparent loss of focus and drastic changes in management approaches, Baroid has since lost much of its individual identity and as a consequence, significant world market share.
In any fast growing market there are obviously many contributing factors for a significant loss of position. The changed market perception of Baroid as a part of Halliburton had much to do with Baroid's market losses. Halliburton's decision to totally incorporate Baroid into the huge Halliburton conglomerate left clients largely bereft of the security and trust they once had in Baroid. If Halliburton had allowed the people who had successfully run Baroid, since its incorporation continue to manage the company, they may well have retained a more significant market share today.
Milchem - Milpark - Baker Hughes Inteq - Baker Hughes Drilling Fluids
Baker Hughes Inc also made similar mistakes by effectively emasculating Milchem, their rising star in the drilling fluids sector in the late 70's and 80's. Milchem graduated to become Milpark and eventually lost it's identity along with Baroid. Baker Hughes Inteq, as the drilling fluids entity within Baker Hughes failed to stand out enough as a market leader in the field. While Inteq was still an effective drilling fluids and engineering services supplier, the BHI fluids division is now recognized as a mere shadow of its former self. Like Halliburton, Baker Hughes' management saw fit to wrest control of their drilling fluids business from people who knew the business well and had every chance of gaining a larger foothold in the industry today. Today, even though Baker Hughes re-named their drilling fluids division "Baker Hughes Drilling Fluids" in July 2004 it has some serious ground to make up in the sector partially, because BHI lost client trust.
Magcobar -M-I Swaco
M-I Swaco's transition and ultimate emergence as today's market leader has not been an easy task and has involved some nifty footwork on the part of Smith International (M-I Swaco's parent company) and M-I Swaco's management board. One of the (many) steps on the road to well managed growth and success came in 1986 when Magcobar and IMCO merged to become M-I Drilling Fluids. Magcobar, like Baroid, was also recognized as a trusted brand name at the time, but the company retained a large part of that trust and the continuation of their positive image, simply by retaining the "M" in M-I Drilling Fluids. People knew and trusted Magcobar.
Several amalgamations through the remainder of the 80's and 90's changed parent companies and associated alliances for all of the major drilling fluids companies. In 1987 M-I Drilling Fluids included Swaco in its fold and majority ownership of the company changed from Dresser Industries to Smith International, who bought 64% of the shares. M-I then acquired several companies, Anchor Drilling Fluids (1996) Summit Drilling Fluids (1997) and many others that continued to make them stronger in the market. In 1998 Smith International bought the remaining 36% of M-I from Halliburton. In the same year Halliburton acquired Dresser Industries. Talk about "roundabouts and swings." At some stages there drilling fluids employees never could be sure who they would end up working for. Nothing was impossible in this "waltz of the powers"!
The piece de resistance, however, may well have been Schlumberger's 1999 40% share acquisition of Smith International, bringing Dowell Drilling Fluids (who had previously acquired International Drilling Fluids) into M-I Drilling Fluids.
Smith International and Schlumberger
The combination of Smith International and Schlumberger was a master stroke. Reaching the optimum structure for the venture was vital for it to succeed. Corporate decisions, economic factors, market positioning and taking full advantage of the synergies between the two companies were hugely important factors. Though both companies obviously sculptured the venture, Schlumberger in particular should be given some credit for having the good sense to resist the temptation to over-run M-I Swaco and risk mis-managing their further incursion into the drilling fluids industry. Brand retention has always been an important part of Schlumberger's' market philosophy, but it had not previously been Schlumberger's way to be satisfied with a minor share in a company with a major world market share. Today the combination is working well, though both companies can still benefit from even closer co-operation and strategic planning.
Smith International and Schlumberger continue to reap the benefits. The combination of the resources, research and development, market knowledge, experienced and management skills of two "first-in-their-class" companies has seen M-I Swaco forge ahead in the oilfield services market.
Maintain Market Position - Avoid the "Brain Drain"
The drilling fluids industry market is unique in the oilfield service sector and as such, there is great benefit in listening to the people who know the industry well. At the same time there is also great benefit in introducing fresh ideas and approaches to old school management. The oilfield service sector mergers were opportunities to do just that. Some succeeded in this regard better than others.
The ensuing "brain drain" after the re-alignments from Halliburton and Baker Hughes to M-I Swaco had an important impact on all three companies. All levels of personnel were involved from management, technical and research to field and support staff. Individuals who were frustrated with the direction their own companies were taking, perceived a significant change in market leadership and saw the opportunity to be a part of it. Experienced people are valued today by all companies. A reduction in training and industry downsizing in the 80's has contributed to the lack of availability of experienced oilfield service people today. M-I Swaco relishes their current position of having more than their share and it shows in their position in the market.
The fact that M-I Swaco have also retained so many experienced people from top management to field personnel, plus the retention the "M-I Brand" were key factors in the company's success. Continued brand recognition provided M-I Swaco clients security and trust in known performance and products. This has given the company an edge that many others in the oilfield service sector have has belatedly learned is of prime importance in the world of mergers and acquisitions.
Back To The Future
It may well be seen as a case of "Back to The Future" that is, good old common-sense management in play, but one thing is certain, "Stand by your Brand" rationale has proven to be a winning strategy for Smith International and M-I Swaco.
Ron A. Welsh
Commercial Freelance Writer