Lesson 2 Connection Video

Have you ever noticed that some companies come and go very quickly while others last 100 years or more? Why is that? There are many reasons behind success or failure.

In Lesson 2, we learned that one reason the oil industry has been so resilient is its ability to adapt to changing market conditions and weather numerous crises. This was no easy task, considering the unique challenges of the oil business. Unlike manufacturing, where companies have significant flexibility in choosing where to build a factory, oil companies must go where the resource is located and then determine how to transport it to where it is needed.

In this lesson, we examined the evolution of the integrated company. An integrated company develops in such a way that it controls, or even owns, as many of the steps as possible that are required to move oil from its source to the consumer. Most large and successful companies today are integrated in some way.

We see this concept everywhere. Take Amazon, for example. Over time, Amazon has developed into an integrated organization with the ability to source products, package them, ship them using its own airplanes and trucks, and deliver them directly to customers.

The automobile industry provides another example. The Ford Motor Company owns or controls many aspects of the production process, from steel foundries and parts manufacturing plants to assembly facilities and sales showrooms.

I would also like to point out the life lessons found in these historical accounts. Lesson 2 contains many of them.

One lesson is that greed can blind people to common sense. The lesson showed us a characteristic of the oil industry that took more than a century to bring under control. Many participants in the industry wanted to extract as much oil as possible, as quickly as possible. This approach led to oil fields being depleted rapidly and caused dramatic fluctuations in prices. Because of repeated gluts and shortages, people made, lost, and remade entire fortunes several times within a single lifetime.

The industry struggled to accept the idea that cooperation and moderation could benefit everyone. As a result, many paid a significant price for that stubbornness.

Another lesson is the importance of recognizing what lies on the horizon and adapting to change. In its early days, the oil industry focused primarily on lubricants and lamp oil. The invention of the electric light could have destroyed the industry because people no longer needed oil to illuminate their homes and businesses. Instead of disappearing, however, the industry adapted. The emergence of the automobile arrived at the perfect time, and the age of oil as a transportation fuel was born.

A modern example is the music industry. The era of vinyl records eventually gave way to digital music downloads and streaming services.

Finally, there is an important lesson about success. Success often brings power, and power attracts attention.

We have been introduced to Standard Oil, a giant enterprise unlike anything that had existed before. Standard Oil possessed enormous power and controlled many aspects of the market. Very early on, that power and success generated suspicion and distrust not only among the general public but also within the government. Eventually, those concerns contributed to the company's breakup.

Think about this in today's world as you read about large technology companies in the news. Public and governmental efforts to limit the influence of companies such as Facebook, Twitter, and others are not new concepts in history. Similar concerns have appeared before.

Let's keep these lessons in mind as we continue the story.