Within the upstream oil and gas industry, there's a relatively limited number of companies possessing the size and scope to be considered fully integrated and/or global in nature.
On the services side, the roll (listed alphabetically) includes Baker Hughes (NYSE:BHI), Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB) and (NYSE:WFT) Weatherford International. Within the capital equipment segment, it's Aker Solutions (AKSO.OL), Cameron International (NYSE:CAM), FMC Technologies (NYSE:FTI), GE Oil & Gas (NYSE:GE) and National Oilwell Varco (NYSE:NOV).
On a combined basis, these nine super suppliers currently represent about a quarter of all supplier-segment sales to the global upstream market. Yet, none of these same suppliers currently enjoy above-average ratings in EnergyPoint Research's independent customer satisfaction surveys. And current trends don't suggest the situation will significantly change anytime soon.
The Perils of Lockstep Strategies
Even as customers appear increasingly underwhelmed with the performance of the industry's highest-profile names, shareholders seem to sense something's amiss as well.
As evidence, the eight super suppliers that we consider relatively pure-play oilfield names (GE, as a cross-industry conglomerate, is excluded) have seen their stock prices rise just 29.4% in the 24 months ending June 30, 2012. This compares to a rise of 63.3% for the Philadelphia Oil Services Sector Index (OSX) over the same period.
The strategies, offerings and capabilities of these large suppliers are now so strikingly similar that customer ratings and financial performance seem to have effectively converged. This has made it even more of a challenge for both customers and investors to see much in the way of differentiation among companies.
Suppliers' efforts to fit in have, in effect, made it substantially more difficult, maybe even impossible, for them to stand out. The result is that customers are now able to more effectively push price as the final differentiator.
Alas, Size Isn't the Prize
Whether it be from a lack of differentiation stemming from a persistent group-think mentality, difficulties in running increasingly diverse and far-flung operations, or the inevitable "averaging down" of customer experiences as a result of bundling efforts, the deck seems stacked against today's growth-through-diversification model.
Until a renewed focus emerges within the oil and gas industry's most influential circles, one emphasizing individual suppliers' core competencies emerges, customer satisfaction and performance levels of the largest suppliers will likely continue to languish.
Change is never easy, but the first step in achieving better performance among the industry's largest suppliers may very well be in these companies and their customers recognizing that a supplier's real strengths lie not in its similarities with its competitors, but in its differences.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.