Dec 07, 2017 Brand

Did strategy and egos align? 

Baker Hughes, a GE company ​
By Charlie Cosad
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GE’s recent acquisition of Baker Hughes, creating a separate company and name, and now with talk of GE exiting oil and gas, is an interesting case study in strategy and brand.

A quick background

In Q4 2016 when GE announced its intention to acquire Baker Hughes and combine it with its own oil and gas business, analysts weren’t convinced that the value added was there. While early costs savings are good, analysts had heard this “value from integration” story from others and had not seen it materialize, and none were nearly as ambitious as GE’s “molecule to megawatt” catchphrase implied.

There was more doubt in the air. Analysts and investors were still uncertain about Predix, the company’s flagship technology for value through the Industrial Internet of Things. Just three quarters later when the Baker transaction closed as a separate company with GE owning 62.5%, analysts were also evaluating GE’s introduction of a new CEO.

GE’s new CEO has confirmed the company’s focus on health care, aviation and power; core businesses with stability and growth potential. He also made clear his intention to lead the company away from the pain and unpredictability of oil and gas. GE stock price at end 2016 was around $30/share. Just a year later, it is around 18. What a difference a year makes. 

Some fundamental questions

So, why would a company looking to get out of oil and gas buy a major player in that industry? The board must have been heavily involved in the decision to acquire Baker. Is the answer as simple as new CEO, new direction? That same board was no doubt heavily involved in the new CEO decision, one who now messages exiting.   

The structure of the deal as a separate company does make an exit easier. Terms of the agreement were GE could not exit before two years, with an earlier timing possible through well-defined agreement.

I’ll stay out of all that, and move into the company brand decision, our wheelhouse.

From a branding perspective, why did they choose to name the new company Baker Hughes, a GE company? Were name options ‘GE led’ considered?

By creating a separate company brand not led by the GE name, the thinking could have been to create some brand distance between GE and the volatile cycles of oil and gas, now appearing to be in a ‘non-cycle’ of persistent prices around $50/bbl. I don’t buy that.

Certainly, the investment community saw no brand distancing. While the BHGE CEO was regularly questioned on how the business was going, the questions about the oil and gas industry at large and participation in it were put to the GE parent, and have been growing louder. Does it make sense for GE to be in oil and gas? As the major owner of the new company with 62.5%, this was inevitable. The new company brand name was irrelevant to investors.

Brand options for the new company

There’s no doubt Baker Hughes senior management wanted its brand to be visible at the highest level. Wanting to protect the identity of a company you helped build is understandable. Add to it, having the Baker brand lead in the company name would send a strong message to the (former) Baker workforce that this is not a GE takeover (even if it is). This means ego, the source of many a branding disaster, would have been the driving force.  

There was a more logical brand option (IMHO) for the new company to retain and build value, assuming GE was in oil and gas for the long term.

Naming the new company GE Oil & Gas would have meant that the strong, highly respected Baker Hughes brands could become divisions within the new parent, adopting a house of brands architecture. The VetcoGray and Lufkin brands within GE could then be repositioned. The strong brands within Baker Hughes would join them, some existing (e.g., Centrilift), some making a comeback (e.g., Inteq, Baker Oil Tools). Bringing back the Baker Oil Tools brand would not be a challenge. It was an oilfield icon. (Selfishly, I’d like to do a customer brand survey, a Pennebaker specialty, on that name. I bet awareness is nearly 100% despite the oilfield staff exit. I also bet a lot of people in the oilfield don’t know it’s been dropped.)

GE Oil & Gas with this brand architecture makes sense from a brand-association standpoint. Baker Hughes has no brand association with subsea, gas compression, LNG or pretty much everything else now under its brand that came from GE. The Baker Hughes name adds no value there, and the GE brand has very little association with drilling and well completions, the Baker strength.

When strategy and egos align 

An often-neglected principle of brand management is all brand decisions must be driven by business strategy. You need to be able to define the business drivers for any brand change.

If GE follows through on its signals to leave the oilfield, naming the company Baker Hughes, a GE company (in brand-speak, mild endorsement by GE parent) does distance GE from oil and gas at an early stage. This gives time to build brand associations for the entire portfolio with the Baker Hughes brand. Wherever GE’s 62.5% ends up, they’ve taken the better brand decision.

So, in naming the new company, did senior Baker Hughes management egos align with a GE strategy to exit oil and gas? Or did GE get lucky on the brand decision?

I have too much respect for brand management by GE to believe it was luck. I suspect they were not prepared to commit the brand to oil and gas long term, regardless of public proclamations. The alignment of this business strategy with Baker egos made agreement on the company name easy.

In that case, it was one of those magical instances in business where there is perfect alignment on a very big decision by strong forces with very different motivations. It’s the decision that counts. Move on. The next phase for the Baker Hughes brand will very interesting.

Got your own ideas? Drop me a line.

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