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GETTING IT RIGHT THE FIRST TIME: THE INTEVEP-HONEYWELL ALLIANCE Silvana Cusati, INTEVEP’s deputy manager for Technology, was heading down to the reception area. She had just received a call from the security gatehouse that Phil Imbesi from Honeywell had arrived. In a few short moments he would be at the entrance to the building. INTEVEP was the research and development unit of Venezuela’s national oil company, Petroleos de Venezuela, S.A. (PDVSA).1 INTEVEP and Honeywell, a large U.S.-based industrial automation firm,2 had recently agreed to form a strategic alliance. The basic business proposition was to take specialized and proprietary process technology developed at INTEVEP and combine it with Honeywell’s engineering, manufacturing, and commercial expertise to create a marketable product for worldwide applications. Both companies would share the benefits. The product was a Water-Oil Content Analyzer, a piece of oil field monitoring equipment—and was colloquially known as WOCA. As INTEVEP’s leader for the alliance, Cusati had seen dozens of Honeywell executives and managers while both companies conducted their due-diligence. Now Cusati was ready to get to work. Imbesi’s arrival marked the point where the alliance had shifted from planning and coordinating to executing. It had taken some time to actually come to this point, and Cusati strongly believed that the alliance had every reason to succeed:
1 2
See Exhibit 1 for more information about PDVSA. See Exhibit 2 for more information about Honeywell.
This case was written by Theodore M. Forbes, III, Lynn A. Isabella, and Robert E. Spekman of the Darden Business School. The authors wish to thank PDVSA, INTEVEP and Honeywell for their support in the preparation of the case. This case was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2000 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
[email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. ◊
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INTEVEP has the knowledge about the operations side of the oil industry, and there is a real need for a product to measure water content in oil. Our people in INTEVEP have the knowledge of the problem, and Honeywell complements us with its manufacturing and commercialization abilities. We know the technology, we know what we want to make, and Honeywell knows how to get that knowledge into a commercial product. We feel that together we can make it work. Everyone is very enthusiastic about the project, so I think that will help. We think we have good things to do together. Also, we have been open to share information—no hidden agendas—and all the time we felt like we wanted to have a win-win situation. I think that’s very important for the relationship. Phil Imbesi had arrived at the airport near Caracas about an hour and a half earlier, and was met by a driver from INTEVEP. As the car passed through the security gates and started its climb through the beautifully landscaped grounds of INTEVEP’s university-like research park headquarters in the mountainous suburb of Los Teques, Imbesi thought about the task that lay ahead. Imbesi had been chosen to be the overall project leader on Honeywell’s side to make the WOCA product a commercial one. That meant that he had to quickly build a team at Honeywell’s engineering group in Fort Washington, Pennsylvania and get the product developed, tested, and ready for the market. Imbesi’s team would interact directly with the group at INTEVEP that had developed the technology. The Blazer pulled up to the curb at the main entrance. Cusati and Imbesi shook hands, exchanged greetings and introductions, and turned to enter the building. At the front of the stairwell, Imbesi saw a grey granite wall studded with polished silver letters. They formed a long list of INTEVEP scientists and the more than 650 patents and trademark registrations they had been awarded over the years. Imbesi, himself an award-winning senior principal engineer with Honeywell’s Industrial Automation and Control division, was quite impressed. As they entered a conference room on the second floor, Cusati introduced two members of the WOCA team: Pedro Gomez, a general engineering manager who had a deep interest in the business side of the relationship, and Jose Zapico, a control systems specialist who would provide much of the technological know-how.3 Cusati began by asking each team member what he or she expected from this project. Imbesi spoke first, “We have a very narrow window of opportunity here. We have to get it right the first time—there’s no margin for error.” Cusati knew exactly what he meant. Alliances at INTEVEP INTEVEP was created in 1974 with the mission of strengthening the technological capacity of the Venezuelan oil industry. INTEVEP conducted both basic and applied research
3
Exhibit 1 provides biographical data on all of the characters in this case.
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and development. It also offered specialized technical services, conceptual and basic engineering, information resources, and consulting services. In the past, INTEVEP had signed a number of agreements for strategic exchange with national and foreign companies involved in the oil business. These included international businesses like Schlumberger, Unocal, UOP, Arco International Oil & Gas Company, Statoil, Pérez Companc, Baker Hughes , as well as national petroleum companies like Pemex from Mexico, Petrobras from Brazil, and Ecopetrol from Colombia. Most of these agreements were licensing arrangements, where INTEVEP provided exclusive access to its proprietary technology. INTEVEP’s primary gain was the periodic payment of a licensing fee. The purpose of most of INTEVEP’s more recent alliances, and specifically the Honeywell-INTEVEP one, was to transform the know-how and technologies developed by INTEVEP into products that would add value in applications at PDVSA field operations, as well as to generate benefits from worldwide commercialization. Pedro Gomez described this strategy: I would say that this is a new way to do things. There was a time when INTEVEP technologies were mainly left at patent stage and we received the corresponding royalties—giving somebody else the opportunity for further business. We realize that the best way to leverage our technology is to develop the final product with a qualified company that can complement our know-how with manufacturing experience. In general terms, I can say that success in these kind of alliances comes from choosing the right company to complement our capabilities. Honeywell’s Attraction to INTEVEP The alliance with INTEVEP provided some further and more specific benefits to Honeywell. As Imbesi described, Honeywell, which had a strong position in the refinery end of the business, was interested in capturing a greater position in the production end of the business: This assignment has tremendous opportunity for our business. Industrial Controls-Honeywell—we are somewhat a downstream company and very world renowned when you start using the word refinery. What comes into the refinery is basically refined crude that will be further refined and made into the appropriate product. But, in front of the refinery—in the upstream applications— our interests and our confidence decrease a bit. It’s not our true core competence, and clearly PDVSA has offerings for us. We have a good partnership with them already—a business relationship I should say—they buy a lot of product from us, primarily in the refining area. So this is an opportunity if you look at it. . .it’s a much bigger opportunity in Honeywell, it’s an opportunity for us to grow our confidence upstream, an opportunity for us to get new products, an opportunity for us to move a lot of our existing products into this area.
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Latin America: an Area of Strategic Importance for Honeywell Honeywell had recently established a formal “Center of Excellence” in Caracas, with a staff of 25 people. The center would work closely with INTEVEP and local Venezuelan universities to “develop leading-edge automation and control solutions for the oil and gas industry in Latin America.” Michael Bonsignore, Honeywell’s CEO, stated that “establishing the Center of Excellence gives a major boost to our activities in the oil and gas industry, mainly in the upstream business—a key business sector across the whole region. The control solutions that the center will develop will be especially tailored to meet the needs of our long-term customers, such as PDVSA, in the region.”4 Julio Fernandez, business development manager for Honeywell in Caracas, shared the way that the first contacts were made for the INTEVEP-Honeywell alliance: As business manager, one of my main duties is to be the corporate account manager for PDVSA. INTEVEP is part of PDVSA so I took care of them too. During an interview with INTEVEP, we detected a common opportunity, and this opportunity was communicated to the director of the oil and gas International Business Unit. Then I started the process to find out more about this technology. We arranged a meeting and we said hey, this looks interesting. Later on, the relationship was moved to a management level, and at that time we started talking about what this technology really was and we brought some experts in to evaluate the technology. We brought a guy down from Honeywell in Houston, and he spent a week here evaluating the technology. At the end, he gave a good report. At that time Honeywell was looking for such a technology. It was interesting how it all came together: we were looking for these kinds of upstream products, INTEVEP had this outstanding technology, and alliances were increasing as a trend in PDVSA. Honeywell and PDVSA Honeywell and PDVSA had a long history of commercial relationships. PDVSA had purchased many millions of dollars worth of Honeywell products over the years. For example, in 1997 PDVSA had agreed to purchase $23 million worth of equipment to be used in the huge Petrozuata oil field. PDVSA used Honeywell’s building controls instruments in the HVAC systems of its properties around the country, and PDVSA-CIED, the human resources training and development division of PDVSA, had a Honeywell classroom in its facility in La Tahona.
4
Source: Press release on Honeywell company web site.
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This prior relationship turned out to be a very important factor in the evolution of the WOCA project. Silvana Cusati described the impact: We knew about Honeywell’s experience and capabilities for manufacturing and commercialization in the automation area. Our main goal was to install the final WOCA product in all PDVSA facilities and later worldwide in other companies that share the same needs in water-content measurements. We felt comfortable with Honeywell—they invest in R&D, they have resources, standards for manufacturing and serviceability, and overall international recognition, which are key elements for a successful alliance. In summary, when you consider all of these factors—that Honeywell has their headquarters for the Andean and Caribbean regions in Caracas, their thorough knowledge in automation, their experience in manufacturing and marketing, and their plans for a local center of excellence in Venezuela based on a specific alliance for training and education with PDVSA CIED, among others—we knew we were on the right track and asked them for their interest. As PDVSA continued to grow its business globally, the use of alliances and joint ventures was seen as a key strategic tool. PDVSA had more than 40 joint ventures in its portfolio and literally hundreds of alliances. Thus it was no surprise in October 1997, when Honeywell and INTEVEP signed an agreement in which they promised to cooperate in areas of commercialization of technologies and research and development projects. The cooperation agreement also specified that the two companies would work together on offering technical services related to new technologies in automation and control in the petroleum industry. A key element of the agreement included non-disclosure terms and a confidentiality clause, which allowed both Honeywell and INTEVEP to freely exchange technical details and information. The idea of the alliance was now well on its way to becoming a reality. The WOCA Idea: Why Water Content Matters Early on INTEVEP had recognized that the idea of precisely determining the content of water in oil had huge commercial potential. The reason was quite simple. Water is commonly found in oil production because it is naturally present in any oil reservoir. In extraction, production, or refining, oil companies willingly paid for oil, but they didn’t want to pay for water—and WOCA represented a huge leap forward in the ability to detect water. Thus, at many points along the production chain, measuring water content in oil was a key issue: 1.
At the Reservoir: knowing the percentage of water for each well gave critical information that allowed producers to optimize management of their oil reservoirs.
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2. In Production: knowing the percentage of water at the flow-station level allowed the producer to avoid pumping water instead of crude. It also benefited purchasers, who did not want to pay for water when they were buying crude oil. Based on this fact, the pumping capacity of pipelines and tank farms could be optimized. 3. In the Refinery: the refiner did not want to pay for water since it produced no revenues and added extra cost to the process; moreover, water could upset the distillation process or corrode equipment. Refining was also an energy-intensive process and the refinery wanted to minimize their energy costs spent on desalters that removed the water—excess water greatly affected margins. The Market for the WOCA Product The WOCA product was initially conceived and designed for application in the oil industry. The product could be used in well testing/flow stations, crude oil pipeline monitoring, tank farms, and custody transfer applications. These uses alone represented a potentially huge market. To give an idea of the business potential for WOCA, at the end of 1998, there were 937,461 producing oil wells around the world.5 It is also important to recognize that there was a whole infrastructure surrounding the producing of oil wells. This infrastructure included flow stations, pipelines, and tank farms. Collectively, the entire system was commonly referred to as surface facilities. There was a very real potential for use of the WOCA units throughout the entire system. Several factors could be considered to determine overall market size. One of them was the number of producing oil wells and the ratio of wells per flow station. Another was the degree of automation intensity that a given customer chose to put in place. Some customers might wish to invest heavily to automate their surface facilities, while others might not. Latin America accounted for 50,460 producing oil wells, of which 23.8 percent were located offshore, especially in Brazil and Mexico. In the late 1990s, oil wells in Latin America produced 9.3 million barrels per calendar day (mbpcd), which represented around 16.4 percent of the then-current worldwide production. In reality, the number of units that could be placed would vary significantly, depending on the plant or process involved. Moreover, the basic technology for WOCA could be further extended into other industries as well. For example, the food and beverage industry could use the WOCA product in many ways (e.g., to measure fat content in milk). For both INTEVEP and Honeywell, it was clear that successful design, development, and manufacturing of WOCA had the potential to make a significant impact on the bottom line. 5
Oil and Gas Journal ( December 28, 1998).
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False Starts with other Partners INTEVEP had held the basic patents and technology for water-oil content measurement for some time. On the heels of the corporate directive to incorporate products developed by INTEVEP in PDVSA installations, INTEVEP began to actively seek out a partner for commercialization of the process. The first attempt turned out to be a false start. Jose Zapico described this initial effort: For many years, we had this instrument up and running as a field prototype. At one moment we tried to commercialize our idea, but we did not know how. We started to look around, and we found a small manufacturing company in Massachusetts. They were interested in our product, but they didn’t have experience in licensing, etc. We wanted to commercialize with these people, we started the documentation, the drawings, and the electronics. Through this process we found a lot of errors. At the end of the road we realized that this company was not the right company for this project. The market that they could offer access to was very, very small. They really did not have any relationships with the automation market. From the technical point of view, they wanted to do it, but they did not have the appropriate specialists. We needed to find the right company, with big access to the market. This was basic for us and that is why we commenced the process to find a company like Honeywell—somebody who had worldwide relationships with the market. The INTEVEP-Honeywell Alliance is Formally Announced On April 13, 1998, an announcement was made to the world about the alliance between INTEVEP and Honeywell. The following is paraphrased from an industry briefing in Oil and Gas Journal: INTEVEP and Honeywell have agreed to form an alliance for the commercialization of WOCA®, a technology developed by INTEVEP. WOCA® is a device used for the on-line measurement of water content in water/oil mixtures in a range of 0 to 100%. It applies to the areas of test separators, flow stations and tank yards. This agreement is the first among other joint activities both companies plan to carry out. These include the commercialization of other technologies and equipment developed by INTEVEP and the execution of research and technical service projects in the field of automation and control systems. The alliance brings together the worldwide leadership in control systems and automation of Honeywell with the high research and technological capacity of INTEVEP. A similar announcement soon followed in the Journal for Industrial Automation and Control:
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The alliance agreement, signed by INTEVEP President Francisco Pradas and Honeywell Chairman and Chief Executive Officer Michael Bonsignore, constitutes the first step in producing automation and control equipment based on INTEVEP technology, such as WOCA inline water content measurement equipment, and oriented to the petroleum and gas sector. The signature of this business alliance had its origin in a memorandum of understanding signed by both companies at the end of 1997, in which they expressed their intention to cooperate in aspects of commercialization of equipment, execution of research and development projects, and provision of technical services related to technology developed by Petroleos de Venezuela research center. Due Diligence for the Alliance From the announcements to the press, it might appear that the formation of the alliance with Honeywell was a quick and easy process. In fact, it had taken quite some time to develop. Both sides reported an incredible flurry of activity, of fact-finding missions, and attempts to understand exactly what INTEVEP had to offer—and not always easy conversations and good feelings. At times, it seemed to Silvana Cusati that there was a revolving door constantly spinning Honeywell people in and out of INTEVEP’s headquarters: We had continuous visits from Honeywell people. There were visits from top executives, as well as managers from research, from the technical side, and from manufacturing. They all came to check on the technology and its marketing opportunities. Most of the people from Honeywell that came to INTEVEP were very knowledgeable about automation, but the particular application of this technology was new to them. Both sides had to work hard to fully understand how we would complement each other. In addition to Honeywell’s need to understand what INTEVEP offered, there was also the delicate point of negotiating the terms of the deal. Both sides felt that they had much to offer, and wanted to ensure that the value they got out accurately reflected the resources that they put in. Pedro Gomez described this often-tense process: It was very hard—sometimes there were surprises, in terms of which way the stakes go. How are we going to ensure the right terms for the alliance? So we checked the contract and reviewed the patent or the royalties so we could be sure. There was a time in which the contract was really hard to finish, because we had the sense that something was going different than expected; therefore, we had to talk. We had to know what was expected—is this going to be a long-term relationship, or are we looking for something fast? And, since the product was not on the market yet, if something were going to happen, it will start to get complicated. How do you decide? We really had hard times, we had to go over and discuss some things a number of times. There were some actor changes
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during the discussions. We started the negotiation process with the Honeywell office in Caracas, and, due to the level of decisions required, the discussions were moved to the U.S. offices. Just as Honeywell had engaged in a long and careful process of partner selection and due diligence, so too had INTEVEP. The initial false start with another company to develop WOCA resulted in a very careful and meticulous process. Pedro Gomez described the thinking that INTEVEP had used to arrive at the choice of Honeywell for a partner: We tried to start with small companies to put the product on the market. We made some agreements with a company in the United States to manufacture it, because we felt at that time that that was the way to go. But things didn’t go well, so we started to feel like the only way to get this product in the market, which is a very competitive one, was to try to approach a big company for a partnership. So, we did some research about the different companies in automation—about which ones could be good partners. We devoted a large amount of time to this; we were very selective as we tried to understand their business, what they were doing, if they could be compatible with us. We created a matrix of many companies and we invited these companies here to talk about it. They came here to show us what they could do in the market. Based on the information provided by the different companies, we started to see that Honeywell was the company that could best fit our interest. They had a presence in Venezuela, and they really wanted to work together with us, so we started to talk about the possibility of the alliance. We had a couple of meetings with them; the first one was to show Honeywell the prototype product developed by INTEVEP. They were saying that. . .they’re more interested in working with INTEVEP because Honeywell is more of a downstream company, very strong in refining, but not in production. They had not developed any products that could establish them in production. So they wanted to go to work with us to penetrate that market. They were saying, “We are ready to go today and have this agreement started for exploration/production. We want to enter that market.” They sent two or three people from different areas of the company: technology, marketing, and manufacturing. We had many different people show up, but finally they said ok, we are going to go with it, so let’s do it. After that evaluation, things started to change. It was a more confident relationship.
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Getting to Work Once all of the terms of the alliance had been agreed, it was time to get to work. Despite the time spent in framing the contracts and negotiating who would get what, the partners found that the scope of the alliance was still somewhat flexible. As they worked more closely together, the focus became more clear. Silvana Cusati described this: We did marketing research together; we took them to the west coast of Venezuela to see the problem. It was a lot of learning for both sides, learning about what to do. Once we got started, they expressed interest to have a big alliance that would consider all the products already developed by INTEVEP, but then we said, no, let’s start with this one project. Let’s make it very successful, and after that we can do R&D, we can commercialize products, we can do a lot of things together. But let’s just start learning on this one project. It was like getting to know each other the first time. We’d have formal presentations, then we would have conversation to see what we could do, we’d talk and discuss for long hours. I would say there were times when we would have five people from Honeywell, and five people from INTEVEP. And then we would take them on a tour of some of the facilities, where they would talk to our technical people. We had many technical meetings between our technical people, specialists, and Honeywell. They would be in the labs for hours, exchanging information. They would discuss continuously via e-mail all the time. The technical people would work together on the drawings, the device, things like that. Learning to work together also meant learning where to turn for what kind of information. INTEVEP had its facilities and the WOCA team all located at the Los Teques site, so it was easy to find the right people when one needed an answer to a question. Interfacing with Honeywell, on the other hand, was not a simple task. Cusati described the process of learning which part of Honeywell had what kind of knowledge: At the beginning we started working with the people from Honeywell-Caracas. This office works in connection with Honeywell in Florida, which oversees the Latin American Market. But, we also had a relationship with the people from Honeywell-Phoenix, as commercial partner. We had a relationship with the office in Pennsylvania, which is the technical side. We worked mostly with the people from Phoenix and from Pennsylvania. The people from Honeywell-Caracas looked at the product, they talked to the people from Latin America, then they went to Phoenix, because that’s where they have the people from the commercial side. Once we got to the stage of making prototypes, the work took place in Fort Washington, Pennsylvania.
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From Concept to Commercial Product: Evolution of the WOCA Device6 The work on the WOCA idea had started at INTEVEP in 1988. The idea had been to develop relatively low cost equipment that was capable of measuring the percent of water in an oil-water mixture. The vision of the INTEVEP-Honeywell alliance was to have a device that could be easily installed in the various lines and pipes that carried oil. Jose Zapico described the technology that emerged over time: An oil and water mixture can have two different states: continuous-phase water, which means drops of oil in water or continuous-phase oil—drops of water in oil. We started a research project oriented to find our own solution, from a measurement point of view, for the fields in the South Region of Venezuela where the presence of water in oil production is extremely high continuous-phase water. After several evaluations of different physics principles, we decided to analyze and research the electrical conductivity of the fluid. We then developed a mathematical model relating this electrical parameter with the percent of water present in the fluid. The accuracy was good, and, in general, the results were excellent. With those results, we built prototype equipment, and we received a U.S. patent for “use of electrical conductivity to measure the percent of water in an oil-inwater mixture.” This prototype equipment was limited to just cases of continuous-phase water, so to expand it to all the applications in the whole oil industry, we needed to improve the system to be able to work under continuousphase oil fluids as well. It was a new challenge for the development team. We continued the research along the same electrical trail and discovered that the only thing we had to do was to add an electrical capacitance model to the conductivity one to obtain the complete model. To obtain this new technology, we had to design specialized analog and digital electronic boards and specialized microcomputer and software to process all the data acquired from the head sensor. At the end of the development phase, we had built an instrument capable of measuring, in the 0 to 100 percent range, the content of water in an oil-water mixture, no matter what the continuous phase. We had met our goal, and the only thing left to do was to commercialize, manufacture, and sell the WOCA. Interpersonal Chemistry—A Key Success Factor From the outside looking in, it appeared that the INTEVEP-Honeywell alliance had every possible chance of succeeding. The business proposition was strong, the partners had 6
See Exhibit 5 for photographs of the WOCA prototype jointly developed by INTEVEP and Honeywell.
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complementary assets and skills, the selection process was carried out carefully, and the terms of the deal were crafted in a way that ensured the commitment of both partners. What was particularly striking, however, was the genuine enthusiasm that seemed to pervade both sides. Cusati and Imbesi both knew that they had to create a strong team spirit in order to get the project moving on the aggressive schedule that had been set. Both INTEVEP and Honeywell wanted to be first to market with WOCA, and time was a precious commodity. It was clear that both sides had worked very hard to ensure that there was more than just a good business idea at work here. Cusati shared her perspective on the kind of atmosphere she tried to create: The Honeywell people have a very good relationship with my people. They all go to many places here in Venezuela on the weekends, and things like that, and when they are in the United States, they have a lot of social life too. We all feel very comfortable with them. My people have a very positive attitude that says, “We can make it work.” All the people from Honeywell are like that too. That’s very important. That’s a key issue. We want to work together, we want to have a winwin situation. Imbesi had a very similar point of view. He described the style of management he brought to this situation: The most important thing was the relationship that I could build within the team. To me that is the only way to get a job done: there has to be a mutual trust. I have never been one to delegate and walk away; I have been involved—I like to get the job done. But it’s not just about delegating. I like to show them that I am part of the team too, and not just sitting on the outside. I like to keep an open atmosphere. It’s important for people to provide input—I try hard to get everyone to participate. I like it to be a fun relationship. I have always promised both companies that I would lock us in a room and throw away the key and let the team do their work—and I would keep the non-technical issues outside the room. Both sides were quick to recognize that WOCA would reach its potential only if they captured the synergy inherent in the two companies and the people each had dedicated to the project. Imbesi described how the synergy became real: No one company is the designer of this project. I would like to consider us codesigners of the product. We have co-architected this because we worked on it together. Yes, I will say that each side pushed for certain things to happen. It was
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real clear to everyone that we are here to develop a product, not just a solution to this one specific application. As a Honeywell product developer, we live by value-added differentiators—why should I buy your product versus the other guys? Just because it’s cheaper? No, you have to design all the good fundamentals into the product. We all understood that. In the first few months, we pushed the architecture of this product and we made everyone feel ownership with the product regardless of what company you worked for. This was a true international team, not my company or your company. The Rest of the Story By the end of July 1999, the water analyzer was in final testing stage, and there were several prototypes at work in production fields in Venezuela. The prototypes were located in different flow stations, which were selected based on the type of crude handled (light, medium and heavy oil). The idea behind this activity was to confirm proper functioning of the analyzer for a wide range of operational parameters: temperature, water percentage, API, salinity, etc. In addition, tests were also run in a controlled environment in order to obtain a sweep of the parameters mentioned above. The results showed a high degree of correlation with predictions, and they gave the partners feedback to implement some minor modifications in both hardware and software. Based on those results, the product was considered ready for manufacturing. At the same time that the testing phase was winding down, a marketing team was put in place in order to begin the promotional phase. The first market was to be PDVSA Exploration and Production sites. Marketing research was done in order to identify those differentiators that the new product had versus the main competition. With those main features in hand, a preliminary value proposition statement was developed. This value proposition statement was a key element for setting the competitive product price. It was widely expected that the Water Oil Analyzer would be out in the market in early 2000. INTEVEP and Honeywell were ensured of their first-to-market advantage, and both partners considered the alliance quite successful. The successful partnership was seen as the first of many between INTEVEP and Honeywell and set a distinctive pattern for others to follow. Based on the success of this first alliance, INTEVEP and Honeywell began evaluating other joint projects in R&D as well as exploring the commercialization of additional technologies and technical services developed by INTEVEP. By every measure, they had, in fact, gotten it right the first time.
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Exhibit 1 GETTING IT RIGHT THE FIRST TIME: THE INTEVEP-HONEYWELL ALLIANCE Petroleos de Venezuela, S.A. 1 Venezuela had one of the world’s most prolific sedimentary basins. Although the first records on national oil production dated to1878, large-scale commercial production of oil began in 1914. Petróleos de Venezuela, S.A. (PDVSA) was created in 1976 following the nationalization of Venezuela’s oil industry. The company was owned entirely by the Republic of Venezuela. PDVSA’s profitability was vital to the Republic. Even in a year of low world oil prices like 1998, the company contributed $7.3 billion in revenues to the country’s Treasury—some 65 percent of the country’s budget. PDVSA was widely regarded as one of the world’s leading energy corporations. In January 1999, the Petroleum Economist, a trade magazine, named PDVSA the “best managed” stateowned oil company in the world. PDVSA was charged with the development of the country’s petroleum, petrochemical, and coal industries. PDVSA held a leading position among world refiners; its direct manufacturing and marketing network covered mainly Venezuela, the Caribbean, the United States, and Europe. At the end of 1997, Venezuela launched La Apertura—the opening of the oil industry to foreign companies. In direct connection with this decision, PDVSA began a period of massive reorganization and consolidation of its various business units. Where once there had been many different operating companies that essentially ran independently, the new vision was to create units that focused on specific parts of the overall portfolio of businesses. The Various Divisions of PDVSA2 PDVSA’s reorganization process began in 1998. The most recent structure was set in the spring of 1999, following the election of Hugo Chavez to the Presidency of the Republic. PDVSA consisted of eight operating divisions. Exploration and Production: responsible for the development of oil, gas, and coal production, and the manufacture of Orimulsion®, a bitumen-based fuel product. Manufacturing and Marketing: in charge of crude refining activities and the manufacture and marketing of petroleum products. This division supplied the national and international markets, and was also responsible for the marketing of natural gas and marine transportation.
1 2
Source: PDVSA Web Page. Ibid.
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Exhibit 1 (continued) Services: responsible for the supply of integrated, specialized, and competitive services to the entire corporation. Its scope included a wide variety of specialties, including the procurement of goods and materials, technical services, professional consulting and advice, as well as information technology and engineering. PEQUIVEN: produced and marketed over 40 products for national and international markets. Its operations were organized by business units responsible for each of three main product lines: olefins and plastics, fertilizers, and industrial products. CIED: functions comprised executive, professional, technical level, and crafts education and training, and were carried out by its three branches: the Managerial Development Institute, the Institute for Professional and Technical Development, and the Industrial Training Institute. PALMAVEN: provided technical assistance to agriculture and offered expertise on abatement of environmental problems related to oil activities. SOFIP: an investment fund that constituted a systematic effort to attain the full incorporation of the oil industry into Venezuelan society. This subsidiary developed vehicles enabling domestic and international investors to participate in the Venezuelan opening strategy, through its various investment opportunities. INTEVEP: a research and technology development company that provided services and technology to the oil and petrochemical industry.
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Exhibit 2 GETTING IT RIGHT THE FIRST TIME: THE INTEVEP-HONEYWELL ALLIANCE Honeywell, Inc. 1 Honeywell was founded in 1885, with the invention of the automatic thermostat control for home heating. In 1999, Honeywell employed over 57,500 people in 95 countries. The company was regarded as a global leader in control technology, with products and services organized around three broad business applications: •
Home and Building Control. This business represented about 45 percent of Honeywell’s total sales. The company was the worldwide leader in products and services that created comfortable, safe, efficient environments—in homes, office buildings, hospitals, schools, and anywhere else people lived and worked
•
Space and Aviation Control. Honeywell was the world’s leading supplier of avionics systems for commercial, military, and space markets. This business accounted for about 22 percent of total company sales. Honeywell technology had been on board every manned U.S. space flight since Mercury and was on nearly every commercial aircraft flying then.
•
Industrial Control. Honeywell was the world’s top provider of industrial control systems and components. These products improved productivity, optimized the use of raw materials, ensured compliance with environmental regulations, ensured plant safety, and enhanced overall competitiveness. The Industrial Control business accounted for about 31 percent of the company’s total sales and comprised two units that offered the industry’s broadest product portfolio.
1
The material in Exhibit 2 is adapted from company website: http://www.honeywell.com.
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Exhibit 2 (continued) Honeywell’s Industrial Controls Division The alliance with INTEVEP was located in Honeywell’s Industrial Controls division. Industrial Controls was a global leader in automation solutions. Sales for the division were approximately $2 billion. Products ranged from sensors to fully integrated systems. The division provided products and services to a wide variety of industries, including hydrocarbon processing, chemicals, pulp, and paper. Honeywell had developed extensive and successful product lines for industrial automation and control, and the petroleum industry was one of its key market segments. Venezuelan oil deposits were among the largest in the world, and technology was making those fields more attractive. Latin America represented just one percent of sales for the division in 1996, so there was clearly room for growth. Industrial Controls listed half a dozen key strategies for growth, and it was very clear that several of these were met in Venezuela: Key Strategies for IC Division •
Provide customers around the world with technology solutions through internal development, alliances and partnerships, and acquisitions.
•
Provide customers with the ability to migrate to new technologies while protecting their investments.
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Expand customer base and pursue aggressive growth in measurement and control business and services business.
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Capitalize on geographic growth opportunities for systems and solutions; focus on fastgrowing global segments, including information technology and onboard automotive sensors.
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Grow smart sensor business and integrate factory floor solutions with intelligent sensors.
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Provide the best-value integrated system solutions for defined industries.
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Exhibit 3 GETTING IT RIGHT THE FIRST TIME: THE INTEVEP-HONEYWELL ALLIANCE Biographical Data Silvana Cusati, Deputy Manager, Technology – INTEVEP I specialize in nondestructive testing and welding. I came to INTEVEP 14 years ago, after 4 years of experience in industry. I started working as a technical assistant in nondestructive testing, with ultrasound and tomography techniques. I did a lot of research and participated in many specialized technical assistance jobs. From 1990 to 1997, I was appointed manager for different organizations at INTEVEP. During this time, specifically in 1992, as business leader I started the negotiations with Honeywell. I have a masters in business administration, which I earned at night while working during the daytime at INTEVEP. At our company, even if you are in a managerial position, you are always closely involved with the technical people, new technologies, and knowledge, which is our most important company asset. Pedro Gomez, Engineering Manager – INTEVEP I obtained an electrical engineering degree in 1981, from the Universidad Simón Bolívar in Caracas. In 1991 I received an MSC in electrical and computer engineering from the University of South Carolina. After my graduation as an electrical engineer in 1981, I worked in a engineering consulting firm in Caracas for several years. I later joined INTEVEP in 1986 as a specialist in instrumentation. I have worked at several leadership and managerial positions in the field of instrumentation and orimulsion and as manager of the process pilot plants at INTEVEP. I am currently the engineering manager of a group of 80+ engineers in the fields of mechanical, civil, electronic, etc. engineering, which includes the automation group that developed the WOCA product. Jose Zapico, Advanced Specialist, Control and Supervision Integrated Systems – INTEVEP I was born in Spain. I did half of my high school in Spain and the rest in Venezuela. I received my technical degree in electronics in Caracas, and an engineering degree and a masters in digital electronics in France. I also received a telecommunications specialty in Paris. I taught microprocessors and telecommunications at the Caracas Institute of Technology for eight years.
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Exhibit 3 (continued) I have worked at INTEVEP for the last twelve years in the automation area. I have been at different technical leadership positions and I am currently in charge of the WOCA project, among other research activities. Phil Imbesi, Senior Principal Engineer, Measurement and Control Engineering Transmitter Products Group, Honeywell Industrial Automation and Control I went to Drexel University and have a bachelors and masters in theoretical mathematics. I came to Honeywell straight out of Drexel. Drexel is known for their co-op programs and I did all of my co-op work for my five college years at a company called Fisher and Porter. After I graduated, I interviewed with Honeywell and they hired me. I was in pressure transmitters and different disciplines within the product. I am one of the co-inventors of the world’s first multivariable transmitter. For the past eight years, I focused on sensor development, the hearts and guts of the product. I worked on sensor development with our research and electronic centers, the Honeywell Technology Center, and the Solid State Electronics Center.
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Exhibit 41 GETTING IT RIGHT THE FIRST TIME: THE INTEVEP-HONEYWELL ALLIANCE INTEVEP’s Areas of Expertise About half of INTEVEP’s labor force of 1800 specialized in areas that were technologically driven. The basic research mission of the division resulted in an operating unit that was, in many ways, very different from the production, sales, and marketing businesses of the rest of PDVSA. The buildings were modern, clean, and quiet, and the huge central library was surrounded by 16,000 m2 of laboratory buildings. In fact, the “look and feel” of the facility was almost like that of a university campus. The professional work force included: •
130 people with a Ph.D. in such different areas as physics, geophysics, geology, mechanical engineering, chemical engineering, and chemistry.
•
241 Master's degrees in physics, geology, chemistry, civil engineering, materials engineering, petroleum engineering, mechanical engineering, and chemical engineering.
•
614 engineering and bachelor’s degrees in civil engineering, computer sciences, materials engineering, petroleum engineering, electronics engineering, industrial engineering, mechanical engineering, and chemistry, mathematics, physics, geophysics, and geology.
1
Source: INTEVEP website.
-21Exhibit 5 GETTING IT RIGHT THE FIRST TIME: THE INTEVEP-HONEYWELL ALLIANCE Front view of WOCA Alpha Unit – the Sensor Component
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-22Exhibit 5 (continued) Front View of WOCA Alpha Unit – the Analyzer
Source: Honeywell
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