$40 Billion can't buy innovation

Values such as innovation, open-mindedness and collaboration can't be bought -- no matter how much money a company has. Not even $40 billion.

ExxonMobil reported that it earned $40.6 billion in profits in 2007 --its highest level ever. This isn't all that difficult to do with the help of a near doubling of oil prices to about $100/barrel. But for all of this profit, ExxonMobil is standing still as a business.

Last year, it replaced the oil and natural gas that it produced with as many new reserves. But this accomplishment will be difficult to repeat in the years ahead. ExxonMobil is competing for energy reserves with producing nations such as Saudi Arabia and Venezuela as well as national energy concerns in developing countries such as PetroChina, Petrobras (Brazil) and Gazprom (Russia).

Today ExxonMobil and the three other western oil majors -- Chevron, Shell and BP -- have an ever decreasing share of the global oil market. Today they control just 6% of this market and ultimately their share will drop to near zero as producing countries protect their economic interests first.

The demand for energy -- and the worldwide chorus for new, non-fossil fuel sources --should be a bonanza for a company of ExxonMobil's size and financial strength. Unfortunately, ExxonMobil lacks the confidence and core competency to invest, innovate and capitalize on this demand. Instead, it acts more like a bank -- paying shareholders $40 billion last year through a rich mix of dividends and buybacks. Based on how ExxonMobil spends the money it makes, the energy problems of tomorrow appear to be bigger than its balance sheet today.

Like ExxonMobil, Microsoft has the money but not the skill to innovate. Microsoft made headlines last week by setting in motion a $44.6 billion hostile takeover of Yahoo. While this is a bold step financially, it will not strengthen the software giant's position over the long term. Bulking up its advertising audience will do very little to protect Microsoft's desktop dominance against Google or new technological threats.

Innovation costs a lot more than $40 billion... particularly if the legacy of your values has more to do with Goliath than David.