The transformation of BP

BP Trans

The Transformation of BP

Synopsis of the Situation:

From the late 1980s to the early 1990s, the oil industry underwent significant shifts in orientation owing to a series of global events that would come to redefine the industry. Among these events, Case Study 5-4 on British Petroleum (BP) reports that the combining factors of the first Gulf War, the 1987 stock market collapse, a global fall in oil prices and rising trends of globalization would significantly alter the landscape for the fossil fuel sector. Moreover, increasing pressure levied over the energy industry to acknowledge the realities of global climate change would create a new imperative for many firms to alter their traditional modes of operation to reflect greater environmental consciousness. Even still, as demonstrated by the recent oil spill disaster and a history of controversy within the industry, BP would still face pressure form within the industry to eschew conservation demands. As an example, in 2005, BP was "heading for controversy in Alaska at the extreme northern end of the U.S. The group has major oil and gas operations at Prudhoe Bay, and may well be involved in the highly contentious project in the Arctic National Wildlife Refuge, 100 miles to the east - assuming it goes ahead." (Griffiths & Shah, p. 1)

These events are a backdrop for a long-term transformation in operations for BP, an occurrence that would also coincide with BP's own internal shift from state-controlled interest to fully private firm. The case study provides a basic overview of the company strategy during this era of transformation with a consideration of its changing operational tactics, its shifting personnel and leadership hierarchy, and its long-term corporate orientation. In doing so, the case provides a useful discussion on both the progressive dimensions and the operational obstacles that have defined BP in the two decades since its shakeup. In turn, this examination of the third largest oil firm in the world serves as a representative discussion on the dilemmas facing an entire global sector.

Key Issues:

According to its own internal reporting, a key issue for BP was the need to evolve beyond many of the conventional practices that have historically governed corporate operations in the energy sector. Therefore, BP would aspire to behave more in line with many of the leading technology and consumer corporations that paved the way for new levels of expansion and success in the 1990s. According to Ralph Alexander, a BP Group Vice President, leadership at BP "realized that to break out we had to redefine ourselves. It was not about beating Exxon, but how to beat the ROACE of Microsoft. We wanted to create a company with sufficient scale to take regional stocks and with enough reach to thrive in almost any circumstances." (Rogan, p. 519)

The result of this adopted strategy would be an aggressive period of expansion, with mergers and acquisitions delivering BP to its current status as a global industry leader. By the time of its acquisition of Burmah Castrol in 2000, BP's value of $200 billion could be eclipsed only by Royal Dutch Shell and Exxon Mobil. (Rogan, p. 519) While this would allow BP to achieve its ambition of rivaling the return on capital investment of such mega-firms as Microsoft, it would also produce a series of business dilemmas for BP. Key issues cited in the case study refer to the array of new objectives created by the series of mergers, particular concerning the balance between revenue, capital and spending. Accordingly, Rogan reports that following its series of mergers with Burmah Castrol, Amoco and ARCO, BP would set the goals of cutting $4 billion in annual operational costs, in selling off roughly $10 billion of its acquired assets and in boosting its capital spending to $26 billion across a duration of three years ending in 2001. In order to achieve these objectives though, it would be necessary for BP to return to an inward looking strategy. After a period of aggressive growth and expansion, the key issue facing BP would be the demand for structural control from within.

Define the Problem:

This reality helps us to define the core problem facing the recently transformed BP. Namely, the case study identifies BP as a company which has undergone considerable change to the point of being discordant and inconsistent. Rogan reports that "while achieving scale, these mergers also created a large fragmented company. By 2000, the company consisted of three camps, divided by their very different heritages: approximately 60,000 from BP, 40,000 from Amoco and 20,000 from ARCO. BP's management had to decide how to bring together the diverse strengths of the three different heritage companies into a single new business." (p. 516)

This denotes the central problem for BP, which found itself at a crossroads. The ability to bring unity and continuity to the global firm would be the difference between enjoying or suffering the results of a decade of growth. Thus, the case study largely centers on the philosophical, practical and human resource orientated tactics taken by the firm to address this problem of bringing about unity without undermining historical cultural qualities at BP. Particularly the case study lays out a blueprint for achieving this unity by connecting the firms 'atomic organization' principles to more encompassing dimensions such as BP's global brand reputation.

Alternative Solutions:

Within this set of plans, BP would lay out a set of solutions that in many ways are conceptually at odds with one another. Leaders at BP would call for the preservation of the 'atomic unit' at BP, a conceptual approach to personnel orientation that suggested greater innovation and productivity are likelier when workers are broken up into smaller work groups. This structure was designed to facilitate 'big, long-term targets' through a divide and conquer strategy. The rationale for such an approach is the view that it allows personnel to 'take ownership' of individual projects as a way of improving a personal sense of company commitment within a firm for tremendous scale.

As noted though, the plan for addressing BP's continuity and unity issues featured a set of steps that are not inherently compatible. To the point, Rogan points out that "the second premise was contradictory to that, and that was our observation that any organization of scale could create proprietary knowledge through learning. . . so the question was how could you get independent atomic units to work together to share information, to learn and to retain that learning." (p. 519)

These would become especially important questions as the pressure grew for the energy sector to acknowledge the realities of global climate change. The ability for a firm such as BP to create a shared knowledge economy across previously disparate units is tantamount to its ability to create a culture of innovation. Across its various holdings, it is incumbent upon BP to promote a unity that is not simply universal within the global corporation but also one that is progressive, innovative and up to the task of validating years of expansion and acquisition.

Selected Solution to the Problem:

It is thus that BP would ultimately reach the solution of maintaining its atomic unit structure and eschewing hierarchical conventions while creating unity under the umbrella of 'reputation.' One failed effort at HR improvements at this juncture would be a partnership with an outside firm called Hewitt, through which BP would attempt to outsource some of its HR demands. Accordingly, "BP was the first company to sign a major HR business process outsourcing deal in 1998. It originally contracted with specialist HRO provider Exult which was taken over by Hewitt in 2004. There were problems from the start, and by 2006 Hewitt, the U.S. consultancy and outsourcing group which owns Hewitt Bacon & Woodrow in the UK, was in trouble. It reported a net loss of $115.9 million, citing problems in HR outsourcing." (AHR, p. 1)

At the time, Rogan reports, this would be part of a unified strategy for engagement of governments and state partners in all parts of its global operation. Here, one BP officer would report that "our role is very much the recruitment and training of people -- we are less good at doing what governments should be doing such as building roads. . . we need to work with them to expand the number of small and medium enterprises in the country. . . build things with other people who will use some of that gas. . . We are going to be a part of all that investment, not exclusively, but our reputation and the fact that we will be there and making sure the project works will allow other people to come in and invest." (p. 533)