As costs continued to escalate and IT was not creating any significant cost reductions through efficiencies, the focus shifted to outsourcing non-critical functions that were routine in nature and could be therefore replicated easily. In 1991, BP senior executives chose to begin outsourcing operations, telecommunications, systems development and IT maintenance. This strategy, along with the recentralization of IT led to the company eventually cutting their IT budget in half from $360M to $170M. BP also was able to redefine their entire centralized spending strategy for IT, with 70% of their budget going for core applications critical to their business including geophysical analysis software and core technologies to help the company be more effective in discovering new energy sources (Cross, Earl, Sampler, 1997). What had been so elusive for BP for decades of IT spending had been hidden in the high costs of duplicated enterprise software licenses that were spread across their global enterprise (Cross, Earl, Sampler, 1997). With IT centralized the company once again worked to redefine the structure of IT so it would be more aligned to strategic planning and execution objectives for the long-term. The company soon learned that effective strategic planning is never a one-and-done process (Kannabiran, Sundar, 2011).

One of the most valuable lessons learned during this time period was that streamlining core process areas while ensuring a high level of ownership on the part of IT personnel lead to much greater levels of productivity and performance, a point made often in the research of Dr. Michael Porter (Porter, Millar, 1985). Once BP shifted IT to be more focused on demand management while also having systems analysts shift to business consultants with a project management (and accountability-based) mindset, IT began to take ownership for results and for the first time, IT and groups were synchronized. Creating a more demand-driven strategy can drastically reduce overhead and quickly cut unnecessary costs, especially in IT (Barrett, 2007)....

BP had been able to achieve the transformation of their IT department and trim the annual budget to $132M, headcount to 150 and only support 75 applications. This was a remarkable achievement.
Conclusion

This case study illustrates how uniting an entire organization to a common set of goals, and then working diligently to get the roadblocks out of the way for their accomplishment can work. What made this iteration work better than all others is that the focus was on involvement and ownership of the employees in the process of turning IT into a strategic asset and contributor to overall company performance. They had, as Davenport (1993) says "skin in the game," they were committed because it was their recommendations being taken to turn around the company. Instead of hiding behind IT and its myriad of rules and regulations, the company had embraced change and made people actually accountable for making it happen. The dimensions of their diagnostic tool became the fuel that propelled the company forward over time and the transformation was well on its way to occurring.

Reference

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Barrett, J.. (2007, November). Demand-Driven is an Operational Strategy. Industrial Management, 49(6), 14-19,5.

John Cross, Michael J. Earl, & Jeffrey L. Sampler. (1997). Transformation of the IT function at British Petroleum. MIS Quarterly, 21(4), 401-423.

Davenport, Thomas H. (1993). Need radical innovation and continuous improvement? Integrate process reengineering and TQM. Planning Review, 21(3), 6.

Earl, Michael J, & Feeny, David F. (1995). Is your CIO adding value? The McKinsey Quarterly,(2), 144.

Kannabiran, G., & Sundar, S.. (2011). Relevance of Information Systems Strategic Planning Practices in E-Business Contexts. Journal of Electronic Commerce in Organizations, 9(1), 17.

King, W.. (2008). Selecting…