Bp Case Study

1. Background Description:

When John Browne was taking over British Petroleum, the company underwent a profound strategic and organizational change. One of his major goals was to increase financial performance, which was recognizable by his strong commitment in creating shareholder value. Furthermore, he wanted to increase the overall market share of British Petroleum in order to become the market leader in the petroleum industry.

Even though the emphasis was on financial performance, he also wanted to reshape the image of the company in society perception –  including the renaming from British Petroleum to BP.

The pursuit of those goals was accompanied by a radical decentralization, giving more autonomy to the regional and middle management as one of the major characteristics. Through a series of acquisitions, Browne also created a company with scale by following the general reasoning - two companies together are more valuable than two separately. With the focus on an integrated performance and environmental management system, BP attached great importance to quality and environmental issues.

1. BP`s Management System:

In reality, a company's structure results in better performance only if it improves the organization's ability to make and execute key decisions better and faster than competitors. Hence, BP`s management system approach was successful because:

• Being performance focused and entrepreneurial oriented allowed BP to be innovative – although the company was known for being conservative
• The strong focus on cost efficiency led to a decreasing number of employees, which made the company leaner. It helped the organization to remain competitive and to adapt quickly to changes
• Environmental responsiveness and a stronger branding of BP were reached through being open and more responsive to the needs of society – particularly considering climate change issues
• The decentralized structure of BP made it easier to grow. Through this structure the business unit management had more ability to respond better to client need`s
• Defining BP`s organization as a “learning organization” supported the interaction, communication and knowledge sharing within the company
• The division of responsibility allowed the business unit heads responsible for operational performance to be more involved, which led to an increasing motivation and overall to a better performance

With regards to BP, the following findings were not ideal to reach the intended goals:

• Lack of adequate operational and process safety. Being focused on short-term performance and giving specific performance targets to the management, the company did not find a sufficient balance with providing effective safety procedures – resulting in severe events with high fines.
• Lack of coordination: the management and especially the Board of Directors were not fully able to provide control and leadership on process safety
• In association with lack of coordination, the decentralized set-up was a fragmented and complex structure. At high levels of complexity especially in industries such as Oil and Gas where the costs of failure are rather high, management based upon decentralized rules with performance contracts is not appropriate enough
• Conflict on interests between short-term performance and long-term sustainability. Projects in Oil and Gas are usually long lasting, producing profits often not until after many years. Targeted on financial performance, it encouraged additional risk taking by business unit heads

1. Recommendation for Chevron:

BP pursued a successful organizational change, but important cornerstones were overseen or just not considered in performing this system change. According to our analysis on BP`s management system, Chevron should take the following recommendations into account in order to successfully perform an organizational change:

1. Chevron should define clear priorities and processes according to the industry environment it is acting in, because there are high costs of failure
2. Chevron should put a special focus on a structure that flattens the hierarchy and increases the span of coordination and control through independent audits and quality tests. The implementation of quality processes and measurement management systems ensure that all risk is identified, tracked, and minimized

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1. The structure of Chevron as a large scale company should be centralized. Moreover, it should include independent health, safety and environmental committees (staff function) reporting directly to the Top Management.

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1. Chevron should ensure a company culture that constantly works on improvements (learning organization) and delivers performance in order to meet changing requirements. This is achieved by providing incentives for unit performance and by formulating and reviewing quality targets annually to avoid errors before they occur
2. Chevron should create business units with a clear scope of responsibility and clear accountability in order to balance short-term and long-term visions of the company
3. Chevron should ensure business units link horizontally in addition to requiring all communication to pass up and down through the hierarchy.