Learning your way to improved performance: British Petroleum by Unknown

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BP Amoco is one of the world’s largest and highest profile companies. This organization is global in
its operations and impact, highly profitable and self-evidently a leading business in the energy
sector. The company has gone through a series of changes since the early 1990s during the
incumbency of three successive CEOs including Lord Browne, who has been in post since 1996
having worked with BP since leaving university (Browne is to be replaced by Tony Hayward as CEO in
the summer 2007). Structural changes focused on cutting out layers of management, clarifying
financial accountability at business unit level and improving performance in the 1990s were seen, in
retrospect, as necessary to build a platform for a transformation of performance. Most tellingly
under the then CEO, David Simon, capital expenditure was reduced leading to a need to be much
more disciplined about focusing exploration spending (for example) on fewer, and therefore the
better, prospects. There was a clear need for scale and for global reach. Thus there began a series of
mergers and acquisitions positioning the emerging group to enable it to deliver improved returns
and to expand capital spending, having already first worked on enhancing the effectiveness of capital
spending. All of these moves created a large and fragmented company by 2000. In fact from 1995
onwards the company sought to apply four organizational principles: 1 People work better in smaller
units. 2 But larger organizations create proprietary knowledge and it makes sense to share that
knowledge quickly. 3 Peer group dialogue and challenge around performance was very different to
superior–subordinate discussion of performance and this difference could and should be leveraged.
4 Reputation is a crucial resource both externally and internally. Applying these principles has lead
the organization to recognize a fifth principle which it has sought to exploit to the fullest possible
extent: 5 While formal or explicit knowledge is important, it is at least as important to share ‘tacit’
knowledge. Tacit knowledge (see below) is neither effectively captured nor well shared through
knowledge management systems. You need to bring people together. This fifth principle has long
been known. Indeed the original idea of the university and of scholarship which emphasized tutors
and students working either one-to-one or in small groups was based on this idea. In any event BP
sought to build sharing via a structured process, creating what Argyris calls ‘productive reasoning’
and what has also been called ‘purposeful conversations’ by establishing peer groups. The business
units were organized into 15 ‘peer groups’, each comprising units within a particular business
stream. Business unit targets are set within a performance contract. These targets are set through a
process of conversations within the business units, within the peer group and with top management.
Within this process the peer group represents a powerful source of traditional models 76 the
business units as peer groups seek to ensure that each carries its share of the growth in revenues,
margins and so on needed to deliver longer-term strategic goals. Peer groups provide a mechanism
for deciding resource allocation and for knowledge sharing. Pivotal to this was the notion that high-
performing business units in a peer group must assist under-performing units to improve. Indeed the
expectation is that the top three performers will help the bottom three. The performance of the top
three in doing so is measured each year and this is built into the bonus structure. Overall therefore
these changes are backed up with both economic incentives and a high degree of transparency. This
is extended via a ‘peer assist’ process within which executives work to help particular business units
work on issues or projects of various sorts. This often spanned peer group boundaries and regularly
involved many executives committing significant amounts of time to the process. The belief is that
everyone gains. The business unit draws on the experience throughout the organization. Those
involved see it as a development opportunity. These peer processes emphasize
horizontal/collaborative working and dialogue, building the capacity for learning and greater
creativity. In 2001 continued growth required further reorganization with a consolidation of business
units, reducing the total number. As has been argued elsewhere, decentralization is a matter of
balance. So is knowledge sharing. The BP approach has been to create purposeful conversations
across the organization. But business units must also sustain ‘business as usual’ so balances must be
struck over time. Of course, peer group members have a shared interest in seeing that these
balances are maintained. Nevertheless one is looking at a continually evolving picture. The peer
processes help create value through the transfer of best practice, via peer advice, shared expertise
and by creating a firmer basis for major business development/strategic moves. This is supported by
organizational arrangements which promote but also discipline peer group behaviour. These include
the use of incentives and the substantially enhanced economic transparency evolving through the
peer group process. In addition BP’s ongoing investment in the development of people creates an
environment in which development is a legitimated activity for executives. This is balanced by
making clear at all levels that disciplines are also needed. In turn, the value of these processes has
been reinforced by the definition of ‘human portals’. Often not business unit leaders but rather
experienced people who have a multiplicity of contacts throughout BP, they are people who have
been identified as those to whom you can go if you seek expertise. Their role is to ‘connect’ you to
that expertise wherever it may exist within BP. Again we have long known that these people are
potentially an invaluable resource. Indeed in some ways when we distinguish between formal and
informal organization this is part of the distinction being made. The point here is that the explicit
organizational recognition gives legitimacy to the role, and therefore to these people. This has been
called applying a ‘behavioural net’ onto a decentralized structure. The organization creates the
conditions for cross-unit learning and collaboration without undermining the flexibility and
accountability for performance at business unit level. At the same time the peer group process
drives forward performance in what after all is a highly ‘connected’ organization. These are complex
and evolving balances which need continually to be worked on and with. These organizational
changes seek to balance the obvious advantages of scale (e.g. by pooling purchasing volumes via
centralized purchasing) with the benefits of decentralized and horizontal networking, in which
contact between people, above all, provides for learning.

Questions:

Review the BP case presented above.

Does the emergent model usefully explain the series of changes and the change strategy adopted?

Does BP use a planned approach to some changes? If so which and why?

Does the recent BP experience (as reported extensively in the second half of 2006 and early in 2007)
lead you to suppose that these changes to performance management and learning now need
review?