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Chapter 14 / Enterprise and Global Management of Information Technology ●
1
REAL WORLD
CASE Reinventing IT at BP
A few years ago, the CEO of one of the world’s
largest corporations laid some very tough love on
his 500 top managers. Despite having annual rev-
enue of about $300 billion, BP had become, said CEO Tony
Hayward, “a serial underperformer” that had “promised a
lot but not delivered very much.”
At that March 2008 meeting, those same 500 top BP
managers also heard a Morgan Stanley oil and gas analyst
tell them that while the rest of the energy industry was un-
dertaking rapid change, BP was building a legacy of consist-
ent failure both in finding and extracting new energy, and in
refining and marketing finished products. And unless BP
transformed its entire global business dramatically and rap-
idly, the analyst predicted, “BP will not exist in four to five
years’ time in its current form.”
One of the people in that meeting was Dana Deasy, BP’s
chief information officer and group vice president, who’d
joined the company four months earlier as its first global CIO.
As Deasy listened to the sobering comments from his
CEO and from a highly influential analyst, he thought about
the transformation he had already launched within IT, an
organization he thought had become—like the company
overall—bloated, passive, unfocused, and unconcerned with
performance and accountability.
Deasy wanted to strip out $800 million in expenses from
BP’s overall IT budget of $3 billion; cut in half the more
than 2,000 IT vendors it had; overhaul BP’s ranks of 4,200
IT employees; rationalize and reduce the 8,500 applications
in use at BP worldwide; and turn IT from a tactical services
F IGUR E 14.1
BP has undertaken a major and wide-ranging
transformation of its IT organization.
Source: © Doug Menuez/Getty Images.
581
unit into a business-driven and intimately embedded strate-
gic weapon.
No stranger to challenging CIO roles, Deasy took his
post with full knowledge of the tumultuous times ahead.
“We were several billion dollars behind our competitors in
oil and gas, and there was a real and very pressing concern in
the company due to that,” Deasy says. Another part of the
gap that Tony wanted to see closed was around organiza-
tional simplification: fewer layers of management, smaller
corporate staffs, and deeper talent across key functions.
Although noting that BP at the time had some great
people in IT and some cutting-edge systems for exploration,
Deasy also understood that he was going to have to drive
enormous change in personnel, processes, and objectives
across the entire IT organization in order to support and
enhance the larger overhaul taking place across all of BP.
He saw a fundamental problem with the 4,200 IT em-
ployees BP had. “What was most startling to me about that
number, only 55 percent of those IT professionals were ac-
tually BP-badged. The rest were contractors, he says. “So I
was really struck by the very deep dependency we had on
outside contractors.”
Then there was the complexity that lay behind that $3 bil-
lion IT budget: “That encompassed everything, from the back
office to the coalface,” says Deasy, including everything from
PCs and networks to the IT that supports refineries.
And so in the face of that sprawl in people, budget, priori-
ties, requirements, business objectives, suppliers, and priorities,
and inspired by Hayward’s stark assessment of BP managers
promising more than they delivered, Deasy committed in
late 2007 to a three-year overhaul of every facet of BP’s IT
operations—an overhaul he and his team ultimately com-
pleted in two years.
Now, you might say, “Well, what’s the big deal? Any-
body starting with a $3 billion budget and a lackluster or-
ganization could come in and do a few things and look like a
genius.” That’s naive at best and foolish at worst.
“I viewed this as one of the top 5 CIO jobs in the world,
and I fully understood it was a truly daunting challenge. But
that’s one of the reasons it appealed to me,” Deasy says.
“Could we make this work?”
“The team will say to this day that it’s hard to imagine if we
went back two years and looked at what lay before us that this is
where we’d be today. And so we chuckle about that and say that
if we knew then what we know now about what we’d have to
do, we would’ve said, ‘No, that is just not possible.’ ” The ability
to dig into those kinds of massive challenges, knowing there’s
no “magic answer,” is a big part of the IT culture Deasy sees:
“So when we got the first $400 million in costs out, our people
started to have a completely different strut around themselves
and a new confidence, so that when we said, ‘Hey, do you think
we can find another $400 million?’ they grimaced, but they also
said, ‘Yeah, we can do this. Bring it on.’ ”
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582 ● Module V / Management Challenges
Although he had many urgent challenges, Deasy made
BP’s talent pool his top priority. “We desperately needed a
baseline,” he explains. “If we were going to impose the types
of staggering changes we needed to meet the objectives
CEO Tony Hayward was laying out, then we had to know if
we had the wherewithal to do it.”
There was major turnover within those positions, and
Deasy says the biggest and most significant change involves
the capabilities of the new BP IT organization. “In just
11 months from the time I arrived here at BP, we replaced
80 percent of the top IT leadership within the organization,
with those being the people reporting to me,” Deasy says.
“In the next level down, we replaced 25 percent of global
management in the first year with new people we went out
and selectively targeted and brought into BP. And it was very
inspiring to be told that, yes, you can go out and hire the
best people in the world to help you make this transforma-
tion possible. And that’s exactly what we did.”
In year one, BP’s IT was highly decentralized. “The
company didn’t know it spent $3 billion in total on IT, or
that it had 4,200 people in IT,” Deasy says. “So we decided
the right approach was to go a little draconian, and I just
exerted control over all the people and all the spending.” I
knew that wasn’t the right long-term model or cultural
model for the company, but in the short term I wanted to be
able to get enough control to be able to move to an ‘embed-
ded IT’ model, which we have today.”
Each business unit CIO now works for the business
leader and also reports to Deasy. “Accountability No. 1 for
those CIOs is that they’re there to help deliver enablement
through IT to drive new revenue, and also for helping to
ensure they’re driving standardized shared services to keep
our costs down,” Deasy says.
“With suppliers, I knew we had way too many from all
of our decentralized legacy, and when we tried to round
them up we stopped counting at around 2,200,” he says. It
CASE STUDY QUESTIONS
1. The case mentions the dependence of BP’s IT organiza-
tion on external contractors. Why would this be an issue?
When is it a good idea for IT departments to hire con-
tractors, and when is it not? Discuss some scenarios.
2. The culture of the IT organization is mentioned as an
important issue. How do you think it changed through-
out the period covered here? What did it look like when
Deasy came on board? What does it look like now?
3. How did BP get to the situation mentioned at the be-
ginning of the transformation process? Does it appear
to be the result of a conscious decision? Use examples
from the case to illustrate your answer.
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wasn’t only the sheer number; the 20 largest suppliers ac-
counted for only 30 percent of IT spending, so “we ended
up with a huge tail,” Deasy says.
So in 2009, BP took 65 percent of its annual global IT
spending, about $1.5 billion, and put it up for rebid in one
year. It let BP cut 1,200 IT suppliers, and Deasy estimates it
will end up saving the company $900 million over the next
five years.
Deasy contends that the buyer-seller tension he has cre-
ated is good for both parties, as long as each side is honest
with the other about expectations and objectives. “You’ve
got to be realistic: What’s a vendor’s job over the next five
years? Well, when you strip away all the fancy talk, it’s to
claw back all that money they gave up in our rebids. So in
2010, how do we ensure that we don’t lose the value of the
efficiency play we worked so hard to establish? How can we
take our five application development and application main-
tenance vendors and ensure they keep improving their ser-
vice and delivering more value to us?”
“We just spent two very hard years rebuilding this organi-
zation, and one thing you learn in transforming an organization
is that it’s not a linear process,” he says. “No sooner do you
have contracts done, and they’re effective, and they’re deliv-
ering value, than you have to start the control process again.
“It is not linear—not at all—and that means that once
you get to the enablement phase, you have to resist the
temptation that makes you think you can just live there for-
ever. And believe me, that temptation is very strong. But
you’ve got to resist it and go back and once again begin to
exert control, because by that time the organization is not
the same as the one over which you first exerted control. It’s
a process that has to repeat itself because, as much as it
might appear to be linear, I can assure you that it’s not.”
Source: Adapted from Bob Evans, “BP’s IT Transformation,” Information-
Week, March 8, 2010.
REAL WORLD ACTIVITIES
1. Go online and research the performance of BP since
the time chronicled in the case. Did the transformation
process pay out in the end? What was the role of IT in
the outcome, if any? Prepare a report and compare BP’s
performance with that of their competitors.
2. Go back and reread the last two paragraphs in the case.
What do you think Deasy means when he discusses the
nonlinear and iterative nature of the process? What
does he mean by “temptation”? Break into small groups
with your classmates to discuss these questions.