Organizational Structure:

Read the below Case 8: BP: Organizational Structure and Management Systems (R.M. Grant, Contemporary Strategy Analysis, 10th ed. Wiley, 2019, p.455).

When John Browne stepped down as CEO at BP plc in January 2007, he was credited with having transformed an inefficient, bureaucratic, state-owned oil company into the worlds most dynamic, entrepreneurial, performance-focused, and environmentally aware oil and gas major. Since taking up the job in 1995, BPs market capitalization had increased fivefold and its earnings per share by 600%.

Even before Brownes departure, BPs fall from grace had already commenced. Concerns over BPs HSE (health, safety, and environmental) management had been circulating for years. However, in March 2005 disaster struck: an explosion at BPs Texas City refinery killed 15 employees. This was the first of a series of catastrophes that destroyed the companys reputation and threatened its very survival.

In 2006, a corroded pipeline from BPs huge Alaskan oilfield leaked 4800 barrels of oil. Then in March 2009, BP was fined for safety violations at its Toledo refinery. The next month, an explosion on Transoceans Deepwater Horizon oilrig drilling BPs Macondo oil well in the Gulf of Mexico killed 11 workers and caused one of the worst environmental disasters in US history. The company took an accounting charge of $37.2 billion to cover the likely costs of the cleanup, compensation, and legal penalties, but by 2018 these costs had reached $65 billion.

BPs troubles extended beyond its safety and environmental mishaps. Between 2003 and 2013, BPs trading activities in the crude oil, gasoline, propane, and natural gas markets were investigated by US regulators, resulting in a series of fines. In Russia, BP was hit, first, by a dispute with its joint venture partner, TNK, and then from the declining value of its 20% stake in Rosneft following Western sanctions on Russia.

In the recriminations that followed the Texas City and Gulf of Mexico disasters, attention increasingly focused upon the organizational structure, management systems, and corporateculture that had developed at BP during John Brownes tenure. The management system developed by Browne had produced what the Financial Times described as the most swashbuckling, the most entrepreneurial, the most creative of the worlds biggest oil companies. Was it also the most accident prone and, more generally, was it suited to the circumstances and needs of the petroleum industry?

The Performance Management System:

A basic principle of BPs management system was decentralized, personalized responsibility:

Under the Management Framework, authority is delegated, but accountability is not. Delegations of authority flow from the shareholders to the Board of Directors to the Group Chief Executive and down throughout BP. BPs philosophy is to delegate authority to the lowest appropriate point in the organizationa single point of accountability. The single point of accountability is always a person, as opposed to an organization, committee, or other group of people, who manages performance through monitoring and intervention. Those higher in the chain of delegation monitor this performance and report up the line of delegation to meet their accountabilities. This structure reflects BPs philosophy that leadership monitors but does not supervise the business; leadership only supervises the people who report directly to them. BPs Management Framework is evident at every level of the organization. Its concepts of delegation and accountability begin with the shareholders and extend through each level of the organization.

The relationship between top management and the business units was governed by a performance contract: an agreement between the head of the business unit and the corporate center over the performance that the business would deliver in the year ahead. While the performance targets included strategic and operational goals including HSE objectivesthe primary emphasis was on four financial targets: profit before tax, cash flow, investment, and return on invested capital.

Performance goals for the year were proposed by the business unit head after discussions, first with his/her own management team and, second, with the other business unit heads within the peer group. BP encouraged the business unit heads within each peer group to support and encourage one another. There was a particular responsibility for the top three units in each peer group to assist the performance of the bottom three.

Each business unit then discussed its performance targets with top management. The outcome was a performance contract. Once a performance contract was agreed, the business unit leader was free to pursue them in whatever way he or she found appropriate. The monitoring of performance targets involved a quarterly meeting between top management and the business unit leader. There is an understanding here . . . that this is a performance culture and either you deliver or you dont, explained one senior executive. Failure to achieve performance targets often meant reassignment to another job or termination.

Performance contracts were given to all managers within BP from the CEO down and were a key determinant of a managers annual bonus.

Questions:

The disastrous explosions at BPs Texas City refinery and its Macondo oil well in the Gulf of Mexico have drawn attention to the organizational structure and management system created at BP by former CEO John Browne.

Discuss to what extent Brownes new model created the conditions for these accidents and was this model appropriate to the industry in which BP competed? Explain in details.

What structure is used in your organization and is this model appropriate to the industry in which you work? Explain in details.

Requirements:

References:

1- Please use Grant, R. M. (2019). Contemporary strategy analysis. John Wiley & Sons. Chapter 6 Organization Structure and Management Systems: The Fundamentals of Strategy Implementation in Contemporary Strategy Analysis.

2- Daft, R., & Lewin, A. (1993). Where are the theories for the new organizational forms? Organization Science 3, 16. https://www.insead.edu/sites/default/files/assets/faculty-personal-site/quy-huy/documents/AMR%20new%20theories%20of%20organizations%20Intro%20april%202011%20(7).pdf

3- Wade, J. (2014). Reinventing organizations: A guide to creating organizations inspired by the next stage of human consciousness. Journal of Transpersonal Psychology, 46(2), 255256. https://www.researchgate.net/publication/341376251_Book_Review_Reinventing_Organizations_A_Guide_to_Creating_Organizations_Inspired_by_the_Next_Stage_in_Human_Consciousness_by_Frederic_Laloux

4- Di Muro, P., Lecoeuvre, L., & Turner, R. (2021). Ambidextrous strategy and execution in entrepreneurial project-oriented organizations: The case of Pagani supercars. International Journal of Project Management, 39(1), 45. https://doi.org/10.1016/j.ijproman.2020.09.006

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