Question

Please study the case study above, and critically discuss change in the company, bearing in mind that that change is a continuous process of redesign and represents an opportunity for organizational renewal to achieve competitive advantage! Case study 1 Learning your way to improved performance: British Petroleum BP Amoco is one of the worlds 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 had been in post since 1996 having worked with BP since leaving university (Browne was 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 superiorsubordinate 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 led the organization to recognize a fifth principle which it has sought to exploit to the fullest possible extent: 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 teachers 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 challenge across 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 underperforming 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 BPs 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 on to 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 con- tact between people, above all, provides for learning.