transformation of BP
..., we should consider some insight into the oil and gas industry as a whole at this point, as well as BP’s current situation; and how they are affected. We will then consider the measures taken by BP as an organization to help solve several of these issues. Perhaps the most notable issue involved in this case deals with a changing relationship between the oil industry with which BP competes, and society as a whole. At one time, BP, and its industry rivals were considered to be a highly prestigious; this view began to erode over time to the point where one could describe the relationship between the two sides as extremely tense. Society not only was demanding products of energy, it was doing so with the assertion that it must be produced harmlessly. Tensions were further severed in 1989 with the Exxon Valdez oil spill in Alaska, and again in 1995 during the Shell Brentspar incident. The tension between society, and the oil industry could be broken down into two basic areas; the societal impact of the extraction of oil, and the emissions during the refining and consumption of fuel. This tension became a direct issue for BP in 1997 when the company was accused by Amnesty International, an NGO, of funding private armies in Columbia, the spot of a recent oil discovery. The army BP was accused of funding, as Amnesty contested, was guilty of numerous extrajudicial torturing and executions—in some cases of civilians. As a direct result of this situation, BP’s reputation was badly tarnished. While the company did deny all of the allegations, managers were well aware that a change had to be made with regard to how the organization dealt with local communities, governments, and citizens. Out of this scandal came a new program designed by Browne dubbed “A Force for Good.” The intent of the program was relatively simple—it was designed to effectively rectify the corporate image of BP. Effectively, one could call this initiative an “investment in reputation.” John Browne notes this objective when he states that he believes: “There is, I believe, no conflict between investing in reputation and creating long-term shareholder value.” Specifically, A Force for Good focused on four specific areas with which the organization could build its reputation. These areas include: Safety (the basic principle that people should return home from work the same way they left), the Natural Environment (idea that companies must show they will take responsibility for their actions), community (idea that businesses should invest in the community from which their employees have come so as to narrow the gap between life in and outside the company), and lastly bias (the concept that all people should be treated with respect, and afforded a workplace free from discrimination of any kind.) Browne also outlined several key steps for supporting his imitative which included controlling BP’s emissions, funding continued scientific research, exploring opportunities for joint implementation, to develop alternative fuels for the long-term future, and to participate in public policy discussions about their industry. Lastly, Browne also took the bold step of withdrawing BP from the Global Climate Coalition, a lobbying group based out of Washington DC. Though there were many skeptics, Browne saw success from his initiatives roughly a year later when BP was formally recognized for its bold moves in a feature story about the company in Oil & Gas Journal. These successes did not come without several challenges and issues that still existed however. Of note, there were several distinct issues and challenges facing BP at this point. These included an unproven ability to achieve short-term returns amid a strategy of long-term growth, as well as a questionable financial situation. I say questionable because of a few key statistics relating to BP’s financial situation existed; notably the fact that 90% of BP shareholders were individual investors, and that BP posted a Q3 of the year 2000 net debt-to-capital ratio of 25%, which represented a raise of 6% over the prior quarter. Further, their stock was also trading at a discount to their rivals such as Exxon-Mobil. Another issue facing BP at this time was an inability to focus on the top line while also growing the ROCE. Finally, BP is faced with two key issues at this point. The first being that they must answer the question regarding whether or not the public and private sectors would be able to unite and work together despite their contrasting views. The second being that BP must confront the changing interface of the industry, and determine what effect, if any, it will have on their business, and what opportunities and threats may result from the changes. Further, they must figure out how to take advantage of such potential opportunities that are created, and how to neutralize the potential threats before they are adversely affected. In addition to all of this, financial analysts were also very skeptical about BP’s ability to achieve their projected target of having 10% annual earnings. So what was BP’s response to all of the challenges and issues they are currently faced with? Simple, do exactly what they had done in the past; reorganize the business. The reorganization of the business that resulted from the aforementioned challenges was dubbed, by John Browne, as “The Reorganization of 2001.” Under this restructuring, several notable steps were taken; four of key interest to us with regard to this case. The first key step taken was the consolidation of the company’s large quantity of business units. Under this idea, for example, BP’s four units in Alaska were consolidated into one unit that shared resources, and drilling capacity. Additionally, the unit also operated in a single reputational environment, and a single taxation environment as well. The second measure taken under this restructuring was a change in the roles of BP’s company Vice-Presidents. Prior to the restructuring, all VP’s were located in a single location, notably London for BP, and operated from there. Additionally, they did not retain direct accountability over any given business unit; but were merely held accountable for the success or failure of them as a whole. Under this new plan, each VP was made personally accountable for the overall sum of their business units. Further, they were relocated to offices within the regions of the world that the specific VP was in charge of. This was done notably to give BP a more “localized” face overall. Continuing with this basic principle was the third key aspect of the reorganization of 2001, the placing of a greater emphasis on strong local relationships. The basic principle here was that the regional VP’s outlined previously were expected to help grow their portions of the business, and as such establish long-lasting strong local relationships. This was done with the hope that the localized base created would help make the company more sensitive to localized issues, and the feelings of the local community; and further to create or discover new opportunities as a result; and prevent things like the Amnesty Scandal from occurring again. The final aspect of the business that was restructured during this reorganization dealt primarily with the consolidation and strengthening of BP’s functional areas. This included the creation of a full-time marketing director position that was made directly responsible for the strategic aspects of the business relating to areas such as promotion, and sales & distribution. Additionally, a technology group was created to deal with all specific strategic goals relating to the technology aspects of BP; specifically the areas of technological development, and technology as it related to the deployment of people. These four critical areas represent the key steps taken by BP Chief Executive John Browne during the reorganization of 2001 in hopes that it would help correct several of the challenges and issues they faced prior to the reorganization as outlined in a prior section of this analysis. There is only one real question left to answer now in concluding our analysis—were the measures taken by BP enough, or even correct as a response to the challenges and issues that the organization had been facing? To best answer this, I feel that utilizing the SWOT analysis technique is the best approach. This will show us the basic strengths, weaknesses, opportunities and threats associated with BP after their 2001 reorganization plan was put into effect. We will then be able to analyze this information and best be able to infer if the steps taken by BP were indeed adequate, or even correct as a way with which to deal with the challenges and issues the organization was facing. It is essential that we note however that, due to the heavy internal focus of this case, two aspects of the SWOT analysis, the strengths and weaknesses sections (the two that deal with the internal corporate environment) will be more applicable to our case at hand then will the third and fourth section of the SWOT analysis that deal primarily with the external industry area. First, let’s take a look at the strengths possessed by BP at this point. I believe there two be three notable strengths. First, BP has created an integrated system to better handle localized management. This is a clear strength as BP is able to provide a “face” to the local communities with which they operate; and are often able to discover and/or take advantage of opportunities they otherwise may not have been aware of. Gaining support of local governments is also eased in that they will be more willing to deal with a business who appears to be in it “for the long haul” and having a local branch can help show this very idea. Second, BP has its three original core concepts as strengths. Recall, they included small group work, knowledge through learning, and a focus on reputation. Continuing to follow these basic guidelines and principles has helped BP to retain the core values that had make them unique and successful early in their heritage; and to retain them as they reorganize for the future. The final strength lies in BP’s deep (and strong) business portfolio. BP boasts a deep business portfolio of five notable brands (ARAL, AM/PM, BP, ARCO, and Castrol) that allow them to leverage the vast size and resources that result from their deep portfolio into a sustainable competitive advantage that they can use against their rivals. The next portion of the SWOT analysis we shall concern ourselves with is the weaknesses section. Here, I believe BP can be cited for two notable weaknesses. The first deals with their reputation and dealings in unregulated areas of the market place. As the case notes, judgements with regard to such areas can critically affect the reputation of the company and as such there is a huge potential for error. This can be construed as a weakness for BP as the organization as one bad call within this area could completely hinder or negate the effects of the reorganization and as such, BP must avoid this weakness at all costs. The second notable area of weakness associated with this case deals with BP and their government building capacity. This idea is best illustrated through the example when John Browne, in the case, discusses dealings within Trinidad. The idea here is effectively that BP must be able to partner with regional governments in order to be successful; as they felt their role in the was specifically with the recruitment and training areas. This can be construed as a weakness because the success of this plan essentially hinges on BP gaining the support of the local and regional governments. If this is not possible, then BP will have trouble, or not be able to achieve this aspect of their plans. These two key areas depict the two notable areas of weakness I felt evident with BP. Next we will examine the opportunities portion of the SWOT analysis. Here, I believe there are two distinct areas of opportunity for BP. The first deals with opportunities on the local level. Recall, that the Reorganization of 2001 vastly enhanced BP’s ability to conduct business on the localized levels. With this comes the opportunity for the local branches/divisions to build lasting relationships with governments, and other potential local partners—an opportunity that hadn’t existed under BP’s old organizational structure. The ability to do this successfully will no doubt lead to sustainable...