Communication and leadership: the bp Oil experience
In 1992 BP came as close as it has ever come to disaster. It made a loss. It cut the dividend. For a long-established and reputable international business this was profoundly shocking. This article deals with how BP in general and BP Oil, its refining and marketing business, in particular, moved internal communication from being a soft option to a strategic imperative to help turn the business round. And fundamental to the move was the recognition that communication is a line management responsibility, and that communication is a two-way process between staff and management.
Crucial to the turnaround, as BP’s chairman and former chief executive David Simon says, was the commitment and motivation of the people who work for BP. The challenge was to keep this while transforming the way BP operates. The company had to change from one where employees were protected from the hard facts of commercial life, where a job with BP was a job for life, to a company where knowledge and understanding of performance provide the motivation, where returns and the need to manage costs were accepted as the day-to-day way of working for everyone in the organization, from the managing director to the truck driver.
The results of this new way of behaving are stunning. In less than five years BP’s share price has trebled. Group chief executive David Simon’s original financial targets of cutting debt by $1 billion a year, making $2 billion a year profit and holding capital spending to $5 billion a year were achieved a year early. BP Oil moved from close to bottom to top of the industry league table for return on assets. The business continued to be profitable even while global refining margins, reflecting the difference between the cost of crude oil and the finished product such as gasoline, fell at one stage to their lowest level in ten years.
Background
BP’s downstream business, BP Oil, is one of the three core international businesses in the BP Group. Employing more than 35,000 people around the world it is the face BP presents to the general public. BP Oil operates in 70 countries and is a major brand in 50 of them. The other two main businesses are BP Exploration and BP Chemicals.
BP Oil is a highly developed decentralized organization: it needs to understand its local customers. It has five main regional headquarters. They are in Cleveland in the US, Brussels in Europe, Cape Town in Africa, Singapore in the Far East and Melbourne in Australia.
Each year BP Oil refines the equivalent of Kuwait’s entire crude oil output in its 13 refineries, then distributes and markets the resulting petroleum products to 3 billion customers around the world. Among them are the 5 million motorists who fill up at BP each day, and the world’s major airlines and shipping fleets.
Preparing the ground
The profound change in the way BP does things began long before there was any apparent need. In 1990, the then chairman Robert Horton kicked off the culture change process. The aim was to transform the company culture from one of secrecy to one of openness, from a culture where information is power and therefore jealousy guarded to one where sharing and comparing information becomes second nature. It is a culture based on genuine trust: clearly not something to which a secretive oil company takes naturally.
And while these might have been wonderful concepts in the heady days of the mid to late 1980s when a barrel of oil was worth more than $20 on the open market, it was much more difficult for both management and staff to create a trusting organization at a time when costs had to be drastically cut and people were being made redundant. BP Oil’s core international head office, for example, shrank from 400 people to less than 100 between 1990 and 1995.
Yet the culture change process might never have got off the ground had BP been able to rest on its laurels. Why change if you’re doing well? Then came the events of 1992, with all three of BP’s main activities at the bottom of their business cycles. The resulting financial loss, the high level of debt, the dividend cut – and the profound sense of shock among BP employees at Horton’s resignation – forced the realization that BP was just as vulnerable as any other company even though it had been around for more than 80 years.
Figure 2. 1. Organizational philosophy
T
rust
Learning organization and continuous improvement
The culture change process was launched with the powerful acronym OPEN: This stands for:
openness
personal impact
networking.
That was in 1992 and people in BP are still using it as the embodiment of what BP’s culture should stand for.
A second factor helping to prepare the ground was the result of a global attitude survey. When BP asked its employees where they wanted to get information on their jobs and their company the answer was: ‘The Boss’. This result is echoed in the attitude surveys of most companies. Despite the grapevine, despite the immediacy of electronic mail, people still wanted to hear what was going on from their bosses. That answer held true right round the world, a world that for BP Oil takes in a rich mix of countries and cultures in Europe, the US, the Middle and Far East, Australia and Africa.
Yet where did employees get their information? Here is a sample of responses from line managers:
‘I haven’t got time.’
‘I’m trying to run a business.’
‘There’s a house journal.’
‘They get memos.’
‘We’re on e-mail.’
‘Yes I communicate, I try to hold a meeting once a quarter.’
‘Don’t they read the papers?’
The third factor that made imperative the need for change in the way BP Oil communicated was the sheer impact of technology. Most staff in BP have access to a personal computer and hence to electronic mail. If you can imagine an electronic grapevine linking 35,000 people around the world with gossip and rumour in real time, you will realize as BP Oil’s managers did, that their communication processes had to change. Electronic mail is a very powerful tool. It cannot be ignored, it is there and it has to be managed as part of the communication process.
This combination of bad results, the attitude survey and universal e-mail systems gave BP Oil the tools to unblock communication channels between management and staff.