Strategy with respect to organizational processes
What was BP’s overall strategy with respect to organizational processes since Horton’s appointment as CEO and through Simon’s term? Did this strategy focus on people management and, if yes, in what ways? Was it successful or unsuccessful? How? The information used to answer this question comes from the non-dated article The British Petroleum Company plc written by Geoffrey Jones and updated by April Douglas Gasbarre retrieved from the Internet site Answers. com. At the time Mr. Robert Horton became Chief Executive Officer of British Petroleum in September 1989, the company decided to centre its activities.
Consequently, it focuses on its successful domains in upstream and downstream activities of the oil industry. Upstream activities gather oil and gas exploration, field development, production, pipeline transportation, and gas marketing. Downstream ones are oil supply trading, refining, marketing, and manufacturing of chemicals. This permitted the company to organize its processes into three core businesses: oil exploration and production, oil refining and marketing, and chemicals. The beginning of the new BP’s strategy deals with the launch of Horton’s Project 1990.
It represented a drastic change for BP’s corporate structure. In order to reposition BP to enter the 1990s, Horton imagined and implemented this project aiming to reduce
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We don’t need to have baronial head office departments. This is a fundamentally different way of looking at the way you run the center of the corporation”, we understand that his strategy was focused on people management, but more on a negative aspect. Actually, Horton thought that the organizational restructuring was slowed down by a lack of flexibility due to a heavy bureaucracy. As a result and with Project 1990, corporate center committees have been reduced by 90 percent. It allowed the staff to take more responsibility within the decision-making process.
Instead of being structured by old departments, small flexible teams formed the company using informal ways of communication. BP’s employees called into question the potential success of Project 1990 because it actually implied significant job cuts returning it as a “low morale” strategy. 16 percent of the whole BP’s staff was fired between 1990 and 1992 (19,000 jobs). Employees misunderstood this way of cutting costs because while Horton was eliminating a lot of position in the company, he also decided to maintain BP’s dividend. The CEO was more seen as a money maker than a company’s rescuer.
Consequently, we can consider that the people management of Horton was a failure because a 1991 internal survey provided the result of a loss of faith from many employees facing all those dismissals. As soon as BP suffered from its first-ever quarterly losses, Horton was forced to resign on June 25, 1992. Afterward, Load Ashburton, BP’s nonexecutive director, and Sir David Simon, who became the new CEO of the company, were the new controllers and decision-makers. They paradoxically decided to follow Horton’s plan but accelerating it. They divided the company into three primary divisions: BP Exploration, BP Oil, and BP Chemicals.
The aim was to be able to improve or eliminate assets that were not performing enough. This strategy implied the abandonment of the BP Nutrition activity and the controlling stake in BP Canada. Objectives were to reduce debt by $1 billion each year and to invest $5 billion annually on capital projects. The previous paragraph dealt with Simon’s new strategy to improve BP’s situation. Concerning the costs’ reduction, 9,000 other persons have been fired between 1993 and 1995 knowing that Simon’s objective was to reduce the employment to 50,000 staff members.
Thus, this adapted people management unfortunately brought bad news for the company: it wasn’t any more the star company among oil ones. But a good point that we can underline here is that Simon understood the need of reducing dividends’ distribution. Still being reluctant to it, he divided it by two. Simon was aware that reducing the workforce was not the only one solution to reduce costs, so he used a strategy of partnerships: for instance, in 1996, Simon signed a merger with Mobil Corporation concerning the European refining and marketing activities.
But those practices were not enough to completely boost employees’ morale and the management of BP’s people was very difficult for the new CEO. He was saved thanks to oil price increases which permit to reach a sales’ record of $76. 6 billion in 1996 (Jones & Dougal Gasbarre, n. d. ). Describe first Horton’s and then Simon’s leadership styles. Identify the differences, if any, between them. How do you perceive these two leaders and, in view of class readings and discussions, how appropriate or inappropriate in your opinion their actions might have been?