Simon And Browne's Vision For Bp example essay topic

When Robert Horton left his position as Chairman and CEO of BP, the company was in financial trouble and the employee morale was notably low. The company was experiencing losses, the debt-to-equity ratio was out of control, and the company had positioned itself in so many diverse markets that most of the employees had no idea what the company mission and goals were. When David Simon took over as CEO, he was faced with the daunting task of turning the wayward company around. Simon accomplished this task for three reasons: he diagnosed and modified the organizational culture; he possessed important leadership skills; and he knew how to motivate employees. One of the biggest deficiencies of Horton's management was his attempt to Americanize the BP culture. Britain was not ready for Horton's high profile leadership style and in his attempt to rid BP of the top heavy and stuffy management he left a feeling that the change was being imposed rather than nurtured.

Through continually cutting costs, Horton's strategy became equivalent to downsizing and the employee morale continued to deteriorate. In addition, it was not feasible to expect a company to change its culture overnight as Horton tried to do and imposing the culture of another country did not go over well either. When Simon entered, he recognized that the strategy was not necessarily the problem but that the management style and culture had to change. There were certain conditions present that were conducive to facilitating change at BP and in turn made Simon's job slightly easier. The company was experiencing a crisis in their financial health which really drew attention to the consequences of the current culture. A sudden turnover in leadership allowed Simon to step in at the optimal time to begin changing the culture.

In addition, Horton left a weak culture that employees wanted to change (Hunsaker 325). A combination of these factors and Simon's vision for change allowed BP to transform under the reigns of a new CEO. One of Simon's greatest advantages was that he was a leader not just a manager. Simon possessed many essential leadership traits such as knowledge of the business, honesty and integrity, and drive (Hunsaker 369). The case highlights Simon's great knowledge of the business with a quote from a colleague who said "he knows the figures like the night sky". His honesty and integrity were shown through his ability to make hard decisions that were not always popular but still keep the support of his employees.

The drive Simon possessed was magnified through his years of school and his progression through the company. The case illustrates Simon's drive with the story of him being told by a teacher that he should go into industry. She was implying he was not an intellectual but this criticism only fueled his drive. These are just a few of the characteristics Simon possessed in addition to being a good communicator and being able to inspire trust. In addition to possessing these leadership skills, Simon also possessed the skills necessary to motivate his employees to perform at their highest capacity.

A recurring employee complaint was the ambiguous nature of company goals. The case tells us that in order to alleviate this, Simon set simple goals which were achievable in the short-term so that employees could see their progress. Not only was this a way to enhance employees commitment to goals but it also helped reward the employees in timely manner. Simon also had the ability to empower his employees to achieve as he was described as having a "sophisticated and unique talent for guiding people without them really knowing he is doing it" (Davidson). All of the examples mentioned above worked well for Simon because he was able to excite employees and get them all working toward the same goal. By doing this he changed the culture of BP and in time improved overall company performance.

Although Simon did great things for BP, his approach was not without flaw. One thing Simon could have done better was to concentrate more on the company's long-term strategy. It could be argued that with such a strong focus on reducing costs in a limited number of assets, Simon focused too narrowly on short-term results and thus the sustainability of his strategy is questionable. This intense focus was in spite of the realization that most of BP's oil fields were rapidly approaching maturity and that several of the previously planned areas of expansion posed both technical risks and political instability. Simon and Browne's vision for BP was not for BP to be the biggest company in the oil industry but to be the best performer in their market. The case states that in order to do this, Brown wanted to create an organization with distinctive assets that competitors would have difficulty replicating.

According to David Knott, "His [Simon's] No. 1 priority was to improve profitability of the asset base". Distinctive assets included oil fields, technology, relationships and even the company culture. We are told in the case that Browne knew continuous development would have to take place both in the organization and management processes and through the encouragement of personal initiative and creativity in order to achieve this goal. It was decided that BP needed to narrow its focus to finding, extracting, shipping, refining, converting and selling petroleum (Davidson). By selling off the non-performing assets and flattening the organization, BP employees were given a chance to increase initiative and creativity. During the 1980's it was very popular for company's to invest in diversified markets.

BP's focus on diversification in the 80's was not that different from many other oil companies but for BP it resulted in out of control costs and poor or no return on their assets. In addition, the diversification created a sense of detachment from the company mission and goals. In order to get the company back on track Simon and Browne worked to make BP into an "asset based organization". To do this they had to carefully examine the assets they currently had and determine which ones were worth keeping and which ones needed to be sold. In 1992 the company had asset sales of $1.5 billion and was able to pay down some of their debt and begin to get back to focusing on their core competencies (Knott). With the assets that remained they wanted to figure out a way to make them grow faster than those of competitors (Guyan).

One specific goal of BP was to "outperform Exxon in return on capital, a key performance measure in the oil industry and one by which Exxon has done consistently well" (Bahree). Return on capital is a ratio used to measure how effectively management is using its capital and therefore results in a focus on the balance sheet and the use of assets and the control of debt. One example of how Simon and Browne worked toward and "asset based organization" was shown in there selling around $4 billion worth of exploration and production assets over a three year period in order to reduce the cost of each barrel by $2 (Bahree). By reducing their cost per barrel it gave them a cushion so that they could ride out future drops in gas prices without loosing all of their profit.

The transformation process at BP took so long to get underway because the culture of a company is something that develops over time and changing that culture can be very hard to do. As the case points out, Horton was correct in assessing that change needed to take place at BP, however, he was wrong in the way that he tried to implement it. His management style impeded the changes that BP needed and caused the company to take longer in getting where it needed to be. The case describes Horton as having an abrasive management style and trying to impose change on the organization rather than foster it. Horton's management style did not excite employees and get them involved with the change. Instead, it made employees resistant to change and in effect hurt the productivity of the company.

With that said, through all the ups and downs of the oil industry, BP was constantly transforming itself and eventually evolved into a successful company. The oil industry has always been very volatile and it is natural that it would take a long time for a company in this industry to find their place. If BP had simply adapted to each market change they were faced with the results would probably have been short lived. By constantly evolving into a thriving company, BP should be able to maintain the success they have achieved.

It was during the 70's that OPEC gained international dominance and acquired a major say in the pricing of crude oil on world markets. The 1973 Arab oil embargo and the 1979 Iranian Revolution along with market imbalances led to steep increases in oil prices (OPEC). As a result their were general changes in attitudes towards sources of energy as gas stations shut down from shortages, the types of autos being purchased shifted to more fuel efficient types, and there became a focus on alternate sources of energy (Alternative). For the reasons listed above it seems the only possible choice that oil companies had was to look to new alternatives for generating profits in an industry that was obviously in trouble. When companies diversify, they have normally have segments of the company that generate large cash flows and they use this money for the investments into other segments in hopes that these investments will take off and start producing cash flows of their own. Often, though, the investments have little or no returns and companies can end up losing large amounts of money.

This is what happened to BP. They had entered so many different markets that their costs were out of control and they had to use the cash from the profitable markets to keep the under performing units going. When the oil industry started faltering this caused big problems and as a result there profits started decreasing. In 1992, a decrease in profits by 85% from the previous year, in addition employees complained that they had become so diversified that they were unsure of what the company goals were triggered the directors of BP to push Horton to resign and ultimately set in motion the cultural change that took place at BP.

Bibliography

Alternative Energy Lifestyles... BP home page. 29 November 2004.
Bahree, Bhushan. "Upbeat BP Sees Big Asset Sales, Spending Spree In Next 3 Years". Wall Street Journal 16 July 1999: A 10.
Davidson, Andrew. "The Davidson Interview: David Simon". Management Today July 1995: 46-48.
Florent-Treacy, Elizabeth. "British Petroleum: Transformational Leadership in a Transnational Organization". Fontainebleau, France: INSEAD, 1997.
Guyan, Janet. "When John Browne talks, big oil listens". Fortune 5 July 1999: 116-120.
Hunsaker, Phillip L. Training in Management Skills. New Jersey: Prentice Hall, 2001.
Knott, David. "British Petroleum maps strategy for continued gains". Oil & Gas Journal 91 (1993): 25-29.
OPEC home page. 29 November 2004.