Organizational transformation at BP: an interview with chairman and CEO Robert Horton.

Robert Horton became Chairman and Chief Executive Officer of British Petroleum (BP) in March, 1990. Prior to that, Horton launched "Project 1990," a study to consider a major organizational transformation of his company. (See Exhibit 1) Project 1990 was rich in human resource (HR) initiatives:

Culture change is serious business at BP. As Horton has stated: The process of cultural change throughout BP is not just about change; it's about how we bring about that change and harness it to the achievement of our objectives. The change process is actively championed by the Chairman who has taken the lead in culture change workshops that are educational in nature. The goals have been to understand the nature of the old as well as the present culture, and to commit to a new BP culture founded on essential behaviors that has been given the label "OPEN" (Open Thinking, Personal Impact, Empowering, and Networking). A core group of culture change advisors and trainers are working throughout the corporation to assist the businesses in their culture change programs.

BP has a substantial commitment to HR strategy. A team of three professionals work with the V.P. for Human Resources in conceptualizing HR programs and policies including culture change, vision and values, and essential behaviors. This team works closely with the BP Corporate Strategy Team to ensure that BP strategy includes appropriate consideration of HR issues.

BP's Individual Development Program (IDP) is a good example of Commitment to HR values. BP established this program more than 15 years ago to provide for the career development and training of a selected group of high potential staff. The program has remained privileged; those selected received careful senior management consideration. The program is designed to ensure corporate resources for its most senior positions. It involves persons whose career development requires a more pluralistic approach, and seeks to provide a source of personnel who are able to operate in senior, general management positions. The programs includes personal development program planning, mentorship, job rotation, internal and external education experiences, and, in some cases, external job postings. There are currently 182 staff members in the program.

BP is charting new territory, but not without risk. The purpose of this interview was to gain in sight on the initiatives and to gather a view of BP's direction.

White : When you became chairman in 1990 you inherited a very successful company. 1989 was an outstanding year for BP financially; however, you launched a very substantial program an change for BP's organization and culture. What prompted you to enact such a fundamental change?

Horton: I believe that the key factor in sustaining competitive advantage in the future will be the ability of BP to release the talents of all our employees. This kind of empowered commitment by our employees, directed toward our vision of being the "Most Successful Oil Company in the World," will enable us to reach this goal.

I must add that there are other people-related factors that brought us to this conclusion. For example, we all recognize that the composition of the work force is changing. This change can be characterised by the shift in attitudes toward more demand for participation in the employment relationship and a need for a redefinition of the balance between work and family life. The increasing shift in the composition of the work force, and increasing numbers of women and ethnic minorities, have highlighted for all employers the benefits that this diversity can bring to our creative solutions to competitive challenges.

Finally, from a personal point of view, I believe that the best way to motivate people is to engage them in the process. Allowing our employees to participate more, I believe, will meet both the needs of our employees and the needs of BP. (See Exhibit 2)

White: From the standpoint of HR, how will you know when you have been successful?

Horton: With Project 1990 we began to do formal corporate listening. BP runs an annual employee survey covering a multitude of employee- and business-related areas, We believe this will serve, over time, to tell us whether we are making progress toward our goal of behavior and culture change. But this is not the only means we have developed. The performance appraisal process has been revised to include a section the employee can suggest ways that the manager can assist in accomplishing objectives. We are piloting, in our exploration business, the use of an "Upward Appraisal" process. In Upward Appraisal, the employee has the opportunity to provide candid/confidential feedback to the manager on a whole range of issues, not least of which is how the manager performing against the identified culturally related behaviors (essential behaviours) that we have developed at BP.

Over the long run, the success of the change will be measured in our ability, to deliver on the business objectives. I firmly believe that with the help of all BP employees we will execute our strategy and meet our business goals. (See Exhibit 3)

White: What are the best ways to change a company's culture?

Horton: This is a controversial question among the academics as well as the various employee groups within BP. Let me state that we are not attempting to change anyone's national culture. We are addressing the organizational organizational, in other words, the way BP wants to relate to our stakeholders around the world, and the way we want to relate to each other. In great measure, we are asking our employees to join with the management team in recognizing the ability of the individual to contribute to the success of the corporation. We are recognizing the strength of individual and Cultural diversity, and, we are asking for a partnership that is based on trust between the individual and the company.

Now let me talk about how we are attempting to implement this partnership. First, we have asked our employees to join us in seeing the future its an environment where contribution and initiative are encouraged. In this regard, we have developed a set of behavioral indicators that describe the new organizational culture - our OPEN behaviors. We introduced these behaviors to our top management through a series of workshops. In these workshops, the managers were asked to work through not only the meaning of the behaviors but how these behaviors would be used in the work place.

The next step is to cascade this message throughout the organization. Our hope is that our managers will be able to relate the culture change to the work being done. By ensuring that the message reaches all employees through this process, each employee will be able to to apply the behaviors in a way that is relevant to them.

These steps are seen as the awareness building stage. We want to explain what we are trying to accomplish and explain why we believe it is important to make changes. It is at this stage that the vision of culture change is tied to the reality of the workplace.

We know, though, that the change can be sustained only if it is recognized and rewarded. We are reviewing and revising where necessary our administrative systems so that they are consistent with the cultural message. For example, our HR systems have been or are being revised to ensure alignment with the cultural message. We have told our employees that performance will be a measure of "how" as well as "what" is accomplished. The how will be measured against the essential behaviors. In addition, in order to avoid falling back into old patterns of behaviors, our promotion and succession systems are being reformulated to put the kind of people in place that reflect culture change, people who exhibit the mastery of our essential behaviors. Over time, then, our systems and our business results will institutionalize the change. Obviously, changing the company culture is not an easy or short process, but it is vital to our success. (See Exhibit 4)

White: Human resource planning is by its very nature a future-oriented concern. What assumptions about BP's future guide HR practices and policies?

Horton: I agree that HR is an investment in the future. This long-term investment must sustain over the peaks and troughs of the business cycle. In order to justify this continuous investment, BP, like any other employer, must have a long-term view of the world and its competitive position. BP has such a view of the world and the industry in which we compete. This serves as the basis upon which our investment in HR is made and sustained.

Having said that, the days when we could put a long- or medium-term strategy in place are over. We must continue to develop flexible strategies, and more importantly, flexible processes for looking at strategic directions. HR strategy must be equally flexible, but must assist in pushing strategic options forward.

White: A common failing is for companies to chart strategic directions and to make business plans without effective consideration of HR needs. How will BP ensure the integration of corporate strategic business planning and HR planning?

Horton: Planning is used to determined what skills, abilities and knowledge will be needed to compete effectively. HR systems are then aligned with the needs analysis. Currently, we are experimenting with bringing the strategic planning function and the HR function closer together. Initially, we included HR elements is our strategic methodology. We asked questions regarding cultural fit and HR deliverability.

Now, through cooperation between the two staff functions, we are preparing systems and methods where the business strategy and the HR strategy can be aligned. Development of analytical tools as well as diagnostic and prescriptive tools is being tested. The next step will be to provide the businesses with the systems to do their own analysis.

White: BP has a good track record in responding successfully to major changes in its operating environment. What HR practice have contributed to BP's success?

Horton: BP has been able to respond successfully to the changes in the environment. We attribute that ability to the quality of our people. We have been able to recruit the very best people and, because of our success, offer them a challenging career with plenty of opportunity for professional diversity among functions. Also, being a worldwide company, we have provided opportunities for international experience. In return, BP people have expressed their loyalty and dedication; they have a high regard for the organization and its goals. It is these qualities that give us the ability to meet the challenge of our changing world.

But we can't become complacent. Our continued ability to respond to change is being challenged, not because our people or our systems are lacking, but because the pace of change is accelerating. Competition is becoming more nimble and technological half-life is forever decreasing. BP, like all other global companies, must find new and better ways to respond to these challenges.

White: BP has stated a strong interest in continuing development for all of its employees. At the same time BP's high potential program (IDP) is widely known as one of the finest of such programs in existence. How do you plan to strengthen your high potential program and yet not "demotivate" your broader population of managers?

Horton: I think you have started to address the answer to questions. BP believes in continuing development for all. This includes managers and nonmanagers. A special task force on employee development studied this question and provided the company with a set of principles which were accepted by the management group. The principles are: development is a shared responsibility between the employer and the employee; development balances the needs of the employee and the employer; the process of development is broadly based and is a career-spanning learning process.

Therefore, we do not see the strengthening of the IDP as tantamount to demotivating the broader population of management staff. Our view is that it is not an either/or option. It may be seen as a system that allows our managers to develop in accordance with their own unique capacity and motivation. Our experience indicates that perceived inequity of treatment leads to demotivation, not individualized treatment based on individual capacity and motivation. We are therefore addressing the whole of the management development process not just IDP.

White: A growing body of research suggests that more flexibility on the part of organizations with regard to family/career balance and to employees' outside interest can lead to richer careers and a more productive work force. How realistic are such practices?

Horton: As you know, this issue is very important to me. It is included as a plank in our vision and value statements. It has been a topic at our management meetings and we have asked not only our managers but also their spouses to consider how we should address this issue.

The correct balance between family and career is a difficult balance to strike because it is such an individual formula. What is clear is that BP management needs to create an environment within which this issues can be addressed. I believe that the best to create this environment is environment is for BP managers to model the behaviors and practices that preach. I, personally, am trying to do just that. It is not easy but I'm looking at it and am encouraging my management team to do the same.

White: Development activities in companies are often ad hoc, or faddish in nature. Companies move in and out of approaches to management development, often without an apparent rationale for their actions. An explanation of this would, in part, seem to be that companies do not have explicit, comprehensive models (from recruitment to retirement) for management development. Is this a matter of concern for BP? What are your plans in this area?

Horton: Let me say that a consistent approach to management development is essential to long-term success. Over the years there have been new approaches introduced and new methods tried, but it is important to distinguish the experimentation and eventual evolution of teaching/learning methods from fads. The difference in my view is the consistency of the underlying visions, and the alignment of the programs with the vision. The other factor that you have alluded to is the need for real and perceived interelatedness between the management development activities and other HR systems. This can he accomplished by sharing the vision and maintaining open communication. thus ensuring that all managers understand the demands placed upon them and the methods used to preserve and reward their achievements. Currently, we are engaged in a study that is looking at our management development process. In light of the significant changes we've made at BP, we believe that it is necessary to redefine our model to ensure that it reflects our business strategy, our culture, and our development principles. Our model will be a comprehensive one that addresses an entire career. All HR systems will be reviewed and included in the model. The goal is to provide a framework for management development that is comprehensive, internally consistent, aligned with the business, and self-monitoring.

Finally we have come to accept that change is constant and the pace of change is increasing. Therefore, we are not looking for the solution," but instead we are building into our systems some learning loops that make renewal and continuous improvement a way of life at BIP. Unless we have a clearly stated and understood model for management development, we will not be able to measure the effectiveness of our management development and culture change efforts.

White: BP has cited certain behavioral characteristics as essential behaviors for its employees. Isn't it more, practical to recruit or identify within the organization those individuals who already demonstrate these behavioral characteristics than to attempt to train or develop those who do not demonstrate the desired behaviors?

Horton: The essential behaviors were developed to portray the kind of organizational culture believe will be most beneficial to all BP stakeholders in the 1990s and beyond. The behaviors contained within the cultural definition are not absent from the population of BP employees. In our workshops and awareness training sessions in the businesses, we are seeing real life/work examples where OPEN Behavior is being used. What we need to do now is to recognize the behaviors when we see them and encourage those employees who demonstrate them.

I need to emphasize the above point because some believe, by implication, that identifying the OPEN, behaviors means that they were not practiced at BP in the past. They certainly were; we're now asking that everyone practice them all of the time. Since I am dealing with implications, there is another matter I need to clear up. The emphasis on the OPEN behaviors does not discount or diminish the wealth of technical and managerial skills required and present within the ranks of BP employees. As I stated earlier, BP is a successful company and its success lies (and will in the future reside) in the quality of its people. What we are saying regarding the OPEN behaviors is that they provide the most appropriate and competitively aligned context within which to practice our technical and managerial skills.

Our OPEN program consists of various behaviors which can be observed, measured, and consequently developed. We have an obligation to explain our expectations (including behavioral requirements) and provide support to our employees during this change. We see the performance appraisal and the employee survey as feedback mechanisms, and training and coaching as the means to help our employees make the transition. In the future, we will be using the OPEN behavior profile to evaluate our recruitment efforts. The profile also will be critical in promotion and other career decisions. We are taking a multi-level approach to the development of the OPEN culture in BP.

Unfortunate]y, even after all these attempts at supporting the change, there still may be people who choose not to change. We believe that this will not be a personal failing but a personal choice. We will understand that choice, and we will help those people find a situation outside of BP which better fits their desires.

White: BP's future leaders will need to be global managers, they will need to introduce and manage new technologies effectively, they will need to manage change, and they will need to manage for surprise and risk. How would you advise new and/or hopeful managers to prepare themselves for such challenges?

Horton: First of all believe that the future will require that people learn to manage paradoxes. Managers in the future will need to manage not only the tactical but also strategic; they will need to be technically competent to handle innovation but be broad enough to work in a multidisciplinary team. They will need the ability to see the environment as a system, continuously evolving. That will require continuous learning and adaptation.

To prepare for such a future, the potential managers must first acquire the right mental attitude - one where change is the status quo and answers are just steps in the right direction of knowledge and professional skills needed to perform the management role.

White: What development programs are you putting in place to prepare BP's future leadership?

Horton: As I commented previously, we have a study underway to review our basic approach to management development. This starts with our vision and values - the business objectives and beliefs upon which all our programs built - and includes our strategy or the way we intend to compare. From these considerations of factors both internal and external to BP, our unique model of management development will be built. This model then will provide the direction for the future. The specifics of the component programs are in various stages of development but I can say that certain key elements will be present in the final design. They include the use of personal development plans for all levels of employees. A topnotch training facility, will provide opportunities to use the best instruction techniques and methods. And, an executive education program linked closely to our current and anticipated business needs is under development.

Underlying our management development model is the belief that BP must be continually improving; it most be a continuous learning organization poised to compete in the global market.

White: organizations, and the environment in which they operate, are changing more and more rapidly. What are the HR practices that will load BP into the 21st century

Horton: Individuals must take the lead in the responsibility for their own development, but those who lead successful organizations must ensure organizational learning. The organization that learns will be the organization that thrives in the 21st century. In my view, we are only beginning to understand how an organization learns. I look forward to an organization period of discovery as we move to enhance our understanding in this vital area.

Exhibit 1

Bp's Project 1990

Robert Horton laid exceptionally careful plans to stage the corporate revolution he has now unleashed within BP, writes Christopher Lorenz. Horton got the BP Board to commission "Project 1990" - a research and consultation process which prepared the revolution - last July, eight months before the retirement 10 days ago of Sir Peter Walters, and even before Horton had been confirmed officially as heir apparent.

Yet the need for change had become patently obvious. BP was bogged down in its own bureaucracy, and its senior staff became increasingly disgruntled - as was revealed at the beginning of 1989 in an opinion survey of its top 150 managers. The survey shocked Walters and his managing directors, not least because over half of the senior staff was unclear about the BP group's five year mission and strategy. Many of the 150 also felt that BP's structure impeded both operational flexibility and collaboration between different businesses.

Such internal criticisms of the effects of BP's near-military regime of committee, commands and controls were taken much further by the 4,000 lower-level respondents to a very broad-ranging questionnaire which was carried out by the Project 1990 team last autumn.

The Walters regime, introduced in 1981 shortly after his accession, was vital in its day: his erection of myriad checks and balances both across BP, and up-and-down its steep hierarchy, rescued the company from its flaccid state at the turn of the decade; before then, much of it had been run, like many large European companies of the time, on an integrated basis which was unwieldy, in spite of the fact that diversification had turned it into an exceedingly complex construct.

The basic elements of the structure which Walters introduced were: clearly-separated international "business streams" (divisions) with their own boards; and negotiated financial relationships at all levels across the business streams, and between them and head office. "It was exactly the right medicine," said one senior American BP manager today.

Yet, as the 1980s progressed, bureaucracy grew as committee was piled on committee, and as the head office involve itself with operational issues in addition to strategic and financial ones.

A hectic divestment programme was meanwhile rendering the degree Of complexity and control increasingly inappropriate. By the late 1980s, from having emcompassed as many as 11 "business streams" in 70 countries, BP's spread and managerial complexity had been stripped back to only four streams: Exploration ("BPX"), Oil (refining and marketing) Chemicals, and Nutrition. With increased emphasis on regional management in Europe, America and the Far East, "an 11x70 matrix can now move towards a 4x3 one," as Horton puts it.

Still, old managerial structures, information, flows, procedures and styles remained largely unchanged. "We spent more time dividing up the pie than trying to make it bigger," said the US executive. The medicine which had once been so potent was turning sour.

The head office also seemed to have become preoccupied with "assettrading" - in other words, with portfolio management through acquisitions and divestures. The effect on internal morale was inevitable, as last autumn's staff questionnaire showed only too clearly.

There was a financial penalty too. Instead of the size and cost of the London head office falling as the portfolio of businesses shrank, it increased by 10 per cent between 1987 and 11089, to more than 5,800 people (2,500 excluding engineering and research). Total UK corporate costs were up from 94 million a year to over 130 last year. They were heading for 150m in 1990 before Horton got to work. Source. Steven Butler, Financial Times, Tuesday, March 20, 1990.

Exhibit 2

BP Vision

BP is a family of businesses principally in oil and gas exploration and production, refining and marketing, chemicals, and nutrition. In everything we do we are committed to creating wealth, always with integrity, in order to reward the stakeholders in BP - our shareholders, our employees, our customers and suppliers, and the community.

We believe in continually developing a style and climate which liberates the talents, enthusiasms, and commitment of all our people. We can then respond positively to the increasing pace of change in a rapid and flexible way to achieve real competitive advantage. With our bold, innovative strategic agenda BP will be the world's most successful oil company in the 1990s and beyond.

Exhibit 4

BP Themes

We recognize our responsibility to manage the assets of BP for the long-term benefit of all stakeholders. We are a technically based commercial company and not primarily an asset trading company, although we will use both acquisitions and divestitures selectively as part of our bold strategic agenda. At all times our values will dictate our investment decisions. This means a style based on openness, direct communication, and care and respect toward the people involved.

Our organization and management processes will be flexible and simple and will encourage clear accountability. We seek to achieve a rapid, responsive style with an outward-looking market focus. All of us, in our professional values, should seek quality and excellence, innovation, and continual learning.

It is natural that a diversity of cultures will exist within the BP family Of interactive business and regional activities. However, we share a common vision and will contribute to a common set of values.

By embracing these values, treating other people as we wish to be treated, and facing up to and dealing with reality in an open and honest way, BP will become the most successful oil company of the 1990s and beyond.

Exhibit 5

R.B. Horton

Robert Horton became Chairman and Chief Executive Officer of The British Petroleum Company p.l.c. on March 11, 1990. He joined BP in 1957, and from 1960 on held a series of positions in oil supply, marketing, finance, and planning. In 1980 he became Chief Executive officer of BP Chemicals International and held that position until December 1983 when he was elected to the BP Board as a Managing Director, with responsibility for Finance, Planning, and the Western Hemisphere. At that time he was also Chairman of BP International, BP Finance International, and the BP Pension Trust. On his election as Chairman and Chief Executive Officer of Standard Oil in April 1986, Horton resigned from BP Following the merger of BP and Standard Oil in July 1987, he was appointed Chief Executive Officer of BP America, Inc. He was reappointed to the BP Board in 1988 and became Deputy Chairman of BP in March 1989. From April 1988 to June 1989, Horton was Chairman of BP America and since 1987, he has been on the Board of the Emerson Electric Company.

He is a Vice-Chairman and a Companion of the British Institute of Management and Chairman of the Tate Gallery Foundation and Business in the Arts. He is a Fellow of The Royal Society of Arts. He is on the Council of British Executive Service Overseas. He is a member of the European Round Table. He is also a Board member of The Cleveland Orchestra and is a member of the Advisory Board of the British-American Chamber of Commerce. He has a close interest in education and is Chancellor of the University of Kent at Canterbury, a Governor of the King's School Canterbury, a member of the Universities Funding Council, and a member of the Boards of the Massachusetts Institute of Technology and Case Western Reserve University.