BP- A Case Study

(BP, 2017)

As an upcoming graduate of the University of Alaska’s MBA program, I have had to consider the type of organization I would like to work for in the future. BP is an ideal company, as they operate in a thriving industry in my home state, Alaska.  Being part of a state that is largely dependent on oil production, I feel a particular interest in applying my knowledge and experience into something that will help support the local economy in a meaningful way. BP has a culture that is built around supporting employees to do their best, which is an attribute that I look for as well in a company. The following case study will examine the organization, a problem that the organization is facing, and proposed solutions that can be considered.

Organizational Description

History

Source: History Channel Website

BP is a worldwide organization that operates in over 70 countries and mainly aims to provide oil and gas products to its customers. After the company’s first 1908 oil find in Persia, BP has evolved into a socially and responsible oil company that relies on technology, research and development, and alternative energy to remain competitive in the industry (BP, 2017). Along with most oil companies, BP is under frequent scrutiny for past environmental disasters such as Deepwater Horizon and general environmental issues associated with oil extraction and production, but they have taken several steps to regain trust from customers.

After the Deepwater Horizon accident, the organization has committed itself to looking investing in safer practices to protect both employees and the environment. BP also devotes money into the research and development of alternative energy, such as biofuels and wind energy (BP, 2017). The safety and alternative efforts has led to BP’s emergence as a leader on technology and innovation in the oil industry, keeping social demand and regulation in mind for future planning.

Values/Vision

Instead of a mission statement, BP follows a set of core values to support the type of culture that has been developed within the organization: (BP, 2017)

• Safety- for the environment, workforce,and communities that are involved with BP
• Respect- BP observes rules and regulation and upholds their practices to a high ethical standard
• Excellence- to produce optimal products, rules, and safety are regulated at BP. The organization doesn’t let problems become disasters.
• Courage- BP encourages employees to speak up and step up about issues or opportunities in the industry.
• One Team- Setting personal success aside, BP knows that collaborate achieves more progress.

BP has also established a code of conduct to be followed by BP employees, which ensures that daily operations and overall goals capture the essence of the values:

“We are committed to safety, protecting the environment and respecting the communities in which we operate. We are committed to avoiding damage to the environment and related impacts on communities. Our health, safety, security and environment (HSSE) goals are: no accidents, no harm to people and no damage to the environment” (BP, 2017).

Organizational Structure

BP currently operates in over 70 countries and as of 2015 employs about 80,000 individuals (BP, 2017). With the company’s large geographical reach, the organizational structure has had to adapt to a hybrid structure to ensure that both upstream and downstream activities are cohesive among each division and location. The hybrid organizational structure is comprised of both functional and regional division, which helps the business remain flexible and responsive to the industry and customer’s needs (The Official Board, 2017).

BP’s activities are diverse, ranging from oil exploration, R&D of efficient processes, and manufacturing products to distribute. It is important to BP that the numerous divisions remain cohesive with each other- the organization oversees the finished product from its raw material to the processing stage, and the logistics behind the organization’s work need to remain elastic in order to offer competitive prices in the oil and gas industry.

BP’s organizational structure is complex, but they retain a level of order through a traditional board of 9 executive members including the CEO Bob Dudley, CFO Brian Gilvary, and executives for upstream, downstream, and alternative energy activities. The flexibility of BP comes from the hybrid structure accompanied by the executive team. The organization relies on both a vertical and horizontal structure to oversee the various activities and ensure that operations are efficient from the raw material to the finished product (The Economist, 2009). See Appendix B for the likely structure of the company’s organizational chart.

Organizational Culture

A graphic from BP’s code of conduct webpage- outlining areas of concern during decision making

The organizational culture at BP is based on the set of core values previously mentioned. The attributes of the values have a clear theme: finding ways to innovate and produce the best oil-based goods in a safe, team environment. Employees that work for BP are driven by a respectful environment that encourages new ideas that improve current operations within the exploration, extraction, and manufacturing processes. With the idea of improvement on employee’s mind, they also look to the future and are concerned BP’s expansion into alternative energy (BP, 2017). Employee and environmental safety is also a concern that shapes BP’s culture, and employees are involved in measures such as the Marine Well Containment Company and the Helix Well Containment Group to help prevent extreme damage in a spill or accident (Koch, 2015).

While the culture promotes innovation and improvement at BP, employees’ activities are still monitored closely to ensure that regulations are being met. Activities are checked with an employee self-verification application to ensure that routine activities are upheld in integrity and not forgotten by staff members (Drilling Contractor, 2014). Implementing technology into these self-checks has reduced employee mistakes and safety incidents. The emergence of software and data analytics in the oil industry has allowed BP to create a culture of safety while still encouraging improvement (BP, 2017). Overall, BP has become a leader of technology, which has changed the expectations and prompted the company to remain a safe workplace for employees.

Environment/Industry

BP faces harsh competition from private and government-backed organizations. Closely related competitors are generally considered to be: Royal Dutch Shell, Exxon Mobile, Conoco Philips, and Chevron, which all have a similar global presence when compared to BP.  Private companies are struggling to keep up with OPEC’s low priced barrel cost, causing a price war between all major oil producers. The oil industry is turbulent and unpredictable because of the barrel price, and BP has made changes in efficiency to maintain competitive prices in their product, including data analytics for monitoring and prediction purposes (Harpham, 2016).

The oil and gas industry faces heavy regulation by several government entities. The EPA mandates the Oil Pollution Act, which required companies including BP to create extensive emergency planning in case of a spill or other environmental disaster (EPA, 20017). To regulate extraction processes such as hydraulic fracturing and drilling, the Bureau of Land Management has implemented their own sets of regulations to ensure that operations are performed as safely as possible (Bureau of Land, 2017).

Heavy regulation has been established in the oil and gas industry for several reasons. Environmental accidents can have a detrimental impact on several areas around the world. BP’s worst disaster was Deepwater Horizon, and they not only had to pay heavy fines for their impact, but also boost their response and prevention efforts to meet revised regulation.

Problem & Critical Evaluation

Overall, BP has done a great job in keeping up with social trends and government regulation while still maintaining a viable business model. The main issue with the oil and gas industry is the current barrel price drop due to OPEC’s pricing strategy. BP has done their best to maintain competitive pricing by finding more efficient operating methods, but the OPEC prices still pose a problem in profitability. Referring to the SWOT analysis in Appendix A, BP’s main challenge is staying competitive despite two main factors: continually changing regulation in the industry and the barrel price of oil due to state-backed companies in OPEC. The following recommendations suggest ways for BP to increase revenue and become less dependent on oil products:

Recommendation 1: Lasting Partnerships and Joint Ventures with Other Industry Leaders

BP recently partnered with Ford Motor Company in 2015 and introduced a more efficient car that ran on oil produced by BP that lowers carbon dioxide emissions and solved major heat loss problems that are commonly associated with fuel efficient cars (BP, 2015). This partnership with Ford gave BP more credibility in the alternative energy industry because they were able to help produce the Ecoboost engine that is currently in most Ford vehicles.

(BP, 2014)

BP doesn’t have to stay in the transportation industry when it comes to continuing partnerships. The company should consider branching out into the IT industry, where they could help solve data analytic issues for companies and help introduce more efficient methods to existing operations. Data collection in BP ranges from the use of drones to built in sensors on equipment and storage containers (BP, 2014 and Harpham, 2016).  They were able to upgrade their own systems in terms of prediction and monitoring, and I think any manufacturing company could benefit from a similar model from BP.

Partnering with companies in industries other than oil and gas can help diversify BP’s revenue model. Right now, BP is too dependent on oil extraction and manufacturing and it is causing noticeable concern for profits – they depend on a high barrel price of oil. A diversification effort can be related to a diversified stock portfolio: many financial companies choose to invest their client’s capital in several industries and companies to help protect the fund if one area takes a hit in stock price. This is how BP should think of their own business activities, placing all bets in oil is not working for them anymore. A new focus should be placed on partnership and new industry.

Recommendation 2: Put a Larger Emphasis on Alternative Energy Development

As stated in Recommendation 1, BP is too dependent on their oil products. The company has already made efforts in research and development for alternative energy, but it still remains a small focus compared to their traditional oil production mindset. Being a leader in the oil industry and development, BP has made progress with biofuels and wind energy, but this type of energy development can be taken further (BP, 2017).

The shift into alternative energy can also create a new market segment that BP currently doesn’t reach well. Many consumers would choose to pay a premium for environmentally safe energy, and BP’s first mover mindset could make them an authority on developed alternatives. Again, this recommendation is closely tied with Recommendation 1: if BP were to partner closely with a green company, they could find an alternative that meets a new segment. The energy development would be more trusted if a partnership was developed because it would give recognition from an already trusted source.

Recommendation 3: Increase Awareness of Environmental Efforts and R&D – Improve Public Relation Efforts

In recent years, BP has made strong improvements to their public relations and communication with the public. After both the Deepwater Horizon scandal and the general disposition that oil companies earned, BP has had to build relationships and prove that they are a brand worth investing in and supporting.

One way to boost BP’s image is to create a stronger social media campaign that highlights improvements on processes, environmental efforts, and progress on employee safety. Social media platforms reach a broad segment of today’s world and BP should capitalize on the audience available to them. BP makes good efforts to help local communities and to improve current operations, but they often fail to showcase these activities.

The information found on their website is useful but not as readily available as a post on social media. For example, BP has a large presence in Alaska as a donor and contributor to local activities. As a current student and resident of Alaska, I had no idea about half of the yearly contributions BP makes in the state.  BP offers awards to teachers, scholarships to students, and supports building construction on the University of Alaska campuses (BP, 2017). I knew about one of the scholarships, but had no idea of the other activities BP has invested in throughout Alaska. A media campaign on social media would help boost awareness of overall efforts and ultimately boost the brands reputation and image.

Implications for Management Practice and Conclusion

(BP, 2017)

BP operates within the oil and gas sector, and they face a turbulent and uncertain market for their product. The company has been innovative in methods for extraction, production, and monitoring their operations. To remain profitable as a company, BP needs to branch out of their main focus: oil. The three recommendations suggested are feasible and would just be an extension of existing capabilities that BP currently works with. Stronger efforts need to be made that focus on new segments, which can be done through new partnerships outside of the oil, gas, and transportation sectors and establishing a better focus on viable alternative energy.

To create more partnerships and branch out of the oil industry, BP should introduce their IT technology to multiple manufacturing firms and offer them a solution to monitor and predict in an effort to save money. The IT team and marketing team at BP will need to work together to help establish the company as an authority on efficiency standards in any type of manufacturing.

The second recommendation was to place a higher priority on alternative energy development. BP already invests time and money into R&D efforts, but their only viable products came from the Ford partnership and their small work with wind energy. With the big competition associated with oil, BP should look outside of the main industry for profits. BP’s engineers should work on finding innovative solutions to energy that can be mass produced and affordable to their target market. The culture of innovation and improvement already exists within BP, but the focus should include alternative energy along with improving traditional oil operations.

The final recommendation is to increase awareness of new research to improve brand image. Utilizing social media platforms is a great, affordable way for BP to reach an audience. The best part is that BP already has a large presence on platforms such as Facebook, with almost 1 million followers on BP America, and 300,000 followers on BP and BP UK’s pages. Many companies are lowering their media budget because of the emergence of social media marketing. And BP can develop innovative campaigns that highlight the improvements they are making. These efforts would not only reduce the threats they face as a company, but build a strong brand image, which can be difficult to do in the oil and gas industry.

BP is an organization that continues to improve their industry by offering cleaner solutions and minimizing their environmental impact each year. The organization is a leader in providing oil and gas, but they have the opportunity to diversify into different industries and improve their own brand image. Following the three recommendations will help boost revenue and maintain a positive image for each segment they serve.

Appendix A- SWOT

Appendix B- Organizational Chart

· The organizational chart is based on both information gathered from BP’s website and theofficalboard.com

 

Sources

BP. (2017). BP’s technology strategy. Retrieved February 15, 2017 from BP. http://www.bp.com/en/global/corporate/technology/technology-strategy.html

BP. (2015). Driving force behind vehicle technology. Retrieved February 15, 2017 from BP. http://www.bp.com/en/global/corporate/bp-magazine/innovations/cars-of-the-future.html

BP.(2017). Code of conduct. Retrieved February 18, 2017 from BP. http://www.bp.com/en/global/corporate/about-bp/people-and-values/code-of-conduct.html

BP. (2014). Drones provide eyes in the skies. Retrieved February 18, 2017. http://www.bp.com/en/global/corporate/bp-magazine/innovations/drones-provide-bp-eyes-in-the-skies.html

BP. (2017). Our history. Retrieved March 1, 2017 from BP. http://www.bp.com/en/global/corporate/about-bp/our-history.html

BP. (2017). Renewable history. Retrieved March 1, 2017 from BP. http://www.bp.com/en/global/corporate/sustainability/our-activities/renewables.html

BP. (2017). Our values. Retrieved March 9, 2017 from BP. http://www.bp.com/en/global/corporate/about-bp/people-and-values/our-values.html

Bureau of Land Management. (2017). Oil and gas. Retrieved February 17, 2017. https://www.blm.gov/wo/st/en/prog/energy/oil_and_gas.html

Drilling Contractor. (2014). BP looks to self-verification to strengthen procedural discipline. Retrieved February 13, 2017. http://www.drillingcontractor.org/bp-looks-to-self-verification-to-strengthen-procedural-discipline-31072

Harpham, B. (2016). How data science is changing the energy industry. Retrieved February 10, 2017 from CIO. http://www.cio.com/article/3052934/big-data/how-data-science-is-changing-the-energy-industry.html

Koch, W. (2015). Is deepwater drilling safer, 5 years after worst oil spill? Retrieved February 9, 2017 from National Geographic. http://news.nationalgeographic.com/2015/04/150420-bp-gulf-oil-spill-safety-five-years-later/

The Economist. (2009). Vertical Integration. Retrieved February 24, 2017 from The Economist. http://www.economist.com/node/13396061

The Official Board. (2017). BP. Retrieved March 9, 2017. https://www.theofficialboard.com/org-chart/bp