Posted: January 14th, 2016

Please read the case and answer 3 questions below.

Please read the case and answer 3 questions below.

 

Reinventing IT at BP.

 

A few years ago, the CEO of one of the world’s

 

largest corporations laid some very tough love on

 

his 500 top managers. Despite having annual revenue

 

of about $300 billion, BP had become, said CEO Tony

 

Hayward, “a serial underperformer” that had “promised a

 

lot but not delivered very much.”

 

At that March 2008 meeting, those same 500 top BP

 

managers also heard a Morgan Stanley oil and gas analyst

 

tell them that while the rest of the energy industry was undertaking

 

rapid change, BP was building a legacy of consistent

 

failure both in finding and extracting new energy, and in

 

refining and marketing finished products. And unless BP

 

transformed its entire global business dramatically and rapidly,

 

the analyst predicted, “BP will not exist in four to five

 

years’ time in its current form.”

 

One of the people in that meeting was Dana Deasy, BP’s

 

chief information officer and group vice president, who’d

 

joined the company four months earlier as its first global CIO.

 

As Deasy listened to the sobering comments from his

 

CEO and from a highly influential analyst, he thought about

 

the transformation he had already launched within IT, an

 

organization he thought had become—like the company

 

overall—bloated, passive, unfocused, and unconcerned with

 

performance and accountability.

 

Deasy wanted to strip out $800 million in expenses from

 

BP’s overall IT budget of $3 billion; cut in half the more

 

than 2,000 IT vendors it had; overhaul BP’s ranks of 4,200

 

IT employees; rationalize and reduce the 8,500 applications

 

in use at BP worldwide; and turn IT from a tactical services

unit into a business-driven and intimately embedded strategic

 

weapon.

 

No stranger to challenging CIO roles, Deasy took his

 

post with full knowledge of the tumultuous times ahead.

 

“We were several billion dollars behind our competitors in

 

oil and gas, and there was a real and very pressing concern in

 

the company due to that,” Deasy says. Another part of the

 

gap that Tony wanted to see closed was around organizational

 

simplification: fewer layers of management, smaller

 

corporate staffs, and deeper talent across key functions.

 

Although noting that BP at the time had some great

 

people in IT and some cutting-edge systems for exploration,

 

Deasy also understood that he was going to have to drive

 

enormous change in personnel, processes, and objectives

 

across the entire IT organization in order to support and

 

enhance the larger overhaul taking place across all of BP.

 

He saw a fundamental problem with the 4,200 IT employees

 

BP had. “What was most startling to me about that

 

number, only 55 percent of those IT professionals were actually

 

BP-badged. The rest were contractors, he says. “So I

 

was really struck by the very deep dependency we had on

 

outside contractors.”

 

Then there was the complexity that lay behind that $3 billion

 

IT budget: “That encompassed everything, from the back

 

office to the coalface,” says Deasy, including everything from

 

PCs and networks to the IT that supports refineries.

 

And so in the face of that sprawl in people, budget, priorities,

 

requirements, business objectives, suppliers, and priorities,

 

and inspired by Hayward’s stark assessment of BP managers

 

promising more than they delivered, Deasy committed in

 

late 2007 to a three-year overhaul of every facet of BP’s IT

 

operations—an overhaul he and his team ultimately completed

 

in two years.

 

Now, you might say, “Well, what’s the big deal? Anybody

 

starting with a $3 billion budget and a lackluster organization

 

could come in and do a few things and look like a

 

genius.” That’s naive at best and foolish at worst.

 

“I viewed this as one of the top 5 CIO jobs in the world,

 

and I fully understood it was a truly daunting challenge. But

 

that’s one of the reasons it appealed to me,” Deasy says.

 

“Could we make this work?”

 

“The team will say to this day that it’s hard to imagine if we

 

went back two years and looked at what lay before us that this is

 

where we’d be today. And so we chuckle about that and say that

 

if we knew then what we know now about what we’d have to

 

do, we would’ve said, ‘No, that is just not possible.’ ” The ability

 

to dig into those kinds of massive challenges, knowing there’s

 

no “magic answer,” is a big part of the IT culture Deasy sees:

 

“So when we got the first $400 million in costs out, our people

 

started to have a completely different strut around themselves

 

and a new confidence, so that when we said, ‘Hey, do you think

 

we can find another $400 million?’ they grimaced, but they also

 

said, ‘Yeah, we can do this. Bring it on.’ ”

Although he had many urgent challenges, Deasy made

 

BP’s talent pool his top priority. “We desperately needed a

 

baseline,” he explains. “If we were going to impose the types

 

of staggering changes we needed to meet the objectives

 

CEO Tony Hayward was laying out, then we had to know if

 

we had the wherewithal to do it.”

 

There was major turnover within those positions, and

 

Deasy says the biggest and most significant change involves

 

the capabilities of the new BP IT organization. “In just

 

11 months from the time I arrived here at BP, we replaced

 

80 percent of the top IT leadership within the organization,

 

with those being the people reporting to me,” Deasy says.

 

“In the next level down, we replaced 25 percent of global

 

management in the first year with new people we went out

 

and selectively targeted and brought into BP. And it was very

 

inspiring to be told that, yes, you can go out and hire the

 

best people in the world to help you make this transformation

 

possible. And that’s exactly what we did.”

 

In year one, BP’s IT was highly decentralized. “The

 

company didn’t know it spent $3 billion in total on IT, or

 

that it had 4,200 people in IT,” Deasy says. “So we decided

 

the right approach was to go a little draconian, and I just

 

exerted control over all the people and all the spending.” I

 

knew that wasn’t the right long-term model or cultural

 

model for the company, but in the short term I wanted to be

 

able to get enough control to be able to move to an ‘embedded

 

IT’ model, which we have today.”

 

Each business unit CIO now works for the business

 

leader and also reports to Deasy. “Accountability No. 1 for

 

those CIOs is that they’re there to help deliver enablement

 

through IT to drive new revenue, and also for helping to

 

ensure they’re driving standardized shared services to keep

 

our costs down,” Deasy says.

 

“With suppliers, I knew we had way too many from all

 

of our decentralized legacy, and when we tried to round

 

them up we stopped counting at around 2,200,” he says. It

wasn’t only the sheer number; the 20 largest suppliers accounted

 

for only 30 percent of IT spending, so “we ended

 

up with a huge tail,” Deasy says.

 

So in 2009, BP took 65 percent of its annual global IT

 

spending, about $1.5 billion, and put it up for rebid in one

 

year. It let BP cut 1,200 IT suppliers, and Deasy estimates it

 

will end up saving the company $900 million over the next

 

five years.

 

Deasy contends that the buyer-seller tension he has created

 

is good for both parties, as long as each side is honest

 

with the other about expectations and objectives. “You’ve

 

got to be realistic: What’s a vendor’s job over the next five

 

years? Well, when you strip away all the fancy talk, it’s to

 

claw back all that money they gave up in our rebids. So in

 

2010, how do we ensure that we don’t lose the value of the

 

efficiency play we worked so hard to establish? How can we

 

take our five application development and application maintenance

 

vendors and ensure they keep improving their service

 

and delivering more value to us?”

 

“We just spent two very hard years rebuilding this organization,

 

and one thing you learn in transforming an organization

 

is that it’s not a linear process,” he says. “No sooner do you

 

have contracts done, and they’re effective, and they’re delivering

 

value, than you have to start the control process again.

 

“It is not linear—not at all—and that means that once

 

you get to the enablement phase, you have to resist the

 

temptation that makes you think you can just live there forever.

 

And believe me, that temptation is very strong. But

 

you’ve got to resist it and go back and once again begin to

 

exert control, because by that time the organization is not

 

the same as the one over which you first exerted control. It’s

 

a process that has to repeat itself because, as much as it

 

might appear to be linear, I can assure you that it’s not.”

 

QUESTIONS:

1.The case mentions the dependence of BP’s IT organization

 

 

 

on external contractors. Why would this be an issue?

 

When is it a good idea for IT departments to hire contractors,

 

and when is it not? Discuss some scenarios.

 

 

2.The culture of the IT organization is mentioned as an

 

 

 

important issue. How do you think it changed throughout

 

the period covered here? What did it look like when

 

Deasy came on board? What does it look like now?

 

 

3.How did BP get to the situation mentioned at the beginning

 

 

 

of the transformation process? Does it appear

 

to be the result of a conscious decision? Use examples

 

from the case to illustrate your answer.