11th Oct 2007 12:00
BP PLC11 October 2007 October 11, 2007 BP SETS OUT ITS AGENDA TO CLOSE PERFORMANCE GAP WITH RIVALS BP today reiterated its determination to improve performance by simplifying howthe company is structured and run, ensuring that resources are increasinglyshifted to the front line with operating managers freed from corporatebureaucracy and the burden of unnecessary overheads. Setting out his forward agenda for the cultural change he signalled to thefinancial markets in the summer, chief executive Tony Hayward said that whilethe process would yield some medium term cost reductions, the major benefitwould be the revenue boost expected from greatly improved operational efficiencyover the longer term. In a worldwide message to staff issued in London today, Hayward said BP will infuture comprise only two business segments, Exploration & Production andRefining & Marketing. The current third segment, Gas, Power & Renewables, wouldbe incorporated mainly into the other two. A separate division, AlternativeEnergy, will handle BP's low carbon business and future growth options outsideoil and gas. The two segments will be made up of a series of strategic performance units.These will become BP's main operating entities, each effectively a profitcentre, with closely-defined remits and rigorous business objectives. Corporate infrastructure will be rigorously reviewed with some previouslycentralised functions slimmed down and redeployed into the business segments. Inparts of BP up to four layers of management will be shed. Greaterstandardisation of process, including safety, has already been introduced andwill be applied consistently across the group. The moves follow a six-month review of the group's operational performance whichidentified wide-ranging duplication, overlap and excessive organisationalcomplexity. Addressing what he described as his 'three priorities', safety, people andperformance, Hayward said the company was making good progress on safety. Thefocus on people would be to ensure the company deployed the 'right skills in theright places' and allowed staff to exercise professional judgement without'unnecessary interference'. As to performance, Hayward said: "It is clear that BP's overall strategy remainsrobust. We have great positions in many of the major hydrocarbon basins of theworld as well as in the markets of key economies and we are preparing for thelonger term by building a new, low-carbon energy business. "Our problem is not about the strategy itself but about our execution of it.BP's performance has materially lagged our peer group in the last three years.It has been poor because we are not consistent and our organisation has growntoo complex. At the root of all this is a need to change our behaviours." Hayward said the bulk of the competitive shortfall represented revenues lostfrom impaired US refining capacity and delays to new production in the Gulf ofMexico. The remainder arose from BP's higher cost base relative to its rivals. "We expect the revenue gap to narrow as major new production comes on stream inthe fourth quarter and refinery throughputs rise at Texas City and Whiting overthe coming months," he said. "The changes we are setting out today will reduce our unacceptably high overheadcosts. But it is their effect on operational efficiency over the longer termthat I believe will ultimately yield the most significant benefits." Hayward said some of the changes were already under way; the others would beintroduced with immediate effect. He said redundancies would be inevitable insome parts of the company but stressed that front-line operations would continueto be strengthened. He did not anticipate major disposals but would not rule outsmall-scale asset sales. "What we are doing represents a fundamental shift in how BP works," Haywardsaid. "Managers will be listening more acutely, particularly to front-linestaff. We will make sure individuals are fully accountable for things theycontrol. We will respect professionalism and excellence as key to the success ofour businesses - something we have not always done. Continuous improvement iswhat will drive performance, as opposed to short-term, unsustainableinitiatives." - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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