CASE 8
BP: Organizational Structure and
Management Systems
TEACHING NOTE
■ SYNOPSIS ■
A series of accidents, the most tragic being an explosion at BP’s Texas City refinery and the blowout of its
Macondo oil well in the Gulf of Mexico, put a spotlight on how BP was organized and managed. BP’s
organizational structure and management system had been created by its former CEO, John Browne—who had
been lauded as one of few visionary leaders in the petroleum sector who had challenged the conventions and
■ TEACHING OBJECTIVES ■
The case is intended to introduce some of the core issues in strategy implementation. Learning outcomes
include:
Developing expertise in designing organization structures, in particular appreciating how a firm’s
strategy and the characteristics of its industry determine the optimal balance between centralization and
decentralization.
■ POSITION IN THE COURSE ■
This case is appropriate to the part of the strategy course dealing with the fundamentals of strategy
implementation—especially in relation to the design of organization structure and management systems.
■ ASSIGNMENT QUESTIONS ■
1. What were the key features of the management system created by John Browne at BP?
2. To what extent was this management system a factor in causing the Texas City and Deepwater
Horizon disasters?
■ READING ■
R. M. Grant, Contemporary Strategy Analysis (9th edn.), Wiley, 2016, Chapter 3: “Industry Analysis: The
Fundamentals.”
■ CASE DISCUSSION AND ANALYSIS ■
The Management System Created by John Browne
To understand the management system that Browne put in place at BP, I begin by asking: “What were John
Browne’s aspirations for BP?”
Clearly Browne’s ambitions for BP were huge. He wanted to BP to be among the biggest of the oil and gas
majors, to have a major presence in North America (the primary motivation behind the acquisitions of Amoco
These ambitions regarding performance and strategic innovations encouraged him to seek management
approaches from outside the petroleum sector. In particular, he was strongly influenced by Jack Welch’s war on
bureaucracy at General Electric and his creation of a performance-driven company. He was also influenced by
the decentralized management styles of technology companies which sought to capitalize on the ingenuity and
creativity of their employees and build their management systems around the need to create and disseminate
knowledge.
As a result, the management system created at BP by Browne comprised two main themes: a decentralized
structure and a control system based upon performance targets.
Organizational Structure. Oil majors have typically been organized around a divisional structure based upon
the major areas of business that the companies are engaged in. BP was organized along these same lines.
I encourage students to consider whether the goal of new structure is purely the decentralization of decision
making. The answer is that, by removing the divisional layer of management, the business unit heads have
greater decision making power. Simultaneously however, the direct relationship of the corporate HQ with the
business units also means that a centralization of power had been achieved. Thus, the new structure reinforced
Browne’s ability to lead radical change within BP.
Management systems. The primary rationale for the decentralization structure was to permit the
implementation of BP’s performance management system: a system of control based upon performance
Did BP’s Management System Cause the Texas City and Deepwater Horizon Disasters?
The dominant popular explanation of these disasters has been “Profit over Safety” or “Profit versus
Factor
Texas City
Deepwater Horizon
BP’s values and priorities
Safety not sufficiently established
as a core value within BP’s culture
Lack of safety culture. Productivity
and competitiveness prioritized over
safety
Safety performance metrics
Emphasis on personal safety rather
than process safety
Worker safety prioritized over system
safety
Investment in safety
Inadequate resources devoted to
safety
Inappropriate cost and corner cutting
Governance
Lack of oversight by BP board
To what extent do these failings reflect the broader aspects of BP’s structure and management systems?
In terms of structure, BP’s decentralized structure focuses decision making authority on the individual
businesses and on the corporate center. Yet, safety issues are likely to be general to entire sectors. For
In terms of management systems, it is notable that the performance contracts between business unit
heads and the CEO did include safety performance criteria. However, there are two problems with this
model—first, the difficulty in selecting the appropriate safety targets, and second, the fact that
What types of organizational structure and management systems are most suitable for an
international oil and gas major?
While the specifics of the case relate to BP’s safety performance, the broader issues concern the structures and
systems that are most appropriate to oil and gas majors.
In terms of some of the criteria of Table 6.1 (p.153):
The decisions and activities most critical to the performance of oil companies are choosing where to explore for
oil, collaborating with producer governments and other companies, and making decisions over resource
allocation (e.g. between upstream and downstream, between oil and gas). These decisions and actions tend to
be undertaken by senior level executives and by technical and functional specialists. Again, these tend to favor
centralized rather decentralized decision making.
Finally, in the oil industry, investment time horizons are long-term. Major oil and gas fields can take up to 10
years to develop and can then produce for 30 years or more. BP’s performance contracts are set for five years
and evaluated annually. Linking short term targets to long term development goals is difficult. In particular,
financial targets may be effective in encouraging short-term cost reduction, but may fail to guide longer-term
development efforts.
Lessons for Other Oil and Gas Majors
The key issue here is whether the structure and systems that BP adopted during the late 1990s are appropriate to
the industry environment in which they dwell.
The structure and systems of BP were effective in driving cost efficiency and in encouraging initiative and
flexibility in the lower levels of the organization. However, in terms of the key success factors of the industry it
is not clear that these performance attributes are among the most important. Competitive advantage in the
industry is much more likely to depend upon:
The ability to find new reserves
In relation to all these success factors, it is not obvious that a decentralized structure managed through
performance targets is the best way to achieve high levels of performance. Many of these dimensions of