Reference no: EM13943476

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.