Organizational Design and Technology British Petroleum - Case Study Example

Organizational Design and Technology and Section # of This essay requires the to choose a particular organization but within certain limitations mentioned in the requirements. I have chosen British Petroleum and it fits all the requirements mentioned. The essay will begin with the introduction of the organization including its internal and external environments and the organizational structure. Secondary sources of research are required and I have taken four articles from The Economist. This will help me to give a critical view of the organization. Then only one key determinant has to be chosen and I have taken Technology as the determinant. Then technology will be interrelated with other determinants. Then the current issues faced by the organization will follow with an internal as well as an external perspective. Research Method and Process The research is based on primary as well as secondary data. But the process began with exploratory research to define the problem, descriptive research to better describe the aspects for further explanations, implementing the findings and then analyzing plus reporting the research findings. This research method was a survey of the organization. The major advantage is its flexibility. But it has limitations such as source reliability can be a problem since it is not necessary that the information obtained is correct and at times there is no way to check its reliability. British Petroleum British Petroleum or most commonly known to be as BP is one of the largest energy companies. They provide their customers with fuel for transportation, energy for heat and light, retail services and petrochemical products. This company produces an Annual report at the end of every year. It is a huge organization and has a formal structure. They are a public ltd company with their shares floated on the stock exchange. The company boasts of more than 97000 workers who have managed to produce a turnover of $266 billion in the yr 2006. They have 18 refineries and active exploration in 26 countries. The company has 6 core brands namely: Castrol, BP, ARCO, ARAL, am/pm, and Wild Bean Caf. About BP BP has transformed from a local oil company into a global organization working in 100 countries across six continents. The expedition to look for oil began in 1901 and the company was founded by Mr. William D'Arcy in 1908. The company boasts of a remarkable 103 year journey. Purpose: The purpose of the business is to find, produce and market energy resources that satisfy the basic needs of people around the world. They also aim for fuel progress that will lead to economic growth and to invest in a sustainable environment. Organizational Structure: The structure of BP is divided into 3 segments or departments to enable effective management and success of the organization. 1. Exploration and Production: This covers the oil and natural gas exploration. The management of crude oil and natural gas pipelines plus the processing and exportation in included. The company is currently exploring in 25 countries. 2. Refining and Marketing: This segment is responsible for the supply, refining, trading, marketing and transportation of crude oil and petroleum products to wholesalers and retailers. They market their products in more than 100 countries. The company owns 18 refineries out of which five are in USA, seven in Europe and the rest are situated in different countries around the globe. Marketing focuses on three business areas; retail, lubricants and business to business marketing and they market a range of refined oil around the world. 3. Gas, power and renewables: The gas and power business was introduced in 1999 and renewables were added in 2002. This segment has three key aims to follow: to increase the value of their natural gas products, to increase the value of their natural gas liquids (ethane, propane, butane and pentane) and to build a profitable business of renewables. They market their natural gas products and liquids mainly in North America, UK and parts of continental Europe. They are trying to tap into new markets for development in parts of USA, in Spain and parts of Asia Pacific region but mainly in China. The company aims to reduce overall emissions and is working on the development of hydrogen fuel technology. As we can see that the organization has done product departmentalization that is grouping of activities by different products produced. Each department has a chief executive and other employees working under him. The organization has a very centralized decision making process since the decision making power lies with the top management and it reduces as authority is pushed down to the lower levels of the organization. BP is a mechanistic organization with a tall structure. The company has rigid hierarchical relationships, fixed duties, many rules, formalized communication channels and centralized decision making process. When an organization grows and has more employees with more formal rules, different departments and a hierarchy or simply is a mechanistic organization then it automatically turns into a bureaucracy. Since BP has product departmentalization it is a divisional structure bureaucratic design which is an organization made up of self contained units. In this design the different departments or segments are generally autonomous with a manager or chief executive in this case who is responsible for the performance and holding complete strategic and operational decision making authority. BP has a board of directors that runs the organization and all the executives as well as the non executives are part of the board since this is a public organization with shares on the stock exchange. Executive members: The head and the chief of the executive management team that is the group chief executive is Tony Hayward. The group chief of staff is David Allen. The chief executive of Refining and marketing is Iain Conn. The chief financial officer is Byron Grote. The chief executive of the exploration and production department is Andy Inglis. There are other 10 non executive members of the board as well. BP has a separate code of governance that has to be followed in the organization and the board controls the organization with the help of it. The company recognizes the board as a unique authority and its role as the link in the chain of command between the shareholders and the Group Chief Executive. The board has also established a process to enhance and enable effective internal control within the organization. Their objective is to provide the products and services to all and maintain a healthy environment since corporate social responsibility is part of their agenda. The company has certain group values that are a constant display of certain fundamental qualities such as honesty, integrity, striving for mutual advantage and contributing to human progress. The company has certain rules to treat employees and also certain rules for the constant improvement in performance of employees. The employees are supposed to improve constantly, comply with all the rules and meet all internal targets. The company has rules to treat employees fairly and nicely, to meet employee expectations, to nurture human capability, to include all employees in order to make them feel like an important of the company and consistent remuneration. The company also has health and safety as an important agenda on their objectives list. BP operates in 100 countries across six continents. BP is a bureaucracy and a huge organization and since technology is their main concern in all aspects since the company has to explore and innovate constantly. Technology is the key driver to organizational growth and growth means the organization increases in size. BP is a huge organization today because they focused on building their technology to go a step ahead their competitors. A huge organization will require a proper system to organize and manage the independent units within the company. Technology has helped them support the huge organization through an efficient operating system to link all units of the organization in order to bring the organization to one place that is accessible to all within the company. A huge organization like BP requires an efficient supply chain management system with logistics to support their system, enhance the size of the organization and satisfy all consumers worldwide. The supply chain can only be managed by an efficient information system that is enhanced by constant advancements in technology. Technology influences the culture of the organization as well in order to connect everyone in the organization. Not only an operating system with intranet services within the organization influences the culture of the organization but also that technology helps the people of the organization to grow as a team. Technology helps keep track of all employees and helps to motivate them. Technology supports the general culture of the organization that is very centralized and is a top down hierarchical structure. Good communication helps to enhance communication and also helps to push down information from the top more quickly than before. This builds a healthy atmosphere that is backed by good team work and communication that is enhanced by technology. Technology supports the internal environment at BP since it helps the organization achieve its internal objectives effectively. External environment: The external environment includes producing with a mutual advantage in order to prevent any negative externalities and to produce in a sustainable environment that is mutually advantageous. The company makes sure to keep in mind the social impact of their production processes that is to recognize and realize the impact on the economic and social progress of the area it is operating under. The company considers and gives prime importance to Human Rights and they support all activities that consider these rights. Transparency is an essential rule for the company in order to hide nothing from shareholders and third parties in any deal signed or project taken. The company makes sure to respect the Government and its influence so it works in a manner that does not interfere with the government's regulations and influence. The external environment is backed by an extranet system that helps communicate with stakeholders and also a supply chain that helps reach customers worldwide. Technology enhances research and development that gives the company a competitive edge. A good operating system helps keep the organization transparent to those concerned. Technology enhances the organization's capability to build a healthy external environment with its stakeholders. Critcial View of BP To analyze the organization with a critical eye I have taken articles from The Economist and that also within the last five yrs. Despite BP's objectives and aims to work in a very healthy environment, the company was accused of price manipulation in 2004. This article has been taken from The Economist (June 29th 2006). The problem started in February 2004 when propane prices shot to more than 40% that is 90 cents a gallon and the price would not have otherwise reached such heights under normal demand and supply pressures. Commodity Futures Trading Commission (CFTC) realized this fact and filed a complaint against BP's North American subsidiary and against traders in its Natural Gas Liquids business. BP was charged for manipulating propane prices by buying up huge supplies of propane in order to create a false shortage in the market and this was during the end of America's winter heating season. The traders who had already entered their respective contracts had to buy at rising prices from BP. This was an illegal plan and the ultimate buyers of this propane were households and businesses, including many poor rural families living in trailer homes. Around seven million people were using propane in that winter season. BP denied the charges and agreed to prove the fact in court that they were not responsible for any such manipulation. But the company conducted an internal investigation and found out that several employees failed to adhere to BP's policies which is a matter of internal discrepancy and has to be dealt by the organization. Therefore, Mr. Abbott pleaded guilty and is facing 5 yrs in jail. This suit just proved that although BP boasts of a code of governance and effective internal control, the organization failed to control the employees. The employees were free to ignore the company's policies to work in a healthy environment that is mutually advantageous. Their internal control has been proved to have flaws and that the employees are not motivated enough or not managed effectively to engrave in them the group values at BP that preach honesty, integrity, mutual advantage and contributing to human progress. Here the employee was dishonest and beings selfish at the cost of so many poor people. The second article from The Economist (Nov 2, 2006) talks about a blast in BP's refinery in Texas. 15 people died and 180 were injured. Obviously, the company was at fault again. The reports by James Baker (former secretary of state) revealed that the overflowing tank was too small and had leaked in the past so it should have been replaced. The families of the dead workers sued BP. But this incident was one of the other embarrassing lapses lately. In March, the company suffered a big oil spill near Prudhoe Bay in Alaska and the price manipulation has already been discussed above. Although every time BP admitted its mistake and promised to improve but did not. Analysts believe that maybe, John Browne, BP's boss who was famous for cutting costs and streamlining management had gone too far. Since now the company is putting profits before safety and going against its own values and objectives that preach just treatment and providing a safe working environment to employees. The annual report for this year does mention these incidents and also that the company is now taking steps to ensure future prevention of any such events. They have focused on safety, integrity and performance. The report on Texas refinery blast has also been referred to and with steps to ensure future safety and prevention. Another article referring to the Texas blasts in The Economist (March 22 2007) revealed that the top management at BP was responsible for the blast. Since the company was involved in cutting down costs by 25% that the operational integrity and safety of employees was compromised. The internal reports revealed that the employees were not satisfied with BP and they were scared of being injured at the refineries. BP has not been following the basic health, safety and environment rules in order to cut costs. BP has claimed that they were aware of the problems at Texas refinery and have made efforts to solve the problems with special reference to safety and integrity. An article from The Economist (Jan 18 2007) talks about BP paying the price for its mistakes but it also mentions that its competitors are facing similar problems in fact BP is in a better position. After the Texas blast BP increased safety standards in other refineries in America and they also compensated with $1.6billion to the families of the dead. But the report mentions that there is something wrong with BP's safety practices and not their budgeting. The firm focuses on personal accidents like falls and car crashes more as compared to operational and engineering faults. BP has invested more and hired more officials to improve safety standards. Tony Hayward had to say that BP's top management was too arrogant to consider the problems faced by the employees at the lower levels. Some observers believe that the management is not very assertive. The company needs to be reorganized since its units have gained too much autonomy that needs to be reduced as it is difficult to control them. It is important to ensure consistent standards and policies. All this menace is created due to the high price of oil. Current Issues faced by the Organization Internal Perspective: BP's boss Lord Browne resigned recently and the company lost a valuable person. BP's growth in the last ten yrs goes to his credit. He was able to pull of a deal with Russia to buy half of its domestic oil, something no body has been able to do as yet and BP's profits kept on increasing with costs decreasing. Their competitive edge was massive and now BP is one of the largest companies in the world. But Tony Hayward will succeed Lord Browne to be the new boss at BP. BP is now considering a culture change to improve performance and improve reputation. They have tried to ensure that resources are shifted to front line with operating managers free from corporate bureaucracy and the burden of unnecessary overheads or fixed costs. The company's structure has been changed by Tony, from now on gas, power and renewables will be part of the other two segments which means the company will have only two segments. The segments will have units and decision making will be more centralized with more standardized rules and processes. External perspective: BP's reputation suffered a major setback and the company needs a new beginning. With the internal environment changing hopefully the company will work towards meeting its values and objectives of mutual advantage, transparency, human rights and social impact. The company is making efforts to cover the gaps through a structure and cultural change in order to bring a revolutionary change in the organization which is much needed. But employee safety is important and the boss must be aware and concerned with the employee safety. They company must try to put into practice its objectives and values through technological processes that will help make effective strategies to cater to the changes and meet all objectives. The company must also try to avoid all the mistakes done in the past in order to improve its reputation and improve goodwill in the market. IDENTIFYING DIFFERENCES BETWEEN THEORY AND PRACTICE Theories are not always practical and easy to put into action. Karl Weick suggests in his enactment theory to managers that they should act before they think and avoid multiple meanings by sensemaking. It's more like social construction like a hierarchy and forming regulations. But in reality everything is not under control. Things go wrong and acting before thinking is not always wise. Constraints have to be developed in order to exercise control. Similarliy, the resource dependency model suggests that organizations can directly affect their chances of survival but it's true that consumer behavior can never be certain since no one knows how people form perceptions. Everything is never under control so the theories always make things sound very easy to achieve whereas, it's difficult to always put them into practice. Theories and practical life do not always go hand in hand because major differences exist. Bibliography Stephen P. Robins and David A. DeCenzo. (2001) Fundamentals of Management. 3rd ed. Organizational Structure. India. Pearson Education (Singapore) pte. Ltd. Indian Branch. Kotler and Armstrong. (2001) Principles of Marketing. 9th ed. Research Methods. June 2006. The Economist. Price manipulation Nov 2006. The Economist. Beyond Coincidence. Texas Blast. March 2007. The Economist. In their own words. Texas Blast. Jan 2007. The Economist. Paying The Price. Texas Blast Report. About BP (present situation, purpose and history) Available from [Accessed 21 October 2007] Brands at BP. Available from [Accessed 21 October 2007] Organizational Structure. Available from [Accessed 21 October 2007] Board Members. Available from [Accessed 21 October 2007] Code of Governance. Available from [Accessed 21 October 2007] Group Values. Available from [Accessed 21 October 2007] Employee treatment. Available from [Accessed 21 October 2007] Employee safety. Available from [Accessed 21 October 2007] External Environment. Available from [Accessed 21 October 2007] Technology. Available from < http://www.bp.com/subsection.docategoryId=2012026&contentId=2017732> [Accessed 21 October 2007] Lord Browne's resignation. Available from < http://www.bp.com/genericarticle.docategoryId=2012968&contentId=7032766> [Accessed 21 October 2007] Tony's structural changes. Available from < http://www.adn.com/money/story/9374359p-9287771c.html> [Accessed 21 October 2007] Karl Weick's Enactment theory. Available from < http://www.onepine.info/pweick.html> [Accessed 24 October 2007] Resource Dependancy Model Available from < http://faculty.babson.edu/krollag/org_site/encyclop/resource_dep.html> [Accessed 24 October 2007] Read More