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March 4, 2010
13 Min Read
Two 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 BP CIO and group VP Dana Deasy, who'd joined the company four months earlier as its first global CIO. He was a key figure in the strategy by Hayward, who became CEO in May 2007, to restore revenue growth across the enormous company, refocus the behavior of the company around high performance and accountability, and reduce the stifling complexity of the organization. That effort already had resulted in the elimination of up to four layers of management.
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 to a business-driven and intimately embedded strategic weapon.
No stranger to challenging CIO roles, Deasy took the CIO 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."
While 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% 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.
Looking back across the various outcomes--the $800 million in IT expense cuts, the 50% reduction in vendors, the ongoing cutbacks in applications, and the reporting-structure overhaul--what I find most impressive are these two pieces:
The top-to-bottom changes in IT personnel, whereby tenured generalists were replaced with technology specialists or business-domain experts, including the vast majority of Deasy's direct reports.
The profound overhaul of the IT organization's culture, whereby Deasy vanquished the passive, inwardly focused, financially clueless, and generally unaccountable philosophy he encountered when he arrived and replaced it with a new sense of purpose centered on business growth and success, excellence, and relentless improvement and innovation.
Template For CIO Change Agents
Now, I can see why 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. Because what Deasy brought to BP's IT organization--and what CIOs the world over in organizations large and small must take on as a top priority--is a mandate for personal and organizational accountability, a dramatically higher set of expectations, and an assumption of excellence in technical knowledge, business understanding, project delivery, budget management, and attitude.
In these challenging economic times, any CIO who thinks that those aspirations are just for the Fortune 50 is missing the point, which is this: Absent those lofty ambitions and without that intense business engagement, CIOs and the IT organizations they lead will quickly and permanently be categorized as reactive, passive cost centers. And they will be ground to dust accordingly.
No, Deasy's 28-month adventure isn't just a story for only the biggest IT organizations; rather, it's a template for every CIO who wants to make IT a center of excellence and business value.
"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--and we just reviewed our performance to date with the CEO--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.'"
Top Priority: Talent Assessment
While 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."
From that original state of 4,200 IT employees, including about 1,900 contractors, BP has cut about 1,000 full-time contractor positions, pushing down its reliance on outsiders from the 45% that Deasy inherited to about 27% of the current, far smaller IT workforce of 3,200.
But those numbers understate the disruption. 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% 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% 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."
Deasy then hired IBM to do comprehensive personnel assessments of the top 1,000 BP-badged IT employees, an undertaking that he says is the largest such personnel evaluation IBM has ever done. The assessments let BP create a "capability heat map" that identified talent gaps as well as inherent strengths. It quickly became evident that the most pressing needs were project and portfolio management, vendor management, and architecture. Accordingly, those were the first three skill sets BP delivered in an IT&S Academy it launched in 2009. More than 400 IT employees have completed the academy's certification.
BP is developing a "License to Work" policy that will mandate that IT personnel have the proper in-house certifications to be eligible to lead major programs or design architecture.
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 spend. 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 his radically refreshed IT organization in place and their capabilities more fully understood, Deasy and his team set out to tackle their next three sets of challenges:
Offer differentiated services: tiered levels of price and performance.
Move from a one-time transformation mentality to an ongoing effort.
Results: Fewer Suppliers
"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% of IT spending, so "we ended up with a huge tail," Deasy says.
So in 2009, BP took 65% 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.
Those supplier relationships faced a particularly aggressive overhaul in the area of application development and maintenance, where BP had been using about 50 vendors, most of which refused to talk with each other for fear of losing their part of the business. BP rebid multiyear app dev and maintenance contracts totaling about $2 billion and ended up with just five companies, which handle all of that work in a standard operating model. Cooperation is expected. "Twice a year, we all meet at what I call the Captain's Table to see where we stand, and we go over everything very transparently: contracts, SLAs, etc.," Deasy says. He forecasts $500 million in savings over the next five years from that effort alone.
As one of SAP's largest customers, BP has created a team focused on standardizing project delivery and management of SAP environments across BP's 100 instances around the globe, with a three-year goal of delivering new SAP capability 50% faster and 40% cheaper. And it's pressuring SAP for ideas on how to do that, including tapping other customers' best practices, embedding SAP experts into key projects alongside BP systems integrators, and an "SAP Day" in fall 2009 that brought top SAP experts together with Deasy and his executive team.
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?"
Heading into 2008, as the economy slowed, BP faced a tough reality: the prospect of $30 barrels of oil. "At that point, you can only squeeze so much harder," Deasy says. So he started to look at the "demand side" of IT. Yes, they're all in the oil and gas business, but does the exploration side need a very different level of IT performance than the refining and delivery side? "So we went back with a simple premise: 'Can we get our heads around not just scale but 'differentiation of services' so that we can change how people use IT, in order to be able to get at the next level of cost takeout," Deasy says.
Getting there, though, wasn't easy.
In year one, BP IT started with transparent bills--one-page descriptions, in business terms, of each service a business unit used, even if those units couldn't do much about that cost. Then it committed that by the end of 2009 it would have options for business units to pick--tiered services that included lower-cost options. That was possible because the contract rebids required these different levels of service and price. "Some of our suppliers didn't like that, but some were happy to work with us on this because they knew they'd eventually need to move that way themselves," Deasy says.
The goal is to give BP end users a menu of service offerings. "We did that in telecom with T-Systems, then help desk, field services, application maintenance services, and it's coming up soon for global data centers," Deasy says. "We expect that for 2010, we'll realize $20 million in savings in demand in the first year."
As I was listening to Deasy recount this extraordinary tale down to the completion of the IT transformation in two years instead of three, I had to wonder if he might find life in the newly optimized BP too effective--just not chaotic enough. After all, this is an executive who, in 2003, at the depths of Tyco's financial and legal troubles, took over the CIO role there. A few years later, Deasy jumped into another fire when he was recruited by General Motors' CIO at the time, Ralph Szygenda, to return to GM, this time as CIO for North America, at a time in the troubled automaker's history when faint-hearted candidates might well have said "Thanks, but no thanks."
But Deasy explains that the next step post-transformation is to go right back to the very first initiatives of the process.
"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."
Write to Bob Evans at [email protected]
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