This case was presented in Fall 2009 and revolves around the decentralization of BP America after BP merged with Standard Oil in 1987. In this presentation, the changing role of staff departments is examined in this newly decentralized organization.
2. AGENDA Situation Overview The Problem Staff Departments: Cost vs Profit Centers Evaluation of Staff Department Performance Impact of BP Minerals Sale New System Impact on Total Costs Recommendation Questions 2
4. BP Key Players Sir Peter Walters Chairman Robert Horton / James Ross* CEO David Sourwine Controller, HQ & Treasury Bill Johnson Business Forum Chairman John Bishop Corporate Controller *Took over CEO position in April 1988 4
12. Business Forum: Overall Goals Introduce the buyer-seller procedure 1 Take out business-related activities out of stewardship and place them in the businesses 2 Eliminate activities that the group no longer needs 3 7
14. New System: Cost Responsibility (after first year of implementation) Business-related stewardship costs (From Corporate to Businesses) $16 million Next Year $? 9
15. Incongruity Businesses Staff Business heads perceive that Staff could offer lower costs. Staff departments uncomfortable with being challenged: prices for services and activities performed Perceive that some businesses “playing games”: unrealistic rates required; exceeding budgeted numbers 10
16. Cost Discrepancy(after first year of implementation) Budgeted costs in disagreement (Between Staff and Businesses) 1st cut Further cuts $141 million $11 million $1.1 million Absorbed by the stewardship Budgeted costs Unbilled services in dispute Unbilled services in dispute 11
25. Impact of Sale of BP Minerals Decrease in internal service demand Remaining businesses must now increase their own demand Could result in staff reduction As a Cost Center 20
26. Impact of Sale of BP Minerals Staff departments can solicit external demand to compensate for loss of internal activity New external revenue could be higher than that generated from BP Minerals As a Profit Center 21
29. Implications on Total Corporate Cost As a Profit Centers Staff more concerned with cost traceability Forces businesses to be more responsible for costs Hence, further reduction in corporate costs 24
37. Potential Risks Lack of cooperationIncreased competition between staff and business departments at the expense of teamwork. Threat of over-soliciting external business Interdependencies ignored; decisions based on self-interest rather than overall interest. More items to control as a profit center than as a cost center. Learning curve for generating sales on the part of staff. 29
44. Creation of Business forum (Bob Horton)(Bill Johnson) 1987 BP America is created through total merger of BP and Standard Oil. April 1989 Next Business Forum meeting 1988 James Ross approves of the Business Forum Process 32
45. Business Forum Meeting Staff Departments Role and mission Input expected from businesses Expected staff headcount and budgeted costs Review of services, billing procedures, and expected annual charges 33
46. Key Players Sir Peter Walters, Chairman, BP BP America Robert Horton, CEO (until early 1988) James Ross, CEO (beginning April 1988) John Bishop, Corporate Controller David Sourwine, Controller, HQ & Treasury Bill Johnson, Business Forum Chairman 34
47. Leveling the Playing Field Option to source externally Leverage of some kind Business Staff 35
Editor's Notes
Need to mention orally that this is the current situationImplications of new procedures on total corporate cost:-COST CENTER: Current situation:discrepancy of costs, 14M not traceable, corporate had to take it on. then corporate traced it to businesses who incurred the costs, but $1.1M could not be traced so corp is still absorbing
PROFIT CENTER: Recommended:total corp costs in long run will decreaseforces businesses to be more responsible in their accounting: how many services do they need, etc., only value-adding services - thus reducing discrepanciesthis is better able to trace back any discrepancies - staff as profit centers are more concerned about their costs so they will play more of a role in tracing discrepancies and less of this responsibility falls on corporate.
