Monday, 2 July 2012

Quantified KM value - 4 T-shaped stories from BP

These four stories are all from Hansen and Oetinger's "T-shaped managers" paper, and all explain the value delivered through knowledge sharing across the company, driven by the Peer group structure and the "T-shaped manager" behaviours this drove.
Increasing Efficiency Through the Transfer of Best Practices.
Deborah Copeland, head of BP's business unit for retail operations in the southeastern United States, was looking for ways to improve the performance of her region's BP and Amoco service stations. Through her peer group, she learned of pilot programs at BP stations in the United Kingdom and the Netherlands that were testing some innovative ways to order and deliver convenience store supplies. So last summer, she sought a peer assist from her counterparts in those two countries, as well as from BP retail executives in seven other countries. They met and recommended best practices in such areas as supplier management and store layouts. Copeland then launched three pilot programs at several stores in the Atlanta area. The results, she says, were dramatic. The pilot stores stocked 26% fewer stock-keeping units (or SKUs) than similar control sites; this inventory reduction led to a 20% decrease in working capital even while sales rose 10%. Copeland is currently rolling out the practices across another 62 sites in Atlanta and Orlando, Florida.
Growing Revenue Through Shared Expertise.
In the late 1990s, Graham Hunt was the leader of a BP petrochemical business unit responsible for the design and construction of a $200 million acetic acid plant in western China, to be run as a joint venture with Sinopec, the Chinese petrochemical company. The complexity of bringing such a plant on-line In so remote a location made it a relatively risky undertaking, so Hunt sought BP expertise from a number of operating units around the world. Over a 30-month period, about 75 people flew to the site in China from different parts of BP for visits lasting from a day to several weeks. They gave advice on technical, legal, tax, safety, accounting, and financial issues. Largely because of this peer assistance. Hunt says, the two-year construction project came in on time and under budget. Production began in November 1998, and the business broke even after only several months of operation. Says Hunt, now chairman of BP China: "We needed expertise and, given our organization, it was often a phone call away."

 Using benchmark data to know who to learn from
When in 1999 Jeanne Johns took over as business unit leader for BP's $1.5 billion oil refinery in Toledo, Ohio, she checked a company database that lists numerous performance and cost metrics for BP's 19 refineries around the world. Some items, such as salaries, clearly were not comparable because of differing business environments. Still, she found that the Toledo facility was lagging far behind its counterparts on a key performance metric - something called "cents per equivalent distillation capacity," which compares the cost of running refineries of different sizes and complexity. The best-performing facility boasted an index of 9 cents per EDC; the Toledo refinery was at 14 cents. At Johns's request, a team that included some key people from the top-performing refinery, located in Texas, spent a week in Toledo helping her staff identify possible operating improvements. As a result, within nine months, the Toledo refinery reduced its costs to 11 cents per EDC, saving $24 million a year.
Formalizing cross-unit interactions.
David Eyton was the business unit leader of the Wytch Farm oil field in southern England at a time, in the late 1990s, when oil production was beginning to decline in this mature field. Eyton presented to his peer group a 1999 operating budget, excluding onetime items, of $30 million - the same amount as the previous year, even though production was falling. But the other members of the group, in a challenge to the long-standing assumption that unit costs rise as oil production falls in such mature fields, declined to support the proposal. They pushed Eyton to reduce ongoing costs by 20% to keep unit costs flat. "I was shocked,"he says."I had absolutely no idea how to do what they were asking me to do." Over the next several days of meetings, two members of the group met with him privately and offered not only support but also tips on how to pull this off. After the peer group meeting, Eyton passed the challenge on to his own team. They formed a task force, which visited other business units, including the ones whose leaders had offered the initial challenge. Through such measures as canceling leases on buildings and renegotiating service contracts, Eyton's unit cut its operating costs to $24 million in 1999. More important, his team devised a long-term plan to ensure that operating costs declined in parallel with production for the remainder of the field's life.

1 comment:

Andrew Trickett said...

Nice to see this article getting a well deserved dust off. It was one of the first articles I ever read on KM and is still one I refer to from time to time. It always convinced me that KM was all about people and not the technology and that KM if used properly could be a driver of innovation as well as good for helping people to engage more with their organisation. This also ties in neatly with your recent posts on Pull KM rather than Push KM and helps prove to sceptical managers that better knowledge sharing can really give an organisation and its people a cutting edge in todays market.

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