Save for later Print Download Share Marking a definitive break with the era of former Chief Executive John Browne, new BP boss Tony Hayward announced a strategic overhaul of the UK supermajor's business structure Thursday, describing it as a "fundamental shift" in the way BP works. In a bid to boost flagging performance, up to four layers of management will be shed in some parts of the company. BP will be reorganized into just two main business segments, exploration and production, and refining and marketing. Gas, power and renewables -- previously a separate business segment -- will be incorporated into the other two. Hayward, who took over five months ago, said: "BP's performance has materially lagged behind our peer group in the last three years. It has been poor because we are not consistent and our organization has grown too complex." The changes are intended to streamline the business, improve efficiency and modify the corporate culture. "At the root of all this is a need to change our behaviors," he said. The changes follow a six-month review of BP's operational performance by management consultants McKinsey and Bain, which identified widespread "duplication, overlap and excessive organizational complexity." At a second-quarter results presentation in July, Hayward said that a quarter of the workforce at BP's London headquarters, or around 100 people, would be moved nearer the projects on which they were working (OD Jul.25,p4). "This is not about cuts, it is about getting people closer to the operations," he said at the time. But Hayward warned Thursday that job cuts are inevitable. BP did not give specific details about job losses, but said middle management would be most affected. "Managers will be listening more acutely, particularly to the front-line staff," Hayward said in a statement. "We will respect professionalism and excellence as key to the success of our businesses -- something we have not always done." Hayward took charge in May after an ignominious end to the career of his predecessor (OD May2,p1). Browne, dubbed the "Sun King" at the height of his powers, had turned BP into one of the world's leading oil companies but his final years in the job were marred by the Texas City refinery explosion in 2005 and other safety scandals in the US (OD Jan.17,p1). A US government report on the Texas City disaster cited organizational deficiencies and a "broken safety culture" as contributing factors. In Thursday's announcement, Hayward outlined his three priorities as safety, people and performance. He said the company was making good progress on safety, and he wanted to allow employees to exercise professional judgment without "unnecessary interference." Operationally, he said the group had been held back by problems in the US refining sector and delayed start-ups in the US Gulf of Mexico, but also by a higher cost base than its rivals. The gap should close by the end of this year, he said, as refinery throughputs increase at the Texas City and Whiting refineries and "major new production" comes on stream in the fourth quarter. But while improvements are expected by the end of this year, the more fundamental changes in corporate culture will take longer, BP said. Hayward wanted to get the announcement out of the way before BP unveils its third-quarter results on Oct. 23. Analyst reaction was broadly positive, although tempered by the need to wait for the changes to filter through to performance. "Figures on Oct. 23 will not be pretty but we continue to take the view that [the third quarter] will mark a low point in BP's fortunes and remain buyers for the potential for strong recovery over the next year," stockbrokers Oriel Securities said in a research note. James Batty, London
