At the end of year 2001, at the BP there were 365,905 holders of BP ordinary shares and a further 704,899 holders of American depositary shares. One American depository share is equivalent to six ordinary shares and can be bought and sold on North American stock markets and this represents that BP’s shared are traded in many stock markets all over the world. About 80% of the American Depositary shares are owned by American depositary institutions such as pension funds and insurance companies.
Each year, Annual General Meeting is held with shareholders, usually in United Kingdom, but some times this is held in other locations. Here Chief Executive and director take opportunity to discuss and evaluate the performance and accounts of the company.
BP has encouraged employees for more that 20 years, to purchase shares in the company on favourable terms, giving them an extra stake in the company's success.
3.2 Objectives
BP as a company operates in primary industrial sector. By primary sector it is meant that organisations or companies are involved in extraction of resources from the environment. This includes fishing, forestry, farming, mining and oil extraction.
BP is involved in extracting crude oil as primary resource and then derives sub products from it with the aim of providing its customers with energy.
Listed as PLC, BP aims to generate profits and pay dividends to its shareholders. This means that its corporate objective is to make profit by providing services to customers. In today's BP, setting objectives and targets is central to the way BP operates across their diverse and extensive range of activities. During the interview and from material obtained from their Internet site, it is concluded that directors at BP believe that effective targets and objectives have to be:
- Challenging but achievable;
- Enduring but responsive to change;
- Clear and unambiguous to all, both within and outside the company
- Capable of delivering the company's long term strategic and performance goals, thus generate an operational profit.
There is no doubt that in an industry where change is the norm, setting objectives to meet all these criteria is not easy.
The past and recent success of BP has proved the success of the company towards meeting its objectives. This can be judged by referring to the BP’s income Account Statement from the Annual Report. For many years in row, BP was able to deliver record profits for each year. Also for each year running, BP was able to expand on production. This is one of the keys to the success in terms of generating profit and for further expansion. Also some important acquisitions were conducted, Burmah Oil Castrol Company was acquisitioned by BP, therefore expanding the operational capacity and offering a more extensive range of products. This in no doubt has added to the success of the company.
Last published annual results, and most current ones are for the year 2000. These were all time record, and BP within top 5 worldwide companies for the amount of profits generated.
Table bellow gives a more inside look at the earnings for year 2001:
Table 1.
(Please, note that many figures are in USD, because it is BP policy to publish figures in such currency).
This overall helps to judge that the company has achieved excellent results, which satisfied shareholders, and shows that company was in deed very successful towards meeting its objectives.
3.3 Functional Areas
The functional areas that exist within BP are key to its success. The functional areas that exist within BP are as follows:
- Board of Directors,
- Finance Department,
- Products and services division,
- Marketing,
- Human Resources management,
- Administration,
Board of Directors: this the executive body and the highest decision making authority within company. It is independent from shareholders, which means they have no power of decision making. Board’s role is also to set policies and to supervise relations with shareholders. In terms of relations with shareholders, board is required to be proactive in obtaining an understanding from shareholders. It is board duty to represents and promote, interests of shareholders but in other hand they are independent of them. Only power of shareholders is their right to vote on directors and their right to reassess them. Directors are required to retire every three years and stand for re-election. The formal communication channels by which board accounts to the shareholders is annual report and accounts, and annual general meeting. In addition, at the annual general meeting of shareholders and wide presentation is given about performance, accounts and future prospects. Shareholders can ask questions or give their views as well, but with around 1.1 million shareholders, opportunities for dialogue are limited.
The head of the board of directors is the Chief Executive of the Bp Amoco Group, which is Sir John Browne. The chart bellow gives detailed structural origination of Board of directors:
BP chart of organisation
The board structure is hierarchical and it is duty of bottom line personnel to report to senior personnel above their level. Also, structure is tall, because many layers of management are involved and decision making in centralized thus the company can be classified as centralised. But decision-making always involves a lot of consultations with lower layer in hierarchy, thus giving the BP style of management attributes of having a democratic management.
The chief executive of the group, as set on its policy, is expected that in a long-term outcome to deliver. The restrictions on the manner that chief executive is expected to deliver and achieve are set out in exclusive limitations policy, based on ethics, health and safety, environment, financial distress, human resources management and political considerations. The board has to ensure that these policies are met.
Finance Department: this department has duty to regulate, monitor and manage capital within the BP. It also deals with shareholders, in respect to the investment that is poured in by them and the pay out of dividends. The finance department is managed as outlined in the chart above by Dr J G Buchanan, Chief Financial Officer, who is himself member of director’s board. The other duties include to report to chief executive and non executive director about incomes and expenditures, from where the performance in terms of production and revenue generation can be determined, therefore helping the board of directors to meet corporate objectives as described in the Objectives Section earlier in this report.
Products and services division: this is the main structure, which in many points of views can be defined and heart of the BP as the company at all. This division in divided four groups, which are:
- Exploration and production: BP's 'upstream' interests in oil and gas exploration and production
- Gas, power and renewables: BP's gas marketing and trading activities and supplier of power systems including solar energy,
- Refining and marketing: BP's 'downstream' oil activities, which include trading, shipping, refining, distribution and marketing of crude oil and its products
- Chemicals: the manufacture and marketing of petrochemicals (chemicals based on oil), plastics and other related products
BP produces and markets the full range of products made from oil. Through its network of 29,000 service stations, BP sells petrol, diesel oil and lubricants and increasingly food and other consumer goods. Other refined products include oils for home and industrial heating; fuel for ships (known as bunkers); aviation gasoline and kerosene for aircraft; liquefied petroleum gas (LPG) for home and agricultural heating, industrial processes and as an alternative fuel to petrol for cars and vans; bitumen and greases. BP also trades crude oil and sells natural gas to major utilities and larger customers. BP is one of the world's largest producers of petrochemicals (chemicals derived from oil), manufacturing and marketing a wide range of products and plastics. Also, BP holds a leading position in the market for photovoltaic (PV) modules and systems, which turn sunlight into electricity and provides total solar electric power solutions for industrial, commercial, and residential customers throughout the world. BP's PV technologies have been developed to serve the growing demand for photovoltaics in both traditional (for example for water pumping, telecommunications and instrumentation) and emerging markets.
From the facts represented above, it can be clearly judged that this is the main and most important functional area of the BP, as it is role is to produce the product and supply the customers and provide services (i.e. service stations). Above all this sector of the BP generates all incoming revenues and therefore it is the main artery towards the success and meeting the objectives of company.
Marketing: this is another department of the company that deals with marketing. Its role is to:
- Identify market requirements,
- Regulate branding strategies,
- Satisfy consumer requirements,
- Increase revenue and profits,
- Evaluating and targeting new markets.
W D Ford is in charge of this department, and its duties are to ensure that these duties are satisfactorily performed and that the strategies are correctly performed. This department is directly accountable to directors. Also the role of this department toward achieving corporate objectives is crucial, as it has to satisfy the consumer for quality, efficiency and the value of products and services offered by the company. In another way it is the duty of this department to analyse the market conditions and evaluate the efficiency of any involvement in new markets, thus advising senior management in decision-making process about these matters. This also represents its role in meeting the objectives of the company.
Human Resources: Although it neither is nor listed on the chart and no person in the management board is assigned to manage human resources, this function is conducted by administration department who appoints human resources managers. The role these managers are to supervise the human resources, as they are key to production and services, therefore to the role of meeting the objectives itself.
The fact that there is no actual Human Resources Department within BP, is justifies by the fact that the company operated in very wide area, so it will be costly while in other hand this role can be conducted by administration department, which as said it appoints managers to supervise this role. Main duties of these managers are to supervise employees and monitor them and motivate them so that objectives can be met in due course. These managers have to ensure that both employee and employer are binding the terms set on Contract of Employment and the provisions of The Employment Protection Act are implemented to regulate this process accordingly. Its duties are also to regulate and arrange the payment of salaries and to conduct any deductions on them for purposes of taxation. These are itemised in a ‘pay slip’, which is delivered to the employee at certain periods when their salary is due to be paid.
Administration: this department is concerned with administering the company. Its roles are to conduct processes such as human resources as describe earlier. Its roles also include making sure that the company is in line with policies set and others matters such as jurisdictional and legal matters for the company. Also it has to ensure that processes are effectively and efficiently undertaken.
The administration system within BP is uniform and it ensures that objectives are met at fullest extent possible. Another main duties of the administration department are to:
- Deal with enquiries,
- Administer internal and external communication channels,
- It has to ensure that Data Protection Act is respected and to prevent and flaw within the company.
It also supervises the security issues in the company, and that the hierarchical reciprocity is in place. In other ways this department is some kind of internal audit, as it has to ensure that rules and policies are implemented and so the objectives of the company are met.
3.4 Management style
In terms of management, BP has a hierarchical structure (a chart is shown earlier in the report). At very top the board of director’s stands and it has supreme authoritative powers and it is a decision maker for the company. The board is made up of directors, with chief executive in the top. Other non-executive director has duty to report the chief.
Shareholders in annual general meeting elect these directors. Because BP is a public company it is requires that it should have at least two directors. The duty of directors is to ensure that business runs smoothly and that the interests of shareholders are safeguarded.
In the next layer in hierarchical structure, the non-executive directors stand, whose duty is to coordinate all process and implement decisions taken by the board. They also advise in decision making and present outside views in the running of the company.
Other layers, descending down the hierarchy are finance director, marketing department, and production division. They are accountable to the directors directly.
Production division is the split into many other areas of production. Each specific area has its director who is responsible to supervise and conduct the production process and implement decisions of the board.
The in the next layer managers are involved. They have duty to report to the directors within the production division. These managers are expected to carry out the plans agreed by the board or the production division. Each manager has a specific duty. Their leadership is key the process.
Overall, BP can be classified as the centralised organisation. Even though during last years, and following the merger with Amoco of the BP group, company has underwent a process of flattening layers. Ten years ago, BP had eight layers of management. Now 150 Business Units are separated from the company's executive management (board of directors) by one layer.
It means that BP leaders today are able to operate as if they are running their own separate businesses - subject to compliance with group policies, and accountable for the fulfilment of a objectives of the business and this can also be classified as a franchising process.
During the course of decision-making, the board is committed to having consultations with lower layers in hierarchy, and this process gives BP some reputation for having a democratic management, meaning that it is not autocratic in decision making and the running of the business as whole.
3.5 Culture
‘Innovative, performance driven, environmental leadership and progress’ this is the brand of the BP. Over the past years, a team of individuals from BP has come together to create an identity for a great new business.
BP operates with a commitment not only to obtaining financial results, respect for individuals and diversity, responsibility to protect the natural environment, a belief in honest exchanges, and awareness that a strong reputation is essential for business success.
The business culture of the BP focuses on five areas: ethical conduct, employees, relationships, health, safety and environmental performance, control and finance. In order to further each element, the company is committed to:
- Respecting the rule of law, conducting business with integrity, and showing respect for human dignity and the rights of the individual;
- Creating mutual advantage in all of BP's relationships so that people trust and want to do business with the company;
- Demonstrating respect for the natural environment and work towards the company's goals of no accidents, no harm to people, and no damage to the environment;
- Managing BP's financial performance to maximize long-term value for shareholders.
All who work for BP will be expected to take responsibility for achieving each commitment. In reaching its objectives, BP will continue to drive down the environmental and health impact of its operations by reducing waste, emissions and discharges and by being efficient with energy. The company will also open performance reports, whether good or bad, and acknowledge contributions to improved health, safety and environmental performance. Customers, employees, neighbours, public interest groups and those who work with BP, moreover, will each have the opportunity to have their voice heard. The company places great importance on consulting with, listening to and responding to individuals or groups as well as working in coordination with partners, suppliers, competitors and regulators to raise industry standards.
Finally, to deliver on its objectives and maximizing long-term shareholder value, BP will maintain excellent standards of planning and control. This includes preparing plans and setting clear business performance targets; challenging and monitoring plans and targets; ensuring that investments are properly evaluated and approved by the shareholders.
3.6 Structure
As mentioned before, earlier in this report the structure of the BP is hierarchical. Is consisted as shown on the following chart:
Production
and exploration
Chart shows that the BP has a tall structure, and each layer of management is responsible to the seniors. Chief executive, who has deputy, directs company. Deputy director has a duty to report to the chief about all aspects of decision and proposals. Non-executive directors, do not have a specific role, but their duty is to coordinate all process and implement decisions taken by the board. They also advise in decision making and present outside views in the running of the company.
Next layer is consisted by executive director for policies and technology, chief financial officer and production and services division.
Executive director for policy and technology has a duty to supervise that policies set by the board are implemented and that the company is up to he date with the technology. Chief financial officer controls investment and capital of the company.
Production division in the key to the success of the company as its produces the products that then generate profits. This is split further into four divisions, each with the specific duty (i.e. different products).
3.7 Communications and ICT
Not for a long ago, there was different nature of commutation and use of ICT within the BP. Today with the cutting edge of the technology this has changed dramatically. BP's business success depends on using the best available technology. Technology plays a key part in BP's efforts to find and develop new oil and gas fields economically and in difficult environments like the North Sea.
Within the BP there are communication channels, which classified as internal and external. Most of this sort of communication today is conducted using means of ICT, like email. Internal channels are used exclusively within the company. External channels are used to communicate with wider public, customers, suppliers, etc.
BP has a wide operational area, meaning that it operates worldwide. Use of computers was introduced many years ago but their capability was limited. Today this whole has changed. Computers systems can be networked and thus facilitate communication in terms of efficiency and cost burden. There are two types of networks, local area networks (LAN) and wide area networks (WAN). Wide area networks are made up of local area networks.
BP, being a large size company, and with worldwide participation, has met its needs of computer networking but getting up a wide area network, exclusively for its purposes. This network is restricted to users outside BP, but the capability of accessing this network is global. Taking this into account and the situation that was in place some years ago, can is in one way justify the fact why the BP’s performance was so robust on last times. Before it may have taken hours, may be days to reach other branches aboard, customers and others, while today using IT, example email, this can be done in seconds. As well as these, BP’s has a large database on its central servers, which hold information on products, customers, employees and other details.. Servers are powerful commuters capable to store huge amount of data. This database is accessible worldwide within the network of BP, but is restricted only to the employees of BP.
Internet has played a major role in marketing and promotion of products and services. BP’s website offers a wide range of information on products and has facilities that enable customers and visitors to contact BP electronically avoiding the cost of telephone calls, letters, thus putting the benefit to the customer.
Overall, ICT is key one mainstream of keeping the business running successfully. In one instance, BP’s network suffered a minor failure in 2000, which lasted for very short time, but that was enough to make the share price go down in stock markets. This fact clearly shows how vital is ICT on the success and objectives on the company.
- Quality assurance and control
Across BP countless individual relationships, management processes and strategies are devoted to understanding and meeting the needs of customers.
Every batch of BP's products is tested to ensure it meets manufacturing specifications. After testing the product is moved to bulk storage terminals by rail, sea or pipeline. Further key tests are carried out at the terminal and there are procedures to monitor quality at various points during the product's distribution. BP is governed by its ISO 9002 accreditation, which means that it has processes in place to meet the international standards for quality management. ISO 9002 is an international quality certification protocol and ensures that holders products are reliable and in high quality.
There are other procedures that are conducted by the Bp itself on ensure the quality is at the highest. Two different third parties test every product to ensure that the quality of products of BP matched.
To add to the quality of their products and services, latest technology is used constantly, such automated production lines, which are very reliable and cost efficient due to the fact that it replaces labour, thus cutting the cost down.
These are key facts, and the whole fact that the ISO certification was awarded to the BP, is enough to tell the quality of their products, therefore adding to the effort of meeting the objectives for the business.
As the ISO9002 certification is top of the range certificate for quality and assurance company does not consider any other alternative means of quality control.
-IV-
Conclusions
From the findings on this report, a clear conclusion can be made on the performance of the business. British petroleum, BP, was the biggest earner in United Kingdom in 2001. Its profits were record at around £ 8 billion.
The fact that BP has merged with Amoco, another company that had a big stake in energy market, adds to the value of the success. Company was made more flat and effective. BP's business policies express what the company believes is right and wrong in business. The policies describe what BP expects of its people and what society can expect of BP.
Overall all factors mentioned in the findings enable us to conclude the company is hugely successful. But we have to take into the account other matters and issues such as global warming and environment.
Even though BP takes huge precautions on preserving environment, its products still contribute to the global warming by releasing the CO2 gas on the nature.
Even though company is involved on exploring “green” energy resource, non-pollutant ones, the mainstream of its products remains oil and gases.
But for the time being, the welfare of the business and its success is secure due to the fact that the oil remains the spinal cord of obtaining energy.
-V-
Recommendations
At this time the only recommendation to the company is that the environment should be taken more considerably and that the company should be looking forward to explore “green” energy more than it currently, is.
There are today claims by some scientists that within next 50 years that hydrogen power will replace all means of energy that we use now, and in other hand it will not pollute environment at all.
BP should be aware of these, and start to concentrate on exploring these findings, and help to protect the environment for the sake of future generations. Company should do more in this aspect also by persuading investors to invest in this field, by making them aware for the damage that might be cause to environment.
On the aspect of performance, no recommendations arte necessary, as company is meeting its objectives at the full extent and that shareholders are confident and satisfied.
________________________
Valon Hamiti.
January 2002.
