Knowledge Management

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Knowledge Management

  1. 1. Team B 1page Y52.3305 Knowledge Management Knowledge Management Y52.3305 Prof. Vaughan Coleman Submitted on: Friday, March 9th, 2007 Submitted by: Getachew, Surafel Johnson, Ronald Kanter, Dave Kim, WooHyun Kumar, Romona
  2. 2. Team B 2page Y52.3305 Knowledge Management You are a KM consultant for BP-Amoco (www.bpamoco.com). BP-Amoco is one of the world’s largest petroleum and petrochemical groups. Its main activities are exploration and production of crude oil and natural gas; refining, marketing, supply and transportation; and manufacturing and marketing of petrochemicals. Because of the current political instability (e.g., war in Iraq) in the Middle East, environmental uncertainty is said to be relatively high these days. Introduction BP –Amoco is one of the largest energy corporations in the world and the largest oil and gas producer in the US. Its main activities are in the exploration and production of crude oil and natural gas, refining, marketing, supply and transportation, and manufacturing and marketing of petrochemicals.The company’s current business strategies are changing, given the turbulence it’s faced in recent times. BP is considering a course somewhat different from what it’s focused on in the past; including the reduction of green house gases (cleaner energy), BP Alternative energy -- solar, wind, hydrogen and combined-cycle- gas-turbine (CCGT) power generation -- and development and production of biofuels to create a source for low carbon or renewable fuels for the future. This leads to a strategy of differentiation between BP and its competitors. Additionally, the nature of BP’s work, especially in the exploration and production area, is highly subject to various environmental uncertainties that include political unrest in the Middle East and the impact of climate change (global warming, hurricanes). The type of knowledge BP – Amoco currently uses include Web-based KM system (knowledge base), Web-based forum (Q&A), Link (Experience/People), Peer Assist, BP connect, Best practices, and Retrospect. What kinds of KM systems are appropriate for such a large company like BP with such profile? To answer the question, this paper will first examine the tasks, explore the challenges, identify areas of uncertainty and recommend a suitable KM system that can help BP’s processes to be more efficient. Gather information on BP-Amoco and decide whether its task uncertainty and task interdependence are high or too low. Provide the reasons for your decision. When BP-Amoco transformed from British Petroleum to Beyond Petroleum it innovatively restructured its business strategy as a traditional oil company known worldwide to a global energy brand prepared to change with the times. Traditionally BP’s main tasks are related to its most valued activities, which are exploration and production of crude oil and natural gas, refining, marketing, supply and transportation, and manufacturing and marketing of petrochemicals. The following chart highlights the level of uncertainty and interdependence BP is facing amongst its most important activities. EXPLORATI REFININ MARKETIN SUPPLY & MANUFACTURI ON & G G TRANSPORTATI NG & PRODUCTIO ON MARKETING OF N PETROCHEMICA
  3. 3. Team B 3page Y52.3305 Knowledge Management LS Task Low Low High High Low Uncertainty Task High High High High Low Interdependen ce In the area of exploration and production, BP has been drilling for oil since 1908 (www.bpamoco.com) and is constantly exploring different regions of the globe for crude oil (Ragsdale, 1996). This task remains highly certain with BP as the industry leading explorer, finding more oil and gas at lower cost and creating more value than any of its principal competitors. By the end of 2005, BP had active explorations in 26 countries, with proven reserves of 18.3 billion barrels of oil and gas equivalent (www.bpamoco.com). In other areas of exploration, BP is in the "final planning stage" of a 3 billion dollar project to process heavy crude from the Canadian oil sands at the company's refinery in Whiting, Indiana. The investment "increases the diversity and security of oil supplies that can be refined into gasoline, diesel and other petroleum products in demand by consumers in the US Midwest.” Production from the oil sands could reach 4 million barrels of oil per day by 2020 (Refining and marketing: Petroleum Economist. London: Oct 2006. pg. 1.) BP’s experience and core competency in the areas of exploration and production has made this task continually certain. With regard to task interdependence, BP employs a vast array of experts from different disciplines who are able to share their knowledge in their respective fields such as geology, engineering, etc. as a means of improving their main task of finding the most certain locations to drill. BP also utilizes technology and a knowledge management system to further refine their business process and create greater organizational performance. In having a high level of interdependence amongst BP’s tasks, these tasks are able to become more efficient with the dynamic interaction of different functional groups. In order for crude oil to be made into a useable form, it needs to be refined, making refinement a highly certain task of BP. Without the exploration and production of crude oil, how necessary would refinement be? This is the obvious reason why exploration, production, and refinement go hand in hand making them highly interdependent. Refinement is also dependent on other factors such as events that can occur at refineries which can have a projected impact. For example, in 2005, BP was the leading U.S. refinery in deaths with 22 fatalities in the last 10 years (www.chron.com). These deaths can be attributed to explosions and other safety issues at the refineries. These events not only taint BP’s image but affect the usage of these refineries making this task highly dependent. BP has remodeled their marketing and advertising approach significantly. In an already competitive market, BP has suffered some losses that have put it at a disadvantage in the public eye. These shortcomings have made the task of marketing highly uncertain and interdependent. BP must continually base their marketing efforts on events that influence their brand image and have an effect on other areas of their business strategy. In 2006, the pipeline leaks in Prudhoe Bay, Alaska, had detrimental effects on marine life and an unknown environmental impact on the region itself (www.msnbc.msn.com). An explosion at a Texas refinery in 2005 left 15 dead and many injured (www.economist.com). These
  4. 4. Team B 4page Y52.3305 Knowledge Management incidents arguable could have happened to any major oil company with similar operations however, since they occurred at BP, many of BP’s procedures and processes were called into question. BP has since restructured their marketing strategies to highlight their research of alternative fuels such as low carbon biofuels. It is expected that these low carbon fuels will lower the overall greenhouse gas emission lessening the dependence on world oil supplies. BP has started advertising through television, newspaper and magazines outlets which traditionally had not been done before. Most notably, BP had an ad in a March 2007 issue of O Magazine whose ads are generally geared towards women. The headline read, “Cars should eat their vegetables, too.” This ad is striking because ordinarily oil companies, such as BP, had not marketed themselves through these outlets. BP’s task of marketing is dependent on events that occur throughout their worldwide operations making it both uncertain and interdependent. When oil production is interrupted by disasters such as Prudhoe Bay or the Texas refinery incident, not only is money lost through interdependent tasks such as production and refinement but the image of BP as an environmental detriment is hard to overcome. BP’s supply and transportation of crude oil occurs through its network of pipelines. This task is both highly uncertain and highly interdependent on other factors. For example, these pipelines need proper maintenance and still run the risk of leaking which can have a direct impact on the safety of workers and local wildlife. For example, BP’s leaky pipeline in Prudhoe Bay, Alaska in 2006 can in part be attributed to inspection failures and the disregard of employee warnings (www.msnbc.msn.com). This oil field was temporarily shutdown after this occurrence indeterminately affecting the supply and transportation from that site. The repercussions from this pipeline leak clearly illustrate why BP’s supply and transportation tasks are indeed uncertain and interdependent on related factors such as maintenance, inspection policies, and employee feedback. Another component of the Beyond Petroleum brand includes the marketing and manufacturing of petrochemicals. Petrochemicals are chemicals derived from petroleum or natural gas that can be used to manufacture many of the items we use on a daily basis such as beverage containers or household textiles (www.thedeal.com). The uncertainty and interdependence of BP’s use of petrochemicals remains fairly low since a great deal of their revenue come from oil exploration and refinement. However, BP is continuing to invest in improving the technology required for petrochemical manufacturing because the process is highly energy efficient making it appealing to areas of the world where energy consumption is particularly high. As a leading power in its industry throughout the world, BP’s tasks are evolving and changing to accommodate the political instability in the world as well as the environmental uncertainty brought on by global warming. It is becoming clearer to citizens of the world that carbon emissions are adversely affecting the health and well being of the earth itself. BP’s role in this global awareness has involved addressing the uncertainty of their future as an oil company and exploring their potential as an energy company. This approach will allow BP to become less dependent on the uncertainties that affect them as a sole oil company. What types of knowledge does BP-Amoco use most and suggest an appropriate KM process for the certain type of knowledge? BP’s historical approach to knowledge has been very good, and the company has been a leader in KM initiatives, making this a somewhat easy question to answer. An interview with Kent Greenes, BP’s Chief Knowledge Officer, in the Fall 2000 issue of Oil and Gas Journal, gives readers some very good clues into the kinds of knowledge BP needs to manage. Greenes is held in high esteem in the KM community, and was referred to in an earlier Fortune magazine report as “knowledge management’s top
  5. 5. Team B 5page Y52.3305 Knowledge Management money maker.” With particular insight, Greenes discusses the ways in which KM touches many aspects of BP’s operations, including (but certainly not limited to): • Mergers and Acquisitions – a critical thing to get right and build a base of knowledge to support. • Managing change and business restructuring – creating well-understood and reusable processes for managing this knowledge. • Oil field drilling and Polyethylene Production – BP’s core businesses • The construction of BP retail sites, which impacts marketing and service • Pricing in the global market for competitive advantage • Safety While any of these initiatives could be managed using any one of a myriad of well-understood KM strategies, discussed in greater detail below, two of BP’s most lauded factors for success with KM are its from-the-top level of support from senior executives reaching all the way to the company CEO, and its strong pre-existing IT infrastructure. As Louisa Wah writes in the April 1999 issue of Management Review: “An employee-driven yellow pages on [BP’s] corporate intranet now contains information about 10,000 employees, enabling everyone to find out ‘who knows how.’ Some 1,500 people also have video- conferencing and application-sharing technologies on their desks to exchange knowledge with other BP associates, partners and suppliers. More than 20 of the 100 business units of the BP/Amoco merger are using these processes and tools on a regular basis. And about a quarter of BP's business units now have ‘knowledge guardians’ who help their business teams harvest newly created knowledge.” Wah is discussing an initiative that has now come to be known as “BP Connect,” an enterprise-wide KM initiative that does indeed help BP employees figure out “who knows how.” Assess (i) the organization size of BP-Amoco (small or large), (ii) business strategy (low cost or differentiation), and (iii) environmental uncertainty (high or low.) Company size and ranking BP-Amoco is one of the largest private sector energy corporations in the world. The company operates on a global scale with over 96,000 employees worldwide with operational presence in over 100 countries. BP is the largest oil and gas producer in the US, and ranks the second largest in the marketing of gasoline. As it states on Wikipedia: “In the 2006 Fortune Global 500 list of companies, BP was ranked 4th in the world for turnover with sales at $268 billion (down from 2nd in 2005 and 1st among oil companies), in the 2006 Forbes Global 2000 it was ranked the eighth-largest company in the world. BP's profits in 2005 amounted to $22.342 billion with replacement cost profit after interest, tax and minority shareholders' interest taken into account of $19.3 billion.” As BP claims on its website: “BP - Amoco has an estimated global market share of around 3% of oil & gas production, 4% of refining capacity and over 10% retail sales of refined oil products in the major global markets in which it operates.” The Web site goes on to say:
  6. 6. Team B 6page Y52.3305 Knowledge Management “The company owns or partially owns 19 refineries around the world and also has 18.3 billion barrels of oil reserves, which is equivalent to approximately 57% oil and NGL’s and 43% gas. The company is active upstream in 29 countries and has production operations in 23 countries. It further enjoys significant downstream figures that include gas sales contracts in 25 countries and more than 28,000 service stations around the world.” The company operates within a myriad of uncertainties that can significantly affect the operation, production and transportation of crude oil and the refined petroleum products. BP is a significantly sized company in terms of revenue generation and number of employees. The company, like others of the same magnitude, is challenged by coordination of the employees -- especially as regards the disparate locations from which they operate. Assess the Strategy of BP Considering strategy as focusing on either low-cost of differentiation, BP is focusing on differentiation, mostly by embracing the challenge of providing its customers with alternative energy sources. BP has been focusing since the last 10 years in helping to reduce green house gasses which causes global warming and also extended into the area of alternative fuel thereby reducing its dependency on crude petroleum and diversifying into other areas of potential revenue. BP devotes some time to discussing this on its Web site: “The company has devoted significant resources to increasing the development and production of biofuels (ethanol etc) and is part of its strategy of identifying low carbon or renewable fuels for the future. This is part of its new initiative BP Alternative Energy - a dedicated alternative energy business which is active in solar, wind, hydrogen and combined-cycle-gas-turbine (CCGT) power generation - and the establishment of a biofuels business within its Refining & Marketing Business.” The company is already a top player in the biofuel business, blending and distributing 590 million gallons of ethanol and 70 million gallons of biodiesel in 2005 but expects to increase its business by 25% in the coming 5 years. BP currently accounts for about 10 percent of the global biofuels market. In the quest to find better alternatives to crude oil exploration and production, and in keeping with its new approach to environmental consciousness, BP has reached out to the university community to develop initiatives that will help it reach its goals. As discussed in a press release announcing one of its recent initiatives: “BP selected the University of California Berkeley and its partners the University of Illinois, Urbana-Champaign and the Lawrence Berkeley National Laboratory to join in a $500 million research program that will explore how bioscience can be used to increase energy production and reduce the impact of energy consumption on the environment. As part of its overall company strategy, the company is also looking to use biological methods to increase the recovery rate of oil recovered from well that currently range from only 20-70%. Improving the recovery rate will mean less drilling and a longer-term exploration from existing reservoirs.” Other initiatives include the collaboration with DuPont to find better fuel efficiency, investment in wind power station that are currently producing cleaner energy and producing energy for national power grids.
  7. 7. Team B 7page Y52.3305 Knowledge Management Environmental Uncertainty BP operates in over 100 countries on six continents. The company is the leading producer of petroleum in the US and the UK. Having looked at the company and its activities, this section will examine if environmental uncertainty like Middle East unrest, global weather phenomenon facing the world and various markets also have the same impact within BP. This question should be answered by looking at the current business activities of BP and its market share position compared to other oil giants. Also, the answer will examine the dependency of BP in its exploration and production of crude oil and petroleum from volatile areas where political uncertainty is high. Although BP maintains exploration and production in various continents and countries, its current dependency on crude oil from the Persian region is relatively high as a part of its companywide production. The US Energy Information Administration – Petroleum publications – Company Level Imports (Jan – June 2006) of crude oil imports from Persian Gulf shows that 7.8m barrels of BP’s total production or 42% was from the gulf region: Crude Oil Imports from Persian Gulf 2006 BP WEST COAST PRODTS LLC 18,638 7,831 42% Although BP explores and produces oil from this region mainly working in collaboration with partners, this is a relatively high dependency on the region and any friction in that region should be expected to significantly affect the revenue of the company. The company was also greatly affected by the recent hurricanes Katrina and Rita that affected the US gulf region causing 4% of total output to be lost. This information shows that at present, BP will suffer greatly from environmental uncertainties and must continue to take current strategic steps and diversification initiatives to mitigate this impending risk. At the current operation model and the dependency of the Persian region, BP’s uncertainty is rather high. BP faces a tremendous challenge due to climate change. There is a growing consensus that climate change is caused by increasing emission of CO2 from carbon-based fuels. Information captured from BP’s site states that “The 2007 Intergovernmental Panel on Climate Change (IPCC) climate change report for policy makers confirmed the connection that CO2 emission by humans is responsible for the dramatic increase in temperature. Continuing with the current emission rate would lead to a 50 % increase in CO2 emissions by 2030 and more than a doubling of CO2 emissions by 2050. The report further details the current CO2 emission rate would result in an increase in the global average temperature between 1.7 and 4.4 degrees Celsius, with a best estimate of 2.8 degrees.” To help solve the issue, BP launched an alternative energy initiative in 2005 and plans to invest $8 billon over the next 10 years to produce electricity from low carbon sources. Their company literature states “The plan also aims to reduce greenhouse gas emission by 24 million tones a year. BP – Amoco estimated emissions caused by its products were around 570Mte in 2005, 606Mte in 2004, and 614Mte in 2003. The numbers clearly show the BP’s alternative energy effort is significantly contributing in lowering the CO2 emission.” Now compute the cumulative priority score of each KM process. Based on this analysis, what is your recommendation of appropriate KM solutions to BP-Amoco.
  8. 8. Team B 8page Y52.3305 Knowledge Management The personal intellectual properties and execution ability of the BP organization are the key assets of deploying its KM system. Based on the Templeton Advanced Management Programme in Oxford, verifying the organization’s inefficiency by minimizing human-error, harmonizing the corporate culture to develop a systematic knowledge inter-changeable KM are the main focus for BP’s KM solutions. * Current BP KM Process Map Exploration Pipeline Refining Marketing Renewable and and and production Shipping Alternative Energy Socialization Low Low Low High Low (Tacit to Tacit) Externalization High High High High High (Tacit to Explicit) Combination High High High Low Low (Explicit to Explicit) Internalization High High High Low High (Explicit to Tacit) Socialization: teams / communication Externalization: conceptualization Combination : information sharing Internalization : Interaction Based on this KM Process map, BP’s business model requires highest focus on ‘Externalization’, converting the ‘tacit’ knowledge to the ‘explicit’ knowledge. BP needs a KM system that would respond highly on uncertainties such as terrorism, global warming and other social issues. The task interdependencies are affecting all the different types of businesses BP is conducting, therefore an integrated KM framework, that can develop the BP organizational structure by modifying the current business processes to meet the goal. RECOMMENDATION: KM Systems BP requires: BP requires “Lessons learned (A holistic learning model on learning before, during and after work is done)” and “learning organization(Peter M. Senge 1990)” methods to identify tacit knowledge, evaluate the effectiveness and store efficiently in the KM solution for further review of the impact. As BP-Amoco has 5 different aspects of business units (Exploration & Production, Pipeline & Shipping, Refining, Marketing, Renewable & Alternative Energy) this organization needs inter- departmental KM system to maximize the usage along different business units to minimize the damages of current environmental and social uncertainties described. Sharing vision: the learning organization addresses the whole to capture the interrelationship between the parts (business units) provides in order to maximize the performance (reduces the gap in KM effort). Apply in KM as: • Best practices • Conferences • Consulting
  9. 9. Team B 9page Y52.3305 Knowledge Management Individual learning: ‘Organizations learn only through individuals who learn. Individual learning does not guarantee organizational learning. But without it no organizational learning occurs’ (Senge 1990: 139). Interchanging tacit knowledge will be necessary for people to learn new skills and develop new orientations (quantitative & qualitative measures). Apply in KM as: • Retrospect (lessons learned) • Web-based Knowledge base center • BP Connect (Internal Yellow Pages for finding BP experts) • Web-based forum (Q&A) • Link (Experience/People) Team learning: When teams learn together, not only can there be good results for the organization, members will grow more rapidly than they would have otherwise. The discipline of team learning starts with “dialogue,” the capacity of members of a team to suspend assumptions and enter into a genuine “thinking together.” (Environmental uncertainty) • Community Building (connecting people with common interests (communities of interest), bringing them together to exchange know how (communities of practice) or work as a team (communities of commitment) • Peer Assist/Review (Creating a common operating environment for knowledge exchange through peer assists) • Data Mining (BP staff could search knowledge repository for ways to improve a process etc.) • Story telling (Field engineers or transportation workers could tell stories about their particular experience) Final Thoughts BP – like so many companies in today’s oil market, certainly has its work cut out for it in facing the challenges laid out by its recent past, and in determining its role in energy’s future. Given that a company like BP might well not exist in 100 years’ time, BP can only benefit further by embracing reasonable KM strategies as it finds its way. This paper has sought to discuss the challenges of BP, examine its past with KM, and make determinations as to what KM initiatives will help it find footing for the future. With an already strong tradition of KM in its past it should have little trouble moving forward and facing new uncertainties. Resources BP in trouble. Retrieved on February 7, 2007 from the World Wide Web: http://www.economist.com/business/displaystory.cfm?story_id=8554887 BP leads nation in refinery fatalities. Retrieved February 23, 2007 from the World Wide Web: http://www.chron.com/disp/story.mpl/special/05/blast/3182510.html British Petroleum. (2007). Aromatics and acetyls. Retrieved March 1, 2007, from http://www.bp.com/modularhome.do?categoryId=6110
  10. 10. Team B 10page Y52.3305 Knowledge Management British Petroleum. (2007). BP selects strategic partners for energy biosciences institute. Retrieved February 16, 2007, from http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7028142 British Petroleum. (2005). Environment and society - overview. Retrieved February 16, 2007, from http://www.bp.com/sectiongenericarticle.do?categoryId=9007616&contentId=7014482 Christiansen, A. C. (2002). Beyond petroleum, can BP deliver? Retrieved February 16, 2007, from http://www.fni.no/doc&pdf/FNI-R0602.pdf Coffman, Peter. An Interview with Kent Greenes. Oil and Gas Journal, Fall, 2000. Data: Energy In formation Administration – Petroleum publications – Company Level Imports (Retrieved from the World Wide Web) Essex, David (Aug. 1, 2000), Knowledge management programs pay big dividends, www.itworld.com Johnson, Alex (Nov. 13, 2002), U.S. politics: Is the fix in?, http://www.msnbc.msn.com/id/3371855/ Gorelick, Carol (2004), Performance through learning (pp. 351). Burlington, MA : Elsevier. Kaplan, Simone (Jul. 15, 2002), KM the Right way, CIO Magazine, http://www.cio.com/archive/071502/right.html Leaking pipes in Prudhoe Bay Oil Field. Retrieved on February 7, 2007 from the World Wide Web: http://www.msnbc.msn.com/id/14219844/ Ragsdale, Rose. (1996) The Northstar trek: BP Exploration is going where no one has gone before with Arctic's first offshore oil field. Anchorage: Alaska Journal of Commerce. Vol. 20, Iss. 16; p. SS11 (13 pages) Senge, Peter M. (1990), The Fifth Discipline New York, NY: Doublebleday. Thanh, Ha (2006) Refining and marketing: Petroleum. The Economist. London: Oct 2006. Pg. 1 (Retrieved from the World Wide Web) Varon, Elana (Aug. 2, 2000), Case study: The CIA updates its knowledge management system. http://www.cio.com (Retrieved from the World Wide Web) Wah, Louisa. Management Review. New York: April 1999. Vol. 88, Iss. 4; Pg. 16.

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