Online Extra: Q&A with BP's John Leggate
John Leggate's nickname is "Shiny Brains." The hard-driving engineer is BP's group vice-president for digital business, the architect of the oil giant's ambitious Internet investments. Leggate has pushed BP to promote Web technology in every area of its activities -- from oil exploration in the North Sea to selling gasoline to consumers in North Dakota.
It's a huge job for a company with $150 billion in annual sales and 100,000 employees spread all over the globe. Sometimes, Leggate admits he has pushed too far, too fast, and is forced to scale back or slow down his plans. But BP remains convinced that the Net can transform even this greasiest of heavy industries.
Leggate spoke to BusinessWeek's William Echikson at BP's central London headquarters on tony Finsbury Circus, designed by a famed Victorian architect. Outside, the building evokes the British Empire's best bygone days. Behind the doors, Leggate and other execs work from open-plan offices overlooking a large atrium filled with Net-surfing computers, suggesting how the new BP has moved to what Leggate calls "living on the Web." Following are edited excerpts of their conversation:
Q: Have September 11's terrorist attacks changed your job? A:
Q: Have September 11's terrorist attacks changed your job?
A:No. It just reemphasized to us that the fundamental connectivity is more important than ever. The digital backbone of global companies is more important than ever. On September 11, we were able us to find out where our people were and communicate with them. It enabled top management to reassure employees and put out rules for who should travel and how.
Q: Oil companies have been hit hard since the terrorist attacks by the fall in demand and oil prices. BP recently reported disappointing third-quarter results. Will this mean you have to cut back on your digital investments? A:
Q: Oil companies have been hit hard since the terrorist attacks by the fall in demand and oil prices. BP recently reported disappointing third-quarter results. Will this mean you have to cut back on your digital investments?
A:No, not at all. We are on a long journey, and we will keep on traveling to our destination. If anything, the tougher business environment makes the value of every penny we save [from the Net] become clearer. In particular, the Net allows us to travel less and keep connected through technology, important in these troubled times.
Q: What for you are the biggest benefits of the Internet for BP? A:
Q: What for you are the biggest benefits of the Internet for BP?
A:For me, the big message for a complex company like ours is not technology. It is to use technology to spread learning. By connecting all our employees, we let them learn from each other. I'm happy to report that our e-mail traffic within the company and the amount of time employees use our Internet is doubling every year.
Q: What's your own background? A:
Q: What's your own background?
A:I've been with the company for 20 years. I joined when the company was starting to develop the North Sea. It was exciting. Before that, I specialized in building nuclear power stations. I have an engineering background. That gives me a technology bent, but my career mostly has been in managing, not engineer[ing].
Before this job, I was president of our operations in Azerbaijan. I felt a little like in a James Bond movie, but I didn't get the girl. It was a fascinating job involving geology and geopolitics. I was responsible for all the pipeline systems in Baku. To give you an idea, we had to decide whether to build a pipeline through Georgia that cost $2 billion or one through Turkey that cost $4 billion. The Americans had a preference for the Turkish option. The business logic was otherwise. I spent a lot of time in Washington on the politics of this affair. It was a time of great personal growth.
I held this job until the Amoco merger in late 1998. We wanted to get the value of the synergies from the merger up and running. It was a big challenge. When we announced the merger, we said to the market we would have savings [of] over $2 billion a year. My slice was a half-billion dollars. I was given 24 months. I did it in 11 months.
Q: What role did the Net play? A:
Q: What role did the Net play?
A:When the merger was completed, we wanted to be able to go live, join all the parts of the company so that we could communicate. The Internet allows us to do this. And the day the merger was completed on January 4, 1999, we were live.
Q: What did you do next? A:
Q: What did you do next?
A:We have kept going at it. Since absorbing Amoco, we have also absorbed Arco and Burmah Castroil. That allows us to realize cost savings of 25% to 30% on technology per year, while doubling our digital traffic. We squeeze volume.
Q: Is your present job really similar? A:
Q: Is your present job really similar?
A:Yes. It's totally relevant, and it is relevant in many ways. Here we have a giant management task of managing globally. We are present in 100 countries with 150 business units comprising 100,000 people. When you manage at [this] level of scale, you want to operate collectively. After all, we are a corporation, not a conglomerate. We can only achieve this goal by operating digitally. That's why I have spent $250 million in the last nine months bringing the entire company online. We have given everybody laptops and access to e-mail and the intranet. When they turn on their computer, everybody has the same common screen.
Q: But this sounds pretty basic. A:
Q: But this sounds pretty basic.
A:It is, but it really speeds up the transfer of information. We have become a profoundly networked company that learns from each other.
The story I like best is about a Norwegian geologist who discovered a new way of drilling wells and posted it on our web. Another engineer in the Gulf of Mexico saw it and asked for more information. They ended up cooperating and reducing the amount of time the team needed to drill in the Gulf.
Q: What's the connection? A:
Q: What's the connection?
A:Speed. The idea is to use technology to speed up our decision-making. Take the discovery of oil. Before going out in the field, we now meet in simulation rooms called HIVEs. These allow us to get an idea of the geology and choices facing [our teams]. It saves time and lots of money. Let's say a team must go out to a well for maintenance in the North Sea from Norway. Before they go, they know what problems they are facing.
We have 15 of these sites around the world. They save big bucks. People tell me that a $1 million-dollar HIVE installation in Houston was paid off in seven days. These rooms will blow your socks off. Every time I see them, I am amazed. Remember, our capital spending is $1 billion a month. Anything that can cut into that figure and speed up decision-making can make a big difference.
Q: Do these HIVEs rely on the Net? A:
Q: Do these HIVEs rely on the Net?
A:There is a videoconferencing possibility, and much of the information is sent via the Net. But we still find it is useful to get people together physically here so they can discuss options together.
Q: You have outsourced your human resources to an Internet company called Exult, and you are collaborating with other oil companies on a number of Internet ventures such as the procurement site Trade-Ranger. Why? A:
Q: You have outsourced your human resources to an Internet company called Exult, and you are collaborating with other oil companies on a number of Internet ventures such as the procurement site Trade-Ranger. Why?
A:We are not in competition with Shell on procurement, and that's why we can work with them on Trade-Ranger. We can legitimately collaborate. When we think about technology, we don't see the need to own proprietary technology. Our competitive advantage is how to exploit it. So we are relaxed about sharing information and bringing others to the table. And by being inclusive, you can bring great liquidity to online marketplaces. Remember, too, we have a shareholding in Trade-Ranger, in order to help it get off the ground. But Trade-Ranger is independent. That is the only way it could work with the entire oil industry.
Q: But sometimes don't you stumble? A year ago, you wanted to put almost all purchases online. Now you are backing down. Why? A:
Q: But sometimes don't you stumble? A year ago, you wanted to put almost all purchases online. Now you are backing down. Why?
A:This is heavy lifting. We have been spending a lot of time cataloging all the pipes and pumps and other equipment we buy. It has been hard to get the software and systems up and running. Getting all our back-office systems to work together is incredibly complicated. After all, we are talking about $25 billion of procurement. We had hoped there would be a lot more transactions taking place online by now. But even if we get only 25%, that's $5 billion.
Q: Will the consumer see any of the benefits? A:
Q: Will the consumer see any of the benefits?
A:We do talk a lot about B2B and B2C. In B2B, we want to let our corporate customers buy our products online. The chemical side has pushed ahead with this, and a lot of chemical products are now bought and sold online. A lot of aviation fuel is now sold online, and we are setting up an exchange to bring together buys and sells of such fuel. The big advantage for the customers here is not getting a lower price, but reducing inventories. For us, the advantage is that we can make effective use of our worldwide stocks.
We also want to reach our customers who buy gas at our stations. That's why we started BP Connect, the gas stations with Internet kiosks. But this is still an experiment. We have to find a way of recovering our investment.
Q: A final query. Do you feel isolated here in London, far from the center of technological change? A:
Q: A final query. Do you feel isolated here in London, far from the center of technological change?
A:I have a lot of powerful connections in [Silicon] Valley, and I spend a lot of time there and in North America in general, particularly New York. We have funded money into Stanford University, into the e-business school there. We have contacts with various venture-capital houses to understand how they work. We feel part of the scene. Geography is becoming less important in this era of globalization.