Managing Knowledge In A Decentralized Learning Environment: The Chevron Way
Kenneth T. Derr, Chairman and Chief Executive Officer
Knowledge Imperative Symposium
Thank you for that kind introduction. And . . . I want to say again I appreciate being invited to this conference. I see this as a great opportunity to learn more about managing knowledge . . . a subject of critical importance to our company. And I think we're making a lot of progress in this area.
In fact, I was visiting our facilities in Lagos, Nigeria, several weeks ago . . . and I saw a sign in the training center that said: "In times of change, learners will inherit the organization. Those who refuse to learn will find themselves well-equipped for an organization that no longer exists."
I know that's not an old Nigerian proverb . . . But it was certainly a good sign-and a good description of why a learning organization is important.
I think it's pretty clear that managing knowledge is something all companies will have to master if they expect to compete in a global economy. Those that can learn quickly . . . and then leverage and use that knowledge within the company . . . will have a big advantage over those that can't. And this will be true whether knowledge is developed internally or acquired elsewhere.
Now, I know that during this symposium you'll be hearing a lot about concepts . . . and processes . . . and theories for managing knowledge. What I hope to accomplish here is to bring some perspectives on the practice of knowledge management by talking about how our company is actually trying to put it to good use.
Most of you probably know that Chevron is a major international oil company. We generate about $35 billion a year in revenues, and employ about 40,000 people worldwide.
Over the past six years we've become a very decentralized company . . . comprised of major subsidiaries divided into business units . . . and each has its own management team and bottom line.
Delegating authority to business units puts more decisions into the hands of those with the most knowledge of our markets and customers. So decentralized companies should be able to get better and faster decisions that are also more customer-focused.
We're sold on the over-all philosophy and value of decentralization. However, segmenting a company can also make it harder for people to share knowledge.
And if you downsize at the same time-as we've done over the past five years-you can elevate barriers to sharing.
I think these can be overcome . . . and I'll talk more about that later. But I wanted to say up-front that each of us should be alert to conflicts between company structure and the imperative of sharing knowledge.
Another important thing to know about Chevron . . . is that we aren't totally decentralized.
In fact, we feel that keeping our various businesses connected and strategically aligned is essential to top performance.
To guide us in that process, we recently created a master document which we call The Chevron Way. And I feel it's one of the most important things we have ever produced.
I have a copy here . . .
We're using this as the framework to integrate our most important company initiatives . . . And we're now in the process of deploying it throughout Chevron.
. . . Mission and Vision . . .
. . . our Committed Team Values . . .
. . . TQM . . .
. . . safety and environmental . . .
. . . and our Vision Metrics . . . which we use company-wide to help us track our progress toward achieving our vision to be "Better than the Best."
Everything in The Chevron Way existed before, in one form or another . . . But we feel that putting it all together in one document makes it much more meaningful and user friendly.
We have copies of this document at our Chevron booth if you're interested.
There's one part within the TQM section I want to read to you: And it says:
"We will create an organization that learns faster and better than competitors through benchmarking, sharing and implementing best practices . . . learning from experience . . . and continual individual learning and personal growth."
And I think it's fair to say that no other element of The Chevron Way is more important to the success of the entire vision.
Before I move on I want to make a personal observation about managing knowledge and using information in new ways.
In 1989, we set a goal to have the highest total stockholder return among our peer competitors for the period 1989 to '93. Our target was 15 percent per year. We achieved our goal of being No. 1 and exceeded our target with a return of 18.9 percent.
And now we're committed to repeating that accomplishment. No other experience has given me such a solid appreciation for what can happen when you connect specific knowledge to specific business goals.
Before we adopted our goal, our primary method for measuring performance was comparing current financial results to our own previous results.
But then we started benchmarking the competition. And relative competitive performance became our measure of success.
We also started looking more systematically for best practices among world-class companies outside the oil industry.
Our big challenge was operating costs . . . and looking at competitors gave cost reduction a new sense of urgency. Really for the first time, our employees obtained extensive knowledge about peer companies.
People all over Chevron saw that in a lot of areas, our costs were not competitive. And it didn't take the CEO at that point to drive people toward asking the question: Why?
And the outcome has been aggressive and deliberate improvement of work processes all over the company. We achieved the operating cost reductions we needed-more than $1.2 billion. And we narrowed . . . or closed . . . a lot of those performance gaps.
We learned that we could use knowledge . . . particularly external knowledge about competitors . . . to drive learning . . . and improvement . . . in our company.
Now let me turn to our company's learning organization. But rather than talk too much about it . . . Let me just show you what it looks like.
I'm sure you can't all see it . . . So let me try to describe it . . .
This is our "map" that represents most of the major things we're doing to share knowledge. It's color-coded by Baldrige categories. And it's designed to help people find their way to resources all over the company. Probably the most important thing we've done here is identify the numerous networks throughout Chevron.
We've identified who's in charge of each one . . . and we've listed numbers and computer contacts so people can get involved. We've got networks on safety . . . planning . . . refinery operations . . . oil field management . . . training and development . . . TQM and a lot of other subjects.
Some simply use E-mail . . . others use network software.
Still others use the more traditional devices of periodic meetings and conferences. The Chevron Chemical Company quality fair is one outstanding example.
One of our more extensive networks is the corporate-wide best-practices data base . . . It's set up on Lotus Notes . . . and we can also have our Best Practice Resource Map.
Of course, this map can only tell you part of our story . . . It doesn't do justice-for example-to the commitment of our U.S. refining company, which has about 25 best-practice teams. They're improving everything from catalytic cracking to plant maintenance and hydroprocessing.
One team-in just four months-identified 12 steps for monitoring the use of expensive catalytic chemicals. And their efforts are now saving the company several millions of dollars per year.
Another good story is our supplier quality management process which we're now expanding to cover many of our purchases of materials and services worldwide.
We also developed a best-practice approach to managing capital projects, which is a four-billion-dollar-a-year task.
It used to be that more than half our peer companies did this better than Chevron . . . Now we're among the top performers.
There are other stories . . .
One team in our U.S. oil and gas company compared data on the operation of gas compressors in California, the Rockies and offshore Louisiana as well. They learned that they could potentially save at least $20 million a year just by adopting practices already being used in their best-managed fields.
Another one of my favorite examples is our network of 100 people who share knowledge on energy-use management. This network evolved from a team created to evaluate company-wide energy costs. The outcome of that was an initial $150 million savings off our annual power and fuel expense . . . And the savings continue to grow.
One thing this map doesn't show is our ongoing emphasis on the P-D-C-A cycle-and particularly the "check" step. We're formally committed in The Chevron Way to managing work as a process-and to continuous improvement. And we've learned that the PDCA "check" step can be very effective in improving repetitive or cyclic processes.
The step makes sure we learn from previous experience with a process . . . and it drives us to use that learning for continuous improvement.
In fact, we recently completed a check of our corporate planning process-and we found several ways to improve how we formulate our company-wide strategies.
Before I move on, there's one more important story I want to tell you about Chevron.
Our company has two major research groups.
One supports exploration and production . . . the other supports oil refining and products. These have always been the primary technical "knowledge centers" of our corporation. Until recently, both were quite large . . . and both had inward-looking cultures.
We knew we had to get their costs down . . . But we also decided we should re-focus them more on the business needs of their customers-the major subsidiaries who fund their research budgets.
I can't tell the whole story . . . But to sum it up, today we fund only those internal projects that can give us a competitive advantage . . . Then we emphasize shopping for knowledge outside our organization . . . rather than trying to invent everything ourselves.
We've still got a ways to go . . . But these two major knowledge organizations are more valuable now . . . And some of our managers have already said they're getting a lot more technology benefit for a much lower cost.
Let me turn finally to the CEO's role in the learning organization.
Speaking for myself, I'd say one of the most important things I've done is help create The Chevron Way . . .
I try to take every opportunity to articulate its significance . . . so that it becomes the basis for everything we do.
I also try to reinforce . . . and reward positive behavior. And I think that wherever possible . . . a CEO should lead by example. This means participating . . . and showing you're personally committed to learning and to the process of change.
One example of this in my case has been participating in "upward feedback." This is a program we have for letting people tell their bosses how to improve their performance . . . And I can tell you personally that this has been one of the best learning experiences of my career.
A lot of the CEO role just boils down to helping your learning organization sustain momentum . . .
. . . because every day that a better idea goes unused is a lost opportunity.
Whenever I visit with employee groups, I tell them sharing and using best practices is the single most important thing they can do. But I also tell them we have to share more . . . and we have to share faster.
Obviously . . . I can't inspire people as often as their managers and supervisors and co-workers.
What I can do, however, is set a consistent tone at the management level. One way I do this is to include a TQM success story in each of our monthly meetings for our 40 senior managers. And I take the opportunity with that group to reinforce the priority of sharing best practices.
I make it a point to stress the value of sharing during our mid-year strategic planning sessions with our operating companies . . .
. . . and also during my worldwide employee teleconference that we hold each January.
I do the same whenever I speak to our Chevron Management Leadership Forum, which is one of our core training programs for middle-managers. We also use that forum to promote The Chevron Way because we want our core principles to guide managers at all levels in their annual business planning.
There is another element of the CEO's role that I haven't mentioned. This is the removal of barriers to progress.
I'm sure you're familiar with some of these:
- the "not invented here" syndrome;
- the reluctance that people have to turn over their good ideas and risk not getting credit for them;
- the tendency for business units to focus on their own performance . . . and even look at other units as competitors;
- and the strong manager who performs well but is not inclined toward new ideas.
There are no magic solutions here.
One obvious plus is to promote the right people whenever you have an opportunity.
Another is to stress at all times the importance of the total enterprise-not just its parts.
But mainly . . . I think the best way to weaken these barriers is to maintain a steady and visible level of CEO enthusiasm at the management level for sharing knowledge and applying best practices.
Let me conclude now with just a few more points.
We know that the era of extreme global competition has been a primary driver for restructuring across all industries.
We've been through a very difficult transition period, both for people and for companies.
But we also need to recognize that competitiveness is the foundation of every company's ability to fund its business . . . to return profits to stockholders . . . and to deliver products and services to customers at the best prices. And despite the down-sizing it has caused, competitiveness has become a cornerstone of resilience and strength for all companies.
I think it's clear that sustaining competitiveness depends heavily on the quality of a company's learning organization. But let's recognize another important benefit.
Learning organizations create opportunities for people.
Opportunities to expand their individual learning . . .
Opportunities to get involved and participate more fully . . .
Opportunities to use new tools . . .
Opportunities to prove their value to their organizations . . .
And opportunities to get greater enjoyment and satisfaction from their work . . . their co-workers . . . and their work-place as well.
Speaking for our company . . . I can tell you that I see these benefits as critical to building the Committed Team of employees essential to The Chevron Way. And I believe this will also be the case for learning organizations everywhere.
Thank you very much.
Updated: September 1995