Moving Principles To Action
Kenneth T. Derr, Chairman and Chief Executive Officer
16th Annual National Black MBA Association National Conference and Exposition
San Francisco, California
I've been pleased to be part of Chevron's alliance with the National Black MBA Association and we are especially proud to be the sponsor of this Keynote luncheon. When the San Francisco chapter honored us last year, I felt -- and I know all our employees felt -- very, very proud. Chevron wants to be considered an "Employer of Choice," and such recognition by the Association is an indicator that we're moving in the right direction.
Chevron is working hard toward our goal of being an "Employer of Choice," as well as a truly diverse company. I don't think we're there yet . . . but we are making important progress.
And that's what I'd like to talk about today, because I think most companies are facing the same challenge.
The challenge is to renew and improve employee commitment . . . to help employees succeed in a changed -- and continuously changing -- business environment.
It's a tough job . . . clearly the most pressing concern that we face today.
Future business success will only come to those companies who have developed a committed work force. Therefore, I'd like to share with you some thoughts about what companies like Chevron are doing to improve our employees' commitment.
But first, let me emphasize that I'm very positive about the state of U.S. business today. The past five to ten years have been a difficult period, but we've made the necessary and dramatic changes that have greatly improved the way we work.
Only a decade ago, U.S. companies were taking a back seat to their Japanese and European counterparts . . . in competitiveness . . . in efficiency . . . and in sophisticated global strategies.
Today the situation is very different. U.S. unit labor costs are lower than Japan's or Germany's. U.S. productivity is higher. Although some of this may be due to change in relative currency values, most is the direct result of real improvement. Today we are the most competitive economy in the world.
And we have met the challenge of going global. In a recent survey of a large group of U.S.-based manufacturers, 93 percent reported direct foreign investment, foreign sales or other forms of international activity.
The changes we've seen in recent years have been both structural and philosophical. Today's successful companies have decentralized and flattened their organizations. They've shed assets that don't add value, and operations that don't fit their strategic plans. And that strategic plan nearly always focuses on customer service, in one form or another.
My own company is a good example -- almost a case study -- of the changes I've just described.
In the mid-1980s, we were a large, successful company . . . much larger as a result of our 1984 merger with Gulf. We had lots of assets but were not getting great value from them collectively.
Compared to our competitors, however, we tended to be a high-cost operator. And we trailed other major oil companies in our return on capital employed, resulting then in a lower average annual return to our stockholders.
So in 1989, we set a goal of improving stockholder return. Specifically, we set a goal of having the highest stockholder return of our peer competitors for the five year period, 1989 to 1993. It didn't happen all at once, but we set in motion a series of necessary and sweeping changes. And we got results.
For example, we continued to restructure and to eliminate marginal assets. In the United States, we slimmed down our oil field "portfolio" from a high of 3,500 oil fields in 1987 to the current core group of 400. We had learned that 90 percent of the profit was coming from 10 percent of the fields. This thus allowed us to slim down the organization and focus employee talents where they could make a real difference.
We sold refineries, service stations and three entire divisions in our chemical company. Concurrently, we shifted investments to more promising international activities, as governmental policies eliminated most new U.S. areas from drilling.
We launched an all-out war on costs. By 1993 we had reduced our worldwide cost structure by more than $1 billion a year, or 13 percent, compared to 1991.
In the process, we improved our ROCE from less than 8 percent to 11 percent in 1993, the highest of our major competitors.
When 1993 came to an end, we had met our five year goal. Our annual stockholder return for the five year period was 18.9 percent per year, compared to the S&P average of 14.4 and our peer competitor average of 13.2 percent.
What were some of the keys to these accomplishments. Let me mention a few:
- We decentralized our operations, setting up Strategic Business Units throughout the world. Authority was significantly increased for these units so that decisions could be made much faster and people felt much more responsible for their actions.
- We introduced and cultivated quality management principles throughout the company. A strong customer focus became a permanent feature of all our business units.
We cut costs primarily by analyzing our many work processes (often across several functions) and making fundamental changes in them. We also set up a number of corporate "breakthrough" teams to tackle major problems such as corporate overhead, inventory management and fuel efficiency.
- We changed our planning process to make it more responsive to each business unit's need. The new process improved communication between the corporation and our business units, and helped us get all our staff and operating groups lined up and moving in the same direction.
We are proud of what we accomplished in those five years. And I'm especially proud of the employees who've brought us where we are today, for it was only through their individual accomplishments that the entire company met its goals.
Getting there was not easy for anyone who went through it. During these five years, Chevron's worldwide work force declined by more than 8,000 employees -- from about 51,000 in 1989 to under 43,000 today.
Losing 8,000-plus people is difficult. If you've ever been personally responsible for having to let even one person from your organization go, you know what I mean.
The reductions themselves were, unfortunately, unavoidable. When a company is making sweeping, systemic changes in order to become more competitive -- in order to survive -- you must scrutinize every resource, every business process. You can't have blind spots. And that means you have to confront the reality of losing jobs.
As I said, you don't rest easy over decisions like those. But dealing with the 43,000 employees we've retained is now our top priority. And that effort is what I'd like to concentrate on for the remainder of my remarks.
The immediate byproduct of organizational change is stress and impaired performance. Employees who are fearful and uncertain about their futures tend to lie low. They don't take risks. They don't expend much creative energy.
All of which is bad for business . . . and bad for people.
At Chevron, we saw these symptoms among employees both during and immediately after some of the major changes we made.
From a worldwide employee survey, from focus groups and from participants in our management development programs, we knew employees had major concerns . . . about the viability of their work groups . . . about the quality of leadership in the company . . . and, most importantly, about whether Chevron still valued its people.
Ironically, some of the very changes that had helped us turn around our performance also fueled employee unease. For example, divestitures in various parts of the company led some employees to believe that everything was for sale, and that we were slowly liquidating the company.
Decentralization, a process that created more flexible, more cohesive business units, also at times fostered an "us versus them" atmosphere.
And our emphasis on quality improvement struck some people as a thinly disguised effort to cut more jobs. These people felt we had accomplished our financial success directly at the expense of our employees.
We wanted to address these concerns . . . because we knew it was critical for our future success. No business can succeed without employee participation and support.
So in early 1992, our management team added a new strategic intent to our Strategic Plan. It said, "We will build a committed team to accomplish the corporate mission."
We struggled hard with trying to specifically define what we meant by a committed team. Let me read to you what we finally came up with:
We will become a committed team when we . . .
- trust, respect and support each other and value our differences,
- have open, honest, and effective communication in all directions,
- can proudly make our maximum contributions which are valued, recognized and rewarded,
- continually seek opportunities to improve and gain competitive advantage, effectively managing the change that may result,
- accept our individual responsibility, in partnership with the company, for the success of the business, for our personal growth, learning and job skills development,
- clearly understand how our goals are aligned with the corporate and business unit strategies, and
- practice teamwork throughout the organization in support of the common good.
Let me make a few comments about some of the key aspects of this vision.
The first point -- trust, respect and support -- is critical. Without mutual trust and support among all employees, with their peers, and with management, team work is an empty word and commitment is impossible.
The second statement about "open, honest and effective communication" is equally critical. We are working hard to keep employees well-informed . . . to be honest with them about the company's performance and prospects . . . and to help them see how they fit in.
This year, for example, our two Vice Chairmen and myself will have visited nearly 20 different company locations, from Houston to Aberdeen, Scotland, to hold Town Hall Meetings with employees. We've discussed company performance and future plans and answered hundreds of questions from employees.
In the last two-and-a-half years, I have also held four worldwide videoconferences to review our goals and objectives with all our employees. After my talk, I take questions for another 45 minutes or so.
We have spent a lot of time in the business units making sure employees have specific goals and that those goals are aligned with the larger ones of the organization.
Our goal is that each employee can understand how his or her individual objectives fit into the strategies of the business unit and the corporation.
Along with communication, we're emphasizing the need to empower employees. Workers who feel empowered are better able to adapt to change. Instead of feeling victimized, they seek opportunities to contribute.
One of the most effective ways to empower employees is to create teams to accomplish certain tasks and solve specific problems. We're rapidly becoming a company of teams, some of them self-directed. Every month, our management selects a team that has accomplished something noteworthy and invites its members to share their results with us. Those 30-minute discussions are really exciting.
Recognition is another element of our effort to improve commitment. In January, when we announced that Chevron had met its five-year financial goals, each employee received a five percent bonus and a commemorative watch. On the face of the watch is a Chevron logo and the motto "Better than the Best," which is what we aim to be.
We also took out full page ads in the Wall Street Journal and several local newspapers as another way of thanking our employees and of recognizing their efforts in helping us meet our goals.
Obviously, employees were excited with their money. But I really think that many were equally proud of the public recognition. I received many letters of thanks, the basic message being -- it's nice to see that the company recognizes the role of all employees, and is willing to share its success with them.
An important concept in our definition of a committed team is the mutual responsibility of both the individual and the company. The company must provide the environment where employees can contribute to their maximum potential. This involves training, open communication, empowerment -- the things I have been talking about for the last few minutes.
Employees, on the other hand, must accept that responsibility and work for the success of the company and for their own personal growth, learning, and job skills development. This shared responsibility is key to building the committed team.
As a key part of team building, we talk about "valuing our differences." We in Chevron have learned a lot about diversity in recent years.
We have moved past the concepts of affirmative action statistics to a total point where we realize the importance of diversity as a business strategy. Good decisions and breakthrough thinking will only happen when everyone's ideas are surfaced and openly discussed. Clearly a diverse work force will generate more creative ideas.
Valuing diversity is a key element of our effort to build a committed team and, therefore, crucial to our future business success. Most of our business units now have diversity councils that work to improve employee awareness of racial, cultural and gender issues.
We have introduced a number of modules on diversity into our training programs. And those programs are for everyone in the company. Our Management Committee has had several half-day sessions on the subject with outside consultants.
We are not yet where we want to be in this area, but we are making strong progress.
So now you've been listening to all these thoughts and you've got a right to ask "So what? What does it mean to me and my career if Chevron or my company succeeds with the concept of a committed team?"
Does it guarantee lifetime job security -- no -- I'm afraid it does not.
Does it mean more personal job satisfaction for me in the future. Here the answer is a resounding yes.
It means that jobs in the future will be more challenging and fulfilling than in the past. More employees will be decision makers, not paper processors.
Empowered employees will understand their goals and strategies and how they fit into the overall corporate strategies.
Flatter organizations may mean fewer promotions, but I guarantee you they will also mean more meaningful jobs for everyone.
Above all, it means that the role of the professional manager is changing as never before. Supervisors (where they still exist) will not be telling people what to do, but rather will be coaching people in how to meet their goals and objectives.
Building a committed team is not rocket science. Most everything I have said in the past few minutes sounds pretty much like common sense. And it is.
But it's also a major change and a major challenge for corporate America. The companies that accomplish it will be the successes of the future.
I want Chevron to become one of those companies and I hope you can all help your companies make these things happen.
Thank you, and I hope you enjoy the rest of the conference.
Updated: September 1994