Company of the Future: in one of the world's oldest industries, John Browne is using technology to keep BP on the leading edge. (Technology).

Is Lord Browne's oil giant, BP the Company of the Future? The book by that title, authored by Frances Cairncross of the The Economist, argues that the real power of the communications revolution well be in the way it changes the internal structure and workings of companies. The firms that do best will be those that employ well-educated, confident staff and give them plenty of responsibility to innovate and collaborate while observing clearly set standards. Cairncross went to see how well BP measured up to that test.

If you had to choose someone who encapsulated the qualities that a CEO will need to run the company of the future, Lord Browne, group chief executive of BP, might not seem an obvious choice.

True, he has built one of the world's biggest energy companies, headquartered in London but incorporating some of the grand old names of the American oil industry: Amoco, Arco and Burmah Castrol. He manages a business with revenues of $148 billion and operations in 29 countries around the world, from Algeria to Zimbabwe. He has become one of the oil industry's most influential spokesmen on the touchy political issue of global warming.

Yet the unknowing might think that he hardly looks like a man in charge of the company of the future, or even the company of today. Recently elevated to the House of Lords, Britain's mediaeval equivalent of the U.S. Senate--in an honorary rather than a political appointment--he sits in the elegant drawing room on the second floor of an 18th century house in London's Mayfair, a tray of coffee and fruitcake in front of him. He puffs on the stub of a fat cigar. A grandfather clock ticks sedately by the window and a Persian rug stretches across the floor. It all looks much more Gosforth Park than Houston.

But when he is asked about the key change taking place in corporate life, it is immediately clear that Browne understands the potential for future transformation. As The Company of the Future argues, Internet technologies will have an increasingly powerful influence on what happens inside companies: the way people collaborate, share information, use knowledge. But the full power of that transformation will accrue only to companies that understand that technology alone is not enough: It needs the empowering force of intelligent and motivated employees and imaginative leadership. That's a theory Browne seems to understand well. He promptly quotes his goddaughter Grace, who summed up the problem with the dot-coin boom thus: "You have lots of cool ideas; making them work is the problem." Grace got it right the first time, he reckons: "The Internet is a great tool, but it is just a tool. You need organization, behavior and performance all aligned to make it work in a company."

Making them work has certainly been tough for the BP Group. To develop and to run its telecommunications and information technology the company must outlay between $1.6 billion and $1.8 billion a year, roughly 10 percent of the group's total cost base. One of the big challenges has been systems integration, given that the company is the sum of several large recent mergers. The merger with Amoco in particular taught the group that it was a great mistake to solve the problems of amalgamating two different systems by creating one brand-new one. "We realized that, by the time we had installed it, it would be out of date," recalls Browne.

"So we stopped and went step-by-step. It's generally best to start from where you are." The aim should be not to have the best IT system, but to have the best outcome. That inevitably calls for trade-offs in terms of cost, time and human interaction.

Rules for survival in the new age

The Company of the Future lays out several rules that CEOs will have to follow to steer their companies toward a successful future. Browne offers his take on each of them:

1. Manage knowledge. A company is the sum of what its people know and know how to do well. One of the main tasks of corporate leaders at every level, argues Browne, is to insist that different corporate units share their experiences. "A larger company has more experiences than a smaller one," he says, "and internal experiences are more vivid than external ones. So know-how is the benefit of sharing." Lessons from drilling a well in one country need to be passed on to another, in order to increase the oil yield and cut costs.

2. Make decisions. Managers constantly blitzed with new information require strong nerves if they are to incorporate the data that matters and set aside the rest. BP has found ways to use IT to help managers make better decisions in, for instance, reservoir engineering (the modeling of an oil reservoir underground in order to optimize its output), an area Browne worked in when he first joined the company. Managers need to know in which of the company's thousands of producing oil wells they should invest to prevent production from declining over time. By sophisticated use of data, says Browne, the company can double the efficiency of its reservoir investment, getting twice the oil production for the same amount of cash.

3. Manage talent. Browne bursts with enthusiasm for this precept. He joined BP in the days when bright youngsters scorned a corporate career. He remembers a lecturer at Cambridge University pointing him out to visitors: "That's Browne. He wants to go into industry. Isn't it amusing?" Today, the company scoops up talent wherever it exists and now employs as many Germans as Brits, and more Americans than either. "We are very clear about merit," he says. "We constantly select people." He cares deeply that BP should be a meritocracy, blind to race, gender or national background in making promotions, and he works carefully at coaching BP's top 150 managers and at planning corporate succession.

4. Manage collaboration. From the very start, BP drums teamwork into its people. In the first three years, says Browne, young high-fliers learn that "every accomplishment is a team accomplishment." Getting the right size of unit is important: too small, he points out, and you can "Balkanize" the company. But in large units, people readily "lose the plot." BP has created the concept of T-shaped management; the idea is that managers of every business unit have two jobs: to run the unit and to devote perhaps 15 to 20 percent of their time to activities that share knowledge -- and staff--with other units. Brainstorming by managers from different units has turned out to be a good way to spot new business opportunities; peers may be the people best placed to criticize and coach each other.

5. Focus on customers. BP is using technology to implement that principle. The company, like many others, tries to ensure that telephone calls from corporate customers are now answered by someone who has all the necessary information on a screen. "When you telephone to order petrochemicals," says Browne, "the person answering will know what language you speak, what you are likely to want and what you have bought from us previously."

6. Build the right structure. Managers must think through from scratch which activities to keep in-house and which to outsource. BP has boldly outsourced much of the routine work of its human-resources department to Exult, a specialist provider set up in 1998 by General Atlantic, a private-equity firm. In addition, PricewaterhouseCoopers, an accounting giant, handles routine aspects of BP's finance and accounting, procurement and computer maintenance. But Browne insists that "we don't outsource problems." And outsourcing has limits. Indeed, he adds, "At BP the most powerful thing we do is to get strategy right. We have to make sure that we control the inputs to strategy."

7. Foster openness. Companies need to set standards at the center and to insist that everyone abides by them. Having done so, openness and freedom can reign. "The tone from the top is very important," says Browne. "Organizations are human: they reflect human failings. So you need to keep coming back and say, 'Here's the plot.'" In other words, at every level in the company, managers need to define context and limits. "People need a sense that they have the space to innovate, without losing a sense of direction," he urges. If people have to clear everything through a manager, that stifles innovation. Far better to set standards of honesty and transparency; to communicate corporate strategy effectively; to give people a remit and a target--and then to stand back and let everyone get on with the job.

8. Leadership. The key to success lies much less in technical know-how than in excellent leadership to push through and build upon organizational change. Browne sees one of his key goals as that of building a company with people from diverse backgrounds. "Otherwise, how do you know you've got a meritocracy?" he asks. That means setting context and setting limits; it means balancing the long term and the short term. "But you start with the long term," he insists. "You don't start with the short term and hope that it sums to the long term."

Hence his insistence on developing the crack leadership cadre of 150 top executives, who are, as he sees it, "in charge of the group's human capital." For if there is one thing above all others that this astute leader has realized, it is that the company of the future will be built not merely on oil wells and telecoms, but on the intelligence and understanding of its employees.

Frances Cairncross is management editor of The Economist and author of The Company of the Future: How the Communications Revolution is Changing Management (Harvard Business School Press, 2002). Send comments to [e-mail].