Transcript
Integration at TNK-BP: HR’s role Association of European Businesses, 03 March 2005 Paul McMorran
• TNK-BP in overview
• The TNK-BP merger integration process
• HR’s role in the process
• What we’ve learned
Overview
TNK-BP geography
TNK
ONACO
SIDANCO (57%)
RUSIA Petroleum(29%)
Rospan (44%)
ААRВР
TNK-BPSIDANCO (25%)
RUSIA Petroleum (33%)
Moscow retail
50%50%50%50%BP
Alfa Access Renova
• Reserves and production
• Long-term growth rates
• Leveraging on existing Russian partnership
• World-class technology
• World-class management
• Strong international partner
ААRВР$1.4bn SLAVNEFT (50%)
$6.15bn ($2.4bn + $3.75bn in ВР shares)
TNK-BP transaction
BP Directors:Patrick Chapman
Brian Gilvary
Tony Hayward
Lamar McKay
AAR Directors:Len Blavatnik
Alex Knaster
Viktor Vekselberg
Jean-Luc Vermeulen
TNK-BP Board of Directors
Chairman – Mikhail Fridman (AAR)Deputy Chairman – Richard Olver (BP)
COOVekselberg/McVay
Executive DirectorKhan
EVPUpstreamDibtsev
EVPDownstreamConsidine
EVPTechnology
Dupree
EVPField
ServicesLyubashevsky
CFOPotter
EVPPPMCook
EVPSupportServicesBennett
EVPStrategy& Bus.
DevelopmentSliger
EVPInternalAffairs
Kondrashov
ChiefLegal
CounselMaydannik
BP TNK External Hire
Board of Directors
President & CEODudley
TNK-BP top management
Average Daily Crude Oil Production, million bbl (2003)
1.61 1.58
1.271.08
0.630.49
0.39 0.360.24
0.18
0.18
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
YUKOS LUKOIL ТNК-ВР Surgutneftegaz Sibneft Tatneft Rosneft Slavneft Bashneft
mill
ion
bp
d
• Third largest Russian oil company
TNK-BP and Russian industry peers
TNK-BP: One year after the Deal
History
• BP-AAR deal announced February 11, 2003
• Legal agreements signed June 2003
• TNK-BP operational September 1, 2003
Today
• TNK-BP fully operational 17 months
• First results – robust 2003 and 2004 performance:– Production growth 14%– Exports 52% of production– Enhanced debt structure– Paying down debt– Five year strategy adopted– Strong 2005 business plan
Making TNK-BP Work
• Our goal is to become a world-class Russian company and industry leader in Russia
• We recognize that this is not an easy task, and encounter many difficulties in making the new company work
• The challenge is to bridge the divergent standards existing across the organization by:
– Imposing high standards of corporate governance– Achieving world-class HSE performance
– Building TNK-BP’s own corporate culture
Building a TNK-BP culture
Cultural challenges• Public company and owner-founder company heritages
• Putting the right incentives to performance
• Building a progressive common corporate culture that encourages performance, initiative and creativity
Solution: • Even mix of heritages embedded at senior and middle
management levels and across key management
• Mixed functional teams in management and operations facilitate cooperation and knowledge transfer
• Cultural integration program
Cultural Integration: Management heritages
Acquisition Failure Rates: Survey of 150 deals over $500m
17%
20%
33%
30%
SubstantiallyErodedReturns
ErodedSome
Returns
CreatedMarginalReturns
CreatedSubstantial
Returns
Source: Accenture Research (OS Journal, April 1999: M&A integration - Lessons from winners)
• Average premium paid is 36% above market value
• Only 33% of companies recover costs incurred in the deal
• Typical merger loses 16-49% of combined market share within 3-5 years
• 50% of “failed” M&As are attributed to poorly planned integration
• 75% of domestic M&As fail to reach their financial targets
• 33-50% are later divested
Mergers and JV’s are common, but successful integration is elusive
Do Don’t1. Create a single integration
process
3. Be clear on how decisions are made
5. Take time to reflect and plan phases of work
7. Sustain integration process after Day 1
9. Focus on total value creation
• Don’t forget the big picture
• Allow parallel processes
• Allow the businesses to go forward unchecked
• Continue “at pace” without recharging the team
• Think you’re done at Day 1
• Focus only on cutting costs
• Get buried in the detail
Steps to Successful Integration
Integration Governance
Board
IntegrationDirectorate
• Provide assurance
• Ratify major decisions
• Resolve major conflicts
• Champion new culture
• Set objectives, targets and milestones
• Report on progress
• Manage cross cutting issues
• Manage integration resources
IntegrationWork Teams Facilitate, define and execute the program
of work
Develop processes to facilitate integration
Report on progress
Integration Organization
Organization &People
Integrated Policies,Processes & Systems
Baseline & Performance Management
Synergy
Communications
Shareholder Interface
Upstream Down-stream
FieldServices
Tech-nology
GPAFinanceCorporate Business Services
Str
eam
s of
wor
kWork streams and work teams
Work teams
3. Take time to reflect and plan phases of work
Mobilize teams
Analyze current
state
Design organization
models
Determine actions
required for Day 1
Appoint executive
Appoint leadership
Connect current staff
to TNK-BP structure
Choose common processes & systems
Define corporate policies & governance
Identify synergy opportunities
Complete actions required for control at Day 1
Prepare Day 1 events
Ensure accountability for integration is with line management
Set-up processes to monitor integration post Day1
Day 1
Phase 1 Phase 2 Phase 3
Reflection Point Reflection Point
Integration planning
Time
Deg
ree
of
Inte
gra
tio
n/
Imp
rove
men
t
Day 1
Day 100
Control Consolidate Transform
Horizon 1 Horizon 2 Horizon 3• Financial
control
• Operational control
• One organization
• One set of processes
• One set of systems• Transform TNK-BP to
achieve its aspiration
The big picture
HR integration workscope
HR Organization
EmployeeCommunication
Terms & Conditions
Cultural Integration & Change Management
Selection and Appointment
HR Organization (and MIT team)
Severance & Transition
Day 1 Planning & Headcount
TrackingOrganizational Design
Step 1
Assemble candidate pool,
resumes
Step 2
Review consolidated candidate pool
Create data base
SidancoTNKBP
Others
Senior leaders HR
Step 3
Selectpreferred candidate(+alternates)
Organization modelsLevel 3 job outlines- Streams: Upstream, Downstream, Technology & Oilfield Services- Functional Groups
Selection Board with input from Level 2 leaders
Update data
Step 4
Discuss opportunity with preferred candidate
Level 2 leaders
Update data with outcome of discussion
Step 5
Confirm acceptanceto Selection Board
Accept
Yes
No
HR
Step 6
Make offer (letter of employment)
Step 7
Announce appointments
Interactive process with Level 2 Leaders and Selection Board
Name, Present position, CompanyLocation, Business Area or Function etc.
AcceptYes
No
HR Communications, with HR input(2 waves)
Offers made
Preferred listing
Level 2 leaders discuss options with employees not selected
Update data with outcome of discussion
Round 3 selection process
TNK-BP HR Support – Weekly Flash Report
Team Name: Team Lead: Date:
Main activities this week: Planned activities next week:
Key Issues: Other:
HR SupportManagement Tracking & Communication
HR Integration Highlights
• 75 executive appointments, 60 days before Day 1, on entirely new compensation and incentive programs
• Key employment policies in place by Day 1
• TNK-BP expatriate policies in place by Day 1
• 300 appointments by Day 1, 1148 appointments by Day 20
• 160 severances. Transition staff reduced to 15 by Day 100
• Compensation strategy for head office complete by Day 1.
Terms and conditions harmonized by end 2003
HR Integration Highlights (more)
• Cultural Integration program initiated and expanding
• Facilitated culture-building events for senior executives
and workshops for senior management
• Company-wide baseline employee survey completed
• Developed company-wide strategy and draft Collective
Agreements for 2004
• Orientation/enrollment conferences for 200 HR staff
What we’ve learned:
• In major mergers, HR’s role as business partner is not an aspiration - but an imperative
• Ongoing business partnership for HR is not a right. We must deliver, and demonstrate, sustained value
• Creating value depends on HR’s grasp of the business, and on business leaders’ grasp of the value HR can bring
• Communicating HR value is HR’s responsibility!
TNK-BP HR Committee - our partnership platform
HR as Business Partner