Organizational Behavior & Leadership
CASE STUDY
TEXANA PETROLEUM CORPORATION
MARIA SHAMS
ATIYA SALEEM ABID HUSSAIN
TEXANA
P ETR OL EUM CO R PO RATI ON
CO R PO RTATE H IST OR Y: Texana Petroleum Corporation was major producers and marketers of petroleum products in southwest United States. The main business operations till early 1950s were processing and refining crude oil and selling petroleum products through chain of company operated service stations. In early 1950s, Texana Petroleum witnessed change in management hierarchy. Donald Irwin took charge as CEO and William Dutton as Chairman of Board. The two individuals represented a new generation of top executives at Texana Petroleum Corporation. Under previous management the company suffered a severe downturn, but the highly competitive management team was successful in creating a more profitable business model. The company which started operations as a refiner of crude and marketer of petroleum products was transformed into a vertically integrated producer and vendor of chemicals and plastics. Despite the success, there was growing pressure on corporate management to increase cost savings through coordination. In 19 66 George Prentice was designated as executive vice president for domestic operations and responsible for improving the combined performance of the five divisions reporting to him. The five divisions were the Petroleum Products, Polymer and Chemicals Products, Molded Products, Packaging and Building Products organizations. The main corporate mechanism to control the divisions consisted of a semi-annual division review and approval of capital expenses. Division performance was mostly rated on return on invested capital, and some managers blamed this policy for the existing competitive atmosphere and lack of collaboration.
D IVISI ON AL
CO MPO SITI ON OF TEXANA P ETR OL EUM:
EVP DOMESTIC OPERATIONS
PETROLEUM PRODUCTS DIVISION
RAW MATERIAL SUPPLIER
POLYMERS & CHEMICALS PRODUCTS DIVISION
RAW MATERIAL SUPPLIER
PACKAGING PRODUCTS DIVISION
MOLDING PRODUCTS DIVISION
BUILDING PRODUCTS DIVISION
F UN CT I O NAL BREAKU P OF TEXANA D IVISI ON S
1. Petroleum Products D ivision Petroleum Product division is the core functional division of companys original producing and refining activities. It supplied raw material to the Polymers & chemical division and sold refining products under long term contracts to o ther petroleum companies. The Petroleum Products Division enjoys an acceptable role as a supplier to rest of the corporation and its relations with other sister divisions was also harmonious. 2.
Polymers & Chemical D ivision Polymers & Chemical division is a highly technical division which executes around the processes. This division was developed with a vision to feed the consumer petroleum market. The division had evolved a wide range of product line of petroleum derived Chemical and Polymer compounds and successfully managed to generate profits from large volumes external sales. The division was a supplier to Molding Products division, Packaging division and Building Products division With the growing production of sister divisions, larger proportion of Polymers & Chemical division capacity was required by the sister division for their efficient throughput and production balance that required Polymer & chemical divi sion to reduce their commitment to external customers.
3. Molded
Products D ivision
The division had expertise of producing molded plastic products that ranges from toys and household products to electronic and automotive parts. This division gets its raw material from Polymers & chemical division and works independently from other end products divisions.
4. Packaging Products D ivision This division had product line comprising of plastic packaging materials that includes films, cartons, bottles etc and the target market was industrial customers. This division also gets its raw material from Polymers & chemical division and works independently from other end products divisions. 5.
Building Products D ivision This division produced and marketed variety of insulation and roofing materials and similar products to construction and building markets. This division also gets its raw material from Polymers & chemical division and works independently from other end products divisions.
P RO BL EM AREAS: The core problem area was the division performance rating system that does not promote collaboration. The performance rating system together with aggressive management styles and different areas of expertise had a combined effect that maximized inter division communication deficiencies. Indifference to participate in corporate strategies at the expense of divisional profit is high, and corporate executives try to find middle ground between centralization and autonomy.
POL YMER & CH EMI CA L P RO S D IVISI O N: D UC T There was particular concern about the lone rider attitude the Polymer and Chemicals division had adopted. Their excessive technical focus, reluctance to participate in corporate plans and determination to maximize profit alienated them from the rest of the company. Corporate management was also uneasy about the constant flow of new project proposals coming from the Polymers division. Executives wanted the corporate board to generate company strategies and flow them down, not just to act as a review board or a holding company.
AL INTER D IVISI ON
COLL ABO RATI ON :
In the rush to reshape the company, corporate executives unknowingly set up the foundation for interdivisional conflicts. For instance, despite the fact that the divi sional goal was very clear, the method for achieving the goal was not set correctly. Under the current performance rating framework, the Polymers group was forced to disregarded corporate integration strategies if they came at the expense of divisional profit. Polymers group held a strategic position in the organization since three divisions depended on them for raw materials. But rather than providing more than adequate support to sister divisions, the Polymers group was more concerned about capturing new business. Technical specialization seems to be another organizational factor that was causing a communications conflict. Some managers considered the Polymers group extremely prone to detail and technicalities but lacking business vision. Most of these perceptions could be derived from the fact that the groups had different backgrounds and communication styles. The corporate and molding groups were closer to marketing while the polymers group was more of a production operation.
Possible solutions 1. Spinning the Polymers group as an independent entity, as some managers speculated, could be an alternative to resolve the existing conflicts. After all, this group appears to be the only one having problems integrating to the new corporate culture. This could provide other divisions the opportunity to use the raw materials provider they feel the most comfortable with. Obviously, this is the least desired alternative since the company is vertically integrated. Breaking this model would expose the corporation to the mercy of e xternal suppliers. It would also mean a lost opportunity to profit from this successful operation. Lastly, the future growth of the
Building Products division is tied to the assurance of raw materials provided by the Polymers division.
2. A second alternative would be to limit the Polymers division to produce materials only for internal consumption. This way any role ambiguities or conflicting interests would be eliminated. Their products market would be focused, and profits directly linked to how well they support the sister divisions. Extraneous projects would be eliminated, and internal communications increased by minimizing distractions. This alternative is much more attractive than the first one, but it also has some drawbacks. For example, it would imply losing the revenue generated by selling products to external markets. Also, economies of scale might be lost and the division might have to be downsized. Even worse, the corporation could face an exodus of frustrated ambitious general managers leaving the company.
3. The third and best option would be to adopt a set of confrontation techniques to negotiate the best resolution for the company making sure all opinions are heard. But in order for any negotiation to work, it must be bundled with improved organizational practices such as new policies and changing the rewards system. On the negative side, this option would require a high upfront cost and patience to see the results. Al so, some of the individual expansion ambitions might have to be interrupted in the short term to ensure integral growth.
Plan of Action The main problem appears to be the l ack of an effective corporate strategy to manage growth and increase internal communications. As stated before, the best alternative would be to engage in collaborative negotiations; figure out exactly what each other needs are; and come up with and objective set of solutions based in what i s best for the company. In order to facilitate the negotiation and options generating process, a third party consultant could be hired to act as a mediator. But it is obvious that a new performance rating system that promotes collaboration also needs to be implemented to harness all divisions together. Ideally, as part of the negotiations, an interdivisional task group could be created and chartered with looking for opportunities to maximize efficiencies. At lower level of organization, standing comities could be created to manage specific areas of interest. Areas of interest could include monitoring on time delivery of products; developing a customer centered culture; or managing strategic growth. Moreover, a commitment from the executive team to promote a corporate identity would be required. Also, a corporate investment in new procedures and infrastructure could facilitate coordination. For instance, a unified product development process and shared electronic tools would increase interdivisional coordination tremendously.
Although, this plan of action is the best alternative, it might be too complicated and long term oriented for Texana Petroleum to execute. The successful implementation of this alternative would require a great deal of coordination, something that they are already struggling with. In addition, a significant investment in financial and time resources would be required to fund task groups, deploy corporate wide processes and tools, train employees and promote a corporate identity. After all, the executive team might decide to stick with the cash cow corporate strategy.
