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CASE
TEXANA PETROLEUM CORPORATION
STUDY

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Texana Petroleum Corporation was major producers and marketers of petroleum products in southwest
United States. The main business operations till early 1950͛s 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. c

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.

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c EVP DOMESTIC OPERATIONS

c PETROLEUM
PRODUCTS
DIVISION
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RAW MATERIAL SUPPLIER

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POLYMERS
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CHEMICALS
PRODUCTS
c DIVISION

c RAW MATERIAL SUPPLIER

c BUILDING
PACKAGING MOLDING
PRODUCTS PRODUCTS
PRODUCTS
c DIVISION DIVISION
DIVISION

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Petroleum Product division is the core functional division of company͛s original producing and
refining activities. It supplied raw material to the Polymers & chemical division and sold refining
products under long term contracts to other petroleum companies.

The ͞Petroleum Products Division͟ enjoys an acceptable role as a supplier to rest of the
corporation and its relations with other sister divisions was also harmonious.

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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 division͟, ͞Packaging division͟ and ͞Building
Products division͟

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 division to reduce their commitment to
external customers.

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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 division͟ and works independently from other end products divisions.
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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 division͟ and works independently from other end
products divisions.

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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 division͟ and works independently from other end products divisions.

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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.

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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.

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In the rush to reshape the company, corporate executives unknowingly set up the foundation for
interdivisional conflicts. For instance, despite the fact that the divisional 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.

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1.c 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 external 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.c 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.c 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. Also, some of the individual expansion ambitions
might have to be interrupted in the short term to ensure integral growth.

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The main problem appears to be the lack 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 is 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.