01/24/2013 11:35 am ET Updated Mar 26, 2013

About Leadership: Peer Groups

In any big, geographically diverse, company, there are groups of business leaders at the same level, running similar operations in different parts of the world. Even in companies operating in a single relatively large country, there are such groups. They could be the leaders who run retail operations that might be organized by country or region, or those who run manufacturing plants making similar products. In companies where discovery plays a big role, such as oil exploration or drug discovery, big companies will usually have leaders accountable for making these 'discoveries' in different places (geographic) or business sectors.

One challenge for the senior leadership of any company is how much power to give to these groups of peers for resource allocation in their activity space. With this goes the corresponding question of accountability of the peer group for performance of the whole activity.

The traditional approach to management views giving resources and accountability to groups such as these as anathema. First, the dogma would go that the group cannot necessarily have enough insight into corporate strategy to align resources with that strategy. Second, theory says that shared accountability is always a bad idea, and that accountability must always rest with a single person.

Let's put aside theory for a second, and ask ourselves some bigger example questions: How do I get the best economic outcome from my collection of sixteen refineries around the world? How do I best decide where in the world I should introduce new retail practices first? How do I allocate my scarce capital budget among exploration plays in different parts of the world? How do I best budget for and derive value from a big R and D program in support of a business area?

Probably transcending all of these questions are questions of motivation of the leaders comprising a peer group. Because in my experience, pushing down accountability to groups like these is tremendously motivating. And beyond the possibility of really good decision-making implied by the questions above, the value of a group of peers, driven to show how much they can contribute to the corporation, is incalculable.

I saw this value in BP in different peer groups over time. In exploration, where the practice started, the exploration managers from around the world took on the collective accountability for finding as much oil as they could within the constraints of an annual expenditure. It was a sizeable amount of money, $400 million per year if I recall. They replaced a process whereby each one bid into the center of the business for his share of the pie, with a collective process in which the goal was completely different -- getting the biggest bang for the total bucks spent. The discussions and challenge back and forth associated with coming up with such a plan, done by regional managers and technical experts sitting in a room, gave a better result than the system it replaced.

In refining, there is also the issue of allocating capital, to both upgrade refineries and supply new markets, for example a booming aviation fuel market in north eastern Australia, or a clean diesel market in Europe. But the refinery managers, a small central team that supported them, and the technology leadership that they funded, also looked hard at how their performance was measured. Refining needed to improve its return on capital employed. Before the creation of the peer group, each refinery or regional grouping of refineries pushed to get as big a capital budget as it could, because after all they had so many good ideas of things to do. When the peer group worked on this, they came out with a different approach: essentially they said we want to make as much money as possible with as little capital expenditure as we can. That's the way we get our returns up. They set the right goal for themselves, and were motivated by it, rather than having the corporate center set it for them.

But refineries, indeed all factories, are about much more than allocating capital. They are about running the equipment to very high levels of availability. They are about commerciality, in both how they acquire their feedstock and how they get their products into the market -- and staffing levels, and energy costs, and maintenance, and trying out new technologies for production and control. The peer group tackled lots of these things. They were able to decide to collectively fund development of a new technology or system, trial it in one place, evaluate the results, and then implement it across the world. They served as a human resources development function as well, building experience by moving people around the world, grooming their own successors, and spreading good practices.

In BP-speak, what the peer groups had was space, space that was reserved for the center before the peer group was created. Space in which to enhance performance by working together, taking accountability for delivering that performance. To make this work, the center had to give up something to the peer group, and this was not easy to do, especially at the beginning. Some members of the central executive wanted to be present at the peer group and participate in all its meetings. They had to learn that they were not peers, and their presence there changed the entire process. Even a more limited involvement, like the senior executive coming in at the end of a peer group meeting to hear a report on what they had accomplished over a two or three day meeting, is, in my view, a bad idea. Inevitably in that situation a part of the valuable meeting time becomes dedicated to preparing the report to the executive who will turn up at the end.

More useful is for an executive to turn up at the beginning, to share context of where the business is, pressures on performance, new strategic directions, corporate priorities, etc. Share the context, then disappear and let these guys get on with their work. Or come by one evening for drinks and dinner and share things then. In either case, be open and frank, treat these peer groups as grownups who you are counting on to deliver big things for the company.

But space is bounded. So peer groups have to understand both the space that they have and the boundaries. And making that clear is also the responsibility of the senior executive. Space and boundaries both have to be maintained; changes, and the rationale for these changes, have to be clearly communicated.

When peer groups work well, they are much more than networks that meets occasionally to share ideas. The members are always there to support each other to deliver the collective goal. One of the most moving moments of my business career came at the end of a three day meeting of the Global Refining Network (GRN), the peer group of the refiners. As we were closing the meeting, and talking about what we had and had not accomplished, one of the refinery managers said, "Look, this meeting is over, but that doesn't mean that we now go our separate ways until the next meeting. As far as I'm concerned, the GRN is always in session," When a tough refinery manager says something like that, you just want to get up and have a group hug!

About Leadership: About Leadership is a series of 52 columns on corporate leadership -- essential skills, leading teams, managing your career, the strategic and business practices to make a company and its leader distinctive from competitors. These columns will be of interest to people leading small- and medium-sized companies today, many of whom have not had much formal training in management skills and techniques; for the many people in big companies who aspire to senior management; and for anyone who thinks: Give me a hint, how can I do this better?