The Texaco Story

1. The Texaco Story Anatomy of an ERP based Global Re-engineering Project December 15, 2000

2. Texaco’s call to action “WHAT WE'RE TRYING TO ACHIEVE IN TEXACO TODAY AND FOR THE FUTURE IS TO CLOSE THE GAP WITH OUR COMPETITORS IN THE VERY IMPORTANT AREA OF TOTAL RETURN TO SHAREHOLDERS. TOTAL RETURN TO SHAREHOLDERS IS DEFINED AS THE IMPROVEMENT IN THE PRICE OF THE STOCK, PLUS THE VALUE OF THE DIVIDENDS.” Peter Bijur CEO, Texaco July 21, 1998

3. An analysis of total shareholder return indicates that there is a gap between Texaco’s 5 yr. annualized return and that of its competitors Potential realizable value gap between Texaco & “Best in Class” Historical relative returns adjusted for capital changes (stock splits, spin-offs, stock dividends and cash dividends) 5 Year Annualized TSR % 275% 27.73% Value Gap BP Amoco 225% 25.07% Exxon Mobil • 11.29% annualized improvement in TSR • $37.2 billion increase in shareholder value.* 175% 20.77% Shell 125% 17.72% 75% Chevron 25% 16.44% Texaco If Texaco could achieve 1% of this potential = -25% 10.53% Phillips Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 • $372 million increase in shareholder value.* * Assumes Texaco could generate returns based on the IRR of BP Amoco without any adjustments to its capital base.

4. The goal of the effort was to build on prior work done by Team 3 (Joint McKinnsey/Texaco Project) • Shareholder Value • 3 Tenors (10% ROCE, R/P=10, 10% growth in earnings) Goals Strategy • Strategies • Brazil, Nigeria, etc. • Clear strategy defined • Communication to BU’s has been accomplished through performance contracts • Team 3 has identified performance measures at the WWU & BU level • WWU & BU level KPI’s will be linked to value creation • Targets, goal setting, and accountability varies considerably across the BU’s • Balanced Scorecards will be designed Execution Performance Management Enabling Technology SAP, Premas, TOBIN Data Warehouse

5. Proposed Solution • Texaco and PwC embarked upon a global re-engineering project in the Worldwide Upstream Business Group. The objective is to improve Texaco’s major business processes through the implementation of SAP/Tobin/Premas and a comprehensive data warehouse platform. • Major benefits to Texaco include a custom configured transactional database organized to support the current business structure, maximized benefits of better purchasing economics through implementation of full value procurement (FVP). • Integration of previous work done by Team 3 and a value based performance management system. • The performance management (PM) component of this project is included as a part of a holistic decision support performance management (DSPM) framework, designed to ensure that Texaco receives the maximum benefit from the re-engineering efforts. • A data-warehouse solution that provides management with the capability to perform trending and analysis, in support of managerial decision-making.

6. Our Objectives • Decompose the Team 3 KPI’s to levels below the business unit manager • Identify KPI’s at the Asset Manager, Operations Manager, Team Leader and Foreman levels • Develop strategic scorecards at each level within the business units • Provide detailed definitions of the KPI’s as input into designing a datawarehouse solution. • Knowledge transfer - provide industry expertise and knowledge of best practices to Texaco.

7. Our Approach • Utilize a value management approach to demonstrate alignment between corporate strategy and organizational activities/capabilities • The top level corporate goals are ROCE and TSR targets. Understand the drivers of these top level financial drivers and link these drivers to the operational drivers of the business. • Understand the levels within the Texaco BU hierarchy at which each driver is best managed • Develop KPI’s at each level. • Provide strategic scorecards at appropriate levels within the business units.

8. Client Benefits • The benefits to Texaco are: • The framework for a value based performance management (completed). • A data-warehouse solution that supports managerial decision-making, and ensures data integrity (go live January 31, 2001). • An ERP solution that customizes the Texaco transactional processes, builds efficiency into the organization, and forms the basis for a Global Supply Chain Management organization (go live January 31, 2001). • A strategy was developed for a Global Supply Chain Management organization. A performance management framework was also developed for this organization (completed). • A more strategically aligned organization.

9. Suggestions for Future Projects • The firm continues to differentiate itself through the “design through implementation” capability - Texaco bought Project Impact because of this capability. • We bypass opportunities to truly change the way businesses run, and be the CEO’s “consultant of choice” when we lead through a technology pitch, with the strategy component as an add on. Greater emphasis must be placed on presenting our points of view to CEO’s. • The firm’s strategy capability is well known in some industries, and we must demonstrate greater confidence as we ply our trade. Sell strategy work at the appropriate level - CEO, CFO. CIO’s tend to be more tactical. • Strive to lead with strategy in some projects, to develop credibility within a firm with a strong technology bias. • Have a strategy partner or very senior strategy person in constant contact with the client leadership, and being responsive to his/her concerns - project or industry.