Of all the initiatives we’ve undertaken at Chevron during the 1990s, few have been as important or as rewarding as our efforts to build a learning organization by sharing and managing knowledge throughout our company.

Of all the initiatives we’ve undertaken at Chevron during the 1990s, few have
been as important or as rewarding as our efforts to build a learning organization
by sharing and managing knowledge throughout our company.

In fact, I believe this priority was one of the keys to reducing our operating
costs by more than $2 billion per year – from about $9.4 billion to $7.4 billion
– over the last seven years.

Oil prices – adjusted for inflation – are now at their lowest levels since
Woodrow Wilson was in the White House. Nevertheless, the long-term forecast
for the global energy business is one of growth and opportunity. So Chevron
has to further reduce its operating costs and at the same time, we have to sustain
an aggressive capital-investment program.

That means we have to keep finding new and better ways to do things, and we
have to apply new knowledge in all areas of our business, because both of these
will be even more important for us in the years ahead. Sharing knowledge is
no longer merely a performance issue. Today it’s a reputation issue as well.
And it directly affects every major company’s ability to win new business and
attract and keep top employees. The fact is, finding and applying new knowledge
makes everyone’s work more interesting and more challenging. Because of that,
it also has the potential to make people’s jobs more fulfilling and more personally
I want to talk more later about motivation. But first I’d like to reflect briefly
on a speech I gave in 1995 at a forum organized by the American Productivity
and Quality Center. It was my first address on "knowledge management,"
which I think was just as hard to define back then as it is today.

At Chevron we emphasize instead the concept of "the learning organization."
And let me read some words here from my last talk that say what this means for
our company: "We will create an organization that learns faster and better
than competitors through benchmarking . . . through sharing and implementing
best practices . . . by learning from experience . . . and through continuous
individual learning and personal growth."

Those words come from "The Chevron Way," which is a guiding set of
objectives, principles and values that define who we are, where we’re going
and how we need to interact and work with each other to get there. In one sense,
"The Chevron Way" is a learning tool to communicate and reinforce
our values and goals as well as our years of experience in our business for
all our employees, and especially those new to Chevron. It’s a reference for
what’s essential to success – and again, building a learning organization is
one of the most important.

The other thing I wanted to retain from my 1995 talk was some of our success
stories. One is energy efficiency. Our six-year effort in this area has reduced
energy costs by about $200 million a year compared to when we started. A big
part of the savings has come from the systematic application – throughout our
operations – of best practices for managing energy use.
We track that progress through an energy-efficiency index that’s based on reports
from each of our business units. And we have a network of practitioners who
meet and hold regular conferences and who network through E-mail, an internal
web site and a newsletter.

Another success story is how we manage our major capital projects. The oil
and gas industry is very capital intensive just in 1999, we plan to invest over
$5 billion. In 1991, a benchmarking study told us we were spending more than
some of our competitors on big projects. So we combined best practices and internal
know-how to create the Chevron Project Development & Execution Process,
which in U.S. industry today is considered to be a world-class tool.

We’ve since identified hundreds of millions of dollars in project-cost savings
since we started tracking the results of this process – in fact, it’s probably
higher – and that translates into a 10 to 15 percent improvement in capital
efficiency. We’ve continued to improve that process and we’ve formed a central
Project Resources group to help people use this tool company-wide. They also
support our community of project-management people all over the world.

The other story I’ve told before is the "process masters" program
in our network of U.S. oil refineries. These are seven full-time experts who
support Best Practice Teams covering the major, high-cost functions common to
all six plants – ranging from catalytic cracking to plant maintenance. The refineries
have a lot of other networks called "natural teams" – that is, employees
who work in best-practice groups as part of their regular jobs. And the mix
of these and the process masters program has distinguished our U.S. refining
operations for the systematic sharing of both internal and external best practices. In those three cases, the impact on business results has been both measurable
and significant. And during the 1990s, these kinds of efforts have been essential
to reducing our costs, to achieving a productivity gain of over 30 percent (in
terms of barrels of output per employee) and to improving employee safety performance
more than 50 percent.

Protecting people and the environment has always been a priority, for obvious
reasons – and we spell that out extensively in "The Chevron Way."
But a safer workplace also boosts morale, and that pays off in productivity.
Also, because incidents cost the oil industry billions of dollars each year,
safety has become recognized as a financial issue as well. Every gain not only
protects people and the natural world, it helps the bottom line in a very real

I’d like now to give you a little better idea of the range of things we’re doing
at Chevron – and I hope these examples will be useful in your own pursuit of
best practices.

In gasoline, we’re transforming a traditional area of our company by applying
new retail concepts supported by the tools of electronic commerce. We call it
the Chevron Retailer Alliance, and it shows what can happen when a business
starts to evolve into a true learning organization. Gasoline and convenience
retailing are extremely competitive, with a rapid rate of change and innovation.
You can’t survive if you don’t use best practices. Thirty years ago it was car
washes. Now it’s pump-card readers.

But it’s not enough to keep up. You have to use knowledge as a platform for
continuous innovation. So we asked ourselves how we could get the greatest value
from our network of 8,000 retail sites. Ultimately, we combined experience,
creativity and ideas from all kinds of businesses and people to invent a superior
way to manage brand image, gasoline supplies and convenience-store retailing.
Among other things, we plan to leverage the full buying power of our network,
and streamline the ordering and distribution system. Internet technology is
making a lot of this possible, and tracking these on-line exchanges will give
us a steady flow of new knowledge to help re-define our relationships with our
retailers throughout the country.

At the other end of our business – in international oil and gas – we’ve been
benchmarking our costs for drilling oil and gas wells internally, every year,
for more than 10 years, and we started external benchmarking in 1992. We’ve
used the data between locations – West Africa, Australia, Kazakhstan, China
and the rest – to improve drilling performance around the globe. Last year’s
external study showed we were an industry leader on the basis of cost-per-foot

However, the most exciting new example in oil-and-gas has been our adoption
of an "organizational learning system" or "O.L.S." Basically,
it provides a map for planning, execution and evaluation of on-going work. In
drilling, it uses a simple software tool to capture lessons from the first wells
in a new area, and then it helps you use that knowledge to drill the rest of
the wells faster and cheaper. We’ve seen well costs drop by 12 to 20 percent
and cycle time reduced as much as 40 percent in some cases – and that really
adds up with big off-shore drilling vessels that cost up to $250,000 a day.

But we didn’t invent the O.L.S. It came from Oil & Gas Consultants International,
who developed it with Amoco and later verified a model by working with the Gas
Research Institute. Chevron didn’t fully appreciate the potential of the O.L.S.
until after we learned more about it from a group we formed in 1996 with Mobil,
BP and Texaco to share best practices in technology. That group eventually funded
a special study of the O.L.S. – and later, the group proved the value of the
O.L.S. by conducting a pilot project on Chevron’s oil development in Papua New
Guinea. Now Chevron uses O.L.S. to manage key elements of our deep-water exploration
and development in the Gulf of Mexico. And as of January first, we’ve added
an O.L.S. specialist to our Project Resources group to help other Chevron organizations
make use of this new tool.

Earlier, I mentioned best-practice sharing in our refineries. Last fall, Hurricane
Georges damaged our Mississippi refinery so badly that we had to shut it down
for more than two months. To keep customers supplied, we had to go out and buy
replacement fuels – and that cost us a great deal of money. As crews worked
to re-start the refinery, they found a blockage in a sulfur unit. Using their
best-practice network, they got solid advice based on both inside and outside
expertise. Within days, they had a cost-effective way to fix the problem – and
they updated the unit with new technology at the same time.
The point is, if you add up all the small things we do better today because
of sharing, what you get is a big impact.

Not far away, offshore in the Gulf of Mexico, another group has combined the
process-masters concept from our refineries with some best practices from Union
Pacific Resources to create a new program they call "technology brokers."
And now six employees work full time in these new jobs, searching for best practices
in offshore oil and gas operations.

This is already paying off – again – in the area of drilling. The typical oil
or gas well is about as wide as a dinner plate and thousands of feet deep. Just
getting in and out of the hole takes a great deal of time and money. Now we’ve
found a one-step way to do two separate but essential operations at the bottom
of the wells. What once took five days and two trips down the well now takes
a day and a half and a single trip. After just 10 wells, we’ve logged over $2
million in savings compared to the old method.

We used to emphasize large, in-house R&D organizations and internal invention
of tools and methods. But we decided several years ago that it’s more cost effective
to invest less in that approach – and invest more in finding and integrating
technology from a diverse set of suppliers from the larger world, particularly
the networked world.

I have more Chevron stories than I can tell all at once, but I’d like to add
a few more. I was very pleased, for example, when our human resources organization
adapted best practices from companies like Bechtel and TRW to set up a new process
to reduce conflict in disputes between individual employees and the company.
Among other benefits, we hope it will help us find fair solutions before things
get to the lawsuit stage.

Meanwhile, in community relations, the Chevron Best Classroom Practices program
has captured innovative ways to teach math, science and technology from a dozen
great teachers. And we’ve put their lesson plans on our internet site – www.chevron.com
– so than any teacher can take advantage of them.

Also last year, we created the Chevron Environmental Management Company. Our
environmental remediation work used to be done by separate groups scattered
around different locations. But this new unit will share the know-how and experience
of the whole company, with a goal to reduce remediation costs by at least 15

Also, I mentioned in my 1995 talk that we use in-house conferences as a knowledge-sharing
tool. We still hold these, for example, to energize our project-management network
and our supplier quality improvement network.

Also last year, we held our first conference to exchange ideas on valuing and
promoting diversity. It was a great event, and a very satisfying outgrowth of
our efforts to stress the importance of diversity to our business.

In many ways, diversity is a learning-organization issue. It teaches us to
seek the full range of skills, ideas and perspectives in our work force, and
it helps us make sure we try to build a work force that will improve that range.

But the stand-out conference over the years has been the Chevron Chemical Quality
Conference, now supported by its own intranet site. We often describe our chemical
company as the birthplace of quality at Chevron, so they’ve set a high standard
for sharing knowledge.

Right now, for example, they’re managing four Vision Objective Teams based
on sharing best practices and promoting standard work processes in the areas
of plant management, marketing, technology planning and supply-chain management.

I can’t cover all those here, but our best-practices newsletter recently reported
that the plant-management team had achieved a plant-reliability level of 100
percent in 1998, compared to about 85 percent in the prior year.

One last point on events. This month, we’ll hold our first conference on co-generation
facilities. We operate seven of these energy plants at a cost of about $100
million a year, so we want to take a closer look at them. But what’s most important
about this example is that we probably never would have thought to hold this
conference if we hadn’t first created our larger energy network six years ago
to swap ideas on reducing energy costs.

I hope those additional stories give you a better idea of the breadth of our
efforts in managing knowledge. However, probably nothing we’ve done recently
can compare to the rollout of our new Global Information Link (GIL). In 1998,
we replaced every PC in the company with a common machine, software and connective
system, creating a single desktop and operating environment, worldwide. This
was a huge undertaking – about 30,000 computers, with full intranet capability
and internet access for those who need it, advanced E-mail, scheduling and presentation
tools – the whole works.

And I think it’s worth mentioning here that we used our own Chevron project-management
process – which I described earlier – to implement this massive change. We did
it in just one year, where similar overhauls have taken as long as four years.
And in addition to the networking benefits, we believe GIL is going to save
us about $40 million a year in system-management costs.

These information technology tools weren’t new to us, of course. What’s new
is having them all standardized, compatible and connected. What’s new is that
now, essentially every employee has an identical – and very friendly – "sharing
machine" on their desktop.

GIL has also supercharged the already rapid growth in the scope and usage of
our intranet. We now have wide range of internal sites, from best practices,
to environmental, to the company home page and the individual sites of the subsidiaries
and departments.

Of course, employees need to have good reasons to share knowledge, so let me
turn now to the issue of motivation. Obviously, the CEO has a major responsibility
here. So I talk about sharing best practices when I speak to employees. I ask
top people from companies like HP, Motorola and G.E. to speak at our monthly
Management Committee meetings. And those meetings are also a forum for Chevron
teams to tell their success stories in using knowledge to improve operations
and results.

Beyond that, I think the formula for continuous improvement is fairly simple.
You need clear objectives, the opportunity to share rewards and an empowered
work force.

An objective can be a financial goal, or a production target – whatever is
important. In our case, providing data on the business performance of our closest
competitors – and then setting a goal to do better – has been a simple but powerful
tool for improving performance. People really seem to respond to the simple
fact that somebody else is doing things better.
Goals aren’t a new concept. But they work because they give people a compelling
reason to find better solutions. Recently, I challenged our project management
specialists to shave an additional 10 percent off our project costs in 1999.
And last month – because of oil prices – we launched a $500 million cost-reduction
plan to advance beyond the $2 billion in savings we’ve already achieved in the
’90s. A lot of the new gains will have to come from finding better ways to do
our business.

As for sharing rewards, our Success Sharing bonus program is based partly on
corporate earnings, partly on competitors’ earnings and partly on safety and
operating costs. The bonus can be as much as 8 percent of pay. More recently,
we started giving stock options to all of our people to connect them more directly
to our financial performance. Of course, sharing rewards isn’t managing knowledge
– it just gives everyone another good reason to do it, and I don’t think you
can have one without the other.

Lastly – on empowerment – again, it’s not rocket science. Delegating authority
helps people feel ownership for their work and give their best to the organization.
Of course, this is hard to measure, but not impossible. In our annual Worldwide
Employee Survey, for example, we try to track feelings of commitment to the
company. The latest results show a 15 percent improvement in recent years, partly
because people are feeling more empowered in their work. That’s the kind of
thing you want to hear, of course. But there are some related issues here that
I’d like next to discuss briefly.

My talk to the APQC three years ago was titled "Managing Knowledge in a
Decentralized Learning Environment." At the time, we felt that our focus
on delegation, decentralization – and our shift to strategic business units
– might create new barriers to sharing. I raise this because I suspect other
companies probably struggle with this same issue.
Like others, we’re sold on the merits of the decentralized model of management.
It’s really the only way you can manage a global company the size of Chevron.
So we just have to work harder to make sure the right people connect and share
knowledge across the geographic and organizational boundaries of our company.

Decentralized companies – especially global companies – will always be challenged
to achieve uniform performance in sharing knowledge just as they are in other
areas. We see this in our performance metrics, with differences of 20 to 30
percent between organizations in many key areas. Of course, the comparisons
are useful. But the key is to view the differences as opportunities rather than
deficiencies. Replacing less-effective ways to work with better ways is what
people in a learning organization are supposed to do, and frankly, I think you
gain more from encouraging those behaviors than you do by trying to correct
differences in performance.

The other point about decentralized companies is that instead of one good way
of working, we have dozens. Instead of one incubator for new ideas, we have
hundreds. Of course, you still want to standardize the most important work processes.
But at the same time, you don’t want uniformity to undermine the potential for
creativity. The fact is, you can have both – as long as you recognize that company
structure can sometimes raise some pretty significant barriers to sharing knowledge.

Recently, we asked Jerry Moffitt – who coordinates our energy-efficiency network
– to reflect on his program. Even though it has been a great success, it wasn’t
surprising to learn that he believes there’s still some low-hanging fruit out
there that we haven’t taken advantage of – and I’m sure he’s right. Jerry also
said that we need to start stretching higher and looking harder so we can harvest
the opportunities that we haven’t seen yet. And after that, we’re going to have
to get ourselves a ladder and reach even higher.

But Jerry also said we should remember that looking for better ideas is only
one of many jobs that command the attention of employees. This is a critical
issue. Most of us are working in downsized situations, trying to do more with
fewer resources. Still, the only way to know if we’re performing at a benchmark
level is to test that assumption by looking inside and outside for new solutions.
This is why we’re going to need our knowledge-sharing advocates to generate
enthusiasm. We’re going to need the process masters and technology brokers and
cross-pollinators – like Jerry – to help people embrace this priority.

There are some other basic things we can do at Chevron to make sure we keep
the momentum going. We can keep working on our culture to promote individual
and organizational learning, because we’re convinced this can help give us a
competitive advantage. After all, that’s what it’s all about. This is especially
important for management. We need more of our leaders to model and reinforce
the right cultural behaviors. And I might mention here that one way to help
achieve that is to promote people who excel at learning-organization behaviors.

We can also make better use of our supplement to "The Chevron Way,"
which spells out specific behaviors for leading a learning organization, such
as networking . . . and investing in training. We can try to emphasize learning
from mistakes rather than laying blame. And to help drive out the "not-invented-here"
syndrome, we can recognize and reward people more for using best practices from
the outside.

We can keep telling our story in our town-hall meetings, in company publications
and through our intranet. That should stimulate more grass-roots activity, where
employees with similar jobs – no matter where they work – will use our Global
Information Link to take the initiative and start networking and sharing best
practices. And to help make that happen, we’re going to expand the availability
and use of web-based tools for sharing and managing knowledge.

At the same time, we’re going to keep the emphasis on the strategic and capital-intensive
areas of our business like project management, energy efficiency and deep-water
oil development, because that’s where the biggest payoffs are waiting to be

I mentioned earlier the talk I gave in 1995, and one of the things I did was
hold up a copy of our Chevron Best Practice Resource Map. It was kind of like
a snapshot of that point in our development, showing dozens of networks such
as maintenance, safety and strategic planning – all kinds of functional areas
– with contact names and numbers, and how often they meet, and all color-coded
according to the Baldrige categories.

The map is out of print now. It has become sort of a collector’s item around
the company, and in fact I keep one on my desk, even though we’ve since replaced
it with an on-line version that’s easier to update and more easily available
to employees worldwide. But I bring up the map because it was one of the first
things that got Chevron noticed in the area of managing knowledge – it made
us more aware of ourselves in this area.

More recently, Carla O’Dell – the APQC’s president, who will speak here tomorrow
– was kind enough to mention our company in her new book on knowledge management.
And last fall, in a study co-sponsored by the Journal of Knowledge Management,
we were named one of the Top 20 "most admired knowledge enterprises."

Certainly, we’re proud that others have noticed our past progress. But the
real value of that recognition is that it helps make us want to remain an admired
knowledge enterprise – and that’s not going to be easy. Yesterday’s learning
curve has become today’s race track, and that means building a superior learning
organization is now a necessity for any company that wants to be a top competitor.