Embedding Decision Quality in Chevron’s Culture Helps Them Outperform the Competition

Situation Analysis:

The oil & gas industry is one of the most decision-intensive businesses around. Oil & gas companies operate in an environment of constant uncertainty and executives are required to make billion-dollar bets. Strategic Decisions Group started working with Chevron in 1989 on adopting Decision Quality (DQ) processes. In 2000, David O’Reilly became Chairman and CEO of Chevron and made DQ mandatory on all capital expenditures over $50 million in order to improve the potential value of major decisions.

Discovery & Solutions:

SDG worked with Chevron to build a deep internal competence in DQ, introducing the concept to thousands of decision makers. Chevron appointed decision executives who were required to become certified in the tools and processes of DQ and complete a corporate training program. More than 400 decision professionals are engaged in Chevron’s organizations around the world. They embraced Organizational Decision Quality (ODQ) as way to analytically and systematically search for the highest value outcome for important decisions.

Results & Impact:

Chevron’s leaders have acknowledged that DQ is part of its DNA and they rely on it to make the best decision every time. Oil & gas is largely a business where those who make the smartest bets win—and typically we would expect to see the value potential of those decisions recognized in the stock price after a delay of three to seven years. If Chevron fully adopted DQ in 2000, then looking at its stock price compared to competitors’ between 2006 and 2011 should demonstrate the impact. On April 25, 2011, Chevron’s market cap was $216 billion, and it had outperformed Exxon, ConocoPhillips, Shell, and BP during that time period. Had Chevron performed like Shell and BP, their market cap would have been 38 percent less.

Chevron’s performance advantage continues, and has been a powerful demonstration of the value creation that comes from deep adoption of DQ throughout an organization. The whole organization is on a collaborative drive to create value.

To learn more about SDG’s work with Chevron, read “Chevron Overcomes the Biggest Bias of All“, a white paper by Carl Spetzler. Also, don’t miss this recent Harvard Business Review article by Carl Spetzler on Chevron, , “An Organization-Wide Approach to Good Decision Making”.