Culture Change At California Resources Corporation A lana Sotiri pushed the gas nozzle into her white SUV and pressed the trigger. As she watched the pump gauge numbers spin, she knew that consumers assumed wealthy oil companies were getting rich on the backs of consumers, an impact exacerbated by California taxes. She understood this often wasn't the case, because she was the VP of Human Resources at California Resources Corporation (CRC). CRC, the largest California-only petroleum company, spun off three years before (2014) from the $90 billion, international petroleum corporation, Occidental (Oxy). Sotiri knew that CRC was scrambling to survive amidst the downturn in global oil prices. Only recently were they beginning to feel some relief from the extreme pressure. Sotiri, along with her other HR team members, believed that for CRC to do more than survive, it needed to concentrate on developing a unique culture of its own, separate from Oxy. CRC could not function like its old "mother ship." It was a different size, operating solely within a highly regulated state, and now challenged with an extremely demanding market. A growing number of employees sensed that more emphasis needed to be placed on organizational culture, yet everyone did not feel the same, since culture could be highly subjective. She knew that some employees didn't recognize the role or importance of organizational culture, relegating it to so much "touchy feely, HR stuff." Yet, these same people were concerned about how decisions were made, employee performance, motivation and job satisfaction-all elements related to culture. As the gas hose trigger clicked off, signaling a full tank, Sotiri looked at the total: "\$62." She thought, "At these prices, you'd think we were getting rich." As she got behind the wheel, heading for work, her mind churned with ideas about how she and her team could help CRC create a unique and vibrant culture. They wanted CRC to thrive as a new company in a challenging environment and bolster its bottom line. Sotiri's immediate goal involved implementing a plan to revamp the HR department to both model a unique CRC as well as assist the company as a whole to move toward its potential. Yet, she and her team were concerned whether the current CRC culture was ready to embrace this change. She felt like her role as VP of HR provided her a strong sense of CRC's pulse, but she wanted to better understand how her colleagues and team members thought about the organizational culture. Background California Resources Corporation (NYSE: CRC) was the largest producer of oil and natural gas in a gross-operated barrels of oil equivalent (BOE) basis in California.* It was the largest privately-held mineral acreage holder in the state, with approximately 2.4 million net acres. CRC employed just under 1500 people, half of whom were 20 - to 30 -somethings, with another 2500 contractors. CRC had a large portfolio of lower-risk conventional extraction opportunities in each of California's four major oil and gas basins: San Joaquin, Los Angeles, Ventura and Sacramento (see Exhibit 1 for a map of CRC's resource base). In April 2014, Occidental Petroleum (NYSE: OXY), an international corporation with a \$60 billion market cap, established CRC with the intention of spinning it off. Founded in California in 1920, Oxy had grown to be a major entity in the energy industry, respected as an innovative and hard-charging competitor. For the most part, employees enjoyed the corporate culture, many staying decades as Oxy provided opportunities for advancement and international work experiences. By 2014, Oxy was committed to growing its shale oil business in Texas' Permian Basin and it needed significant cash to invest and grow its position. Management thought that selling one of its business units was the best way to raise the cash and that the California operations provided the most attractive option to do a spin-off for shareholders. In September of that year, Oxy moved its headquarters to Houston and on November 30 it distributed just over 80 percent of the shares in the new company, CRC, to Oxy shareholders. The remaining common stock was dispersed in March 2016. Between the time the spin off was contemplated and when the entity was actually spun off, the oil markets began a steep decline. In February 2011 oil prices surpassed $100 per barrel and stayed at or near $100 per barrel for a few years. High oil prices and the application of new technology and methods for the extraction of previously inaccessible hydrocarbons within U.S. shale fields fueled the rise of U.S. production, establishing the country as part of the world's new oil supply. In response, Saudi Arabia flooded the market with additional oil during the summer of 2014, to protect its share by crowding out higher cost producers. While most believed high oil prices were here to stay, these supply increases came just as oil demand in China and the West were falling. As a result, prices fell from around $100 to $80 a barrel. In the past, the Organization of the Petroleum Exporting Countries (OPEC), which accounted for approximately one third of the world's oil, balanced supply and demand. In November 2014 OPEC met in Vienna to decide its response to the growing market competition and the supply and demand imbalance. The 14 member nations of OPEC shared few commonalities, other than oil production. Therefore, deciding on a cohesive agreement on production and pricing was difficult. * Barrels of oil equivalent (BOE) is a way of standardizing a measure of all hydrocarbons. CRC produces oil, NGLs (natural gas liquids) and natural gas. Oil and NGLs are measured on a barrel basis. Natural gas however is measured in MCF (one thousand cubic feet). BOE is a way of capturing how much hydrocarbons there are in total across all three production streams of oil, NGL and gas. To come up with the calculation of BOE, you take oil barrels + NGL barrels + [gas in MCF/6, which is a way to get it on a barrel equivalent basis]. CRC was not the largest oil producer, but it was the largest producer when looking at it across all three hydrocarbon streams. The gross-operated terms took into account how much oil is produced through CRC operations. bolster prices. But, at the end of November, OPEC members agreed not to reduce oil production. The lack of action resulted in a sudden drop to below $70 USD/bbl, a 40 percent decrease from the June peak (see Exhibit 2 for crude oil price history). Saudi Arabia confirmed its desire to hold production, extinguishing near-term hopes for improvement in prices. CRC launched the same week, entering a precipitously falling oil market. One CRC executive said, "This was the absolute worst time to ever start a petroleum company." The CRC stock price, $64 at the launch, rose to a high of $91 in April 2015, but fell to a low of $6.81 in August 2017, adjusting to the $15 mark near the end of 2017 . The idealism most organizations initially experience evaporated like California coastal fog. Without extreme strategic responses, CRC's existence in the Golden State would be short-lived. CRC's CEO Todd Stevens and his team of key managers designed an array of strategic initiatives during the first two years, salvaging the new company. These included adjustments to production and new drilling, financial amendments, strategic partnerships, and staff reductions (see Exhibit 3). After the first two years, in spite of continued soft oil prices, CRC's pivots proved successful, allowing management to begin planning more proactive goals. Now that the most immediate danger was thwarted, how could it further develop its culture and enhance its ability to thrive in the future? While many start-ups and spin-offs invest a significant amount of time and energy into this process, CRC could not due to the dramatic conditions in the market. It was the equivalent to the situation of an oil tanker heading into a Category 5 hurricane, some might say-not the time to consider upgrading the rudders or changing out the turbines, regardless of the need. Because 90 percent of CRC's 1500 employees transitioned from Oxy, many with decades of experience, the early structure and culture of CRC emulated Oxy's, in spite of a significantly different context. As Jim Collins said in Good to Great, "If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we'll figure out how to take [the company] someplace great." Because she believed the challenges was more about the "who" than the "what," Sotiri felt that her role as the VP of HR provided a unique opportunity and challenged her with the vital responsibility of helping CRC move forward. Change needed to begin with the HR department, to model a new structure and help make the Good to Great concept become a reality, Sotiri sensed. Following CRC's second year, she articulated the importance of culture in an end-of-year company video, featuring the CEO and various leaders highlighting accomplishments and casting vision to employees. Stevens noted the importance of Sotiri's efforts. said the CEO remarked, "Culture needs to become more of a priority, yet everyone doesn't see it as crucial of an issue as Alana [Sotiri] does. As the CEO, I have to respond to an array of issues. Since so many of our employees were from Oxy, creating a unique culture after the fact seemed like a formidable task, while continuing to adapt to a highly volatile market as a new company." Leadership Perspectives on CRC's Culture Alana Sotiri, VP of Human Resources Alana Sotiri, with an MBA from Pepperdine University, had over 20 years in various roles throughout HR functions. Like most at CRC, her oil industry work began at Oxy. When the time came to select a team for the spin-off, the newly appointed CEO, Stevens, offered Sotiri the position of VP of HR. Her primary passion involved creating a culture of innovation, inclusion, openness and trust, believing that this not only elevates employee happiness, but increases company productivity and revenue. "My central focus involved understanding and creating the ultimate employee experience, not just covering the legal basics of compliance," Sotiri noted. Todd Stevens, CEO Microsoft's CEO, Satya Nadella, in his book Hit Refresh: The Quest to Rediscover Microsoft's Soul and Imagine a Better Future for Everyone, remarked, "The C in CEO stands for culture...The CEO is the curator of an organization's culture." Todd Stevens began his career in the Army, after graduating from West Point. The military helped him hone his leadership skills, allowing him to oversee soldiers in strategic situations. Stevens eventually went to work for Occidental and earned an MBA from USC's Marshall School of Business. "Culture is organizational DNA, how you think about what you do at work, how you are as a teammate and how much ownership you have in your role," he said. As a result of getting in touch with CRC employees via a series of town hall meetings-sometimes un-inviting management-he heard feedback from frontline employees even as he explained his vision of CRC's future. He tried to get into the oil fields on a weekly basis, building relationships with personnel in operations and those who worked outside of headquarters. Stevens noted some of his priorities for CRC's 1500 employees: "We're always striving to be excellent. The environment around you is always changing, so we re trying to adapt and be better; to build better communication and to become better teammates, to help folks be as successful as possible and to allocate tasks effectively and work together as a team. Now we re focusing on creating the most value for the company in how we allocate financial and human capital. You have to be dynamic and good at that, responding to the external environment." CRC's lineage would definitely continue to play a role in the new company in the near term. However, Stevens noted CRC would need to continue to develop new priorities: "Oxy definitely gave us a pride of working in our industry and California, so I think we've built on that and propped it up even more. They had an excellent reputation in safety and environmental protection. We were best in class, so I'd like us to keep that. We want to build on it. But sometimes big companies can get complacent, since there isn't a sense of urgency like we've felt as a smaller company." The CEO called out some of the old assumptions that would have to change, including new approaches on hiring and team development. He noted, "Now that we ve survived the downturn in the market, we're investing in capital and joint capital [capital deployed to risk-sharing joint ventures]. I want to make sure we avoid the bad habits of many large oil companies, such as the idea that the cool thing involves drilling oil wells. We want to make CRC as effective a company as possible. We're capital intensive, so we're striving to hire folks who really matter. In order to take our culture to the next level, I start with myself and the tone and example I set. You look for people promoting and doing the right things and elevate them to leadership roles. You don't want to punish the bad behavior but point it out as an opportunity for improvement. I feel good about the team we have, but I'm motivated to keep retraining from the way things were to what they re going to be." Stevens stated that adapting CRC's legacy culture was emerging as a near top-tier priority for him and his management team: "I think we'll survive if we keep doing what we're doing, but we'd only be above average to good, so to become great, we need to improve our culture. On a 1 -to- 5 scale, if 5 is life or death, I'd give culture a 3-4. Part of the reason is that if you go down two layers in the organization, especially in operations, they wouldn't think it's critical in terms of what we do day to day." Ultimately, Stevens wanted any investments in culture development to pay returns in terms of effectiveness and financial results. He said, "If you have an effective culture, you'll have an effective company. It affects cash flow. We have to think of safety, but after that, the right culture engages people in doing the right job. At the end of the day, it affects everything." He admitted that he wrestled with the task of improving culture while keeping the ship afloat. Like any CEO of a publicly owned company, he was torn between multiple stakeholders, including shareholders, employees, state and federal regulatory agencies, and any number of smaller civic groups invested in ecology and the communities where CRC conducted business. As the quarterback of the team, he felt the dynamic tension of making sure his priority was on the employees of CRC. "I want people to enjoy their paycheck, but also be inspired by why they're here. No one wants to be around people who bitch about what they're doing." Thus, the CEO's dilemma was juggling operational realities with bigger picture issues like values and culture. Josh Schilling, VP of Operations Josh Schilling was the VP of Operations for CRC's North Division. The North Division extended from Bakersfield to the Oregon border, although 85 percent of production took place around Bakersfield. The South Division operated in the Long Beach/Los Angeles areas. He started working for Oxy a dozen years before the CRC spin-off. Schilling recognized that the CRC culture was in transition, shifting from its parent company. "Oil companies can be very traditional. Our CEO talks about being entrepreneurial, but that wasn't the Oxy vision, so I can see some of the managers striving to adjust," Schilling said. "These culture things don't develop overnight." Yet he was not critical of the CEO, noting his effectiveness in leading CRC during difficult times and interacting well with staff. But during the downturn that began the day of CRC's spinoff, everyone had been in what Schilling called a "hunkerdown mode," where culture development was "secondary." Now that it had adjusted to the market conditions and in a growth path, Schilling saw conflict emerging around culture issues. "CRC must figure out how to identify itself, but if it doesn't, growth will be impeded," he noted. Schilling believed the company would need to develop new ways of collaborating across its historical departments and functional areas. He remarked, "I think of Google where an org chart isn't as clear, but you go where the problems are, to help each other. When we began with an Oxy org chart, our managers struggled to meet the needs, but we're not Oxy. We re striving to design a culture to meet the needs in an organized way, so people aren't wondering if they should stay where they are or be someplace else. In the future, I see us with glass walls between functions, united wherever the issue or task at the time takes us. I envision people moving around, being less traditional than Oxy, where you work on a team for two weeks and then another. We want to be more progressive. I'm a product of these oil companies, but that doesn't mean we want to repeat what we've seen." Jessica Hastings, HR Department Jessica Hastings filled a variety of HR support roles at Oxy. When Sotiri came to her about the CRC spin-off and what it might look like from an HR standpoint, Hastings joined Sotiri's team. Hastings shared her philosophy about to way culture development could improve an organization: "As the HR division realigns itself, my new role involves seeing how employees have been 'Oxy-dized' in terms of values, work and thinking, and how that affects CRC moving forward. I see culture as how work gets done and how much an organization can get out of each employee, not like wringing a towel dry, but in terms of how willing and engaged each employee is. It's like the current in a river. How do you get employees to want to participate and share ideas? CRC is in transition, moving from what it began as, to what it can become. People are starting to understand what we can be as a company and culture." Hastings noted the challenges those seeking a recraft the corporate culture faced because of CRC's far-flung operations: "We want to avoid a disconnect between people who work in the office, such as engineers and scientists, and the people who work in the oil fields. Like many organizations, the division of labor between disparate divisions makes creating a homogeneous culture challenging. There were a lot of different cultures at Oxy, given the number of business units. Many of them had a lot of pride, requiring CRC to keep moving out of a silo mindset. We need to keep redefining success and how we reward it. We still get rewarded for working individually. One way we can change this is by taking onboarding more seriously, to understand the feelings and concerns employees are facing. When left to chance, you end up with this mix of different cultures. Culture has to be intentional. This is a 5 out of 5 in my mind." Richard Foster, EVP of Operations Rich Foster was an Executive Vice President of Operations. He'd been with Oxy nearly three decades, prior to launching with CRC. He described culture as "who you are, as well as the perception of who people think you are." Foster called out the amount of work he believed organizations needed to invest in culture change if they wanted the shift to be significant. "You have to drive culture. It's easy to pick up bad culture. Culture starts from the ground up, meaning it's easier to develop local community in small groups, such as some of the oil field communities in his division. Employees bond when they go out for a beer after work, whereas in urban areas, everyone wants to get home or avoid traffic," Foster noted. "People need to feel challenged and appreciated. We're human beings. One thing I like is that our CEO is excellent at calling people by their name." The pace of innovation program and other new efforts at CRC was of concern to Foster. He stated, "A lot of our people had many years with Oxy, so we have learned tendencies. Under stress, we resort to old bad habits. Rather than have the leeway to innovate, we pull in. Innovation was easier closer to the spin-off, because there was a compelling vision to do it. We made a lot of progress that's slowing down as we feel more stress. We return to what feels secure. But in 10 years we need to have an organization that is acting with unique purpose, maximizing shareholder value. We had 27 drilling rigs and then wound it down to two rigs. We're now up to eight. There's a greater sense of urgency to raise productions. We don't want to get back into activity without thinking about it, just because we ve done that in the past." Jill Swanson, EVP Jill Swanson began at Oxy a decade before CRC's spinoff. She served as an Executive Vice President, responsible for asset development and in charge of finding and developing new oil wells. Swanson saw culture as the overriding value system and operational goals, emulated from the top down. She believed culture was about what gets celebrated and what is not tolerated. She viewed the CRC culture as more entrepreneurial, pragmatic and solutions-driven than Oxy's. As an example, she cited the quick way CRC responded to the drop in the market during its launch, even though the response required laying off nearly a quarter of the workforce. Swanson noted the differences in employee cultures caused by CRC's widespread operations. She acknowledged the company needed to work on reducing the differences between the north and south offices." The north reflects more of the traditional Oxy culture; a bit more silo-oriented and freewheeling. Employees question supervisors in public. This is different than Long Beach [south] that must work strictly with Long Beach and the state, concerned with the coast. For the most part, I've liked the changes incorporated. Some parts have been difficult as we've tried to blend the two cultures of north and south. The north has a majority of people, production and capital, so there's some feeling that the south should adapt to them, yet we're all focused on creating a unique CRC culture." Swanson believed that CRC would need to revisit its reporting structure and number of managerial layers if it truly wanted to take advantage of its new smaller scale. She said, "As we move into the future, we'll need to reduce the amount of management that a larger company such as Oxy needed, but that means redesigning positions. We want to empower more people to make decisions, along with liberating low performers to find work in different companies. It's imperative that we continue to change. The goal is to get to a point where everyone is feeling, 'Wow, this is really fun!'" High Hopes In spite of diverse perspectives on culture and challenges, for the most part, hope seemed to be running strong within CRC. Stevens said, "I want an organization where employees up and down the chain feel empowered and strive for excellence, because they know our goals and objectives clearly, where there's no mystery." Some people commented on the desire for CRC to be thought more of as a creative energy company than a traditional oil producer. A few emphasized the excitement of corporate social responsibility and giving back to local communities. HR's attempt to become a catalyst for culture change at CRC was itself a contrast to Oxy's model. Many at Oxy admitted that HR's traditional compliance structure wasn't that effective. CRC, with only about 15 percent of Oxy's employees, operated in a highly regulated and changing landscape, requiring it to become more agile and responsive. In hindsight, the CRC HR team realized that perhaps it could have taken better advantage of the spin-off time to restructure itself in spite of the extenuating circumstances. Everything could be viewed as more fluid in transitions. Yet, at the time the team believed it had its own fires to put out, such as creating an internal employee response team to support Oxy employees that previously was covered by a call center in Tulsa, OK (no longer affiliated with the new CRC). Developing sufficient infrastructure detracted them from the more proactive organization-building work that now needed to take place. Drilling Down into the Culture... Alana Sotiri pushed the stack of interview transcripts and HR revision plans into her brief case, turned out the lights of her office and rode the elevator down to the parking garage. Her mind swirled with ideas and concerns. "How can our team help make a good culture great at CRC, without quarterbacking the effort and not having a chair in the C-suite. Are we distorting the importance of culture, since we're responsible for the people side of things?" Sotiri knew that if CRC didn't make smart investments and product oil efficiently, there might not be any people around the halls of the company to care about culture. She was confident in the ability of Stevens and felt they shared a similar vision, but she also believed it would take more than a handful of people buying into a culture change vision to help CRC reach its potential. CRC's Large Resource Base with Advantaged Infrastructure World-Class Resource Base - Operate in 4 of 12 largest fields in the continental U.S. - 568 MMBOE proved reserves - 140MBOE/d production, 77% liquids - 2,3 million net mineral acres - Low, flattening decline rate Positioned to Grow - Internally funded capital program designed to live within cash flow and drive erowth - Operating flexibility across basins and drive mechanisms to ootimize growth through commodity price cycles - Increasing crude oil mix improves margins - Deep inventory of high-return projects Source: CRC Exhibit 2: Crude Oil Prices 2012-2017 Swift, decisive actions have positioned the company for growth through the commodity downturn. Proactive discussions with lenders and solid asset base provide line of sight to a recovery and an actionable inventory. Source: CRC Exhibit 4. CRC HR Revision Source: CRC Internal Documents 1. Who are the different clients in this case? What type of client are they? Explain. 2. What are the challenges of Alana Sortiri, VP of HR, conducting this OD effort, versus having an external consultant like yourself doing so? 3. What are the key presenting challenges? Use a systems approach to explain them. 4. What are some potential underlying issues? Be specific. 5. What kind of data would you like to collect to supplement the information in the case? From whom? How? Explain. 6. What are the key categories/themes/areas revealed by the executive leadership "perspectives?" Identify 3-5 themes that are relevant (some may differ and some may be similar across perspectives). 7. What model or approach could you use to provide feedback (how could it be, at the same time, an intervention activity)? Culture Change At California Resources Corporation A lana Sotiri pushed the gas nozzle into her white SUV and pressed the trigger. As she watched the pump gauge numbers spin, she knew that consumers assumed wealthy oil companies were getting rich on the backs of consumers, an impact exacerbated by California taxes. She understood this often wasn't the case, because she was the VP of Human Resources at California Resources Corporation (CRC). CRC, the largest California-only petroleum company, spun off three years before (2014) from the $90 billion, international petroleum corporation, Occidental (Oxy). Sotiri knew that CRC was scrambling to survive amidst the downturn in global oil prices. Only recently were they beginning to feel some relief from the extreme pressure. Sotiri, along with her other HR team members, believed that for CRC to do more than survive, it needed to concentrate on developing a unique culture of its own, separate from Oxy. CRC could not function like its old "mother ship." It was a different size, operating solely within a highly regulated state, and now challenged with an extremely demanding market. A growing number of employees sensed that more emphasis needed to be placed on organizational culture, yet everyone did not feel the same, since culture could be highly subjective. She knew that some employees didn't recognize the role or importance of organizational culture, relegating it to so much "touchy feely, HR stuff." Yet, these same people were concerned about how decisions were made, employee performance, motivation and job satisfaction-all elements related to culture. As the gas hose trigger clicked off, signaling a full tank, Sotiri looked at the total: "\$62." She thought, "At these prices, you'd think we were getting rich." As she got behind the wheel, heading for work, her mind churned with ideas about how she and her team could help CRC create a unique and vibrant culture. They wanted CRC to thrive as a new company in a challenging environment and bolster its bottom line. Sotiri's immediate goal involved implementing a plan to revamp the HR department to both model a unique CRC as well as assist the company as a whole to move toward its potential. Yet, she and her team were concerned whether the current CRC culture was ready to embrace this change. She felt like her role as VP of HR provided her a strong sense of CRC's pulse, but she wanted to better understand how her colleagues and team members thought about the organizational culture. Background California Resources Corporation (NYSE: CRC) was the largest producer of oil and natural gas in a gross-operated barrels of oil equivalent (BOE) basis in California.* It was the largest privately-held mineral acreage holder in the state, with approximately 2.4 million net acres. CRC employed just under 1500 people, half of whom were 20 - to 30 -somethings, with another 2500 contractors. CRC had a large portfolio of lower-risk conventional extraction opportunities in each of California's four major oil and gas basins: San Joaquin, Los Angeles, Ventura and Sacramento (see Exhibit 1 for a map of CRC's resource base). In April 2014, Occidental Petroleum (NYSE: OXY), an international corporation with a \$60 billion market cap, established CRC with the intention of spinning it off. Founded in California in 1920, Oxy had grown to be a major entity in the energy industry, respected as an innovative and hard-charging competitor. For the most part, employees enjoyed the corporate culture, many staying decades as Oxy provided opportunities for advancement and international work experiences. By 2014, Oxy was committed to growing its shale oil business in Texas' Permian Basin and it needed significant cash to invest and grow its position. Management thought that selling one of its business units was the best way to raise the cash and that the California operations provided the most attractive option to do a spin-off for shareholders. In September of that year, Oxy moved its headquarters to Houston and on November 30 it distributed just over 80 percent of the shares in the new company, CRC, to Oxy shareholders. The remaining common stock was dispersed in March 2016. Between the time the spin off was contemplated and when the entity was actually spun off, the oil markets began a steep decline. In February 2011 oil prices surpassed $100 per barrel and stayed at or near $100 per barrel for a few years. High oil prices and the application of new technology and methods for the extraction of previously inaccessible hydrocarbons within U.S. shale fields fueled the rise of U.S. production, establishing the country as part of the world's new oil supply. In response, Saudi Arabia flooded the market with additional oil during the summer of 2014, to protect its share by crowding out higher cost producers. While most believed high oil prices were here to stay, these supply increases came just as oil demand in China and the West were falling. As a result, prices fell from around $100 to $80 a barrel. In the past, the Organization of the Petroleum Exporting Countries (OPEC), which accounted for approximately one third of the world's oil, balanced supply and demand. In November 2014 OPEC met in Vienna to decide its response to the growing market competition and the supply and demand imbalance. The 14 member nations of OPEC shared few commonalities, other than oil production. Therefore, deciding on a cohesive agreement on production and pricing was difficult. * Barrels of oil equivalent (BOE) is a way of standardizing a measure of all hydrocarbons. CRC produces oil, NGLs (natural gas liquids) and natural gas. Oil and NGLs are measured on a barrel basis. Natural gas however is measured in MCF (one thousand cubic feet). BOE is a way of capturing how much hydrocarbons there are in total across all three production streams of oil, NGL and gas. To come up with the calculation of BOE, you take oil barrels + NGL barrels + [gas in MCF/6, which is a way to get it on a barrel equivalent basis]. CRC was not the largest oil producer, but it was the largest producer when looking at it across all three hydrocarbon streams. The gross-operated terms took into account how much oil is produced through CRC operations. bolster prices. But, at the end of November, OPEC members agreed not to reduce oil production. The lack of action resulted in a sudden drop to below $70 USD/bbl, a 40 percent decrease from the June peak (see Exhibit 2 for crude oil price history). Saudi Arabia confirmed its desire to hold production, extinguishing near-term hopes for improvement in prices. CRC launched the same week, entering a precipitously falling oil market. One CRC executive said, "This was the absolute worst time to ever start a petroleum company." The CRC stock price, $64 at the launch, rose to a high of $91 in April 2015, but fell to a low of $6.81 in August 2017, adjusting to the $15 mark near the end of 2017 . The idealism most organizations initially experience evaporated like California coastal fog. Without extreme strategic responses, CRC's existence in the Golden State would be short-lived. CRC's CEO Todd Stevens and his team of key managers designed an array of strategic initiatives during the first two years, salvaging the new company. These included adjustments to production and new drilling, financial amendments, strategic partnerships, and staff reductions (see Exhibit 3). After the first two years, in spite of continued soft oil prices, CRC's pivots proved successful, allowing management to begin planning more proactive goals. Now that the most immediate danger was thwarted, how could it further develop its culture and enhance its ability to thrive in the future? While many start-ups and spin-offs invest a significant amount of time and energy into this process, CRC could not due to the dramatic conditions in the market. It was the equivalent to the situation of an oil tanker heading into a Category 5 hurricane, some might say-not the time to consider upgrading the rudders or changing out the turbines, regardless of the need. Because 90 percent of CRC's 1500 employees transitioned from Oxy, many with decades of experience, the early structure and culture of CRC emulated Oxy's, in spite of a significantly different context. As Jim Collins said in Good to Great, "If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we'll figure out how to take [the company] someplace great." Because she believed the challenges was more about the "who" than the "what," Sotiri felt that her role as the VP of HR provided a unique opportunity and challenged her with the vital responsibility of helping CRC move forward. Change needed to begin with the HR department, to model a new structure and help make the Good to Great concept become a reality, Sotiri sensed. Following CRC's second year, she articulated the importance of culture in an end-of-year company video, featuring the CEO and various leaders highlighting accomplishments and casting vision to employees. Stevens noted the importance of Sotiri's efforts. said the CEO remarked, "Culture needs to become more of a priority, yet everyone doesn't see it as crucial of an issue as Alana [Sotiri] does. As the CEO, I have to respond to an array of issues. Since so many of our employees were from Oxy, creating a unique culture after the fact seemed like a formidable task, while continuing to adapt to a highly volatile market as a new company." Leadership Perspectives on CRC's Culture Alana Sotiri, VP of Human Resources Alana Sotiri, with an MBA from Pepperdine University, had over 20 years in various roles throughout HR functions. Like most at CRC, her oil industry work began at Oxy. When the time came to select a team for the spin-off, the newly appointed CEO, Stevens, offered Sotiri the position of VP of HR. Her primary passion involved creating a culture of innovation, inclusion, openness and trust, believing that this not only elevates employee happiness, but increases company productivity and revenue. "My central focus involved understanding and creating the ultimate employee experience, not just covering the legal basics of compliance," Sotiri noted. Todd Stevens, CEO Microsoft's CEO, Satya Nadella, in his book Hit Refresh: The Quest to Rediscover Microsoft's Soul and Imagine a Better Future for Everyone, remarked, "The C in CEO stands for culture...The CEO is the curator of an organization's culture." Todd Stevens began his career in the Army, after graduating from West Point. The military helped him hone his leadership skills, allowing him to oversee soldiers in strategic situations. Stevens eventually went to work for Occidental and earned an MBA from USC's Marshall School of Business. "Culture is organizational DNA, how you think about what you do at work, how you are as a teammate and how much ownership you have in your role," he said. As a result of getting in touch with CRC employees via a series of town hall meetings-sometimes un-inviting management-he heard feedback from frontline employees even as he explained his vision of CRC's future. He tried to get into the oil fields on a weekly basis, building relationships with personnel in operations and those who worked outside of headquarters. Stevens noted some of his priorities for CRC's 1500 employees: "We're always striving to be excellent. The environment around you is always changing, so we re trying to adapt and be better; to build better communication and to become better teammates, to help folks be as successful as possible and to allocate tasks effectively and work together as a team. Now we re focusing on creating the most value for the company in how we allocate financial and human capital. You have to be dynamic and good at that, responding to the external environment." CRC's lineage would definitely continue to play a role in the new company in the near term. However, Stevens noted CRC would need to continue to develop new priorities: "Oxy definitely gave us a pride of working in our industry and California, so I think we've built on that and propped it up even more. They had an excellent reputation in safety and environmental protection. We were best in class, so I'd like us to keep that. We want to build on it. But sometimes big companies can get complacent, since there isn't a sense of urgency like we've felt as a smaller company." The CEO called out some of the old assumptions that would have to change, including new approaches on hiring and team development. He noted, "Now that we ve survived the downturn in the market, we're investing in capital and joint capital [capital deployed to risk-sharing joint ventures]. I want to make sure we avoid the bad habits of many large oil companies, such as the idea that the cool thing involves drilling oil wells. We want to make CRC as effective a company as possible. We're capital intensive, so we're striving to hire folks who really matter. In order to take our culture to the next level, I start with myself and the tone and example I set. You look for people promoting and doing the right things and elevate them to leadership roles. You don't want to punish the bad behavior but point it out as an opportunity for improvement. I feel good about the team we have, but I'm motivated to keep retraining from the way things were to what they re going to be." Stevens stated that adapting CRC's legacy culture was emerging as a near top-tier priority for him and his management team: "I think we'll survive if we keep doing what we're doing, but we'd only be above average to good, so to become great, we need to improve our culture. On a 1 -to- 5 scale, if 5 is life or death, I'd give culture a 3-4. Part of the reason is that if you go down two layers in the organization, especially in operations, they wouldn't think it's critical in terms of what we do day to day." Ultimately, Stevens wanted any investments in culture development to pay returns in terms of effectiveness and financial results. He said, "If you have an effective culture, you'll have an effective company. It affects cash flow. We have to think of safety, but after that, the right culture engages people in doing the right job. At the end of the day, it affects everything." He admitted that he wrestled with the task of improving culture while keeping the ship afloat. Like any CEO of a publicly owned company, he was torn between multiple stakeholders, including shareholders, employees, state and federal regulatory agencies, and any number of smaller civic groups invested in ecology and the communities where CRC conducted business. As the quarterback of the team, he felt the dynamic tension of making sure his priority was on the employees of CRC. "I want people to enjoy their paycheck, but also be inspired by why they're here. No one wants to be around people who bitch about what they're doing." Thus, the CEO's dilemma was juggling operational realities with bigger picture issues like values and culture. Josh Schilling, VP of Operations Josh Schilling was the VP of Operations for CRC's North Division. The North Division extended from Bakersfield to the Oregon border, although 85 percent of production took place around Bakersfield. The South Division operated in the Long Beach/Los Angeles areas. He started working for Oxy a dozen years before the CRC spin-off. Schilling recognized that the CRC culture was in transition, shifting from its parent company. "Oil companies can be very traditional. Our CEO talks about being entrepreneurial, but that wasn't the Oxy vision, so I can see some of the managers striving to adjust," Schilling said. "These culture things don't develop overnight." Yet he was not critical of the CEO, noting his effectiveness in leading CRC during difficult times and interacting well with staff. But during the downturn that began the day of CRC's spinoff, everyone had been in what Schilling called a "hunkerdown mode," where culture development was "secondary." Now that it had adjusted to the market conditions and in a growth path, Schilling saw conflict emerging around culture issues. "CRC must figure out how to identify itself, but if it doesn't, growth will be impeded," he noted. Schilling believed the company would need to develop new ways of collaborating across its historical departments and functional areas. He remarked, "I think of Google where an org chart isn't as clear, but you go where the problems are, to help each other. When we began with an Oxy org chart, our managers struggled to meet the needs, but we're not Oxy. We re striving to design a culture to meet the needs in an organized way, so people aren't wondering if they should stay where they are or be someplace else. In the future, I see us with glass walls between functions, united wherever the issue or task at the time takes us. I envision people moving around, being less traditional than Oxy, where you work on a team for two weeks and then another. We want to be more progressive. I'm a product of these oil companies, but that doesn't mean we want to repeat what we've seen." Jessica Hastings, HR Department Jessica Hastings filled a variety of HR support roles at Oxy. When Sotiri came to her about the CRC spin-off and what it might look like from an HR standpoint, Hastings joined Sotiri's team. Hastings shared her philosophy about to way culture development could improve an organization: "As the HR division realigns itself, my new role involves seeing how employees have been 'Oxy-dized' in terms of values, work and thinking, and how that affects CRC moving forward. I see culture as how work gets done and how much an organization can get out of each employee, not like wringing a towel dry, but in terms of how willing and engaged each employee is. It's like the current in a river. How do you get employees to want to participate and share ideas? CRC is in transition, moving from what it began as, to what it can become. People are starting to understand what we can be as a company and culture." Hastings noted the challenges those seeking a recraft the corporate culture faced because of CRC's far-flung operations: "We want to avoid a disconnect between people who work in the office, such as engineers and scientists, and the people who work in the oil fields. Like many organizations, the division of labor between disparate divisions makes creating a homogeneous culture challenging. There were a lot of different cultures at Oxy, given the number of business units. Many of them had a lot of pride, requiring CRC to keep moving out of a silo mindset. We need to keep redefining success and how we reward it. We still get rewarded for working individually. One way we can change this is by taking onboarding more seriously, to understand the feelings and concerns employees are facing. When left to chance, you end up with this mix of different cultures. Culture has to be intentional. This is a 5 out of 5 in my mind." Richard Foster, EVP of Operations Rich Foster was an Executive Vice President of Operations. He'd been with Oxy nearly three decades, prior to launching with CRC. He described culture as "who you are, as well as the perception of who people think you are." Foster called out the amount of work he believed organizations needed to invest in culture change if they wanted the shift to be significant. "You have to drive culture. It's easy to pick up bad culture. Culture starts from the ground up, meaning it's easier to develop local community in small groups, such as some of the oil field communities in his division. Employees bond when they go out for a beer after work, whereas in urban areas, everyone wants to get home or avoid traffic," Foster noted. "People need to feel challenged and appreciated. We're human beings. One thing I like is that our CEO is excellent at calling people by their name." The pace of innovation program and other new efforts at CRC was of concern to Foster. He stated, "A lot of our people had many years with Oxy, so we have learned tendencies. Under stress, we resort to old bad habits. Rather than have the leeway to innovate, we pull in. Innovation was easier closer to the spin-off, because there was a compelling vision to do it. We made a lot of progress that's slowing down as we feel more stress. We return to what feels secure. But in 10 years we need to have an organization that is acting with unique purpose, maximizing shareholder value. We had 27 drilling rigs and then wound it down to two rigs. We're now up to eight. There's a greater sense of urgency to raise productions. We don't want to get back into activity without thinking about it, just because we ve done that in the past." Jill Swanson, EVP Jill Swanson began at Oxy a decade before CRC's spinoff. She served as an Executive Vice President, responsible for asset development and in charge of finding and developing new oil wells. Swanson saw culture as the overriding value system and operational goals, emulated from the top down. She believed culture was about what gets celebrated and what is not tolerated. She viewed the CRC culture as more entrepreneurial, pragmatic and solutions-driven than Oxy's. As an example, she cited the quick way CRC responded to the drop in the market during its launch, even though the response required laying off nearly a quarter of the workforce. Swanson noted the differences in employee cultures caused by CRC's widespread operations. She acknowledged the company needed to work on reducing the differences between the north and south offices." The north reflects more of the traditional Oxy culture; a bit more silo-oriented and freewheeling. Employees question supervisors in public. This is different than Long Beach [south] that must work strictly with Long Beach and the state, concerned with the coast. For the most part, I've liked the changes incorporated. Some parts have been difficult as we've tried to blend the two cultures of north and south. The north has a majority of people, production and capital, so there's some feeling that the south should adapt to them, yet we're all focused on creating a unique CRC culture." Swanson believed that CRC would need to revisit its reporting structure and number of managerial layers if it truly wanted to take advantage of its new smaller scale. She said, "As we move into the future, we'll need to reduce the amount of management that a larger company such as Oxy needed, but that means redesigning positions. We want to empower more people to make decisions, along with liberating low performers to find work in different companies. It's imperative that we continue to change. The goal is to get to a point where everyone is feeling, 'Wow, this is really fun!'" High Hopes In spite of diverse perspectives on culture and challenges, for the most part, hope seemed to be running strong within CRC. Stevens said, "I want an organization where employees up and down the chain feel empowered and strive for excellence, because they know our goals and objectives clearly, where there's no mystery." Some people commented on the desire for CRC to be thought more of as a creative energy company than a traditional oil producer. A few emphasized the excitement of corporate social responsibility and giving back to local communities. HR's attempt to become a catalyst for culture change at CRC was itself a contrast to Oxy's model. Many at Oxy admitted that HR's traditional compliance structure wasn't that effective. CRC, with only about 15 percent of Oxy's employees, operated in a highly regulated and changing landscape, requiring it to become more agile and responsive. In hindsight, the CRC HR team realized that perhaps it could have taken better advantage of the spin-off time to restructure itself in spite of the extenuating circumstances. Everything could be viewed as more fluid in transitions. Yet, at the time the team believed it had its own fires to put out, such as creating an internal employee response team to support Oxy employees that previously was covered by a call center in Tulsa, OK (no longer affiliated with the new CRC). Developing sufficient infrastructure detracted them from the more proactive organization-building work that now needed to take place. Drilling Down into the Culture... Alana Sotiri pushed the stack of interview transcripts and HR revision plans into her brief case, turned out the lights of her office and rode the elevator down to the parking garage. Her mind swirled with ideas and concerns. "How can our team help make a good culture great at CRC, without quarterbacking the effort and not having a chair in the C-suite. Are we distorting the importance of culture, since we're responsible for the people side of things?" Sotiri knew that if CRC didn't make smart investments and product oil efficiently, there might not be any people around the halls of the company to care about culture. She was confident in the ability of Stevens and felt they shared a similar vision, but she also believed it would take more than a handful of people buying into a culture change vision to help CRC reach its potential. CRC's Large Resource Base with Advantaged Infrastructure World-Class Resource Base - Operate in 4 of 12 largest fields in the continental U.S. - 568 MMBOE proved reserves - 140MBOE/d production, 77% liquids - 2,3 million net mineral acres - Low, flattening decline rate Positioned to Grow - Internally funded capital program designed to live within cash flow and drive erowth - Operating flexibility across basins and drive mechanisms to ootimize growth through commodity price cycles - Increasing crude oil mix improves margins - Deep inventory of high-return projects Source: CRC Exhibit 2: Crude Oil Prices 2012-2017 Swift, decisive actions have positioned the company for growth through the commodity downturn. Proactive discussions with lenders and solid asset base provide line of sight to a recovery and an actionable inventory. Source: CRC Exhibit 4. CRC HR Revision Source: CRC Internal Documents 1. Who are the different clients in this case? What type of client are they? Explain. 2. What are the challenges of Alana Sortiri, VP of HR, conducting this OD effort, versus having an external consultant like yourself doing so? 3. What are the key presenting challenges? Use a systems approach to explain them. 4. What are some potential underlying issues? Be specific. 5. What kind of data would you like to collect to supplement the information in the case? From whom? How? Explain. 6. What are the key categories/themes/areas revealed by the executive leadership "perspectives?" Identify 3-5 themes that are relevant (some may differ and some may be similar across perspectives). 7. What model or approach could you use to provide feedback (how could it be, at the same time, an intervention activity)