BP, What Went Wrong?

6-August-2010Published in: CBS News Authors: Benjamin Ola. Akande and Chuck Feltz

We don't know all the details, but when we listened to Tony Hayward as he was grilled in Congress about BP's safety record, he kept saying he was changing things and that since he took over, there was a new focus on safety - more emphasis, more money spent on it, a new director of safety reporting directly to him. All great business schools teach these kinds of responses, but they are not the best in terms of human behavior-changing techniques.

We believe there were five reasons why BP failed in the Gulf of Mexico.

Tony's strategic message was diluted.

He believed safety was paramount, but that message never got to the guys operating the drill bits. Instead, they obviously thought that such things as time-to-production and costs were more important or they would have stopped drilling. Was their bonus plan in sync with the CEO's vision? Hayward's message never got conveyed in the manner it was conceived, yet he certainly felt he had covered it. It appears Hayward was not aware of where his message lost continuity.

Vendors such as Transocean were not true partners that shared the strategic vision.

Rather, it seems like they were adversaries at worst - and, at best - had goals that were poorly aligned with BP's. Did Hayward anticipate the right way to go about making certain his message addressed and was actionable for all key stakeholders? A strong message poorly executed and acted upon is of no value.

BP failed to realize that safety is a competitive advantage and not a cost.

It would seem that safety would be a keystone value or cultural attribute that, at the least, would represent a table stake, if not a direct competitive advantage. How could something so critical to the culture misfire so poorly? Did they really intentionally design their culture and plan to leverage it as an advantage?

First, safety reduces reputation risk; BP’s reputation is likely tarnished permanently with consumers, vendors and employees. Second, better safety reduces real costs in terms of property insurance, health care expense, payroll, regulatory compliance, fines and productivity. Employees who feel safe are better employees.

Obviously, the lack of safety here cost BP $20 billion and threw their years-long growth strategy out the window. BP is an entirely different company now; and worse, they are not calling their own shots.

Hayward thought safety was just about keeping people safe, but deep down, we bet he'd sacrifice a little safety or take some risk for profits. We’re not saying he would lightly see 11 people die, but if safety is viewed as an expense, then a good manager tries to artfully avoid it. If it is part and parcel of your strategic vision, you embrace it and exploit it.

Improperly valuing risk.

We've become so good as managers at mitigating risk that we have begun to put little value on it – much the same way that Wall Street misvalued risk and almost drove the world into depression. When managers are unaccustomed to seeing bad things happen often, they assume that they never will. Planes don't crash very often, but that doesn’t allow airlines to stop giving the safety speech before each flight. The odds of a car crash are small, but most of us still wear our seat belts. Technology has lulled us into a sense of false security about risk. We are so smart that our machines and our models protect us from having to worry about risk – until they fail to do so. They fail us, too, because they are designed by humans. So, you sink 10,000 wells and the worst-case scenario never happens; why should you think it might happen now? Unless your corporate culture is "better safe than sorry," you'll cut a corner if risk is deemed to be low. How many of us have driven to the store without wearing our seat belt? "It's just a few blocks," we say.

Diluting the strategic message.

No organization is more powerful than the one whose people are laser-focused on driving vision to reality. Unfortunately, leaders assume traditional communication channels are effective in disseminating this critical strategic information. However, our research has found that every organization has a "strategic dilution point" where there is degradation in the content and continuity of this message - typically three levels down from the CEO. The result? More than 80 percent of employees attempt to carry out strategy with reduced clarity and focus.

About the authors:

Benjamin Ola. Akande, Ph.D. (akandeb@webster.edu, twitter @Benjamin_Akande), Professor of Economics and Dean, George Herbert Walker School of Business & Technology, Webster University, St. Louis, Mo.

Chuck Feltz (chuck@chuckfeltz.com, @ChuckFeltz) has been the CEO or president of five companies and is a founding partner of Engage Consulting Group. A 1989 graduate of Webster University, he is the co-author of the new book, Never by Chance: Aligning People and Strategy Through Intentional Leadership (Wiley and Sons, February 2010).