BP Deepwater Horizon Risk Is Probably One Essay

Excerpt from Essay :

BP Deepwater Horizon

Risk is probably one of the most important components of company management, especially in an industry where the potential for disaster -- foreseen or otherwise -- is high. This is particularly so for the oil industry, and also especially in the light of the recent, worst disaster that humanity has ever seen, the BP Deepwater Horizon oil spill. While some consider this disaster the result of a risk management shortcoming, others have taken their inquiries deeper and concluded that, in truth, the issue is one that concerns strategic management. As an oil company, BP's strategic management practices before the oil spill have focused primarily on increasing the profit the company could gain from the industry while decreasing the investment required to reach this goal. Those who focus on this component are of the opinion that the company's strategic management focus should have been more clearly delineated in terms of risk, and that a basic lack of such focus is what most likely resulted in the disaster. Either way, BP's strategic focus both prior to and after the event, as well as its communication strategy in terms of concerned parties and stakeholders, appear to be in need of modification if the company is concerned with redeeming its image and profitability in its industry.

Strategic Focus Prior to the Spill

According to Bright (2011), BP's stated direction was to achieve "competitive leadership" by means of "cash costs, capital efficiency and margin quality." This is something the company pursued relentlessly for five years, after which it established an industry leadership with the lowest finding and development cost ($12 per barrel of oil equivalent) by 2009. Even during the recession, between 2007 and 2009, the company's production costs have declined and, as a result, it was able to pay higher dividends to its stakeholders. To maintain this performance, it was necessary for PB to maintain a strategic focus on its stakeholder and results management.

According to Bright (2011), the specific form this strategy took focused on a balance among pro-active (P), reactive (R), and accommodative (A) strategies. A further significant role is also ascribed to BP's leveraging on its skills and resources. The focus in this regard ins on corporate learning and an ability to channel the learning component into its resources and capabilities in an effective manner. Indeed, this focus could significantly influence BP's ability to mitigate the disaster and its relationship with those affected by it, as well as with the rest of the world, from which the company received great amounts of criticism since the event. One strategic component that many critics today believe has not received sufficient management attention from BP is its management of safety and compliance. This point will be addressed again when the company's strategic focus after the oil spill event is considered.

Communication Strategy and Risk

Tsoukas (1999) addresses Shell's communication strategy with stakeholders in the oil industry. In this particular case, the author cites the company's relationship with Greenpeace, the global environmental watchdog. A dispute arose between the company and Shell when Greenpeace became concerned about the risk of Brent Spar storage spilling into the environment. According to Greenpeace, such a spill could have severe impacts not only directly on the marine environment it spills into, but also indirectly on human lives via the food chain.

Shell's strategy was to respond by citing scientific studies to substantiate Shell's decision-making outcome, to dispose of the Brent Spar in the deep ocean. These studies indicated a less negative outcome for any spills that might occur, including the fact that there is less life in the depths that might connect with human health via the food chain. Greenpeace disputed this as a strategy to manage the risk.

The main important issue surrounding the atmosphere of the debate was the precedent that would be set for oil companies worldwide. Greenpeace was demanding a sense of responsibility, arguing that nobody could know the exact impact of deep-sea disposal, which created an unacceptable risk, from the critical viewpoint, for both sea life habitat and human health. Even after being granted a permit to dispose of the Brent Spar in the Atlantic Ocean, Shell's strategy was still significantly opposed to the idea, and showed this in spectacular fashion.

In this way the volatile communication between Shell and its opposing public brought home to the company its need not only to mitigate material risk in terms of disposing waste, but also mitigating the risk of public outcry as a result. Hence, a balance is required between the way in which oil companies manage their communications about risk and the way in which it in fact manages the risk that is at the heart of the issue. The same is the case for BP, both before and after the oil spill.

BP's communications with its public and stakeholders have tended to take second position to its main strategic focus, which was to become an industry leader in terms of its financial strength. When the Deepwater Horizon event occurred, BP was reported by its critics to handle the matter somewhat less than gracefully, both in terms of communication and risk management.

According Bright (2011), for example, the company's leadership has faced challenges like the resignation of Lord Browne, one of its managers, in the wake of questions regarding a scandal and the role of leadership and corporate governance in the company. Furthermore, manager Tony Hayward was fired as a result of the lack of competence he displayed in managing the Deepwater situation after it occurred.

Peel (2010) addresses the communication issue directly after the disaster more directly.

According to the author, the company has handled its communications both with the public and its stakeholders badly, and particularly with those who were directly affected by the spill. Particularly, Peel (2010) refers to the communication strategy (or lack thereof) that BP maintained with its claimants, those who were directly affected in terms of damages by the spill. The fact that BP used sever strategies to stall the lawsuit process for some of the Gulf of Mexico oil spill claimants created some deluge in terms of public outcry and opposition. By its lack of apparent willingness to take responsibility for the spill and its implications, the company has therefore created an atmosphere of hostility among both its stakeholders and its public. This includes the company's direct customers, and by implication also its revenues.

Peel (2010) notes that BP's claimants included gulf fishermen, hotels, seafood processors, restaurants, and other individuals and businesses. BP's contention was that some of these claims had been filed prematurely and were therefore not in compliance with the 1990 Oil Pollution Act. In addition, BP insisted that claimants send their documents to the BP-financed fund, which was managed by Kenneth Feinberg. When this was done, claimants would have to wait a further 90 days before a court claim would even be lodged. Peel cites Yale Law School professor Doug Kysar in defending BP's right to delay claims via the use of a legitimate point of law. However, using the law to legitimately delay claims had further reaching effects than simply keeping BP within its rights.

The way in which BP handled these claims created very bad publicity for the company. The subtext of the claim delay process was that BP was in effect not so much concerned with the way in which the spill affected the public, but rather with its own ability to survive the spill in terms of the budget and finances.

In terms of the corporate world, this created in BP a bad corporate citizen, or at least highlighted the fact that this is what the company already was. Indeed, one claimant representative indicated that BP was using the law to delay the claim process as well as to frustrate and confuse claimants. Although this was not said, the implication was that BP hoped that some of the claims would be abandoned during the long, protracted, and frustrating process. Other critics have called attention to the fact that a process set up to make the claim procedure easier for injured parties was in fact being used to prolong the process, making it more difficult than it was in the first place.

There have also been refusals to comment on the process by BP, its managers, and its representatives. This is indicative of BP's basic lack of connection with its public. Indeed, from the start, communications and public relations have been somewhat dwarfed by BP's drive to become and remain the leader in the oil industry.

Risk Strategy

Borison and Hamm (2010, p.2) confirm that BP's strategy prior to the spill focused primarily upon conquest in the form of as little as possible investment for as much as possible profit. In more specific terms, it involved BP's search for and production of oil. In its zeal to reach its stated goals, BP drilled where other companies did not. Although, in terms of risk management, this would entail a higher focus…

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