BP's organizational structure and response to the Gulf of Mexico oil spill

British Petroleum

What is BP

British Petroleum (BP) is one of the world's largest oil and gas companies in terms of production capacity and revenue; BP explores for oil and natural gas in approximately 30 countries and possesses proved reserves of 18.1 billion barrels of oil equivalent (Hoovers, 2004).

BP owns 16 refineries

BP processes 4 million barrels of crude oil per day

BP markets these products in 80 countries

BP owns a network of 22,400 gas stations

BP's Global Projects (BP, N.d.)

BP's Issues

Oil and gas reserves are becoming increasingly hard to come by. Oil companies are now targeting some of the harder to access reserves. This requires a great deal of technological sophistication and drives up extraction prices. It also creates a substantial amount of risk for the organization which has recently manifested in the Gulf of Mexico.

In April 2010 an explosion occurred and a major fire on an oil rig in the Gulf of Mexico owned by BP and operated by Transocean burned until July 2010. BP temporarily capped the oil spill using a pipe "cork" (Casselman, Gold, & Gonazalez, 2010). With spill capped successfully, the BP outlined its $20 billion fund set aside for to pay for damages to companies, organizations, and individuals significantly impacted by the spill. To raise money for this fund, BP plans to sell up to $12 billion of assets to Apache (APA) in order to cover some of its liabilities. In 2010, BP reported a loss before interest and taxation of $3.7 billion, compared to a profit of $26.4 billion in 2009 (London Energy, 2010).

Strengths and Weaknesses

The company's strengths include the global network of oil drilling operations, refining capabilities, and comprehensive supply chain. The company has a geographically diverse business operation which can offer some protection against different risks. The company also has an extensive engineering capability that allows the company to explore areas that are unavailable to other companies due to the sophistication that these operations require.

BP has tried to brand itself as "Beyond Petroleum." However, it operates primarily in the oil industry has hasn't made a significant effort to divest from this sector. The company has been accused of "greenwashing" by many parties and most consumers do not believe it is at all environmentally responsible. Thus the negative public perception has become one of the company's primary weaknesses as well as the costs of the environmental hazards created through its operations.

BP's Progress

The company is somewhat torn between having to accept more dangerous drilling sites to return profits for their shareholders and being good environmental stewards. The fines that the company has been forced to pay only represent a fraction of the company's revenues and thus it is actually more profitable in many cases to simply pay the fines rather than focus on safety. Many of the strategic choices involve differences in extraction and distribution. Many people believe that the company is still involved in risky extraction techniques even after their costly oil spill in 2010 (Abrams, 2013).

BP could have been much more stringent about the code of conduct that it created. Although the effort to inject a code of conduct for the entire organization was noteworthy, it was largely ineffective. One of the primary issues that the organization faces is that it has a mix of cultures and many of these cultures have proven resistant to change. One alternative that could have allowed the organizations efforts to standardize a code of conduct more effectively would have been to invest in education and training.

Creating a code of conduct is an excellent first step. However, this is only part of the solution. To foster organizational support for the code of conduct it requires more substantial effort on behalf of the organization to ensure that the employees understand and will adhere to the mandated procedures. It is undoubtedly the case that many employees simply brushed off the company's code of conduct and continued operating as they have done previously. Therefore, the company should have devoted more of its resources to implementing a more comprehensive organizational change than it had done.

BP's Future

BP, still recovering from an oil spill that may cost it as much as $42 billion, hasn't set a new target for investing in renewable energy after investing $8.3 billion in the business; the company in 2005 set a target to spend $8 billion which was already achieved (Downing, 2014):

BP has stakes in 16 wind farms, and that share gives it a financial interest in 1,558 megawatts of electricity generation capacity; enough to power about 780,000 U.S. homes.

By early 2015, BP plans to have doubled the capacity of its largest sugar cane-based ethanol mill in Brazil.

Developing second-generation of biofuels that use non-food crops to market

However, the company's dedication to sustainability seems somewhat mixed. After the 8 billion dollar investment in renewables, the company has no set a new target in renewables which is most likely due to the losses incurred from the disaster in the Gulf of Mexico.

Although the company is trying to "re-brand" itself as a sustainable company who acts responsibly, however BP's record of environmental catastrophes and questionable business practices are not consistent with this image. However, some argue that the greenwashing or branding image that BP tried to create actually helped after the Deepwater Horizon oil spill. A study by the Harvard Business School found that (Frick, 2014):

1. Consumers punished BP but only temporarily -- the sales and revenue effects of the oil spill did not damage the long-term brand image.

2. The environmentally conscious punished BP more, while the rich punished it less -- an environmental metric was produced by various factors and applied to the decrease in sales.

3. The more BP had spent on advertising in an area pre-spill, the less severe that area's punishment -- the researchers look at advertising expenditures in different regions and compared them to the punishment in sales after the disaster.

The evidence suggests that even though BP has taken a lot of criticism for greenwashing, their environmental branding could have still paid off. The company will still have to examine its stance on renewables in the near future once it recovers from the financial losses incurred in the disaster.