Introduction and statement
The success or failure of an organization can be determined by many factors. One major driver of a company failure or success lies in organizational behaviors and the people factors. For British Petroleum a company that primarily deals with oil, its inability to manage and contain risks has resulted in public and corporate governance failures. This paper will analyze BP in terms of its failures and the steps it has taken to remedy its reputation and solve challenges.
Background of organizational failure
On April, 20, 2010, the Deepwater horizon oil rig exploded, while the fire was being contained, Transocean and BP were assessing the options. Transocean is the company that owned and staffed the Deepwater Horizon; BP is the company that was in charge of leasing and providing the supervisors that were on the rig (Ahn, Adamson, & Dornbusch, 2004). Macondo well was damaged in the explosion and was leaking oil in the Mexican Gulf. This oil well had 110 million barrels of oil and has a height of 13,000 feet below the sea level. The well spill oil for a period of eighty seven days until the attempts to cement the well was shut. It became evident that damages had been done (Hoffman & Devereaux, 2011). An estimated 4.9 barrels of oil was spilled and it contaminated the surrounding environment immensely. After the spill a team comprising of federal joint task force was assigned for purposes of determining the oil spill. The team concluded that BP, Transocean and Halliburton were to blame for the accident; however, BP was solely responsible for the damages (Maresh & Williams, 2010).
Prior to this accident, it is worth looking at the history of this company in terms of failure, it is worth noting that BP over the years has had many reported accidents. Before the Macondo explosion, the company had sixty three reported accidents of misconduct (Freudenburg & Gamling, 2011). Deep health plus safety issues violations resulted in explosion at Texas in 2005 and a fire in Ohio in 2006. The accidents claimed thirty lives and injured more than 2000 people. For a period of three years, from the year 2007 to 2010, BP health and safety violations contributed to ninety seven percent of accidents that were recorded by the occupational safety and health administration (Mokhiber & Weisman, 2005).
Analysis of company’s behavior
Recent company mishaps, excluding the Macondo explosion contradicts the company’s environmental and safety friendly marketing efforts (Ahn, Adamson, & Dornbusch, 2004). Following the Texas explosions the investigations that were carried out by the federal government suggested that the company leadership was more focused on reducing maintenance and capital costs at expenses of safety (Hoffman & Devereaux, 2011). The United States chemical and Hazards investigation board suggested that the multinational supported a culture in which the occupations safety and process safety could not be differentiated (Ahn, Adamson, & Dornbusch, 2004). The accident in Alaska was due to corrosions in a number of company pipelines, the public began to doubt the company’s self proclaimed environmentally friendly culture and its ability to prevent more disasters (Maresh & Williams, 2010).
The stakeholder’s theory contends that stakeholders of a particular company are not just the direct owners, but that stakeholders of a company are any persons group, or even entity that a corporation has benefited with its actions and those who benefit or even burden the firm with their actions (Beckhard & Harris, 2006).
In BP failure, the first stakeholder that was impacted by the spill were the workmen who were working on that specific rig, when the rig exploded, there were 126 people who were on the platform (Ulmer, 2001). Only 115 workers were evacuated from Macondo rig. After a three day search, the coat guards called of the search stating that the period for reasonable expectations of survival was over (Ahn, Adamson, & Dornbusch, 2004). Sadly, eleven members of on the rig who were presumed to be dead were not the only people that were affected by the company failure. Other stakeholders were affected, this included federal government, state government, BP Oil Company, gulf fishing industry, board of directors, collaborators, competitors’ tourist dependent business and the community’s that surrounded this area (Smith, Organisation and environment).
Contingency theory at work
Contingency theory can be used to explain the BP Oil crisis, this theory focuses on the situational factors that directly affect the relationships between independent and dependent variables. This theory contends there is no direct science, in matters to do with organizational behaviors. The Bp Oil spill is one example of contingency theory at work (Mokhiber & Weisman, 2005). For a long time, Bp Company was not in the spotlight as far as social environmental issues were concerned, but as a result of the mismanagement of the situation the company was taken to the spotlight as the figurehead of bad environmental decisions that had worse solutions (Maresh & Williams, 2010). In the entire five months after crisis, the company was forced to move between the concepts of advocacy and accommodation in order to try and remedy the problem (Freudenburg & Gamling, 2011).
The company was affected to a great deal by the external factors than the internal factors. In specific, the issues to do with the social environment, external public and the issue under the question factors were influencing them more than anything (Mokhiber & Weisman, 2005) As the crisis began the company was in the advocacy platform. BP tried to fight for the issues at hand and worked towards a solution, as solution after solution failed and the public demanded for immediate action the company efforts shifted towards accommodation, the company mentality went from “we will find the best way to create a remedy” to “let’s get this done” (Ahn, Adamson, & Dornbusch, 2004). When the situation began it was not clear on the steps that BP would take to remedy the situation, the company tried to put blame on the oil rig contractor (Miller, 2004). BP overall strategy focused more on corrective actions.
However, despite the circumstances that faced the company, the company has tried to rise through the odds. The company through the contingency approach has tried empowering management in bid to create a culture of risk awareness in the organization (Freudenburg & Gamling, 2011). Through the creation of tailored methods, the company has been able create solutions that help in solving some of the issues that are found in the organization. Role of employees in BP have been changed for meeting the needs of the different projects quickly.
Board of Directors
The board of directors were highly involved in the oil spill, because they are the decision making body of the organization (Shian, 2011). Board of directors had power to make managerial decisions and decisions that would reduce the risks. The former CEO Tony Hayward was the first to feel the influence of the board as he was asked to step down from his position in the middle of this crisis, this was indicative of a fresh beginning for company (Seijts, 2004 ).
Companies, for example, Transocean were immensely affected by what happened on Macondo oil rig, Transocean Company was BP drilling contractor on oil rig. The company went through reputation damage as they first shared responsibility for explosion during the initial stages.
BP competitors like shell experienced a direct effect as many customers turned to them for oil. Some competitors exploited the company damaged reputation. Many oil companies used this chance to point their level of safety and sustainability. This helped in making them look better in bad light of BP.
Many clients disassociated themselves from BP Company. This pattern was evident in many towns where customer’s resented BP gas stations. The pattern had tremendous effects on company, as it resulted in losses. Winning the trust of the customers is hard and is not a smooth walk in the park (Seijts, 2004 )
Because the company is a multinational, the most affected people were the employees, especially, those who were working on the oil rig. Many of those were working on the rig lost their job and some lost their lives (Schoenberg, 2005). Even though those who were working outside the Gulf of Mexico were less affected, we cannot ignore the fact that the oil spill has an influence in one way or another on them. The reputation damage made many people reconsider their interest to work for BP (Schoenberg, 2005).
Families of employees
The level of effects to families was dependent on the proximity of this oil spill; eleven crew members lost their lives. Naturally the families of the people who lost their lives were affected. Families of people who lost their jobs were also affected (Freudenburg & Gamling, 2011).
In a crisis of this magnitude, the government was involved because so many citizens were affected (Penrose, 2000). President Obama demanded that BP get control of the spill and that it should compensate the people who were affected by the spills. The fact that the president intervened was full proof of the effects of this disaster (Schein E. H., 2010).
The environment is considered to be a stakeholder in case of an oil spill (Ahn, Adamson, & Dornbusch, 2004). The environmental impact of an oil spill and its effects on the sea organism and ecosystems has been documented. Oil pollution Act of 1990 contends that a natural resource damage assessment be compiled for every oil spill (Penrose, 2000). The assessment is done for the purpose of restoration in the areas that are considered to be most affected by looking at the number of fish killed and wetland that has been destroyed.
The report that was compiled for the BP oil spill states that approximately 1, 1000 miles of coastal wetland were destroyed by the spill. The spill destroyed vegetation and root systems; through erosion these areas will be converted to become open waters (Ahn, Adamson, & Dornbusch, 2004). Macondo spill presented risks to fish plus other sea organism. Sea organisms were vulnerable due to oil toxicity. Oil can cause harm through physical contracts, inhalation and even ingestions. The ingestion of oil by the marine animals has shown high levels of organ damage (Maresh & Williams, 2010).
The economic impacts of the situation are not yet fully known, however, it is evident that many different stakeholders were economically affected by the situation, both directly and indirectly. The fishermen in the area, hotels and business that were closely linked to tourism felt the most immediate effects (Schein E. H., 2010). Commercial production of fish decreased significantly, this was as a result of fishery closure. The safety of the fish harvested from gulf region is in question. With heavy media coverage that exposed tar balls and a destroyed coastline, tourism in the area has significantly reduced (Ahn, Adamson, & Dornbusch, 2004). One year after the spill, rental reservations were still down, many companies, especially those that were involved in scuba diving and sailing are now under questions as to whether there is still oil. Many people are still uncertain on whether they should go there (Ahn, Adamson, & Dornbusch, 2004).
What the Organization did to achieve success and address problem
After the spill the company involved government agencies and other parties in trying to control this spill and minimize its impact on the environment and human health. The company tried to implement strategies to protect the shoreline and clean oil that came to shore (Beckhard & Harris, 2006). The response efforts to this crisis involved mobilization of 48,000 people, coordination approximately six thousand five hundred vessels and deployment of two thousand, five hundred miles. The United States coast guard ended up the clean up in 2014 (Freudenburg & Gamling, 2011). The company committed long term funding, for purpose independent research to improve knowledge of the Mexican Gulf ecosystem (Lerbinger, 1997). The CEO of BP responded to the crisis by writing an apology. In his apology, he promised that all victims of Macondo oil spill crisis would receive compensation. The company initially set up a twenty billion trust to make claims (Hoffman & Devereaux, 2011). The company CEO did not come out strong to empathize with the crisis; instead he gave insensitive remarks that did not.
Effectiveness of organizational plans
BP organizational plans were not effective in dealing with crisis; its leadership was not compassionate and aware of the social responsibility (Beckhard & Harris, 2006). The company did not appear eager to roll up its proverbial sleeves to work with government and reduce ecological damage. BP was not explaining itself in a transparent manner. As a corporate company, BP lacked good faith efforts to tackle its problem. The initial comment by the CEO of the company should have been a strong letter to empathize regarding the need to emphasize on diligence and safety. The company website only mentioned few advisories, the CEO claimed that he was doing all his best to save the situation, however, there were no pictures of a hard working CEO.
It becomes good to always have preparations at organizations. From the BP case analysis, it is evidently clear that the company did not have good preparations, plans (Freudenburg & Gamling, 2011). BP was reluctant and one of the major factors that contributed to the failure was the fact that these multinational did not see safety as priority; there was no responsive emergency plan in case of an oil spill (Ahn, Adamson, & Dornbusch, 2004). To avoid this situation in future, this company should be fully prepared to deal with accidents of this magnitude; they should make efforts to avoid these disasters in future (Freudenburg & Gamling, 2011). All warnings should be treated with considerations and company should not cut corners when it comes to management of oil rigs. Issue of preparing for emergency within organizations should be treated seriously (Ahn, Adamson, & Dornbusch, 2004).
The response by BP to the accident was not adequate; one of the major shortcomings that were exhibited by the company was its slow nature (Beckhard & Harris, 2006). The management was not serious, instead of trying to resolve the damage that had already been done, they tried to put blame on third parties, and this wasted more time (Ahn, Adamson, & Dornbusch, 2004). Organizations should be quick to respond to the presented risks, they should exhibit concerns for victim and stakeholders as well, they should collaborate with other bodies that are interested in reversing the crisis (Hoffman & Devereaux, 2011). BP refused to work with media in efforts to keep people informed. In future, it will be important for this company to work with all shareholders plus groups which are interested in solving organizational problems and challenges (Ahn, Adamson, & Dornbusch, 2004).
BP should strongly embrace principles of social and environmental responsibility to deal with the problems (Beckhard & Harris, 2006). Despite the company claiming that it was concerned about the environment, the accident made people wonder on the seriousness of the company claims (Freudenburg & Gamling, 2011). Research has shown that corporate social responsibility can function as a form of company insurance policy. A company history can determine how that specific company is perceived, it will then be important for BP to build legitimacy and credibility in all its operations (Mokhiber & Weisman, 2005). A crisis prevention programs cannot be undermined, it is important for BP to create one to reduce the risks that make the company fail. A management plan should be inevitable in its operations; lack of plans often results in failure.
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BP is widely known as a giant in the oil industry (Freudenburg & Gamling, 2011). The organization has a very huge market capitalization in the whole world, this has made the company have an important bargaining and domination capabilities, however, this multinational still need to go through some consequences (Ulmer & Sellnow, 2000)
- Big market in regards to capitalization
- Wide base of clientele
- Deals with different project
- Experiences numerous operations accidents
- Company management is not responsible
- Lack emergency preparedness
- Bp environmental plus social responsibilities are not effective
- Company can acquire new assets.
- Diversified some of its investments
- Acquired new projects
- Risks when it comes to diffusion of assets.
- Threats of competitors is evident