BP is an UK owned market-leader in Petroleum industry, producing 2352k barrels/day. Deepwater Horizon was an offshore oil-rig located in the Gulf-of- Mexico, owned by Transocean, leased by BP 75 owner and deployed by Hyundai. An explosion damaged the drilling-rig on 20th April 2010, while the crew engaged in drilling the exploratory Macondo well, 5000feet deep under the Gulf of Mexico, caused a human, economic, and environmental disaster. The unrestricted flow of oil completely sunk down the rig in eight days and approx 65,000 barrels of oil leaked in next three months only when BP was able to completely cap the leakage. This paper aims to provide a background of the region and dependency of its people to the marine-ecology, analyze BP’s strategy in the public perception, its ability to maintain balance between conflicting interests, discuss alternate solutions.
Louisiana, the coastal state is largely dependent on the marine ecology for its daily-life. Seafood which is a major source of income, contributes to 30% of U.S. seafood production, and commercial fishermen in the Gulf harvested more than 1 billion pounds of fish and shellfish in 2008 (Sylves and Comfort, 2012). The contamination brought the future of this seafood industry in peril, customers [e.g. restaurants, retail chain] cancelled orders; apart from this immediate effect mindset of this contamination prevent buyers in longer-period to prevent consuming seafood. Beaches were devastated and hence tourism suffered a lot; oil slick polluted shoreline from Louisiana to the beaches of Florida, coating plants, killing wildlife, and threatening wetlands. Hundreds of birds, turtles, and dolphins have been found dead in regions affected by the oil, and brown pelicans and other species remain covered in oil – this introduces a shock to local inmates and deters tourists from visiting these places.
Strategy Literature Review
Technology is changing rapidly nowadays altering the nature of business landscape, new tools/approaches introducing customization and changing economics of product variety. Leadership need to examine this feature of changing landscape and enhance strategy accordingly. Higher rate of diffusion necessarily demands increased speed of technological change. Increased speed of change requires more rapid acquisition of relevant technologies by firms, and hence motivates diffusion-increasing behavior. Perpetual innovation (Suzuki, 1984), which rapidly and continuously replacing the older technologies, hence recently technological factors are drivers of strategy, (Bettis and Hitt, 1995). The complex nature of technology and change in customer choice introduces rapid change in the business-landscape thus the environment becoming more complex, less predictable. This leads to ambiguity in the firms’ decision-making process and during shaping-reshaping strategy. Investment in oil-exploration domain is huge, technology is extremely complex and risk is sky-high – totaling a crucial balance that firm’s need to maintain in such domain.
A firm’s resources include its financial, physical, human, and organizational assets associated with it, to develop, manufacture, and deliver products/ services to its customers (Barney, 1995). RBV emphasizes on firm’s posing VRIO resource which could earn competitive advantage – resources could be rare [e.g. tacit knowledge], inimitable [e.g. organisational habits, routines’, valuable [e.g. strong portfolio value]. Firms need to continuously invest on its strategically valuable resources (Collis & Montgomery, 2008); – e.g. a failsafe plan, disaster avoidance mechanism, and disaster recovery system. Core competence of a firm can be termed as its VRIO resources which enable it to perform better than its rivals. In shaping an firm’s strategy based on its resources (Grant, 1991), we can – a) identify and classify its resources [both tangible and tacit], conduct SWOT analysis to know their strengths, b) identify firm’s capabilities, c)appraise the rent generating potential of resources, d) pick a strategy that is best-fit in the context of its internal resources, capabilities and external business-landscape. RBV alone can’t provide a firm sustainable competitive advantage, Barney (ibid); referring Xerox, who failed to take advantage of its critical valuable, rare, and in-imitable resources and capabilities because it lacked such organizational skills. Strong Corporate organisation and strategy is needed, which we can term as dynamic capabilities of a firm, to get benefitted from its valuable resources. BP had all necessary resources – technical skill, financial power, SMEs, strong portfolio value but since it lacked the synergy in reaching the consensus with its stakeholders to address this disaster. It lacked the organisation routine/capability that is expected from a firm during disaster. Dynamic capabilities [e.g. routines of knowledge sharing and continuous learning, investing on R&D] are becoming an integral source of sustainable competitive-advantage. Has BP engaged in sharing knowledge with other firms/government-bodies on similar incident form past and devised their preparedness and crisis-management plan accordingly? If they did so the severity of this disaster could have been kept minimized. Sometimes a complimentary-organisation is necessitated to get full benefit, Barney (ibid) – the way Coke, Caterpillar expanded globally during the WWII with collaboration with US-Army and maintained sustained competitive advantage could be beneficial here. BP needs to build and maintain such collaboration with other firms in the industry and government and environmental bodies to complement each other and develop a comprehensive crisis management approach. Investment is needed from both ends – firms and governments. The five forces [exerted by the business landscape to the firm] shapes strategy too (Porter, 2008/1979). In the context of petroleum-industry the significant factors are strong suppliers, buyers and rivalry among existing competitors. Suppliers are majority governments [who owns the oil-reservoir], MNCs who owns the machinery [e.g. Hyundai], who owns the rig infrastructure [e.g. Transocean]- they are handful, provide highly differentiated products and less supplier switching cost – this combination poses a potential threat to BP, Porter (ibid). Buyers on the other hand are few, and purchases in huge volumes, there are many firms in the market form whom buyers can buy- hence they pose a threat to BP and alike firms. Intensity of rivalry is higher as competitors are many and are roughly equal in size [e.g. Shell, BP, CNPC], market growth is stable [so intense competition for market share], price competition is intense here as products of rivals are identical and almost no switching cost for the buyers. In this intense business landscape BP [and others] operate and struggle to maintain their market-share. in such an environment where competitors doesn’t have a deep-rooted competitive advantage, the moves/countermoves of rivals need to be responded swiftly by the firm – this is dynamic capability, (Teece, 2009), which enables firm to respond to external factors [like this disaster] and enhance its strategy to cope with it. These enable firms to create, deploy and protect the tacit assets that support sustainable business advantages. Firms with strong dynamic capability are successful -not only in adapting to business-environment but also to shape them through collaboration with other entities/firms. BP clearly lacks their dynamic capability, in shaping this crisis situation and engaging in prompt meaningful corrective measures. it is such crisis situations when firms need to demonstrate their ability to accomplish against all odds of circumstances, Teece (ibid) and thus instills pride to staffs and trust to investors and customers. Firms need to demonstrate their potential [in managing such crisis situation wisely] and create an image of distinctive competence. BP failed to develop new competencies [in crisis] quickly, despite of their possessing of tacit technical skills they failed to restrict the leakage for next 86 days. They also demonstrated lack of integration into related markets, Teece (ibid) – they failed to reach consensus with their partners about the leakage-prevention mechanism. In such a highly complex technical environment BP could demonstrate quick and flexible response in innovation, coupled with leadership capacity to efficiently coordinate and their capabilities. Umbrella approach, which originates in constraints [like this], would have been beneficial here where BP would set the boundaries, government to define guidelines and then others [partners] to engage (Mintzberg & Waters, 1985). It seems that BP followed a static deliberate approach but did not consider [deliberately or not] the feedback from external-environment [e.g. actual real-time data of leakage]; instead they should have considered the external-input and devise their approach accordingly- an emergent approach was needed.
A review on BP Strategy
BP’s strategy in the context of Public perception
We can discuss this from different perspectives- a) investor, b) local US-citizen, c) environmental-groups, d) BP leadership, e) media-attention
An investor would be cautioned about the widespread message of the environmental damage caused by this leakage and associated negative impact on BP’s portfolio-image and declining stock-value. They would be eager restore the normalcy swiftly; force BP leadership to take trust-building approaches and invest on crisis-management strategy.
Local citizen who depends on the marine-ecosystem and tourism would be directly hit by this situation for many years- the irreparable damage caused by oil to the marine ecosystem pollutes the sea-foods and spoils the beach and coastal water-bodies this tourism would stop, hampering their only source-of-income. The emotional impact [e.g., trauma, psychological-damage] would have long lasting effect of local-people. Revenue-losses from Louisiana alone are estimated at $200 mil in 2010, apart from the future losses (Carranza et al 2011). Studies show that such events introduce elevated level of stress among citizens for longer-period (Gill et al, 2011), impacting infrastructure overload [gathering thousands of rescue-workers in a small-village], discontinuation of renewable resources, interrupted economic, occupational structures.
Environmental groups would be worried concerning the damage of the marine-lives, and the changes in habitats caused by oil. Normal lifecycle of many endangered species become irreparably affected [e.g. bluefin-tuna]; oil affected the shrimp-larva thus the production declined drastically from $67mil in 2008. Phytoplankton species are extremely sensitive to the chemical found in water, once they are affected entire eco-system is affected. Prolonged exposure to oil caused dolphins, seagulls die. The 2.1 mil gallons of chemical dispersant caused more trouble to the marine lives, Carnaza et al (ibid). Structural changes of bacteria have been found which might lead to unknown [yet] impacts.
BP leadership aims to suppress the leakage to a minimum level and negotiate on the compensation – at the same time they need to restore their operation, encounter the possible damage of its portfolio value. They need to encourage a more collaborative environment with their stakeholders and devise emergent approaches to such incidents. Media often exaggerates the damage thus causing public [negative] attention – this associated with political pressure could be fatal for a firm’s future operation in that geography. BP needs to fully cooperate with US-government in investigation, providing real-time data, images; invest on devising. fruitful crisis-management methodologies to safeguard human-life [their staff and local-people]; assist with government-bodies in conducting frequent risk-assessment of their infrastructure [on regular basis] and commit on compensating the losses of people originated by this. Loss of renewable resource and trust on the firm need to be restored, not only in this locality but globally on other oil-exploration sites. BP has to focus in devising emergent confidence-building measures responding to this incident.
Media attention was intense, thus raising many burning concerns, BP to respond, e.g. delayed response, lack of government oversight. Media is expected in a democratic society to provide citizens with truth in a timely manner, in an accurate way. Citizens expect media not only to highlight failures and disasters but also cultivate intellectual discussion and cooperate with firms [and government] to rebuild trust among public.
Analysis on BP’s abilities to strike a balance
BP received strong public criticism for its role in the disaster and swiftly attempted image restoration strategies (Benoit, 2000). These strategies centered on describing what they were doing to correct the problem and compensate the victims, but didn’t include strategies such as shifting the blame to the other companies involved nor admitting their own blame. Just after the accident, we notice, that BP try to aim on two strategies – a) devising approach to rectify the problem, and b) formulating the compensation scheme for the victims (Harlow et al, 2011). BP though indeed initially try to “shifting the blame” to its partner Transocean (by press releases between 21st April and 28th April) but this was limited, later BP demonstrated its commitment towards operational safety, responsibility and reliability (BP, 2010). The first press-release issued by BP after the incident lacks any detail on the severity of the spill and predominantly focused on the company’s efforts to suppress it (NYTimes, 2010). BP has made its investigation team operational immediately in the aftermath of the accident, the information gathered initially were limited due to remote location of the oil-rig [which restricts information gathering by either reporters or investigators], scarcity of physical evidences, bad weather, and restricted access of relevant witnesses. Over time BP involved its partners in this process including SMEs from all relevant domains. At the beginning, due to lack of real-time and accurate data, agencies had to depend on BP provided estimated oil-leakage rate; BP estimated only 1000 barrels/day initially, which could be seen as its effort to minimize the damage in public-eyes. Only, in May, on government pressure BP released video-images of the incident (Hoffbauer, 2011). Later on BP officials admitted their awareness of technical troubles with the rig, e.g. lack of emergency controls, extensive modifications; still they allowed Transocean to continue with drilling which is a direct violation of US marine regulations, Hoffbauer (ibid). We can conclude that BP demonstrated lack of preparedness during such disasters and hence they took incoherent [ad-hoc] measures to address this oilspill. They also violated existing government regulations and continued operation on a problematic installation. Initial failure to cap the leakage added to the environmental damage caused by the continuous oil-leakage. BP was not prepared itself neither they fail to reach a consensus with all relevant parties on how to stop the leakage. Hence this lack of coordination between different stakeholders, the oilspill could only be stopped after 87 days; wasting approx 8,000 barrels/day of oil leaked the gulf-of-Mexico. BP was expected to restore their portfolio image, to sustain both their investors and customer’s trust. The irreparable ecological damage caused by the oil, destroyed the planktons who are at the lowest layer of the food-chain- once they are contaminated and depleted the intern damages the entire food-chain. The local people who dependent on marine-lives, on tourism were affected- as beaches are covered with oil, tourism stopped introducing unemployment. From BP’s point of view it should have aimed to – a) provide transparent actual facts to the investigators to assist in judging the accident impact, b) engage in reaching consensus with all stakeholders to capping and restoration approach, c) engage with media to portray the image restoration mechanisms [to gain back trust of investors and customers], d) invest on enhance its preparedness and devise operational disaster management procedure.
Wider needs and expectations
There were multiple stakeholders with conflicting interests and that this fact has important to maintain right balance between them. Once disaster of huge impact [like this] happens the first blame goes to them [BP in this case]. We can associate five potential audiences with this situation- a) BP, which of-course, eager to assuage the concerns of the victims, the environmentalists, b) opinions of its stockholders are important, they want this controversy to die-down soon, c) Government agencies may impose fine or even sanction the firm, d) customers may decide to boycott the company because of its failure to manage the disaster properly, thus they are a potential audience, d) Local-people [e.g. fishermen, tourism-dependents] who are directly affected by the environmental-damage caused by the oil-spill, could enforce newer laws aiming to restrict firm’s future operation in that region. The interests of these groups differ widely and contradict with each-other. Media attention, boycott activity have a direct negative impact on the stock-price of the firm, Benoit (ibid); BP stock-price declined from a $623,20 [March-’10] to $318,90 [Jun-’10]. We can argue that, denial and shifting the blame, are not considered to be as appropriate/effective as an image-restoration strategy by direct victims of this incident – families of 11 died and the local people who were dependent on the marine-lives and tourism [the entire ecological system devastated for years causing irreparable damage]. Though BP didn’t try to push the responsibility to others but at the sametime they didn’t accept the failure of their own, Harlow et al (ibid). One week since the accident, media coverage of the disaster intensified and continued to increase over the following eight weeks. During this time, oil made its first landfall, coating coastal wildlife and discoloring of beaches, first time gives an actual insight of the actual impact of devastation Hoffbauer (ibid). This can be attributed to the prioritised attention of US President. Symbolic power (Tsoukas, 1999) of BP shattered in the public-eyes as their lack of preparedness and reaching in consensus for a working solution to cap the leakage [over next several months]. People forms and judges the symbolic power of firms through various ways. The dynamic capacity, of a firm, to intervene during any event, to influence other’s actions, and to take steps/create events to restrict the damage [caused by the accident] form the symbolic image. Technical complexity of the event, skills and knowledge poses by the firm to address the event, and the legitimacy of the firm to be able to solve the damage all contributed to wider expectations, Tsoukas (ibid), which BP initially failed to meet. Time [of the event] and space [where] is much important in this context and any such disasters need to be analyses in the perspective of both these factors. Reflexivity is an intrinsic feature of humans; firms also need to show this during critical times. We can argue that every activity of firms are being monitored and examined by the society – it is an ongoing process by which society forms their image about a firm and how it acts during crisis. Referring table-1, Sylves and Comfort (ibid) we can argue that every disaster [like this] contributes to evolution of relevant laws/policies, government-agencies needed to look-back their effectiveness [in the context of complex technical failures] and implement stringent measures in this area.
We can conclude that a) the huge oil-leakage could have been prevented if firms were prepared for it, b) the root-cause could be related to a series of identifiable failures from BP and its partners -Halliburton, and Transocean, c) lack in proper risk management process’s existence. It was clear that neither the firms nor the government agencies were adequately prepared for such huge scale technical failures of the complex installation. To ensure safety of human-life and environment regulatory oversight of exploration, leasing require reforms. Alone regulatory controls won’t be sufficient in providing adequate safety, industry itself need to invest to devise its own measures to introduce enhanced safety-features, including self-revolving mechanisms that supplement regulatory enforcement. Scientific understanding of environmental conditions in sensitive environments e.g. under deep seawater, along the region’s coastal habitats, and in proposed future drilling areas (like Arctic zone) are still inadequate. Together we can minimize the effect of any such future oil-spill on human-life and environment.