Productivity And Profitability In BP: Lessons Learned From Mismanagement

BP’s History and Controversial Reputation

Question:

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Discuss About The Productivity And Profitability For Company?

The company chosen for the assignment is BP, formerly known as British Petroleum, started  in 1908 post discovery of oil in Persia, and since then the company has transited from coal, oil, gas, to now finding new sources of energy. The company has its headquarters in London and is headed under the leadership of Bob Dudley(BP, 2017). It is amongst the top 10 largest companies in the oil and gas sector.

 BP remains controversial even to this day, owing to its multiple oil spills, explosions and environmental hazards. The problem here lies with the management, not givng any attention to the alarms raised by the employees repeatedly, complete disregard for the reports by internal auditors devastated the company. The leaders of the company were neglecting all these claims to be in  the good books of the stakeholders, they wanted to increase the productivity and profitability for the company, hence in turn they ended up compromising on the safety procedures.(Zarroli, 2010.)

BP has been at the helm  of lot of public scrutiny owing to its gulf oil spills, costing them $20Bn as fines to the US govt, (Rushe, 2015) Alaska spill, deepwater horizon spill and many more.The oil spill in the gulf ocean had ruined the ecosystem situated in the Mexican gulf, and the company had to face extreme scrutiny for the same.The company though in order to clean up the mammoth oil spill have hired a SCATS team, which patrol daily on the shore and look for traces of oil (International Resource Journal,2012)

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Organization Theory: This can be understood as different approaches to understanding organizations, which lays the framework for the code and conduct of the organization ( Turner, 2014). Some of the prominent theories are:

Agency Theory: It is a hypothesis which explains the relationship between principals & agents in the business. It can also be concerned with resolving problems that can exist in agency relationship due to unaligned goals or different aversion levels of risk (Luger, Mammen & Haleblian, 2015)

Institutional Theory: This can be understood as a theory on the deeper and stronger aspects of social structure, it considers the processes by which structures, schemes , social norms, routines becomes established as authoritative guidelines for social behavior (Keohane & Martin, 2014)

Bureaucracy Theory: This theory can be understood in 2 parts , the first one being structuring an organization into a hierarchy and the second being, the organization and its memebrs is governed by clearly defined rational-legal and decision making rules, thus laying the groundwork for the theory (Lianos, 2014).

Organizational Theories

Stakeholder Theory: This is a theory of organizational management & business ethics that addresses morales and values in managing an organization. It is a big umbrella which also intakes shareholder theory , which says that the managers have an underlined duty to maximize shareholder’ss interest (Harrison & Wicks, 2013)

Stewardship Theory: This theory is an alternate to the agency theory, in this , managers, left on their own, will act as responsible stewards and manage the assets that they control. In this type, the shareholders interest are maximized as the managers are working toward aligning and same goals (Neubaum, 2013)

Issues at BP: As mentioned in the introduction , BP has always been into controversy because of its failure to address the concerns and queries rasied in the past , the difficulty and showing complete negligence towards the report of its internal auditors and alarms raised by its employees, have earned them a really bad reputation in the industry(Frontline, 2010) This has also adversely affected its employee branding, although BP has done a lot of Corporate social responsibility work to remove this tarnish from their reputation , but there is still a lot of ground that has to be covered and a lot of work to do in order to avoid such mishappenings in the future or to the least minimize them (Lustgarten, 2010). Such incident can be strictly attributed to mismanagement and it clearly falls under the purview of Agency theory.

  • Aggressive cost cutter CEO-Lord john browne was an engineer and a BP maanger who earned his reputation as the aggressive cost cutter, was promoted to the post of CEO, he was one of the importnt persons to have take BP to the heights it is at now. In the process , he made a lot of decisions which did not go down well in the history , cutting costs for hiring employees , buying cheap inventory for oil exploration etc. All this has lead down to a lot of explosion and spill.
  • Capital expenditures being treated as useless expenditures: A senior manager in an email wrote to the employees , its better to save money for now than for later, resuting in negligent safety practices.
  • Failure in compliance requirement: Alaska oil spills, in the history of world disasters will always be remembered, report says that many a times concerns were raised to the management to get the oil pipelines inspected , but nothing was ever done , the bare minimum was done after the workers went on a strike, it was observed later that the inspectors who were incharge of inspecting the pipelines were not certified and qualified to do the same , hence resulting in explosion later that year(Moon, 2015). It can be attributed to agency theory and overlooking the compliance required.
  • Company being too much top down and not directive: In one of the interview , Mr Hayward( CEO in 2000’s ) clearly said that the organizational structure at BP is extensively top down, too directive and people are really not open to listening, this clearly shows a faulty organization structure and hence the practices. The senior management if not open to communication then the entire process goes for a toss and lack of trust prevails in the system.
  • Unhappy shareholders because of falling share prices: Due to all the explosion and oil spill happening , the share prices were falling considerably and the shareholders were extremely unhappy with the way things were going , hence Hayward was removed and a new CEO was brought in , completing neglecting the major issues for all the hazard , example of shareholder theory , where the shareholders interests have to be valued at any cost.
  • Not taking ownership and responsibility for the events: Barring a few leaders , the entire company was trying to cover up for the hazards , the inability to own the mistakes and accountability of their own actions was a serious concern which nobody gave head to, hence resulting in cultural indifferences as well.

It is a no brainer that all the hazards which happened at BP were a simple failure of organizational structure and poor management. The lack of communication among the managers , the fear of senior management, absence of effective communication , giving no heads to the alarm raised by the team members, no accountability for the actions and to shy away from one’s own responsibility is the major cause of all the mishappening. It can also be said that the leaders were not at all , in the minutest capacity effective or responsible to change the culture of 100 year old organization , they were all dogmatic and non persuasive and non communicators , who were only focused on increasing the shareholders interest and money, in the process neglecting processes/operations/safety concerns & environmental hazards(Goldenberg, 2011). It is a failure in leadership which led to such big disasters, the inability to communicate and change the culture by the leaders and senior management is the biggest lesson BP have learnt (Cooks, 2010)

Issues at BP

In BP corporate culture, it is a mix of agency theory and stewardship theory , both of which are opposite to each other. Stewardship says to leave the managers to do their duty and they will in all their capacity focus on the development of the company and its people, with no/least control from the directors, and are allowed to take their own decisions, which is absolutely perfect, but in presence of agency theory wherin the principal directors take all the call and managers are puppets in the hands of the directors, this led them to not raise any concern to the management and ignore all the alarms raised by the employees in order to safeguard themselves against the possible wrath in foront of the directors, is the most important reason for all the hazards happened at BP and an example of overpowering Agency theory.

  • Difficult situations/Crisis expose dysfunctional organizational cultures:BP’s strategy of dealing with difficult situation by trying to spin it off and not tackling it as a haed on, lead to a lot of distrust and resentment in public eyes, what should be done in such situations is to face them and fix the problem where it erupted.
  • Leaders are there to serve the company, people and communities – One of the best qualities for the leaders is to think beyond themselves and work towards a bigger goal , making the company big , people happy and communities strong , no matter at whatever cost , but this perpetual pursuit towards serving can only keep a company strong, successful and powerful.
  • Leaders need to work together and develop synergies: Leaders have to create synergies among other members and work towards overall development of all. Leaders should be pro-active in assesing any situation or company performance and should be the first person to act and guide the entrie organization, and at the same time keep the directors aligned and informed.
  • Effective communication: Communication is pivotal to any organization, effective communication is what ideally should be in any company. It’s the duty of the management to lay the importance of communication in their teams and in the entire company. It should be strictly independent of organization structure, hierarchy, culture, management approach, etc, the communication should be free flowing and their should always be a door for redressal of grievances.

References:

Turner, M.E 2014, Groups at work: Theory and research, Psychology Press.

Luger, J, Mammen, J & Haleblian, J 2015, Security Analaysts’ Influence on Acquisition Decisions: A Joint Agency and Legitimacy Theory Approach, Sage publications.

Keohane, R.O & Martin, L.L 2014, Institutional theory as a research program, The Realism Reader, p.320.

Lianos, I 2014, A bureaucracy theory of the interaction between competition law and state activities, Stanford University Press.

Harrison, J.S. & Wicks, A.C 2013, Stakeholder theory, value, and firm performance, Business ethics quarterly, 23(1), pp.97-124.

Neubaum, D.O 2013, Stewardship theory. Encyclopaedia of management theory, pp.768-769.

2017, About us, Available at https://www.bp.com/, last viewed on 13 September 2017.

Zarroli, J 2010, Before gulf spill, BP CEO Tony Hayward won praise, last viewed on 13th September 2017,  https://www.npr.org/templates/story/story.php?storyId=127884525.

Frontline. 2010, The spill, last viewed on 13th September 2017, https://www.pbs.org/wgbh/pages/frontline/the-spill/bp-troubled-past/

Lustgarten.A 2010, Years of internal BP probes warned that neglect could lead to accidents, last viewed on 13th Septemebr 2017, https://www.propublica.org/article/years-of-internal-bp-probes-warned-that-neglect-could-lead-to-accidents

Moon, M 2015, BP’s oil rigs just got their own internet of things, last viewed on 14th September, https://www.engadget.com/2015/07/09/bp-oil-well-ge-predix-software/

International Resource Journal, 2012, BP:Public scrutiny and recovery efforts in the aftermath of oil spill, last viewed on 14th septemebr 2017, https://www.internationalresourcejournal.com/bp_public_scrutiny_and_recovery_efforts_in_the_aftermath_of_the_/

Cooks, E 2010, BP: The inside story, last viewed on 14th septemebr 2017, https://www.ft.com/content/4e228e56-84ae-11df-9cbb-00144feabdc0

Goldenberg, S 2011, BP oil spill blamed on management & communication failures, last viewed on 14th Septemebr 2017, https://www.theguardian.com/business/2010/dec/02/bp-oil-spill-failures

Rushe, D 2015, BP set to pay largest environmental file in US history for gulf oil spill, last viewed on 14th September 2017, https://www.theguardian.com/environment/2015/jul/02/bp-will-pay-largest-environmental-fine-in-us-history-for-gulf-oil-spill