BP Company and the Deepwater Horizon Disaster of 2010 - Essay Example

?Case Study of: BP and the Deepwater Horizon Disaster of Introduction to Organization The organization, BP, previously known as British Petroleum, has reportedly undergone different stages of organizational growth and decline through its years of existence. Reported to have originated with an Englishman, William Knox D’Arcy, whose proceeds from a fruitful oil exploration enabled him to establish the Anglo-Persian Oil Company (APOC), BP went through phases which included selling 51% of its shares to the British government; becoming privatized; becoming nearly bankrupt twice, and regaining its organizational strengths through a series of mergers with other oil companies (Ingersoll, Locke and Reavis, 2011; BP, 2012). The organization was reported to have begun exhibiting robust growth in the 2000s through implementing strategies that include branding repositioning; focusing on environmental conservation and protection through their green campaign; and venturing into alternative sources of energy (solar and wind energies). By the 2007, under the helm of Tony Hayward, BP underwent a change in strategy that shifted its gear on investments and growth, to streamlining and cost minimization. It was also noted that during this time when a shift in organizational culture was announced to focus more on making the organization less risk averse (Schein, 2004; Huczynski and Buchanan, 2007). Likewise, a decision-making model, termed the asset federation model became the organization’s framework for making decisions that leave various site managers accountable for their performance and empowered them to make decisions pertaining to the scope of responsibilities and jurisdiction. As emphasized then, “under the new strategy, decision-making authority and responsibility for meeting performance targets was no longer held by BP’s regional operating companies, but onsite asset managers” (Ingersoll, Locke and Reavism, 2011, p. 4). Prior to the Deepwater Horizon disaster, BP was noted to be the world’s third largest oil company and allegedly the largest company that publicly traded and listed in the London Stock Exchange (Ingersoll, Locke and Reavis 2011). 1.1 Case Background The Deepwater Horizon disaster was reported as one of the most devastating oil spillage over a body of water since Exxon Valdez oil spill (Exxon Valdez Oil Spill Trustee Council, n.d.). Case facts revealed that the Deepwater Horizon was a rig owned by Transocean, pegged as “the world’s largest offshore drilling operator, based in Switzerland and Houston” (Ingersoll, Locke and Reavis, 2011, p. 20). BP allegedly rented the rig for $500,000 per day, together with a number of Tansocean employees, to engage in deep water drilling for oil in the Macondo Well, along the Mexican Gulf. As disclosed, BP owned the rights to the Macondo Well and expects a 65% profit share to the oil that would be generated from the well and the rest goes to the United States. As disclosed, deep water drilling actually started in the Macondo Well as early as October 2009 but was allegedly interrupted due to the aftermath of the natural disaster, Hurricane Ida (CNN World, 2009). Operations were reportedly resumed after contracting Transocean’s Deepwater Horizon rig on February 3, 2010 (Ingersoll, Locke and Reavis, 2011, p. 8). According to case facts, initial projections for the project timeframe was supposed to be only until to 51 days to cost approximately $96 million. However,delays had led to the drilling extending to as much as 80th day, on the day of the reported disaster or blow-up of the well on April 20, 2010. On April 20, 2010, the Deepwater Horizon rig blew up causing 17 of the personnel onboard to be seriously injured; while 11 of them were reported to have died from the incident (Ingersoll, Locke and Reavis, 2011, p. 2). 2. Identification of Problems and Analysis Evaluating the case from the point of view of organizational behavior, the following problems were identified and categorized according to: organizational structure; communication; policies and procedures especially on safety; as well as leadership and managerial oversight. 2.1 Organizational Structure As learned from the discussions of mechanistic and organic organizational structures (Huczynski and Buchanan, 2007), it was evident that various organizations select a most appropriate organizational design that works towards the achievement of the organization’s mission, vision and goals. As explicitly stated in their official website, their business model (or mission) is to “create value across the entire hydrocarbon value chain. This starts with exploration and ends with the supply of energy and other products that are fundamental to everyday life” (BP: Our business model, 2012, par. 1). Their current values include: safety, respect, excellence, courage, one team (BP: Our values, 2012, p. 1). The structures of decision-making as well as the asset federation model were not consistent with the attainment of their mission and inconsistent with the organization’s defined values since it manifested flaws and failed to establish effective control; as well as a check-and-balance system with options for approval levels at higher authorities. The effect of this is that asset managers, who were empowered to make decisions at their respective sites and levels have been accustomed to adhering to their own professional authorities and expertise for making decisions based on pre-defined targets; without proper regard for over-all safety. Since these managers’ compensations were being gauged on the merits of their asset performance and the overall performance of their respective sites, it would be understandable that each site manager would work on focusing on cost minimization to generate more revenues and profits. As evaluated from the course of decisions made prior to the disaster, the following situations indicate that the site managers were driven by courses of action that would be cost-effective and would limit the number of time to undertake a particular task or endeavor: a. Selection of long string casing over liner/tieback casing option because the former option would generate cost savings of from $7 to $10 million and takes a shorter time of 3 days savings to install; b. Bypassing the recommendation of Halliburton, the cementing contractor, to use at least 21 centralizers; and instead, opted to go through with using only 6 centralizers to save on time (and therefore also money); c. Going through the process of circulating mud for only 30 minutes, instead of the 6 to 12 hours standard time to ensure that no amount of gas leak was manifested; d. Opting to do away with the cement bond log to supposedly ensure the integrity of the cement after it was noted to have been supposedly pumped into the well, to enable BP to save as much as $169,298.39. All of these decisions were apparently done by a number of managers on the site: Patrick O’Bryan, VP-Drilling and Completions; David Rich, Wells Manager; David Sims, Drilling Operations Manager; Robert Kaluza, Well Site Leader; and Greg Walz, Drilling Engineering Team Leader (Ingersoll, Locke and Reavis, 2011, p. 9), who were all noted to have been on the job site earlier and within 6 months’ tenure. Thus, no effective rational decision making process was implemented (Huczynski and Buchanan, 2007). 2.2 Communication The manner by which individuals communicate in the work setting depends on the type of channels. It is best to view communication in terms of a configuration of interacting elements. Communication should therefore be designed so that the various elements complement, rather than negate each other (Martires, 2004). The problem with communication patterns at BP, especially within the Macondo Project, were evident from the way that the official correspondences were sent through email. It could be deduced that the site personnel (Morel, Walz, Guide, Cocales, and Hafle), all engineers exchanged communication regarding relevant issues such as the centralizers but with the final decisions made by the Team Leaders (Walz and Guide). As observed, these correspondences were not even elevated to Managers (Sims, Rich and Spague) who should have been involved and should have managerial oversight and authority to decide or even elevate the concerns to higher approving authorities, especially on these crucial matters. Further, communications of proposals and recommendations from other stakeholders were ignored and no proper channeling of relevant concerns and issues to functional departments were made. This was proven when one of the employees of Transocean, Mike Williams, the chief electronics technician, has apparently alleged that he has repeated reported the need to repair and update the software for the Drilling Chairs, which monitor and controlled the drilling technology (Ingersoll, Locke and Reavis, 2011, p. 8). If these would have been appropriately updated, then sensors should have indicated the impending dangers that ensured from the drilling operations on that fateful day. 2.3 Policies and Procedures on Safety At any point within the onsite project, or in terms of authorities and roles within the Macondo Project, it could be observed that there was not one person who was involved to ensure the safety of the personnel or to review the basis engineering standards and protocols according to risk and safety management. As confirmed, it was emphasized that there was a safety and health policy documented by BP that states: “no accidents, no harm to people, and no damage to the environment” (Ingersoll, Locke and Reavis, 2011, pp. 5-6). However, this particular policy was not clearly disseminated in all BP asset sites, as well as enforced or embodies as a part of the organizational culture. The fact that there were several accidents, injuries, and findings noted by the OSHA on violations of safety and health by BP, it was unfortunate that no concrete and immediate implementing guidelines and protocols enforcing strict adherence to safey standards have been clearly disseminated. As evidenced from the lack of management oversight and present safety manager on the site confirmed the apparent lack of focus and thurst of BP for the adherence to occupational safety standards in the work setting. 2.4 Leadership and Managerial Oversight BP apparently espoused the theory of shared leadership through their asset federation model. The theory of shared leadership emphasizes that “responsibility for the success of the group rests upon all the members, not only upon the designated leader. Leadership functions can be performed by any member of the group, as well as the designated leader for the group to achieve its goal” (Martires, 2004, p. 146). However, the concept could only be effective in terms of observing the paradigm in chain form where “leadership is only strong as it weakest link in the chain” (Martires, 2004, p. 146). If any link breakts, the entire chain becomes weak. If the leader fails in any of the tasks (planning, organizing, guiding, coordinating, supervising, participating, observing, and evaluating), the leadership chain weakens and may cause it to break. As such, in this situation, and as evident from the BP scenario at the disaster, the leaders became a failure. There was also failure to see the whole project on a macro-level through a senior management oversight who should have intensively reviewed the series of decisions made according to identified safety standards and protocols. It was evident from the whole process, since the drilling resumed on February 2010 that there were delays and the progress report should have already been sent to senior management to determine the causes of delay and to regularly monitor the progress of the Macondo Project. Likewise, an oversight committee should have ensured that safety manager should have likewise been on site to assist team leaders and engineers regarding the possible repercussions of actions. 3. Statement of Main Problems The main organizational behavioral problems that led to the Deepwater Horizon disaster are as follows: (1) ineffective leadership and management decision-making strategies with laxity in control; (2) lack of clear cut policies and procedures that govern communication protocols, safety and health issues, and a code of discipline and ethical standards; (3) ineffective system for performance evaluation that is the sole basis for compensation, promotions, and benefits. 4. Alternative Courses of Action and Evaluation of Solutions Given that the problems were identified and analyzed in greater detail, the alternative courses of action open for BP to implement and prevent further disasters and incidents of this situation to happen in the future are as follows: (1) review and re-assess the current organizational structure and clearly specify approving authorities for decision-making processes; (2) enforce management oversight on a macro-level to ensure that decisions within asset sites conform to the overall organizational policies, including adherence to safety and health of the personnel, and within the regulatory laws and standards required of their industry classification; (3) re-evaluate and re-design organizational policies, to include a code of discipline which stipulates rewards and penalties for violation of policies; as well as a system of performance evaluation based on a reformulated standard of performance set according to organizational goals. 4.1 Approving Authorities Approval policies should have been effectively set depending on the scope of the project and the amounts linked to a particular decision. For instance, if a site needs to purchase or decide on spending amounts below $500,000, then, the site manager could be given authority to decide. If the amounts range from $600,000 to $1 million, then the decision makers should be the senior managers at the site. If $1 million and above, then the decision should be elevated to the executive team with the CEO and the Board of Directors, as approving authorities. Further, as noted, the persons who decided on the need to use (or disregard the use of additional centralizers), per the advice of the Halliburton’s OptiCem model, were barely within deciding tenure; specifically Walz, who was noted to assume the position of a Drilling Engineering Team Leader for only 18 days (Ingersoll, Locke and Reavis, 2011, p. 9). As such, BP should also establish clear policies regarding decision-making authorities according to tenure,length of service, or seniority, especially when crucial choices have to be made that would affect the safety and success of a particular endeavor. 4.2 Leadership and Management Oversight with Control Mechanisms Management oversight should have stipulated control systems and mechanisms that is able to provide a check and balance on the crucial decisions that are made. The oversight committee should have the information on the tenures of the personnel at Macondo Project and should have assigned more senior engineers and managers to administer the implementation of the deep water drilling, given the extent and the expense of the project. 4.3 Redesign Organizational Policies and Code of Discipline BP should review the organization’s set of policies and procedures, to include emphasizing policies that address the safety and health concerns of the personnel. According to case facts, BP have had a series of safety violations as noted by the OSHA, to wit: “between June 2007 and February 2010, 97% (829 of 851) of the willful safety violations of an oil refinery handed down by the Occupational Safety and Health Administration went down to two BP-owned refineries in Texas and Ohio” (Ingersoll, Locke and Reavis, 2011, p. 7). Therefore, the OSHA, as a governing external organization tasked with monitoring and instituting sanctions for violating organizations, should also have a direct oversight toward BP as a whole to ensure that the organization complies with all the safety standards imposed and expected from operating an oil refinery organization, such as theirs. More stringent penalties must be imposed for violating health and safety standards to prevent injuries, accidents and deaths in their work settings. 5. Recommendation From the evaluation of the problem and identification of course of action, it is therefore evident that the disaster could be prevented from happening in the future through instituting and implementing the abovementioned strategies, to wit: (1) to reorganize and redefine organizational structures in terms of authorities given for decision-making in the respective asset sites and in terms of overall organizational concerns and issues; (2) to emphasize and implement leadership and management governance and oversight; (3) to enforce safety policies and procedures through assigning of point persons and managers in charge of safety procedures and protocols in various sites and within the overall organization; and (4) to reassess and redesign organizational policies and procedures on hiring, promotions, adherence to codes of discipline and abiding ethical standards to ensure proper accountabilities to complying with responsibilities and to perform according to defined standards and goals. Leaders within the BP organization have much to account for the disaster in terms of failure to assume a more proactive stance in the decision-making processes that were instituted during the process. Likewise, there were evident lapses in monitoring the performance of team leaders and engineers that enabled them to make decisions which bypassed clear indications for risk and endangering the safety of personnel. The check and balance mechanisms were lacking and the need for more effective control on the part of leaders and managers in the respective work setting. As such, based on one’s proposed solutions, all recommended courses of action should start with the leaders and managers and enjoin each member of the organization to be more vigilant of safety measures and the need to follow standards and operating protocols. Performance of each manager or leader should not be based solely on asset performance or the ability of the particular project site to produce the greatest revenue or profit. Other standards of operations that focus on the organization’s five values: safety, respect, excellence, courage, one team (BP: Our values, 2012, p. 1) should be enforced and improved to slowly inculcate the culture based on safety, environmental conservation and preservation, as well as corporate social responsibility, among others. From the lessons gained in the case, it was learned that the cost-cutting measures, which had been the basis of decision-making of the team leaders who were at the Deepwater Horizon rig on the fateful day of April 20, 2010, eventually caused the organization to spend a significantly greater amount in terms of accounting for the lives that were lost, in cleaning the oil spill and endangering the lives of natural species and people who were affected directly or indirectly by it. 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