BP and the Deepwater Horizon disaster

Title: The Analysis of BP and the Deepwater Horizon Disaster of 2010

Due Date: 5/5/13

Word Allocation: 2193 excluding executive summary, headings, tables, references and appendices

Executive Summary

This report provides an examination into British Petroleum (BP) and the Deepwater Horizon disaster of 2010. It looks specifically at the functional area of organizing from POLC and the framework from how communication and communication networks effected the decision making process on the oilrig.

The analysis starts by providing a history of BP and what major decisions throughout time contributed to the organizational structure when the disaster occurred.

Findings show that the asset federation model adopted in 1995 took away responsibility from BP’s regional operations and subsequently rewarded each individual site for its performance. This meant the managerial decision making process for each site was geared to time and cost efficiencies rather than that of safety.

The establishing of a wheel communication network on Deepwater meant that any proposals put for from line staff, with safety as a priority, were being overwritten by the senior team leader as they were passed on.

After the disaster occurred, BP established a Safety and Risk division and instilled staff members on each of its rigs to ensure that the safety message was reinforced on its sites.

Table of Contents

1. Introduction

Managers are responsible for arranging and structuring work to assist in achieving organizational goals (Robins et al. 2012, p. 14). It is determining what tasks are to be completed, who is responsible for them, how the tasks are to be grouped, who reports to whom and at which level decisions are to be decided (Robins et al. 2012, p. 14).

This report analyzes the area of communication and communication networks, from that of the organizing function in POLC (Robins et al. 2012, p. 13), within British Petroleum (BP) and specifically the Deepwater Horizon disaster. It looks at the communication on safety procedures from senior BP officials down to BP sites, the type of communication on key decisions that ultimately led to the sinking of the oilrig and what control measures were put in place to ensure the sustainability of the company. 2. History of BP and the Deepwater Horizon

In 2010, BP was one of the United Kingdoms largest corporations and a world leader in the production of energy (Andrew 2010, p. 7). They supplied consumers with fuel for heat, light, transport, petrochemical production and much more (Andrew 2010, p. 7). However in its early years, success and profitability proved quite difficult to obtain (Ingersoll 2012, p. 2).

The company that would eventually turn into BP was established in 1909 as the Anglo-Persian Oil Company (APOC) after William Knox Darcy found oil in Iran after an elongated search (Ingersoll 2012, p. 2). Then in 1914, the British Government felt they needed a dedicated oil supply and purchased 51% stake in the borderline bankrupt corporation (Ingersoll 2012, p. 2). They held onto the 51% share until the Thatcher government period of prioritization occurred between 1980 and 1990 and this led to the final stake being sold in 1987 (Andrew 2010, p. 7). At this point, performance was still declining and in 1992, after a loss of $811 million, the company decided to take severe cost saving measures (Ingersoll 2012, p. 3).

Focusing on a streamlined workforce and portfolio of activities, BP’s status started to change significantly in the mid-1990’s (Ingersoll 2012, p. 3). 1998 bought the merger with Amoco and in 2000, the acquisition of Arco (Atlantic Richfield CO.) and Burmah Castrol plc highlighted an aggressive growth strategy (Andrew 2010, p. 9). With the renewed focus on growth, BP also began repositioning itself as a more environmentally friendly company and this lead to a new tagline “Beyond Petroleum” and an official name change to “BP” (Ingersoll 2012, p. 3). This lead to the launch of an Alternative Energy division and between 2005 and 2009, BP invested $4 billion into this area with a total company investment of $982 billion (Ingersoll 2012, p. 3).

In May 2007, Tony Hayward was appointed Chief Executive Officer (CEO) and his focus was to stem the company growth and reduce production targets (Ingersoll 2012, p. 3). Between 2006 and 2009, BP’s workforce fell from 97,000 to 80,300 and four levels of management were cut as Hayward felt too many people were making too many decisions leading to extreme cautiousness (Ingersoll 2012, p. 3).

However, BP has had a colorful history when it comes to safety within its structures (Andrew 2010, p. 14). In 2005, 15 people were killed and another 180 injured when the BP Texas City refinery exploded (Andrew 2010, p. 14). Then in 2006-2007, BP had to shut down its operations in Prudhoe Bay, Alaska due to over a million liters of oil spilling into the North Slopes via corroded pipelines (Andrew 2010, p. 14). Alaskan state regulators had been warning BP since 2001 that management protocol was out of sync with state regulations and that critical equipment needed to be better sustained (Andrew 2010, p. 15).

On the 20th April 2010, a floating semi-submersible Drilling Unit named the Deepwater Horizon, exploded and sunk off the Gulf of Mexico killing 11 people and injuring another 17 (Andrew 2010, p. 16-17). BP had leased the Deepwater Horizon rig from Transocean, an oil based industry support company that specialized in deep water drilling (Ingersoll 2012, p. 1). The rig was hired to complete work on the Macondo well, which BP owned the rights too (Ingersoll 2012, p. 1). Of the 126 on board, 79 were from Transocean, seven from BP and the rest from other firms (Ingersoll 2012, p. 1).

As of 2010, the Deepwater Horizon disaster was the biggest marine oil spill to transpire in United States waters with nearly five million barrels of oil leaking into the Gulf of Mexico (Ingersoll 2012, p. 2). Decisions made on the type of well casing, the number of centralizers used and the decision to not perform a cement bond log may have contributed to the well blowing out (Ingersoll 2012, p. 1). However, regardless of the ultimate causes, it is worth examining the communication networks within to obtain exactly where the caution over cost message broke down. 3. Managers and Communication Networks Theory

Effective internal and external communication is seen as a requirement for organizational success (Ruck & Welsh 2012, p. 1). Organizations need to constantly assess and enhance communication especially in increasingly difficult economic times (Ruck & Welsh 2012, p. 1).

Communication can be broken down into two different areas; formal or informal (Robins et al. 2012, p. 405). Formal communication follows a chain of command that typically takes place within the organizational work arrangements (Robins et al. 2012, p. 405). Informal communication does not take place within the organization hierarchy and typically allows employees to satisfy their social interaction needs along with creating an alternative channel to communicate (Robins et al. 2012, p. 405). However this information can flow in a number of different ways.

Communication within an organization can move by the following means; downward, upward, lateral and diagonal (Robins et al. 2012, p. 406-07).

Table 1 explains how each type and its definition;

Table 1: Types of information flow

(Adapted from: Robins et al. 2012, p. 406-07)

Reinforcement of information flow encourages employees to speak out and adopt a participative approach (Ahmed 2010, p. 122). Mutual dialogue within an organization contributes to the foundations of shared value and trust (Ahmed 2010, p. 122).

Both the vertical and horizontal communication flows within an organization can be combined into a number of different patterns labeled communication networks (Robins et al. 2012, p. 407). Researchers have recognized that basic networks of communication can be classified into different types of interaction (Eunson 2012, p. 116) like those shown in table 2 and 3 below

Figure 1: Eunson – Types of Communication Networks

(Source: Eunson 2012, p. 117)

Figure 2: Robins – Three Common Organizational Communication Networks

(Source: Robins et al. 2012, p. 407)

When examining the theory listed within this paper compared to the types of communication, flow and communication network structures within BP, we can greater understand exactly what lead to the sinking of the Deepwater vessel. 4. Analysis of Communication Networks between BP and Deepwater BP Senior Management

In the late 1980s, BP had several layers of management that fell within a matrix structure that made it problematic for anyone wanting to make a decision quickly (Ingersoll 2012, p. 4). As business and overall performance at BP was floundering, Robert Horton decided to cut $750 million form BP’s annual expenses (Ingersoll 2012, p. 4). Horton, who was appointed BP’s CEO in 1989, removed several managerial layers with the intent of speeding up the decision making process and the pace of business (Ingersoll 2012, p. 4). The business was transformed into smaller, more flexible teams with the vision of maintaining open streams of communication (Ingersoll 2012, p. 4). Horton transferred decision-making authority to the upstream and downstream business divisions and employees at all levels were encouraged to take responsibility and exercise business initiative (Ingersoll 2012, p. 4).

During the 1990s, John Browne was heading up BP’s Exploration and Production division, BPX (Ingersoll 2012, p. 4). He wanted to create a spirit of entrepreneurship amongst his employees and extended the decision-making responsibilities to further levels within the organization (Ingersoll 2012, p. 4). Decision making authority and responsibility was no longer held with BP’s regional operating companies and was now completed by the site managers (Ingersoll 2012, p. 4). The model was known as Asset Federation and was applied company wide when Browne took over as BP CEO in 1995(Ingersoll 2012, p. 4). The asset federation model compensated employees for the performance of their individual site so there was little incentive to share best practices on risk management amongst various other BP exploration sites (Ingersoll 2012, p. 4). Deepwater Communication

The benefits of an all channel network or matrix structure are that the leaderless group has constant information flow between all members within the work team (Robins et al. 2012, p. 407). The potential for brainstorming and exchange of information is great within this type of model (Eunson 2012, p. 118). However information overload and irreconcilable differences due to no emergence of a leader can be a downside (Eunson 2012, p. 118)

Figure 3: Deepwater Chain of Command

(Source: Ingersoll 2012, p. 20)

However, when looking at the chain of command on the Deepwater Horizon (see table 4), it could be seen to form a wheel network rather than that of a matrix structure (see table 3). Typically, wheel communication flows form an identifiable leader at the top of the wheel (Eunson 2012, p. 117). The leader serves as the hub and the flow of information is typically one way but can be two way, dependent on the leaders willingness to accept information (Eunson 2012, p. 117). This can cause the satisfaction of team members to be low compared to that of chain, circle and channel networks (Robins et al. 2012, p. 407). Wheel networks have the disadvantage of being prone to message distortion (Eunson 2012, p. 118). As the message gets passed from one individual to another, or from one level to the next, the message is edited or mangled by the sender in each interaction (Eunson 2012, p. 118).

The distortion in the wheel network is visible when looking at the decision making process for the type of well casing and number of centralizers. Decisions in these two areas were relayed by the engineering team leader, Greg Walz (Ingersoll 2012, pp. 10-11). Greg received input from the engineers in the operations unit on what they thought were best safety practices, however final decisions on the projects were ultimately made due to the cost and time savings (Ingersoll 2012, pp. 10-11). The decision makers on the Deepwater had only been in their positions for a minimal amount of time (Ingersoll 2012, p. 9) and this meant that the lessons learned at Texas City and Prudhoe Bay had not reached the Gulf of Mexico site (Reed & Fitzgerald 2010, p. 156). It could be seen that the safety communication message had flowed downward from senior managers to line manager and staff however line managers felt a greater influence to reward cost and time savings. Control Measures

On July 27, 2010, BP announced that Bob Dudley would succeed Tony Haward as BP’s Group Chief Executive on October 1, 2010 (EHS Today 2010, p. 17). In light of the Deepwater disaster and to ensure sustainability of the company, BP leadership announced plans to create a new safety division to oversee and audit the organizations operations worldwide on September 29, 2010 (EHS Today 2010, p. 17). The Safety and Risk function has the authority to intervene in all technical aspects of BP activities to ensure that operations are carried out to that of stated common standards (EHS Today 2010, p. 17). Staff will be imbedded in all of BP’s operating units and will report directly to Mark Bly, head of safety and operations (EHS Today 2010, p. 17). Mark reports directly to the CEO, Bob Dudley to ensure the safety message from senior BP officials filters down into each site (EHS Today 2010, p. 17). 5. Conclusion

Communication is continually attributed to a vital variable in determining organizational success (Hargie & Tourish 2009, p. 419). Many business issues stem from poor communication procedures and early action and intervention in this area can avert a disaster at a later date (Hargie & Tourish 2009, p. 3).

By conducting analysis into the communication and communication networks at BP, we can ascertain that a number of different factors may have contributed to the BP disaster. The asset federation model took away responsibility from BP’s regional operations and subsequently the company’s safety message. The rewarding of each site and its managers for its individual performance further contributed to the dilution of importance on safety. A wheel network with key decision makers who had not been in their roles for very long, meant that lessons learned from past incidents weren’t filtered into the Deepwater Horizon and decisions were made with the view of saving money and time compared to safety.

The establishment of the Safety and Risk division immediately after the disaster ensured that the safety message from senior management would be heard within each site and limit the opportunity for a disaster of this magnitude to occur in the future. 6. Reference List

Ahmed, Z 2010, ‘Managerial Communication: The Link Between Frontline Leadership And Organizational Performance’, Journal Of Organizational Culture, Communications & Conflict, 14, 1, Health Business Elite, EBSCOhost, viewed 5 May 2013, p. 122

EHS Today 2010, ‘BP Creates New Safety and Risk Division’, 3, 11, Health Business Elite, EBSCOhost, viewed 3 May 2013, p. 17

Eunson, B 2012, Communication in the Workplace, e-book, accessed 05 May 2013, p. 116-118 .

Hargie, O & Tourish, D 2009, Auditing Organizational Communication : A Handbook of Research, Theory and Practice, e-book, accessed 05 May 2013, pp. 3, 419. .

Ingersoll, C, Locke, RM & Reavis, C 2012, “BP and the Deepwater Horizon Disaster of 2010”, MIT Sloan Management, pp. 1-4, 9-11, 20

Reed, S & Fitzgerald, A 2010, In Too Deep : BP and the Drilling Race That Took it Down, e-book, accessed 26 April 2013, p. 156 .

Robins, Bergman, Stagg & Coulter, 2012, Management, 6th edn, Pearson Australia, Australia, pp. 13-14, 405-07

Ruck, K & Welch, M 2012, Public Relations Review: Valuing internal communication; management and employee perspectives, Volume 38, Issue 2, June 2012, p. 1 7. List of Figures

Figure 1: Eunson – Types of Communication Networks

Figure 2: Robins – Three Common Organizational Communication Networks

Figure 3: Deepwater Chain of Command
8. List of Tables

Table 1: Types of information flow

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