When BP's offshore drilling rig Deepwater Horizon exploded on April 20, killing 11 workers and sending millions of gallons of oil into the Gulf of Mexico, the tragedy unleashed a global wave of fury against the British energy company. Decades of goodwill the company had built up went out with the tide as politicians, the public, and investors alike hammered away at the company and sent its stock price-to say nothing of its reputation-sinking fast.
Many of the long-term lessons of BP's mishap will likely focus on broad topics such as the desirability of deepwater oil drilling and enhanced safety and monitoring standards. But beyond those issues, the takeaways for firms across a wide swath of industries will include the need to focus on core competencies and to under-promise and over-deliver, according to faculty from Emory University's Goizueta Business School.
It's ironic that BP is involved in this eco-disaster, says Douglas Bowman About ten years ago the company embarked on a major investment in their retail gas stations: they cleaned them up, widened the aisles between pumps, added lots of lighting to appeal to 'soccer moms,' adopted the sunburst logo, and in general made a major effort to be perceived as strong on corporate responsibility., a professor of marketing at Goizueta.
A case could be made that BP suffers from an organizational alignment issue, adds Bowman.
The branding and strategy promised one thing, he says. But the operational procedures were not in place to ensure they delivered on their promises in all aspects of their business.
George Easton thinks the problem may be linked, in part, to the personality types of leaders in companies like BP, a situation that is not unique to the oil industry.
It occurred to me that when I previously engaged in a research project and interviewed more than 200 top-quality management and other high-level executives at a series of big companies, I found them to be relentlessly optimistic and forward-looking, recalls Easton, an associate professor of information systems & operations management at Goizueta. It was striking, in that they tended to speak of their company's future state as if it existed in the present. So they might describe a project as if it were already completed, but when I drilled down and asked for specifics, they would say, 'Oh no, we're not that far along. In fact we've actually just started it.'
The executives were not trying to be deceptive, says Easton.
Instead, these were overachievers who got to their position because they had a forward-looking personality, he explains. People at the top rungs of management tend to be optimistic and believe that their vision can be achieved, but this also means they may be prone to overestimate their ability to deal with setbacks and may tend to underplay risks and danger.
Inordinate confidence, adds Easton, ties into the high degree of risk tolerance that's often expected of leaders.
It makes sense, in that a company that takes no risks is not likely to move ahead, Easton continues, but when you increase your risks, you also make your firm more vulnerable. Theoretically, it points up the need to have some mechanism in place to rein in excessive risk.
Easton acknowledges that balancing risk and reward is tough. One could argue that this is one of the roles of a board of directors, he says, but then again, risk is a day-to-day issue, and an excessive focus on risk avoidance could result in an unhealthy company that takes no innovative steps.
Easton sees parallels between achieving risk balance and implementing employee-safety procedures.
Companies don't get to Six Sigma safety levels simply by counting accidents, he says. They have to monitor and analyze close calls, too, even if they seem relatively minor. A pattern of close calls may signal the presence of a serious system-related problem.
But it's hard to get people to track close calls, even if the corporate culture encourages such reporting, says Easton. Humans appear to have evolved in such a way that we are unable to accurately assess small risks, even if they have a huge downside.
Yet such tracking of close calls is essential to preventing tragedies, he insists, adding that companies need to make the development of a prevention-oriented system a key strategic initiative that is embedded in their corporate vision and culture.
For Patrick Noonan, an associate professor in the practice of decision & information analysis at Goizueta, the roots of BP-like disasters go deeper than individual executives.
Instead, he says, The human brain is just poorly wired to make some kinds of judgments. Behavioral research has shown a prevalent, recurring 'overconfidence bias' that tends to drive us to overestimate how much we know and understand about a situation.
In turn, that can lead people to be surprised by outcomes far more frequently than we should be, he adds.
This effect also drives what Noonan calls societal mismanagement of risk, in which voters push policymakers in dangerous directions by their collective failure to reason clearly about risks.
He notes, for example, that modern societies often over-react to vivid, personal tragedies involving few people and presenting a relatively low ongoing cost to society, while they under react to risks that quietly take more lives.
The ongoing environmental damage done by petrochemical and coal usage goes largely unnoticed and unregulated, he says. But even much smaller mishaps than the current Deepwater spill get more attention.
As Noonan sees it, political forces also contribute to societal mismanagement.
To stereotype a bit for brevity, conservatives need to accept the need for thorough governmental regulation of risks that may seem intrusive or excessive, he counsels. Liberals need to accept that good regulation must involve some cost-benefit calculations that may seem callous or distasteful.
In one sense at least, BP's problem is not with its vision, argues Jagdish Sheth, a chaired professor of marketing at Goizueta who worked on a branding campaign for BP in the late 1960s when it expanded from its home base in Great Britain to continental Europe. Instead, it appears to be the way in which that vision may have overtaken other strategies.
Although BP is primarily an oil company, it has for years positioned itself as an alternative energy firm-stressing its wind, solar and bio-fuel efforts-going so far as to rebrand its very name, BP, with the message that the company is really Beyond Petroleum.
I think it was a good idea to differentiate itself by promoting BP's willingness and ability to diversify into alternative energy strategies, Sheth says. In some ways it reminds me of another effective advertising campaign launched [around 1964] by Avis, the nation's second largest rental car company, which couldn't quite catch up to first-place Hertz, the industry leader.
Instead of trying to minimize its runner-up status, Avis boasted about it in an advertising campaign, glorifying its underdog status with the proclamation that because it was number 2, We Try Harder.
The difference is that Avis was always foremost a car rental company, and its 'we try harder' campaign built on its core competency. Although BP may eventually evolve into an alternate energy firm, the fact is that right now it is still primarily an oil firm, says Sheth.
That disjuncture means that the new vision of alternative energy appears to have diverted valuable resources from BP's offshore drilling activities, which carried a greater risk than traditional land-based drilling, but which were also increasingly necessary.
The fact is that the 'easy-to-reach' oil has pretty much already been exploited, Sheth explains. So companies like BP have to explore in harder-to-reach areas. But in recent years the company's marketing campaign underplayed the fact that it needs to continue to expand its core oil and gas efforts even as it tries to transition into solar, wind, and other alternative energy sources.
This disconnect may have created unrealistic expectations in the minds of the company and of outside observers, Sheth says, effectively downplaying the real dangers of deep-sea oil exploration. As a result, regulators and investors alike may have not scrutinized BP for excessive risks in its drilling operations.
When it came to BP's deepwater drilling, says Sheth, internally, BP was reaching far beyond the limits of traditional technology. Yet it attacked the challenges with traditional technology that sadly was unable to handle the situation when something went wrong.
As chief executive officer Tony Hayward noted in a Wall Street Journal opinion piece in early June about BP's attempts to stanch the flow of oil: We remain in uncharted territory-none of these approaches has ever been attempted in water a mile deep.
Hayward confesses that we need better safety technology . . . [and] to be better prepared for a subsea disaster, while the oil industry should carefully evaluate its business model, especially its reliance on outsourced work and specialized contractors.
The cumulative effect of all this, says Sheth, is that BP may have neglected one of the most important components of brand management: to under-promise and over-deliver.
When a positive or negative outcome is in line with the expectations of customers, regulators, and other stakeholders, they are likely to be more forgiving than if the outcome is significantly lower than their expectations, Sheth cautions. When you raise stakeholders' expectations to unreasonable levels, you run the risk of a greater backlash if something goes wrong.
For example, in March 1989 the Exxon Valdez oil carrier ran aground in Alaska, spilling some 10.8 million gallons of crude oil into Prince William Sound. In the period spanning March 23, the day before the accident, until the end of April 1989, the stock price of Exxon (now ExxonMobil) only fell about 3.1 percent. In contrast, BP's stock price plunged 27.8 percent in the six weeks following the Deepwater Horizon explosion.
Some of the difference is likely due to the fact that the Exxon spill was limited to the ship's capacity, while BP's cascade of oil is tougher to predict, notes Sheth. But it's also likely that a significant portion of the difference in share price activity is due to the fact that Exxon was always seen first and foremost as an oil company, while BP was viewed as a more environmentally friendly firm, thus deepening the shock that observers felt when it came to the damage caused by the oil disaster.
When disaster strikes, there are some general brand-damage control strategies that companies across industries should consider, Sheth says.
First and foremost is to get the firm's CEO in front of the public, he says. This way people can attach a name and face to the company, instead of feeling like they're up against an unresponsive entity. Then the beleaguered firm should launch a multi-platform communications effort-using social media as well as traditional outlets-to get the word out that it accepts responsibility and is working to deliver a solution. This outreach effort must go beyond shareholders and should be designed to reach the greater public and decision makers.
Sheth says disaster prevention and disaster response initiatives need strengthening across companies and across industries.
In today's economy, more kinds of companies are working closely with each other on a cross-industry basis, he says. As this approach accelerates, firms should work together to develop cross-industry best practices and blueprints for natural, political, and other disasters. These plans need to be in place before something happens so that first responders-perhaps even a kind of global SWAT team-can be quickly dispatched as needed. Having a viable vision is very important to a company's survival, but as we're seeing with BP, having a crisis blueprint in place is also vital.
After all, he concludes, you cannot manufacture or buy a brand; you must earn it.