BP Chief in Perfect Storm: Root Cause Was Stupid Strategy

BP chief Tony Hayward is in the hot seat. But things went wrong much before the ¨Deepwater Horizon¨ oil spill. The root cause of the crisis is an outdated strategy approach.


Already the largest human-made disaster in U.S. history, the ¨Deepwater Horizon¨ oil spill could run up to $100 billion in total costs, not to speak of the 11 people who have died. The oil spill is an epic human and environmental calamity. It is also an epic fiasco of stupid strategy.

Tony Hayward, the leader of BP, was castigated yesterday by U.S. House committee on energy and commerce chairman Henry Waxman, who charged that ¨BP's corporate complacency is astonishing.¨ ¨There is a complete contradiction,¨ Waxman said, ¨between BP's words and deeds.¨

The congressman blamed Hayward for forgetting that he had been brought in to maximize safety, and instead leading BP to take more and more unreasonable risks.

To be fair, Hayward should be commended for his crisis management. He has shown grace under super-human pressure, he communicated in a balanced manner, he stayed on message, he has been at the scene. He has pushed for all possible options, some of which are truly out of the box, such as Hollywood star Kevin Costner's company, or Ultra-X-Tex, an oil-absorbing fabric developed by HeiQ Materials, a Swiss company (see video).



True, the BP chief committed some major communication gaffes, for example when he said, ¨The Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume.¨ Statements like that do not exactly instill trust in BP.

But such faux-pas can be forgiven in the midst of a crisis, when you get barely any sleep and find yourself at war with an ongoing disaster, and simultaneously in the fishbowl of public scrutiny, day after day for weeks on end.

No, BP's and Hayward's short-term crisis management are close to faultless. But where they get bad marks is in their long-term strategy approach. Why?

Just like in this spoof video, BP and its top management have been forced to be reactive. Why are they not more proactive?

20/20 hindsight is easy. But one thing Tony Hayward and BP can learn from this moment is that their mistakes happened much earlier. It all started when BP's strategists used an obsolete planning approach. Their planning was mechanical and top-down. Worst of all, they failed to build a shared understanding.

As late as early March, when Hayward delivered BP's annual strategy presentation to analysts and investors, his talk was all about growth, cost-cutting, and efficiency improvements. He uttered not a word about a vision shared by stakeholders across the company.

BP's exploration plan fared no better. Published in 2009, it claimed it was ¨unlikely that an accidental surface or sub-surface oil spill would happen from the proposed activities.¨ In the unlikely case that an accident would occur, PB insisted, ¨no significant adverse impacts are  expected... due to the distance to shore (48 miles) and the response capabilities that would be implemented.¨

Had BP strategists built their strategy with representatives of stakeholder groups from across the company, they would have known that such claims were over-confident. They would have been able to take an unvarnished look at reality.

A shared vision must include all stakeholders -- not just those from within the company that will readily agree with you, but all of them, even the ones you dislike and would rather ignore. Especially those.

Here is how it works. You lock representatives of all stakeholder groups in a room, you lock the door, and you don't come out until you have a shared understanding, a shared vision, a shared strategy.

Building a shared strategy is a painstaking process. You begin by asking questions like, What's missing? What are the blockages to fulfilling our long-term mission? What are the opportunities?

And once you have a shared vision and strategy, when you have alignment and buy-in by all stakeholder groups, you shore up the strategy by asking the most important question of all: What could go wrong?

The seven-step process is called Strategy-In-Action. Companies of all stripes have used it since 1997 to build strategies where all stakeholders have a voice. It's called ¨In-Action¨ because you test your strategy in the action, on a low-cost and low-risk scale, to see if your assumptions are valid, before you go ¨live.¨

That's what my colleagues and I did with a top-tier global energy company. And BP did not. 

If Hayward and his senior managers had engaged all stakeholders and built a real joint strategy, they might have avoided the excessive risks that brought about the current crisis.

The good news is, they can still learn from the calamity.

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P.P.S. Download a free article on conventional planning vs. Strategy-In-Action.