Management

BP: A Failure of Focus and Metrics


Now that BP (BP) seems to have capped the oil leak and replaced Chief Executive Officer Tony Hayward, cleanup efforts will share the stage with investigations and recriminations about what led to the Apr. 20 explosion at the Deep Horizon oil rig in the Gulf of Mexico. An important lesson for BP and all businesses could be lost in the finger-pointing: Knowing what went wrong doesn't necessarily tell you how to prevent it from happening again.

The assumption is that BP was careless about safety. There seems to be no question that at some level BP traded safety for efficiency. But this is an incomplete explanation that leads to the overly simplistic conclusion that BP didn't consider safety a top priority.

As I work with companies to help them streamline and reengineer their corporate structures and the way they do their work (what we call process), I see companies struggle all the time with making the right decisions on cutting costs, increasing profit, and maintaining safety standards. BP was no different in trying to achieve those goals, but it presents a textbook case of what not to do.

At the most basic level, BP suffered from a failure to balance competing objectives. Tony Hayward began as BP's CEO in May 2007 with a promise to focus "like a laser" on safety concerns, as well as operating performance. The metaphor proved to be all too apt: A laser can focus on only one thing at a time. It appears that BP failed to focus on the right target.

It's essential to create the right performance metrics, not simply those that will generate positive feedback. The problem is that BP failed to put in place measures that would have shown the company just how well or how badly it was meeting one of its top priorities.

BP's records showed improving safety

On the performance side, between 2007 and 2010, BP cut 7,500 jobs and trimmed billions of dollars—$4 billion in 2009 alone—according to a Wall Street Journal article. In 2008, BP made a profit of $25.6 billion. In time, BP became the industry's second-largest company, behind Exxon-Mobil (XOM).

On the safety side, BP spent money—lots of money. On a single Texas oil refinery, BP spent $1 billion in upgrades after it exploded in 2005. In fact, as The New York Times reports, the company's safety record was improving before the Deepwater Horizon exploded, at least by its own standards, according to a memorandum Hayward sent to employees.

Taking both metrics as a sign of improved performance, BP was looking like a company that had solved its two most pressing problems.

Warning signs began to emerge that should have signaled to BP executives that severe problems remained unresolved. For starters, the Occupational Safety & Health Administration (OSHA) found numerous safety hazards at the supposedly "upgraded" Texas refinery, even as serious problems with BP's Alaska and Gulf of Mexico operations started cropping up.

BP's misguided, inappropriate metrics

Outside observers see these problems as unambiguous signals that things were very wrong. It's not so easy when you're on the inside. What's likely is that Hayward and the rest of BP's management believed they were meeting all safety performance targets, or at least gaining on them. By the metrics they had created, the company might well have been making progress. The metrics they chose were the problem.

This doesn't get Hayward and his predecessors off the hook. It's the CEO's job to put into place appropriate performance benchmarks and supporting processes that ensure the company is meeting its most basic priorities. That clearly didn't happen.

BP isn't alone in making this mistake. I've worked with numerous clients who have unknowingly chosen to measure themselves in ways that don't actually gauge true performance. The point should be driven home to all business owners that making safety a priority and throwing a bunch of money at it doesn't mean you have processes in place to measure if you are safer.

The ability to balance competing goals is one of the most important functions of any enterprise. Setting a priority is merely the first step. You also need to create the structure to ensure that this priority is given appropriate urgency, down to the very last employee.

Lisa_hershman
Lisa Hershman is the CEO of Hammer and Co., a Boston-based business education and research firm, and co-author of the forthcoming book, Faster, Cheaper, Better: The 9 Levers for Transforming How Work Gets Done.

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