1. Exploring the great unknown. “What will be the consequences, if any?”
2. Shutting the beast down. “This thing is bigger than we’ve been told, can it be shut down? If yes, how soon.”
3. Gathering information to avoid a similar catastrope in the future. “Every disaster reveals consequences from the unknown. Until its been experienced, its difficult to understand all of the unintended consequences of certain actions and procedures.”

As part of the third stage of this story, the investigation is revealing that numerous silent problems were present. For instance, recent stories reveal that a single engineer may bear a huge responsibility in the blowout.  However, this isn’t the story I’m fascinated with at the moment. I’m intrigued with how the environment is and has responded to this ecological disaster - most of it is a huge surprise - most scientists included. This story is titled, the great vanishing oil spill.

Yes, microbes may become the heroes of the Gulf of Mexico oil spill by gobbling up oil more rapidly than anyone expected.

This leads me to a parallel discovery. As I have worked with organizations and helped them work through their silent problems, I’m always surprised how organizations respond from the effects of silent problems.  And once it is solved, the results can be equally surprising and unexpected. At times, organizations remain devastated for months on end. However more often than not, once the silent problem is identified and rectified, a rejuvenation phenomenon often takes place. Unexpectant individuals step up to the plate with previously unknown skills that can be leveraged. New processes and procedures that were unwelcomed, are suddenly adopted. However most important in this equation, people learn how to speak about the unspeakable, and take action. Quite similar to the little oil eating bacteria at the sight of a natural disaster.

Each has exited Stage Left. Stage left for Tony Hayward means frequent trips to Siberia for the foreseeable future. The crisis in the Gulf will forever be associated with his name. For Mark Hurd, we’re unsure, although it was reported pocketed a quick $28 million, which should provide him plenty of options - including a quick retirement. However in the bigger picture, Mark Hurd symbolizes another epic chapter of HP. It’s too bad, because there’s a lot of blame to go around over at HP.

For any leader, Exit - Stage Left is rarely a pretty event. It’s filled with drama, and emotions and too much hurt. The need for true leaders is greater today than ever, unfortunately, there appears to be a shortage of them in the marketplace.

Guess what? It wasn’t always that way. In fact, months prior to being placed on the “crosshairs of failure,”more often than not, these individuals were being praised for their leadership acumen, their business insights and strong stewardship capabilities. They were the future, and being treated accordingly. However once the shoe fell, everything good was displaced. The list of accolades, forgotten. The awards, dismissed. The strong words of praise, erased. Everything feels and appears different.

Needless to say, such events are messy situations, with everyone focused on covering their perverbial A**.  And in this whirlwind, emerges the The Good, The Bad & The Ugly as relates to forced outplacement of key executives.

Not surprisingly, another story has been surfacing in recent years, this time - academic fraud. The July 24th edition of The Economist delves into this topic. The articleReplicating success, Widespread academic fraud may hamper a drive for innovation states:

CHINA’S president, Hu Jintao, speaks often and forcefully of the need to foster innovation. He makes a strong case: sustaining economic growth and competitiveness requires China to get beyond mere labour-driven manufacturing and into the knowledge-based business of discoveries, inventions and other advances. 

Yet doing so will be hard, not least because of the country’s well-earned reputation for pervasive academic and scientific misconduct. Scholars, both Chinese and Western, say that fraud remains rampant and misconduct ranges from falsified data to fibs about degrees, cheating on tests and extensive plagiarism… 

The implications of widespread academic misconduct could be great. Denis Fred Simon of Penn State University argues that growing evidence of fraud “calls into question the overall credibility of the entire scientific enterprise in China-and unfortunately feeds negatively into the related concerns about the safety of Chinese products and the integrity of information coming out of China.” 

In practical terms foreign scientists may be deterred from China, as they worry about getting caught up in scandals. Early this year, after it was found that 70 papers on crystal structures submitted to an international journal by Chinese scientists had been fabricated, the Lancet medical journal called on China’s government to “assume stronger leadership in scientific integrity”. Measures taken so far, it suggested, had failed to get to the root of why some Chinese scientists lie. 

China’s drive to become a world-class competitor has created “The World Is Flat” phenomenon. Their huge access to human capitol has positioned them for success - including academic. However, being positioned for success and realizing success has become a challenge for many emergent economies. Simply because the world begins to expect more.  And the one thing the world expects more than anything else is excellence. This is the long-term challenge in front of China, and their ability to becoming a world-class player.

Is a reverse shift possibly underway?

From my perspective, the answer to this question is ”Yes.” In recent months, stories about how production is exiting China and reentering the US are beginning to surface. The reason for this shift is multifold. For instance, Chinese workers have been able to negotiate huge wage increases (greater than 20% in most instances) in factories producing goods as far ranging as automobiles (Honda, Toyota…), electronics (Foxconn, which produces the IPod…) and numerous other consumer products. Second, China has stated that it will allow the yuan to float relative to other world currencies. Third, China is focused on curbing its growth rate by reducing its money supply into the banking system. Each of these and numerous other factors will play a role in China’s export-based economy. And lets not forget, China’s quality is still a huge risk factor for many companies.

Yes, the early stages of a resurrgence of US based manufacturing is beginning to evolve. For instance, a recent article at MachineDesign.com in the article Backshoring Gains Momentum as More U.S. Companies Bring Production Home begins to address this issue. It states:

Ensuring a steady stream of low-cost, high-quality parts is a growing headache for U. S. manufacturers that source parts overseas. Governmental, economic, societal, and cultural factors are forcing U. S. OEMs to rethink the strategies that led them to outsourcing in the past decades, says Mitch Free, CEO of Atlanta-based MFG.com. “But tangible failures of suppliers, quality, training, and logistics have also forced these businesses to recognize and investigate the costs extended supply chains placed on their abilities to respond to customers, innovate, and compete effectively,” he says.

As evidence, he cites the most recent MFGWatch survey conducted by MFG.com, where a remarkable 44% of North American participants — from design engineers to purchasing professionals — say they have experienced a significant supply-chain disruption that forced them to find an alternative supplier. This is up from an already significant 35% figure last quarter, and strongly suggests that supply-chain contraction will be the trend well into 2012, says Free.

One consequence: “Backshoring — repatriating work to the U. S. after initially outsourcing it to low-cost countries — is becoming more prevalent as domestic manufacturers reassess the total costs of their products,” he explains.

I’m convinced this new trend will continue for numerous reasons.

1. Most US based manufacturers have reduced their manufacturing costs significantly by investing in new automation assets and new manufacturing processes. Suddenly when all factors are weighted, the cost differential is minimal.
2. Companies are doing a more effective job of analyzing their true cost of managing diverse supply-chains scattered around the globe. In many instances, their perceived cost wasn’t close to their true costs.
3. “Made in China” in some circles raises many issues, especially relating to quality (one I’ve discuss many times here and here).

Yes, the next shift is underway and the unthinkable will emerge. Domestic manufacturing will likely become the next growth engine for the US economy in coming years.

24/7 Wall Street recently looked at the 10 Biggest Brand Disasters of 2010. Guess what? There is a close correlation to the exposure of silent problems and the loss of brand valuations. On the list:

1. BP: Need I say more.
2. Dell: This company has exposed numerous silent problems in recent years.
4. Sony: I’ve written about Sony and its silent problems numerous times.
5. Goldman Sachs: What can I say other than they’ve created a culture where silent problems are endemic to the organization.
8. Johnson & Johnson: J&J use to be squeeky clean when it came to their brand, now silent problems are eroding it.
10. Toyota: Toyota’s culture of silencing their problems was exposed in a big way in 2010.

The other companies on the list R.I.M. (Blackberry), Adobe, Nokia and Google. Interestingly, each of these are in the fast moving technology arena where a “what’s hot” and “what’s not” mentality can reside. Yet the 6-companies on the above list have direct ties to silent problems. Makes one wonder when the marketplace will finally look at exposure to silent problems in stock valuations.

Adobe:

For instance, last week I was working with a client that had experienced a barrage of silent problems surfacing in recent months. To say the least, the many layers of bad news was taking its toll. On the surface, it felt as if the sky was falling. However in reality, there was a cleansing process underway. It was painful, yet necessary. An excellent story relating to this phenomenon is Toyota, who has experienced a multitude of quality related problems in 200. This past week they announced a 2nd recall in less than a month, this one for defective engine valve springs. A recent news story notes:

Toyota knew two years ago about the engine problem behind its latest Lexus recall, even changing the spring part to correct it, but did not think a recall was warranted until recently, a company official said Tuesday.

Toyota Motor Corp. started Monday a global recall over engine defects in its Lexus luxury models sold around the world, as well as the Crown sold in Japan, moving to repair some 270,000 vehicles to replace valve springs — crucial engine components that are flawed and could cause vehicles to stall.

In August 2008, Toyota changed that spring part, making it thicker, to prevent the problem, spokesman Hideaki Homma told The Associated Press. That is why the latest recall does not affect vehicles produced after August 2008.

What Toyota is experiencing today with the high volume of recalls is typical in many situations. What is really being exposed here is a system and culture oriented towards avoidance and neglect. And now that a new course has been set, the torrent of silent problems is being vetted all at once. However in the end, this will become positive if the problems aren’t too big to manage. Eventually this will lead to new systems, new degrees of accountability and most importantly, an integral part of their new culture.

So how do most people cope when situations like these occur? Most people simply cope by getting out of the way or they leave  the organization. The impact on the organization - can be HUGE.

Yes, most of us have worked with one or reported to one of thse bigger than life characters in our careers. Unfortunately, it’s a problem that is often avoided or neglected, which pulls it under the umbrella of being a silent problem.

A couple of weeks ago the Rolling Stones published a riveting article titled The Runaway General. A story about General Stanley McCrystal, the former head of Afghan military operations. It’s a troubling story, because it’s a “when a superstar becomes a problem” story. Its a story about how an individual rose up through the ranks, yet what brought him down was his own weaknesses. For instance the story states,

By some accounts, McChrystal’s career should have been over at least two times by now. As Pentagon spokesman during the invasion of Iraq, the general seemed more like a White House mouthpiece than an up-and-coming commander with a reputation for speaking his mind. When Defense Secretary Donald Rumsfeld made his infamous “stuff happens” remark during the looting of Baghdad, McChrystal backed him up. A few days later, he echoed the president’s Mission Accomplished gaffe by insisting that major combat operations in Iraq were over. But it was during his next stint – overseeing the military’s most elite units, including the Rangers, Navy Seals and Delta Force – that McChrystal took part in a cover-up that would have destroyed the career of a lesser man. 

After Cpl. Pat Tillman, the former-NFL-star-turned-Ranger, was accidentally killed by his own troops in Afghanistan in April 2004, McChrystal took an active role in creating the impression that Tillman had died at the hands of Taliban fighters. He signed off on a falsified recommendation for a Silver Star that suggested Tillman had been killed by enemy fire. (McChrystal would later claim he didn’t read the recommendation closely enough – a strange excuse for a commander known for his laserlike attention to minute details.) A week later, McChrystal sent a memo up the chain of command, specifically warning that President Bush should avoid mentioning the cause of Tillman’s death. “If the circumstances of Corporal Tillman’s death become public,” he wrote, it could cause “public embarrassment” for the president.

Superstars create numerous challenges. First, they often believe they’re part of an elite group, which makes it difficult to hold them accountable. And its this status they believe provides them priveleges and unlimited “get out of jail” cards when a problem emerges. Second, they can hold the team and the organization hostage. At times, they view themselves as “untouchable.” Third and possibly most important, they can be very difficult to get rid of, because they have the connections and the knowledge that could put your organization in harms way.

So what are the lessons we should heed?

1. Be careful when putting superstars in leadership positions. Do your homework up front.
2. Realize no one is irreplaceable. Be prepared to cut the line sooner, rather than later.
3. Remember, toxic superstars add to your bottom-line, but also take away from it through higher turnover and diminished performance.

At the end of the day, every organization is in search of superstars. However at the beginning of the day, make certain they’re the right fit.

What is the reason for Toyota’s ongoing problems? On March 17  I addressed this issue head-on, and is worth repeating:

Today, cost estimates for Toyota’s silent problems are ranging from $2 Billion on the low side, to $5.5 Billion on the top side. My research suggests a factor of 2X to 4X is reasonable from these numbers, because none of these estimates factor in elements such as:

• Reduced organizational focus
• A shift from strategic to tactical activity
• Negative impact on team and individual performance
• Negative impact on accountability
• Negative impact on innovation…

These factors and others can break a high performance organization. They can increase employee turnover. They can impact financial and organizational performance for years to come. This is why betting on Toyota’s return to dominance is such a risky bet. Simply because we don’t fully understand the full impact on Toyota. However if history proves itself, this event will impact Toyota many years. Just ask GM,Ford and others…

Today, Toyota is facing increasing competition from companies like Ford & GM, Hyundai & Kia, and of course VW, Audi, BMW and others. Each of these have picked up their game in recent years and are willing to take Toyota head-on. However what is killing Toyota slowly and quietly is not competion. To the contrary, Toyota’s brand and reputation have eroded in areas where it was prviously strong like quality, engineering, dependibility, value and safety. In essence, very few proudly state, “I drive a Toyota” today. From my perspective, Toyota will continue to be a company in turmoil, with an eroding value proposition.

 In a recent Reuters article titled Wall Street Said Buy, Buy, Buy BP Stock As Gulf Crisis Unfolded illustrates how analysts often underestimate the financial impact of disasters that eminate from silent problems. The story states:

As early word of BP’s Deepwater Horizon blowout began spreading, investors panicked. After closing above $60 before the April 20 disaster, the energy giant’s shares plunged almost 20 percent in New York, to below $50, in just two weeks.

It is not hard to understand why. Even then, the out-of-control oil spill in the midst of rich fishing grounds and nearby resort beaches raised the specter of horrific damages and untold potential liabilities.

Yet, nearly to a person, the dozens of securities analysts who followed the British oil giant were unfazed. As BP (BP.N: Quote, Profile, Research, Stock Buzz) (BP.L: Quote, Profile, Research, Stock Buzz) shares continued to drop, most were screaming the same message: buy, baby, buy.

Credit Suisse, which had a “buy” rating on the stock at the time, did not even mention the accident in an April 28 report. The firm upgraded earnings estimates after BP reported strong quarterly results the day before.

A day later, with BP’s shares then down 11 percent, Citigroup’s Mark Fletcher weighed in. He argued that the decline was “disproportionate to the likely costs to the company, even assuming damages can be claimed.” In the same report, he estimated BP’s total share of the cleanup at just $450 million — today, conservative guesses put the figure at $10 billion to $20 billion.

Around that time, Morgan Stanley was among the chorus citing the strong rebound of Exxon (XOM.N: Quote, Profile, Research, Stock Buzz) shares after the 1989 Valdez tanker spill in Prince William Sound, Alaska, as a reason to be bullish. “We think the sell-off presents an attractive buying opportunity for investors with medium-term investment horizons,” the firm wrote.

All told, 27 of 34 analysts tracked by Thomson Reuters rated the stock “buy” or “outperform” as recently as May 11. The other seven rated the shares “hold.” There was not a single rating of “sell” or “underperform” among those tracked.

The BP crisis is horriffic. It’s impact will be felt for years, and probably decades. And when we look at the evidence, it was a problem being intentionally silenced, and no one screamed Wolf!