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Posts Tagged ‘BP’

Responding to a Silent Problem

Friday, August 27th, 2010

The Gulf of Mexico oil spill story has raged on for upwards of 4-months now. It’s been been a story with anger displayed, heartache captured, concerns emitted and consequences discussed. Yes, it has been a long and arduous 4-months. Yet despite the magnitude of this disaster, it can be broken into three parts, These being:

  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.

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Exit - Stage Left

Tuesday, August 17th, 2010

Have you by chance wondered about the CEOs of the two P’s, and what really got in their way? I’m referring to Mark Hurd of HP, and Tony Hayward of BP. From what I’ve read and been able to discern, each of these had SPs (silent problems) to the max. And due to their SP affliction, HP’s and BP’s stock has suffered, and their careers derailed.

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.

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Silent Problems & Brand Valuations

Wednesday, July 21st, 2010

Market valuations and silent problems - are they correlated to each other?

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:

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Underestimating a Silent Problem

Tuesday, June 22nd, 2010

Risk. Exposure. Liability. These are words that should be at the forefront of every conversation when a silent problem is identified ( a problem that has been avoided, neglected, gone unnoticed, or been intentionally silenced). The reason being, too often we underestimate the real impact a silent problem can have on an organization, and its share price. For instance, we need look no further than Bear Stearns, Lehman Brothers, Madoff, Toyota, and now BP. In each of these and 100s of other of instances, while the crisis on the surface appeared under control, in reality things were totally out of control. Such can be the impact of a silent problem.

 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!

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BP’s Silent Problems Now Being Exposed

Monday, June 14th, 2010

Business consultant Pat Murray proclaims, “You stand for what you tolerate. Define your intolerables.” Well in a recently authored letter by two house democrats that have been leading the BP oil spill investigation, the concept of “what you tolerate” applies. According to a recent Washington Post article, it states,

– BP saved $7 million to $10 million using a more risky option for the well casing, or steel tubing. The safer option, known as the liner-tieback option, would have provided more barriers to prevent the flow of natural gas up the space between the steel tubes and the well wall.

– BP failed to install enough devices to center the pipe in the hole, which increased the danger of cracks in the cement surrounding the pipe. The American Petroleum Institute’s recommended practices warn that if the pipe, or casing, is not centered “it is difficult, if not impossible” for the cement to displace the drilling mud on the narrow side of the opening.

– BP decided against a nine- to 12-hour procedure known as a “cement bond log” that would have tested the integrity of the cement. Although BP had a team from Schlumberger, a leading oil services firm, on board the rig, BP sent the team home and told them their services were not needed.

– BP did not fully circulate drilling mud, which would have taken as long as 12 hours. That would have helped detect any pockets of gas, which later shot up the well and exploded on the deck of the drilling rig.

– BP did not secure the connections, or casing hangers, between pipes of different diameters.

The letter says that many of these decisions contradict the advice contained in other BP internal documents, which warned against the dangers of using certain types of pipe. And it reveals that even before the accident, BP engineers were struggling with unusual difficulties. On April 14, BP drilling engineer Brian Morel e-mailed a colleague, Richard Miller, saying “this has been [a] nightmare well which has everyone all over the place.”

In the book Without Warning, it states, “Silent problems absolutely define what you tolerate.” Quite simply, individuals inside BP were willing to “tolerate” actions and activities that did not pass internal standards. Instead of thoroughness, corners were cut. To achieve what? A deadline? A budget? An incentive clause? Whatever the reason, billions of dollars are now lost and thousands of lives are caught in the crosshairs. This at times is the tragic outcome associated with silent problems.

Bottomline: The BP oil spill was avoidable if they had taken the precautions necessary to ensure a safe well. Now they will pay the price for their neglect.

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Frustration

Tuesday, June 8th, 2010

The BP oil spill is ongoing. The pictures are becoming more vivid. The eventual outcome more dire. The ecological impact growing.

Yes, the BP oil spill is a disaster in every sense of the word. And because BP and the various response teams appear to always be playing a “too little, too later” scenario, a sense of frustration is setting in. Frustration with government’s response. Frustration with BP and its ever changing story. Frustration with the lack of progress. Frustration relative to what the future could look like.

Frustration is terribly debilitating. And yes, the BP oil spill is quickly becoming Obama’s Katrina.

Yes, there appears to be a lot of FRUSTRATION left in this story.

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Anatomy Of A Catastrophe

Friday, June 4th, 2010

Michael Roberto profiled the anatomy of a catastrophe over at his blog, and I found it to be insightful and definitely worth promoting. Here it is:

1. Catastrophic failures generally do not have a single root cause. They are typically the result of a chain of errors, mistakes, and small failures.

2. People and organizations often downplay ambiguous threats, i.e. warning signs, that crop out in the days, weeks, and months prior to the catastrophe. (Yes, we too often overlook weak signals starring us in the face.) 

3. Organizations often have cultures that don’t promote sufficient candor and open dialogue. Thus, people with knowledge about critical risks may not speak up about their concerns regarding a potential failure. (This is an area that organizations could easily correct through training and other easily implementable processes.)

4. People with intuitive concerns about certain risks sometimes are dismissed because they lack extensive data to support their concerns.  (It’s easy to dismiss someone under the guise of “You don’t know what you’re talking about.” Most of the time this is correct, however on occassion their wisdom can save the day.)

5. Organizations often overestimate how human and system redundancy they have in place to protect them from catastrophe. (Oftentimes, systems were adequate yesterday, yet insufficient for today’s needs. Finding the time and resources to examine the adequacy of systems and processes is difficult, yet important in a cash-strapped organization.)

6. People often underestimate the probability of what they perceive to be extremely low probability events. (This is where scenario planning can provide insights into the “What Ifs” of your world.)

7. Cognitive biases often distort managerial judgments, contributing to catastrophe. (I would also add that the emotional connection to judgements and decision-making often distort the outcome.)

If and when the BP Story slows and investigations into “What Really Happened” begin to emerge, the storyline will resemble that of Toyota, the financial crisis and numerous other stories. And the conclusion will be, “This too was preventable.” The technology to prevent it was present. The warning signs were present to take precautionary steps. The resources and conviction  to move forward is what was missing. Hopefully, some day we will learn the lessons of Silent Problems.

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