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By Dave Beckmann
When Tony Hayward took over British Petroleum (BP) in 2007, he knew he had to make sweeping changes. A Texas City explosion in 2005 had claimed the lives of 15 workers, resulting in large personal injury payments; the Occupational Safety and Health Administration (OSHA) was levying a massive fine; and BP was facing a growing list of "willful" safety violations. (BP totaled 829 such refinery violations from June 2007 to February 2010, according to the Center for Public Integrity (www.publicintegrity.org). The rest of the industry combined had 33.) Yet, in spite of a renewed focus on safety at the Texas City refinery, there had been three more deaths at the refinery since the 2005 explosion.
Hayward knew something had to change, so he instituted a sweeping plan called the "Operating Management System" (OMS). In theory, it appeared to address many of the systemic failures that had caused the Texas City fire. Modeled after a plan Exxon put in place after the Exxon Valdez spill, it was designed to integrate safety into every part of the organization. Changes included:
In spite of a dizzying array of personal safety codes and regulations and a total cost to BP of over USD1 billion, the violations continued to mount. Yet, Mr. Hayward declared that substantial progress was being made, and on April 20, 2010, ironically, a delegation from "corporate" was awarding the Transocean and BP management team of the Deep Water Horizon a safety award for seven years without a major accident. Even as the awards were being handed out, hands shaken and pictures taken, deep rumblings were being felt throughout the rig.
Deep indeed! For as the voluminous post-accident government report points out, although BP had addressed personal safety through the OMS program, it had done little to address the deeper process safety issues. In fact, the report highlights that BP's insistence on ever-increasing profits was like layering Swiss cheese slices—each one riddled with holes—one on top of the other. If the holes ever lined up, as they did on April 20, disaster would follow.
The underlying issues that caused the environmental and personal disaster in the Gulf are not restricted to BP. The process industry has over decades developed a "managed risk" mentality where top-level directors and vice presidents make decisions based on bottom-line results. And because these managers are often far removed from the field, their mandates often lead to tragic results. BP, for example, while enacting OMS, was at the same time ordering a 25% maintenance spending reduction.
While the government, in its inimitable way, will levy a barrage of regulations in an attempt to force companies to focus on safety, the core issue seems to lie with a corporate DNA that mandates lids on coffee cups, but fails to require a down-hole pressure test prior to cementing the bore. Alas, no government bureaucrat or corporate mogul has the visibility nor the understanding to manage the increasingly complex systems employed in the process industry.
While CNN focused our attention on the Deepwater Horizon as it burned and sunk into the mile deep ocean, and CNBC’s "Squawk Box" focused on BP's stock, which sank at even a faster pace, wiping some USD 80 billion of capitalized BP value, something far more fundamental was happening. For although a burning rig and a diving stock price capture our attention, thousands of companies are experiencing slow burns and sinking stocks. It seems the tide has turned. The models we have employed to manage and operate our companies for the past nearly 100 years seem to have reached their limits. They are like the internal combustion engine that has been honed, tweaked and computerized in order to increase its power and efficiency, but, in spite of all that effort, it is clear that 10 to 15 years from now, few automobiles will contain that technology. The environment has changed. It’s time to rethink the way we manage the process.
While the fluid dynamics and statics laws we engineers use to design the process do not change, the laws of process management are neither foreordained nor eternal. And a good thing too. The equipment of process management and, indeed, management in general was never designed to carry the strain of a whiplash economy, technological disruptions, global competitors, fractured markets, omnipotent customers, rebellious shareholders and idealistic employees who strive for significance over pay.
A recent study by IBM proves the point. A survey of 1541 CEOs from 60 countries and 33 industries and 3619 students from 100 major universities commissioned by Samuel J. Palmisano, chairman, president and CEO of IBM, concluded the following:
"We occupy a world that is connected on multiple dimensions and at a deep level—a global system of systems. That means, among other things, that it is subject to systems-level failures, which require systems-level thinking. Our study of CEOs and business leaders reveals the following: