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:
- Making every employee responsible for safety,
- A safety minute before every business or team meeting,
- A regulation that made it an offence to carry a cup of coffee without a lid,
- Another that prohibited the carrying of two cups of coffee,
- An ordinance mandating the holding of the hand rail when ascending or descending stairs.
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:
- The world's private and public sector leaders believe that a rapid escalation of 'complexity' is the biggest challenge confronting them.
- They are equally clear that their enterprises today are not equipped to cope effectively with this complexity.
- They identify 'creativity' as the single most important leadership competency for enterprises seeking a path through this complexity."
Facing a world which is becoming dramatically more complex, it is interesting that CEOs selected creativity as the most important leadership attribute. Creative leaders invite disruptive innovation, encourage others to drop outdated approaches and take balanced risks. They are open-minded and inventive in expanding their management and communication styles, particularly to engage with a new generation of employees, partners and customers.
How can openness to creative input from below help prevent a BP disaster? Because when employees are encouraged to think for themselves and are empowered to make decisions, disasters can be averted and opportunities opened.
A case in point: Mike Williams, a chief electronics technician on the Deep Water Horizon, noticed that chunks of rubber from the annular seal on the blowout protector were coming up the pipe with the drilling mud. It appears that several days prior to the accident, an operator accidentally bumped a joystick controller while the blowout protector was being tested. The result: several meters of drilling pipe were pulled through the activated seal. Upon discovering the rubber, Mike was on the drilling floor when a drilling technician took a handful to a supervisor and asked if its appearance was serious. The answer: "I'll have to kick it upstairs" (meaning, "Ask management"). The answer that came back: "Proceed." If Mike Williams were not in a command-and-control management structure, but instead in a "social network management structure," perhaps the disaster could have been averted.
What is a social network management structure and can it work? Can a corporation exist without an organizational chart? Will employees know what to do if they don't have several layers of management above them to tell them? Will we be able to motivate people to work harder if the CEO doesn't make 300 times the salary of an entry-level engineer? Won't we have absolute chaos if we don't restrict the invention, design and development of new products to a corporate R&D center? Won't we create intense jealously if we do away with the human resources department and instead publish everyone's salary for all to see? Won't we hire hoards of incompetent people if we allow involved teams to interview and hire and manage their peers?
Apparently these questions didn't bother Bill Gore, who founded Gore Industries in 1958 with the idea that he should abandon these traditional assumptions. After a frustrating 17-year career with E. I. du Pont, where his repeated suggestions that polytetrafluoroethylene (PTFE), or Teflon, could be developed into much more than a coating for fry pans, Gore decided to strike out on his own with a new management concept—a social network management structure. The company has
- No organization chart – Instead there is a lattice network.
- Few people have titles – If you call a meeting and people come, you are the boss.
- All employees are encouraged to set aside a half-day per week for "dabble time" – This is a time where an employee can work on pet projects.
- Compensation is based on the success of your inventions – The more you contribute, the more highly regarded you are.
The result: Gore Industries turned a fry-pan coating into GoreTex and hundreds of other products, including the Elixir guitar string, known as the best guitar string in the world. The company has turned in 50 years of unbroken profits and has made Fortune's 100 "Best Companies to Work For" every year since its inception.
Apparently no one told Whole Foods, who has reinvented supermarket management, either. This is how the company operates:
- Instead of the traditional store manager, there are eight independent teams who are responsible for procurement, pricing and advertising for their department.
- Each team interviews and hires its own employees.
- All salaries are published, and CEO John Mackey reduced his salary to $1.00 a year (plus a $33,850.00 bonus) in 2006.
- Mackey also makes sure that 93% of all stock option awards are reserved for non-management people.
The result: Whole Foods has opened 200 stores since its inception in 1980. The stock price has risen 3000% since its IPO. The revenue of $1000/sq. foot (the revenue the store gets per square foot per year) is nearly double that of all other grocers. Interestingly, in this intensely competitive field, Whole Foods has managed to thrive while 152-year-old A&P (Atlantic & Pacific Tea Co.) filed for bankruptcy in the fall of 2010. The company’s old-school management model was surely a contributing factor.
Add to this list of innovators Google, Apple and Cisco. Each of these companies values creativity and individual contribution above all else. Indeed, Eric Schmidt, CEO of Google, says that what motivates the best and the brightest people today is the ability to "make a difference." Steve Jobs calls it "making a dent in the universe."
This different management style was driven home to me recently. As a retired engineer and now a grandfather, I have been interested to watch the career development of my two sons. My first son is a self-employed entrepreneur who lives in the world of Linux. His crowing achievement was not the award of a million-dollar contract for a piece of hardware and software he developed, but a letter from Linus Torvalds telling him that a piece of code he had written was now a part of the Linux kernel.
My second son was hired recently by Apple to be a business manager in an Apple store. After several months of multi-store training, it was time to take a trip to the "Promised Land" in Cupertino. He and nine other trainees arrived at their hotel on Sunday evening. On their iPhones they had text messages telling them to meet at the corporate headquarters at 8:00 a.m. the following morning where an Apple vice president would meet and welcome them. After the requisite greetings and assignment of badges, the vice president led the team through the door into the impressive Apple lobby. The entire lobby was filled on both levels with Apple employees who were giving them a standing ovation.What company does this?
Later in the week, my son was standing in the food line, tray in hand, talking to another of his class. When he noticed the eyes of his colleague widen, my son turned around to see Steve Jobs standing in line, tray in hand, right behind him. Steve, noticing the trainee badge, stuck out his hand and said, "Welcome to Apple, Dan, we're glad you’re on the team." Steve then got his food and went to sit with Apple engineers, as is his custom.
What CEO does this?
I asked my son how this made him feel? You can guess his answer—Awesome!
Interesting, isn't it, that the companies who are mired in the old command-and-control model of management, such as Kodak, Blockbuster, A&P, GM, Sony and, yes, BP, are struggling, while those employing the new model are thriving?
On February 18, 2011, President Barack Obama assembled a meeting of the leading innovators at the house of venture capitalist, John Doerr. Present were the likes of Steve Jobs of Apple, Mark Zuckerberg of Facebook, John Chambers of Cisco, Dick Costolo of Twitter, Larry Ellison of Oracle, Eric Schmidt of Google and a few others. There was one glaring absence―Microsoft.
It appears that Microsoft has lost its position as an innovator. Instead of attending this meeting, Steve Ballmer was hosting Nokia's CEO, Stephen Elop to discuss Microsoft’s investment of billions of dollars in Nokia phone technology and marketing in order that Nokia adopt the Windows 7 platform for its mobile phones. Few analysts expect this marriage to dent the Google/Apple domination of this industry.
What happened? It seems that Microsoft lost its way somewhere. Instead of fostering creativity, it tried to hang on to a legacy. "At one point," says business strategy expert, Gary Hamel, "Microsoft had 4000 engineers and programmers working on Vista." Each was doing what they were told to do, but none had authority be creative.
The process industry is ripe for change as well. No one knows this better than a company such as BP that has been burned by an outdated management model. As at BP, bureaucracy bogs down other process industries. We struggle on, day by day, trying to make a difference, but are thwarted at every turn. Perhaps we can learn a lesson from those in the industries mentioned. Perhaps by working together, we can bring a change to an industry which badly needs a new "process management" model. As we collaborate to invent new ways to engineer, construct and operate our industrial processes more safely and efficiently, perhaps we can strive to accomplish what Steve Jobs says to Apple employees: "We're here to put a dent in the universe."
Dave Beckmann was a senior vice president at Emerson Process Management until 2005 when he retired. He is now a consultant and motivational speaker for the industry.