Was BP too efficient?

Fireboats battle a fire at the offshore oil rig Deepwater Horizon April 21, 2010, in the Gulf of Mexico off the coast of Louisiana. U.S. Coast Guard via Getty Images

Commentary:

(MoneyWatch) In his testimony in the civil case dealing with the Deepwater Horizon disaster, the first witness, catastrophe expert Bob Bea said that he warned BP repeatedly about their safety standards. They had a process -- called the operating management system (OMS) and described by former CEO Tony Hayward as the "cornerstone for safety" at BP; it just wasn't implemented at Deepwater. Bea argues that the disaster wasn't a fluke but representative of an overall management and leadership failure that stretched all the way to London. Bea said, "I told BP there aren't no surprises," meaning that safe companies don't get blindsided. But BP was blindsided on a regular basis from Prudhoe Bay to Texas City to Deepwater Horizon.

There were many reasons for the leadership failure at BP, which I've written about in my book "Willful Blindness." One of them was cost-cutting, a fetish within the company following a string of aggressive, expensive acquisitions. Bea referred to this in his testimony, comparing it to NASA's "better, faster, cheaper" mindset; in BP's case, said Bea, it was a mantra of "every dollar counts."

It's easy and tempting to focus on BP and its cost cutting. But you could argue that the company was only doing what every business has been doing relentlessly since 2008: Cutting, cutting and cutting again. Reducing headcount, shortening timescales, cutting margins. This is called efficiency but there is always a point beyond which it isn't efficient but starts to get dangerous.

Ray Anderson, the late CEO of Interface, argued that there is an inverse relationship between efficiency and resilience. Yes, you can cut back on everything but at some point what you are losing is your capacity to recover from a shock. Those margins of error really matter; you will notice them when you're gone.

I was reminded of this recently when talking to a utility company, under huge pressure to reduce costs and rightly concerned about the longer term consequences for its resilience. Short termism says: make the cuts; a longer view says: be careful. BP did not take the longer view and might be held up as the poster child for the efficiency/resilience trade off.

The truth is that any dumb manager can cut costs. It's simple. Cutting costs safely is difficult and there will always come a point beyond which it is not possible. The test of leadership is whether people are prepared to stand up and say so -- and whether leaders are prepared to listen.

  • Margaret Heffernan On Twitter»

    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.

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