BP and Toyota: Leadership Lessons in Disaster Recovery

Last Updated Jul 7, 2010 12:04 PM EDT

Wakeup CallNo career is without its hiccups. No company goes straight up and to the right. Every successful executive and every company that's been around has been to the brink of disaster at some point. What distinguishes the great ones is the way they handle it. Few are proactive and decisive. They recover. The rest, well, don't.

Survivors see disaster as a wakeup call, an opportunity to learn and change. The rest try to sweep it under the rug, sugarcoat the truth, or make believe it isn't really happening. Here are three anecdotes about companies and executives in crisis. Executives, leaders, managers, indeed everyone, listen up. Your time will come. You can count on it.
Toyota, once the king of quality, has recalled over 8.5 million cars and trucks over the past six months due to a laundry list of quality and reliability problems. And in J.D. Power's annual Initial Quality Survey of new vehicles, Toyota fell to a dismal 21st place overall. I'd call that a wakeup call.

As a result, Toyota's making major changes to the way it develops cars. The company's extending product development lead times by several months to allow for additional testing, cutting the number of engine and key feature variations to simplify engineering, and bringing the bulk of its outsourced engineering in house. Toyota's initial response to the crisis wasn't so hot. Now, it's pulling out all the stops. Better late than never.

The situation is even more dire for embattled oil giant BP. The gulf oil spill has cost the company $100 billion in market valuation and the price tag for cleaning up the mess will likely be upwards of $20 billion. Throw in the global destruction of the BP brand and you can bet that top executive heads will roll when the leak is finally stopped and the crisis abated.

You'd think that would be a wakeup call, wouldn't you? Talk about an ounce of prevention being worth a pound of cure. I wouldn't be surprised if this changes the way every oil company approaches safety and quality. As I implied in BP's Gulf Oil Spill: The Perils of Cutting Corners, it certainly should ... change the way the industry operates. Only time will tell.

Probably the most eye-opening wakeup call I can remember was Cisco, then the most valuable company in America, losing 80 percent of its $500 billion market cap when the dot-com bubble burst in 2000.

What's unique about this wakeup call is that CEO John Chambers didn't just wake up after the fact and realize he was in deep you-know-what. Instead, he acted decisively, cutting early and cutting deep by laying off 8000 employees and restructuring the company, including clamping down on its notoriously prolific acquisition strategy. As a result, Cisco weathered the recession better and came out of it quicker than the vast majority of networking companies did.

Each example provides a takeway for how companies and individuals can best recover from disaster:

  1. Leave no stone unturned in determining how to restructure. Nothing is sacred. Don't decry lost efficiency, productivity, profits, or anything you have to sacrifice to get back on track. You can deal with that later. If you don't fix what's wrong, there won't be any later.
  2. Wakeup calls can save your career, your company, your industry, but only if you actually wake up. That means being honest with yourself about your failure. That takes humility, courage, and perseverance, not coincidentally, all basic qualities of successful leaders.
  3. The sooner you realize what's going on, the quicker you react, the better the recovery. Almost every company (and everybody) reacts tenuously or takes a wait-and-see approach. In virtually every case, that's a bad idea. Be decisive and be quick about it. If you need to cut, cut early and cut deep. You can build back up as conditions improve.