Critical Discussion of Crisis Management and BP Leadership

Introduction
Literature Review

This section briefly discusses crisis management and leadership, the two key areas of literature that will help to examine Tony Hayward’s leadership during BP’s most recent organisational crisis.
Crisis and Crisis Management
There is no one definition of the term ‘crisis’ (Keown-McMullan, 1997), however a guiding definition is that a crisis is an event that impacts or has the potential to impact the entire organisation (Mitroff and Anagnos, 2000). A crisis can also be described as a major, unforeseen circumstance that can potentially jeopardise an organisation’s employees, customers, products, services, fiscal situation, or reputation (Callan, 2002, Augustine, 1995, Santana, 2003). This definition is in line with the theory that a crisis is characterised by three elements: high threat, short decision time, and an element of surprise, indicating that each crisis contains an urgency that necessitates decisions and actions to be taken immediately by the people involved (Keown-McMullan, 1997, Reilly 1987).
While the idea that a crisis as a negative state of affairs is still the most popular construal in the literature, the idea of a positive outcome from a crisis situation can also be found in some definitions and discussion (Keown-McMullan, 1997). For example, Fink (1986, p. 15) defines a crisis as:
…an unstable time or state of affairs in which a decisive change is impending – either one with the distinct possibility of a highly undesirable outcome or one with the distinct possibility of a highly desirable and extremely positive outcome. It is usually a 50-50 proposition, but you can improve the odds.
This definition implies that, if managed effectively, a crisis can bring a desirable outcome. Indeed, it has been suggested that an organisation can experience a ‘successful’ crisis that actually leads to improved firm’s performance (Boin and ’t Hart, 2003). Such an outcome is possible because crisis “focuses attention on how tasks are managed and draws new patterns of cohesion, a successfully handled crisis can benefit an organisation” (David, 1990, p. 90). This therefore reinforces the fact that the effective management of crises is important. It should thus entail the execution of well-coordinated actions to limit any damage and preserve or rebuild confidence in the organisation under crisis. It is also important that crisis management should start before a crisis arises and may extend after the ‘actual crisis come to an end, such as after the oil has stopped gushing into the sea (Fink, 1986). Based on this, Santana (2003, p. 308) defines crisis management as:
… an ongoing integrated and comprehensive effort that organisations effectively put into place in an attempt to first and foremost understand and prevent crisis, and to effectively manage those that occur, taking into account in each and every step of their planning and training activities, the interest of their stakeholders.
There are number of elements within the external environment, shifting of which leads to the occurrence of a crisis. These elements include Political – legal, economic, social and technological forces and these constitutes a complex network within which organisations exist. Even though shifting of these elements do not occur often, organisations needs to consider these elements while drafting their strategy because of negative blow that would be brought about by shifting of these elements. The most common examples are when government across the world come up with a law that bans the sale of certain type of products. This would create substantial disruption in a firm’s operations which would constitute a crisis. This does not mean that every external threat faced by an organisation will constitute a crisis. For e.g., if a government passes a law which would require manufacturers of certain products to have 2 languages in a product pack, rather than having one that is used in the current pack, it cannot be considered as a crisis as it would not probably cause substantial disruption. Therefore, the term ‘crisis’ cannot be used for every external threat and in most of the cases, even though the organisations tend to be regularly exposed to number of actual and potential crisis situations, they fail to recognise its seriousness. The following examples illustrate this reality (Crandall et al, 2009).
Political and legal forces
Some of the political forces that contribute to a shift which has the potential to lead to a full blown crisis include relations between countries, outcome of meetings between government leaders, rules and regulations and decisions taken by individuals and teams at various levels of government. The legal forces that can contribute to the crisis include laws and legislations passed on by governments, the judgements made by judiciary in various cases involving government and an organisation etc (Crandall et al, 2009) (GOEL, 2009).
Economic forces
The economic forces contributing to the shift includes changes in the Gross domestic product and various indicators that show the economic health of a country. These include inflation, exchange rate and interest rates (Labrosse et al, 2009)/
Social forces
The social factors contributing to the shift includes values within the society, the change in traditions and religious practices. The crisis from social factors will be disastrous when society / people lose trust in the company or are angry with a corporation. This can be explained by the recent banking and financial crisis. The main reason for the crisis is that people and society and organisations lost trust in each other. This made people withdraw huge sums of money from the banks, who were not in a position to fulfil the demand because the banks or organisations from which they were expecting money were not willing to provide them the cash. What made people angrier was that banks or other financial institutions were paying huge amount of bonuses to their employee while people outside these institutions were losing money. This opportunistic behaviour of bankers, stockbrokers, investment bankers etc lead to a situation where common man lost trust in the stock market, which is an indicator of the performance of top companies of a nation, and it plummeted down to record levels not seen in recent memory. The spiral effects lead to laying off of thousands of people which affected the economies of the countries across the world because as companies lay off workers, their spending capacity reduces. Once their spending capacity reduces, then they are not in a position to go to high street shops to buy products. When people are not going to high street shops to buy products, then these shops lay off people thereby affecting the local economy. Most of these people would be having a number of commitments like paying their mortgage, credit card debt, personal loans etc. When people are not in a position to pay off these debts, the financial institutions are not in a position to roll over money which hits the core of banking activity. Thus, this shift in one social factor called trust has lead to one of the most dreadful global crisis ever experienced by mankind in recent history. Even though, it’s been close to 2 years since the crisis, a vast majority of countries and organisations have not yet been able to recover fully from the impact (Crandall et al, 2009) (Jordan-Meier, 2011).
Technological forces
The technological factors which contribute to shift include major scientific innovations or improvements. These innovations or improvements can lead to either creation of new opportunity or threat to existing businesses. Technological innovations and improvements have the capability to destroy not only existing businesses but also entire industry as well. For example, personal computers were a fantastic technological innovation which gave rise to a entire new industry centred around computers which includes monitors, servers, operating systems etc. But the rise of the computer industry was followed by the slow demise of the type writing industry following the development of word processors and personal computers (Moore, 2005). In fact, just a couple of months back, world’s last remaining typewriting factory was closed by its owners Godrej and Boyce in Mumbai, India
Over the period of last few decades, different frameworks for crisis have been developed by taking into account different stages of crisis. The frame work for a crisis is based on the analysis of the life cycle of the crisis and this is usually accounted for by three-stage approach and four-stage approach (Laws, 2006).
The three-stage framework is the most basic approach to crisis and involves the following stages – PreCrisis, Crisis and Post Crisis. Different experts have suggested different formats for three-stage format. In the three-stage approach suggested by Smith (1990), Crisis of management constitutes the Pre Crisis stage; the crisis stage is called Operational Crisis and post crisis stage is called Crisis of Legitimation. In the Crisis of Management stage, a crisis can be easily triggered by a event due to the fact that organisation is not prepared to handle the crisis and actions of the leaders in the organisation does not inspire confidence in their teams. In the second stage, called the Operational Crisis stage, all the key leaders in the organisation put their heads together and try to develop quick fix solutions to get over the crisis. In the third stage called Crisis of Legitimation, the key stakeholders in the organisation including the ones who played a major role in Operational stage starts looking for scapegoats so as to shift blame and to appear legitimate and rightful in the eyes of public after the crisis (Andari, 2010) (Coombs, 2010).
Another approach to three-stage framework is the one suggested by Richardson (1994). In this framework, the PreCrisis stage is called disaster phase and this phase focuses on neutralising all the threats that may cause a crisis. In Crisis stage is called Rescue stage and is focused on the occurrence of the crisis. The Post Crisis stage is called Demise stage which emphasis on restoring stakeholders confidence in the organisation following the occurrence of the crisis (Coombs, 2010).
Another approach to crisis is a four – stage framework which adds an additional stage, to the three-stage framework, which focuses on the progression as it happens during the crisis. In one of four-stage framework suggested by Myers (1993), the first stage is a Operations stage, where the organisations puts in standard operating procedures and crisis management teams to act in response to the occurrence of the crisis. The second stage is the emergency response stage which focuses on the response that needs to be initiated in the first few hours following the occurrence of the crisis. The third stage is called Interim processing stage where stop gap arrangement and temporary procedures are put in place until the restoration of normal operations. The fourth stage is the restoration stage where the organisation comes back to normal operations (Coombs, 2010) (Crandall, 2009).
Another approach to four-stage framework was put forward by Fink (1996). In the approach, the first stage is called Prodormal stage which is stage before a full blown crisis and shows all the red flags and warning signs that a crisis is imminent. If remedial measures are taken during the prodormal stage, then a crisis can be prevented. The second stage is called Acute crisis stage and this is stage where actual crisis is happening and normal operations are seriously disrupted. This is also the stage where outsiders of the organisations get to see and hear about the crisis on a regular basis. The third stage is called chronic crisis stage which is not as dramatic as acute crisis stage and the organisation is trying to clean the mess created during the acute crisis stage. The Resolution stage is the final stage where the organisation has just gotten over the crisis and is slowly coming back to the normal operations (Fink, 1996)
Five stage frameworks is another approach to crisis and provide a more detailed approach than the three stage framework and four stage frameworks. It provides a more detailed understanding of different stages of the crisis (Perason & Mitroff, 1993).
In the five stage framework suggested by Pearson and Mitroff (1993), the following stages are included :
Signal detection: These are warning or red flags which occur when an organisation is slowly moving towards a crisis. In most cases, these warning and red flags are raised by people on the ground or lower level or middle level management or those directly interacting with customers. Detecting these signals and accepting them as ones which may lead to crisis so as to try to look at ways to manage a crisis is a skill not found is many leaders. Developing a mindset and skills so to become adept at detecting these signals is what organisations needs to embrace (Perason & Mitroff, 1993).
Preparation / prevention – In this stage, organisation gets ready to attack the crisis by setting up crisis management teams and workings on different plans to tackle different crisis occurring in different forms. The approach towards a crisis management will be through a systematic manner and should be on going. The objective from which this step is approached is to ensure that any crisis that may occur gets nipped in the bud (Perason & Mitroff, 1993).
Containment / damage control – This stage focuses on actual management of the crisis and trying to contain it with as minimal damage as possible to the organisation and stakeholder (Perason & Mitroff, 1993) (Mitroff, 1992).
Recovery – This stage focuses on bringing the workings of the organisation to as normal a stage as possible. The recovery process passes through different sub stages. The short term recovery stage tends to bring the working on the organisation to a minimal acceptable level of service. The short term recovery is followed by long term recovery where the operational capabilities of the organisation reach pre crisis level. In some cases, long term recovery will be followed by another recovery process whereby the organisation tends to work at a higher level than that was observed during the precrisis stage. For example, if a fire at a production facility destroys a old machine which has the capability to produce ‘X’ number of products every hour, then a modern machine which has been installed following a crisis has the capability to produce ‘2X’ products thereby ensuring higher level of productivity when compared to the Pre Crisis period (Perason & Mitroff, 1993) (Mitroff, 1992).
Learning – This fifth stage, post the recovery stage, focuses on improvising operational problems so as to prevent the occurrence of future ones. The stages emphasises on reflecting on the crisis and documenting the lessons learnt rather than finding scapegoats and blaming other parties (Perason & Mitroff, 1993).
Particularly important during major crises such as the BP oil spill, which affects many different stakeholders, is crisis communication. Crisis communication, which involves communicating with a range of stakeholders, generally relates to the public relations element of crisis management, and is arguably the single most important aspect of the organisation’s response to the crisis. It therefore requires communication with internal stakeholders, including employees and shareholders, and external stakeholders, such as customers, the media, and the surrounding community, about what occurred and how the organisation is managing the crisis (Callan, 2002).
Effective Leadership in Crisis
Leadership is one of the most discussed topics in times of crisis because, to most people, the importance of leadership is clear since effective organisational leadership:
…provides a sense of cohesiveness, personal development, and higher levels of satisfaction among those conducting the work; and it provides an overarching sense of direction and vision, an alignment with the environment, a healthy mechanism for innovation and creativity, and a resource for invigorating the organisational culture (Van Wart, 2003, p. 214).
As with trying to define ‘crisis,’ there are also many definitions of ‘leadership’ (Stodgill, 1974). Some researchers present established definitions of leadership, for example Kotter (1999, p. 10) defines leadership as “[t]he development of a vision and strategies, the alignment of relevant people behind those strategies and the empowerment of individuals to make the vision happen, despite obstacles.” Alternatively, some researchers present more general definitions of leadership that may apply equally well to leadership in organisations as to leadership in other settings. Peter. G.Northouse in his book “Leadership: Theory and Management” (2007 explores four components that are central to leadership:
(1) Leadership is a process.
(2) Leadership involves influence.
(3) Leadership occurs in a group context.
(4) Leadership involves goal attainment.
Based on these four components, Northouse coined a definition which states that “Leadership is a process whereby an individual influences a group of individuals to achieve a common goal”. (Northouse, 2007, p .3). The concept of leadership has evolved over a period of time which typically reflects the larger society as norms, attitudes, and understandings in the larger world have evolved and thereby changed (Richard Daft, 2005).
Crisis leadership effectiveness depends largely on an organisation which is responsible for creating an environment for the leadership to operate. A highly experienced and competent manager will still struggle to successfully manage a crisis if there is no adequate support from his colleagues and if the groups are poorly structured and disorganised. Micheal Blyth in his book Business continuity management: Building an effective incident management plan mentions about the following organisational principles to support effective crisis leadership (Blyth, 2009).
Clear responsibilities
Demarking of clear responsibilities in organisation will ensure that gaps and shortfalls are avoided and duplication of efforts is prevented. Establishing clear responsibilities will also ensure that during the occurrence of crisis along with internal company politics are eliminated (Blyth, 2009) (Fearn-Banks, 2007).
Training and education
Every organisation should develop a team of leaders who have expertise in dealing with crisis situations and that companies should regularly train these leaders by keeping aside time and resources. These leaders should be regularly trained on managing crisis and utilisation of policies, systems, tools and protocols (Blyth, 2009) (Fearn-Banks, 2007).
Practice and rehearsals
Regular practice and rehearsals by the crisis management groups will ensure that any loopholes or shortfalls. Regular practice will not only increase the confidence of crisis management team but also help develop familiarity with the Crisis management plans (Blyth, 2009).
Empowering Leadership
An organisation should develop certain parameters within which crisis management leadership should be empowered and given the freedom to operate. This decentralization process will ensure that crisis at the local level can bring about effective management in times of crisis. Having a centralised leadership in terms of crisis management will significantly undercut the ability of leaders in the ground to successfully manage crisis (Fearn-Banks, 2010).
Delegation
An important aspect of crisis management structure and the one which is the core component of empowering leadership is to sensibly delegate responsibilities to the lowest level decision making abilities so as to put in place a structured and streamlined management system (Blyth, 2009).
Authority lines
During the crisis, middle level managers should be aware of the person to be contacted for requisite permissions so as to prevent a scenario where the people attempt to name a decision maker during the crisis event. To ensure that swift actions are taken during the crisis, clear authority lines and permissions should be granted to the crisis management team and people within the organisation must be made aware of the responsibilities of their colleagues in times of crisis (Blyth, 2009).
Established systems and supporting mechanisms
Effective response to a crisis can be generated by having established systems and support mechanisms in place. Establishing these strategies in place prior to the crisis will help crisis leaders in taking logically defined decisions which will develop confidence among their peers and sub ordinates (Devlin, 2006).
Innovation and Flexibility
The corners stones of effective crisis leadership are Innovation and flexibility as crisis tends to be unique every time thereby requiring tailored approach for achieving resolution (Blyth, 2009).
Leveraging
Companies and crisis management teams must be smart enough to leverage both outward and inward resources, capabilities, knowledge and also external resources so as to ensure that it does not lose out opportunities for effectively responding to the crisis (Blyth, 2009)..
The leadership framework for crisis management involves drafting a crisis management policy, setting up of crisis management team, developing a communication strategy, establishing partnerships and ensuring preparedness of the crisis management team with regular practice and training sessions.
Crisis management – a leadership challenge, 2011
Drafting the crisis management policy includes setting the tone for leadership commitment and mentioning the generic guidelines for action. This policy is based on an organisation’s values and philosophy (Crisis management – a leadership challenge, 2011).
After drafting the policy, the next step is to establish a crisis management team. The crisis management team analyzes different scenarios leading to a crisis and plans for the scenarios. Also while establishing a management team, the roles and responsibilities of different members of team are established so as to vent ambiguity in times of crisis (Crisis management – a leadership challenge, 2011) (George, 2011).
Following the setting up of a crisis management team, an effective communication strategy and infrastructure will ensure that there is going to be a consistent flow of information to all stakeholders at all time (Crisis management – a leadership challenge, 2011) (George, 2011)..
The established crisis management team should go about setting up of partnership with external agencies / organisations so as to ensure availability of critical resources and timely help (Crisis management – a leadership challenge, 2011) (George, 2011).
To ensure preparedness of the crisis management team and make sure that they are always on their toes, regular training programmes needs to be conducted and the capability of the crisis management to deal with crisis situation should be checked from time to time through mock drills (Crisis management – a leadership challenge, 2011) (George, 2011).
Leadership is particularly important in crisis situations and Boin and ’t Hart (2003) argue that crisis and leadership are closely related phenomena. Since crisis situations are times of uncertainty, people inside and outside the organisation look to leaders to ‘do something’ and thus the visibility of top management, particularly the CEO, during a crisis assures the public that the crisis is being tackled at the highest levels (Halverson et al., 2004, Sadgrove, 2005). Top managers must also actively engage in long-term corrective and preventive actions to avoid being involved in crises time again (Augustine, 1995). Additionally, leaders need to understand the dynamics and psychology of a crisis if they are going to respond well because crisis events require the organisation to make considerable changes to its ‘standard operating procedures’ while still responding to the crisis (Borodzicz, 2000, Santana, 2003). This seems to be have been missing in the case of BP, as the company has found itself in several crises situations over the past five years that have done major damage to its image and left it seemingly unable to respond well to new crises. In the latest oil spill, the leadership performance of BP’s CEO, Tony Hayward, was not well received. According to Boin and ’t Hart (2003, p. 544):
When crisis leadership results in reduced stress and a return to normality, people herald their ‘true leaders’… But when the crisis fails to dissipate and ‘normality’ does not return, leaders are obvious scapegoats.
This view of leadership sits quite comfortably with the forms of organization that are common in business, the armed forces and government. Where the desire is to get something done, to achieve a narrow range of objectives in a short period of time, then it may make sense to think in this way. However, this has its dangers. Different leaders have different styles. A great deal of power remains in their hands and the opportunity for all to take responsibility and face larger questions is curtailed (George, 2011).
The question to be investigated in this research is: What lessons can be learnt by Hayward performance as a leader during this crisisThe way in which this question can be answered is described in the next section.
Methodologies