Thursday, May 30, 2013

BP Oil Spill - Strategy of Strategies

On April 20th, 2010 the United States experienced the biggest oil spill in U.S. history.  Deepwater Horizon oil spill, also known as the British Petroleum (BP) oil spill, was catastrophic.  We all remember it, right? It was all over the news and inter-webs with pictures of animals caked in oil.  Over 200 million gallons of crude oil dumped into the Gulf of Mexico.  It lasted for 87 days.  11 people and over 8,000 animals died.  It was a lose-lose for everyone involved. BP as an organization needed to develop and implement a set of strategies in order to survive this event.

                Obviously the tragic loss of life for the people and animals overshadow everything else in the story, but if we may, let's focus on British Petroleum's perspective.  How can they respond from this event?  Better yet, how can they survive?  Their image took a massive hit.  At the time of the spill, who asked themselves "who in America is ever going to buy gas from BP again?  Surely not this guy" I told myself.  BP was fined close to $40 billion dollars.  Yes, that is a "b" for billion.  In addition, they also had cleanup costs and settlements to go along with the $16 billion they had to pay to the Clean Water Act.  Also, it has been reported that BP lied to Congress about how much oil it spilled and was fined $4.5 billion.  Not to mention that their stock prices sank.  Clearly BP had undeniably painted themselves into a corner.

                BP's strategy to survive and overcome this tremendous loss of image and money included implementing multiple strategies.  First, they needed to strategize on containing, dispersing and removing the oil from the Gulf.  There are some debates on whether it was successful or not, but it is still happening today.  They then needed a marketing and communication strategy in order to get their message across to the public that they messed up.  They tripled their advertising budget immediately following the "accident" in order to send that message across. They needed a value strategy as well that they could sell to their investors.  They currently have a ten point plan to grow value for shareholders. Finally, they used this tragedy as an opportunity to remake their organization.  That strategy was simple; shrink and grow.  “BP is leaner, trimmer, fitter than it was, and the right size to deliver value,” says Jason Kenney of Santander.

                Well it's been over three years since.  The cleanup still continues. BP is still in court fighting legal battles. Small market companies that rely on wildlife in the Gulf are still struggling today because the wildlife is simply not there.  Investors are skeptical because BP's shares are down a third from the levels they were at when the oil well exploded.  There's no doubt that their image is still tarnished.  All of that said, they have survived thus far. Has their combination of strategies paid off?  It's too early to tell.  They are still working through the court system and the final cost has yet to be determined, but this process takes time. “They are turning a corner – but it’s a very long corner,” says Investec’s Mr Joyner.  Have you purchased gas from BP since April 20th, 2010?  Surely this guy did.


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