Posted 7/30/2010

HOW OUTGOING BP CEO HAYWARD CREATED THE CLIMATE FOR CRISIS

Tony Hayward became CEO of British Petroleum in 2007, replacing a man who had led BP into all kinds of quality and safety problems, including the Alaskan pipeline oil spill, which was caused by the company's eliminating a major safety device.

Faced with overcoming over seven years' worth of quality and safety problems, Tony Hayward promised "to focus on safety like a laser."

But did he?

Did he create the kind of climate which fosters a corporate culture of safety?

A CEO can create any kind of climate he chooses to.

For example, Eiji Toyoda created the climate of quality at Toyota during the latter half of the 20th century by spending one day each month in factories, reviewing the quality of production in his various engine, manufacturing and assembly plants. He further empowered line workers to halt production if quality was going off-kilter. Toyota became renowned for quality.

Toyota became known for quality because everyone down to the floor sweeper knew what the boss wanted. As a US auto foreman once said, "We all dooz what the boss reviews."

Norman Vincent Peale, former pastor of the Marble Collegiate Church in New York, once said, "My job is to create the climate in which the miracle of Christianity can take place." He was uniquely successful because every staff member and every parishioner knew what he wanted.

Tony Hayward said he was going to focus on safety. He made the safety pronouncement to the board of directors, to management, to the workers to the press and to the world.

But did anyone believe him?

Not if you interview the BP workers.

All consistently said the same thing: Their bosses were on them daily to reduce costs. Costs, costs, costs was the climate at BP. Not a single worker claimed that his boss was ever after him to improve safety.

If "they all dooz what the boss reviews," it was clear that Tony Hayward was creating a mammoth climate of cost reduction and not safety.

The climate of cost reduction was so powerful it overrode any consideration of quality. Worse yet, the climate was widely interpreted inside the company to allow for cost reduction steps which would come at the expense of safety.

Fundamentally, Tony Hayward's cost reduction climate evolved into a "safety-be-damned" climate – just as it had for his predecessor, who created the climate which reduced cost by eliminating the safety device which led to the Alaskan pipeline spill.

Congressional investigators have found all kinds of instances where safety was compromised on the Gulf drilling platform, many with the full complicity of the federal regulators.

Hayward is not the first leader to have sacrificed safety and quality in favor of cost reduction and profit. It's just that such behavior in the oil industry has more dramatic consequences than it does in most manufacturing enterprises.

Take General Motors as an example. During World War II, GM abandoned its quality orientation in favor of a "get the iron out the door" policy. The Army wanted lots of trucks fast. GM turned them out – no matter that they leaked badly during rainy periods. If twenty percent of the engines were faulty, who cared? The War Production Board wanted transportation fast. Besides, many of the trucks were being routed to the Russians. Who cared if Russian truck drivers got soaked?

Then came the post-war boom for cars and trucks. Which would make the most money – quality or volume? The short-term answer was obvious. "Get the iron out the door" became the dominant GM manufacturing policy from World War II until the company faced bankruptcy in 2005. The company has now made great strides in quality with its Buick and Cadillac divisions. But it was too late for Pontiac, Saturn and Oldsmobile, which lie, unhonored, in the great scrapyard in the sky.

One of GM's quality problems was the auto's finish. The colors of Hondas and Toyotas were shiny, bright and even, compared with the dull, uneven finishes of GM cars. So GM threw money at the problem, rather than analysis, by installing new paint shops in its factories. But even with the new painting processes, GM cars did not compare with those of Toyota and Honda.

Finally the company realized what everybody who has ever painted a house knows – the surface to be painted must be clean and smooth. But the sheet metal surfaces produced by US Steel and Bethlehem were anything but smooth, whereas the sheet metal used by Toyota and Honda came from Japanese steelmakers who were far more quality conscious than their American competitors. In order for GM to produce cars with good finishes, they had to reform the low quality manufacturing processes of US Steel and Bethlehem.

GM CEO after CEO pledged to improve quality. But none made the effort to create the kind of climate that results in good quality. Everything else had priority. Especially "iron out the door" and profits.

In fact, the American companies did not make serious efforts to improve quality until forced to do so by Honda and Toyota.

Will BP make the switch in its corporate climate from cost reduction to quality and safety?
If GM is any example, it will take at least a decade of serious reorientation efforts.

And with all the money they are losing in the Gulf spill, it will be hard to move away from a philosophy of profits through cost reduction.

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