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During the late 1980s, the management of BP can be described as having been politics oriented, bureaucratic and operating through a cumbersome matrix structure. Despite the company indulging in conglomerate diversification in 1970s, it failed in the achievement of its organizational objectives and goals. By 1992, the company was in both management and financial crisis with both its performance declining and the company being heavily indebted almost resulting to bankruptcy. In this context, we will be using the stakeholders' theory in relation to BP's operation.
However in recent years, BP has reported record profits an organization can achieve specifically in 2004 when the pre-tax profit of the company stood at $4 billion during the third quarter of the year. White describes some of the key driving forces behind the company's success being as a result of cost effective strategies specifically in exploration and production(White,1992 No. 1:3-14). Moreover, this success was boosted by the increasing prices of crude oil. BP has been a force to reckon with in the exploration and marketing of hydrocarbons deposits in recent times.
The operational excellence of BP came at a time when the company was on the verge of a financial breakdown. Between 1998 and 2000, BP acquired two other major oil companies Amoco and Arco as well as other small oil companies in an attempt to strengthen its competence in the oil industry (Stoneham, 2000, pp.411-419).The acquisition of these companies brought in scale and a wider scope bit it is the organizational changes in the company that have led to the success of BP.
Some of the earlier changes that saw this remarkable turnaround of BP were focused on incorporating unrelated lines of business in the operations of the company. The company settled on three types of businesses namely, upstream oil, downstream oil and petrochemicals. The three businesses are run quite independently since the presence of well functioning crude oil markets eliminated the challenge in the oil industry of internal dealings.
Under the leadership of Robert Horton who became CEO in 1989, BP made its first step in implementing changes that would eventually lead to improved performance. Robert's project aimed at improving the decision making process and the speed in which these decisions were implemented. Robert's strategy encouraged employees to take up personal responsibility as well as exercise initiative in their work. Robert's strategy however posed a significant challenge to the company by mounting economic difficulties, slashing capital budgets and significantly cutting on employment.
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During the tenure of Robert as the CEO of BP, the performance of the company continued to deteriorate. This was with regards to the slowdown in the world economy in 1990. Horton was replaced by David Simon who continued on the same cost cutting strategy developed by Horton. This period was characterized by massive employment fall with employment falling from 97000 in 1992 to 50000 in 1995.However, the company's profits rose from $811 million in 1992 to $2.4 billion in 1994.
John Browne who succeeded Simon as BPs CEO undertook a major organizational redesign. The approach taken by Browne which was first applied in BP Exploration (BPX) but later applied in the entire company was known as the asset federation. This approach led to improved behavioral changes as well as impressive organizational results.
The significant changes in the organization system and procedure of BP led to massive changes in the culture of the company (Siddal, 1992 pp.37-45).The staff developed personal initiative in their responsibilities and improved their commitment a situation which helped the company register improved performance. The approach taken by Browne and his predecessors was aimed at improving organizational performance while at the same time improving organizational performance.
Series of problem facing the company
In the wake of the recent Gulf oil spill, there has been an emerging trend in major problems facing the company raising questions over its credibility to operate effectively. In recent years, BP has found itself at the epicenter of some of the world's worst gas and oil incidences. This has raised concern over the preparedness of the company to handle or cover for such emergency situations in the course of its operations.
One of the most significant disasters of the company was the March 2005 massive explosion at the company's refinery tower in Texas. This accident resulted to a total of 15 workers while 170 workers were critically injured. Preliminary reports indicated that the company had ignored its protocols in operation. Reports also suggested that the tower's warning system had been disabled. The company was heavily fined by the US Environmental protection Agency.
Another occurrence happened at the BP's Prudhoe Bay when technicians found that an estimated 4800 of oil had spread into the Alaskan snow through tiny hole. There were claims that the company had been previously warned to check its pipeline but the company's failure to do so may have resulted to accident. The temporarily shutdown of the Prudhoe Bay operations by BP caused one of the largest oil interruptions in the US.
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Another problem that rocked the company is the series of spills in Alaska. BP was also accused and charged of manipulating the market price of propane. This accusation greatly affected the reputation of the company and its credibility as a leader in the oil industry. BP agreed to settle the matter with the US Department of Justice by accepting liability and paying over $300 million.
The series of problems facing the company questions the effectiveness of the company's organizational design. Environmental analysts argue that the Gulf oil spill was a preventable occurrence and was as a result of process, cultural and management failure. There have been clear indications that BPs cost-effective strategy may have resulted to multiple flaws in the operations of the company's subsequent projects.
There has been a series of allegations that BP put cost ahead of the environment. According to Hatch, the failure of BP on stopping one of the world's largest oil spills indicate the key problem with companies that apply the stakeholders theory in their management techniques (Hatch & Cunliffe, 2006, pp.297).The opposing principle is that companies that aim at meeting the needs of the stakeholders are directly or indirectly exposed to moral abuse in the absence of normative principles as the core issue.
Stakeholders' theory application
Freeman in his book, Strategic Management: a Stakeholder Approach argues that the stakeholders' theory of management should be broader in its interpretation to include individuals or groups who hold distinctive interest or directly or indirectly affected by an organization's operations. This theory should hence help managers come up with organizational strategies aimed at dealing with social issues in a proactive rather than a reactive manner of achieving economic benefit.
The stakeholder's theory should include environmental effects due to the fact that the environment can be affected by the activities of an organization. Many organization s should therefore pay homage with respect to the environment. BP in their 2009 report state that At BP we define sustainability as the capacity to endure as a group: by renewing assets; creating and delivering better products and services that meet the evolving needs of society; attracting successive generations of employees; contributing to a sustainable environment; and retaining the trust and support of our customers, shareholders and the communities in which we operate."(British Petroleum Company annual report)
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The stakeholder's theory is one of the most applied management theory by many organizations. However with time, it has been usurped by individual or corporate interest initiatives that locks out ethical consideration in managerial analysis (Series,2003).The Gulf oil spill is considered as one example of corporate interest disregarding ethical considerations in analysis.
As seen by Hopkins, preliminary reports on the Gulf of Mexico oil spills indicate that there was massive malfunction in equipments designed to prevent such accidents(Hopkins 2008).However, it is not clear whether BP knew about these malfunctions or not. According to the stakeholders theory, The Company weighed between equipment failure and environmental; harm against cots and profit. What is found lacking in BP's management system is the environmental approach. Even if it meant losing money, BP ought to have installed the blowout preventer way before the disaster happened.
All the incidences and occurrences at BP points out to its internal organization design. This is with respect to the approach different managers undertook in the management of the company disregarding morally approached strategies in favor of cost cutting strategies. According to Steffy, given the pressure that the company gave on its staff to improve performance, it is not surprising that the employees gave more weight to cost saving and future profits in favor of environmental considerations and effects (Steffy 2010).
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The above statement is reflected by the report investigating the cause of the Deepwater Horizon rig explosion. The report accused BPs executives of trying to improve the company's performance through saving time and cost but at the same time jeopardizing safety measures and controls in the rig. This moral consideration puts companies at task to balance between long term profit and making ethical decisions under the stakeholder's law (Kolk & Levy, 2001 pp.37-450).
According to Chen, the greatest advantage of the application of the stakeholder's theory in management is that it gives the management team to favor ethical consideration in an attempt to maintain ethical integrity rather than trying to please the shareholders through organizational performance (Chen 1997).BP failed to apply this strategy and preferred to put the cost of operation before the environment. This led to the company losing billions of dollars in the Gulf of Mexico oil spills as well as the other previous oil spills. Had the company taken into consideration ethical environmental consideration, BP could have saved potential profits as well as the cost of repairing damages taking into consideration that the reputation of the company was greatly put to question.