We have yet to post anything about the oil spill in the Gulf of Mexico. Obviously, something went wrong there but it has not been clear what the link to operations is. A report on NPR last night, however, points to something in the way that BP generally runs its business in comparison to another major oil firm, ExxonMobil (Exxon After Valdez: Lessons For BP?, Jul 22.) Exxon, of course, does not have a spotless record. The BP spill was regularly compared to the Exxon Valdez spill until it came to dwarf it. Exxon apparently set itself the goal of not letting anything like the Valdez spill happen again and tried to make its operations as safe as possible. How have they done on that score?
In the last three years, when we look at refineries, 97 percent of the violations considered egregious and willful were given to BP. So, BP had 760. Exxon had one,” says Pavel Molchanov, an oil and gas analyst at Raymond James. “That is a colossal difference.”
Exxon does considerably better than the industry average on other safety-related measures, too.
For the record those egregious and willful violations are just in the US. BP has five refineries here. Exxon has six or seven (according to Wikipedia) depending on whether you want to count a joint venture. So how did they get to such an impressive safety record?
The accident gave the oil giant a jolt. Exxon spokesman Alan Jeffers says the Valdez spill marked a turning point for the company. “It was very clear we needed to have a safety stand-down,” he says. “So, we took a group of senior managers and supervisors, and their only job for several months was analyzing the business and where we needed to improve.”
This wasn’t just about public relations. Operating safely makes good economic sense. Exxon created an operations bible for risk management with guidelines and rules for just about everything — from taking the temperature of salad dressing in the company cafeteria, to how to conduct deep-water drilling.
BP, on the other hand, has had a different approach:
Tom Bower, author of the book Oil: Money, Politics, and Power in the 21st Century, says there are key differences between Exxon and BP. Exxon, he suggests, strips employees of the ability to make decisions on their own. They have to follow Exxon’s rules and guidelines to the letter. Both initiative and risk are minimized. BP, says Bower, operated quite differently
BP “relied much more on people on the spot to prevent things from going wrong, but at the same time didn’t have the mechanisms to prevent the accident in the first place, which Exxon has built into its system,” Bower says.
One interpretation of this difference is that Exxon has come to rely on processes while BP is constantly firefighting. Firefighting makes for compelling stories and occasionally creates a hero or two. It also means you occasionally fail and things go up in smoke. If you are doing enough firefighting, you also don’t have the time to address the causes of the fires. You will always have the extension cord under the rug and the oily rags in the garage and it’s only a matter of time before they burn to.
Processes, however, mean you have to focus on what work you are doing, why you are doing it, and whether you need to be doing it all. The goal may be safety and as the quote above says, safe operations are going to be cheaper in the long run. But it is more than that. If you understand drilling or refining well enough to be super safe, you also likely understand it well enough to start taking costs out as well. Steve Spear tells similar stories about Alcoa. When Paul O’Neill (Bush’s first treasury secretary not the former right fielder) became CEO, he made workplace safety a top priority. And sure enough, Alcoa steadily reduced the number of worker injuries. At the same time, costs tracked down at a similar rate.
At some level, this is also related to the ongoing debate over standardization of medical procedures. Care givers fear not having the ability to adapt treatment to the needs of patients. As the quote above put, this will “strip employees of the ability to make decisions on their own” and initiative will be minimized. However, without a firm basis on what to do, you have to count on people to identify every problem. They need to be heroes and firefighters. As BP shows, that approach can be very, very costly.