Organisational Crisis - Assignment Example

Organisational Crisis Institution Introduction Crisis refers to an occurrence that may negatively affect flawless operations of an organization. Prompt and effective response a crisis is fundamental to restores an organization’s image and reassure its public trust. Image restoration theory is among the most effective strategies to retain an organization’s image among the public and trust among stakeholders. A case of the BP Oil’s experience of organizational crisis is relevant. In 2010, BP Oil faced a major crisis following the expansive oil spill on the Mexican Gulf. BP Oil applied the image restoration theory in gaining public trust and image among stakeholders. Organizational Crisis Valackienė and Virbickaitė (2011) define a crisis is a sudden or unplanned phenomenon that may impede on its major product line, have negative implications on its financial performance, harm its consumers or negatively affect its employees’ well-being, or taint public trust or reputation of the organization. Crises are unknown threats to system survival, often characterised by limited time of reaction and response through human intervention. Crises faced by organisations may be environmental, financial or technological. Organisations experience different forms of crises in contemporary business situations. In response, organizations adopt strategies to monitor, rectify, and balance the situations in an attempt maintain public trust. A crisis may cause loss in legitimacy, which occurs in diverse forms depending on the nature of the problem (Coombs & Holladay, 2012). Crises threaten the social and cultural values including common beliefs of stakeholders and public trust in the organization’s business (Miller, 2014). An organisation is termed legal if its actions are appropriate and comply with the socially applied norms, values and beliefs within the social domain. Stakeholders perceive crises as a breach to the organisational norms and values, therefore, eroding the organisation’s reputation and legitimacy. Case Study of the BP Oil Disaster in April 2010 Crisis always strikes when the management of an organization is uncertain or prepared for them. Swift action, therefore, is necessary to respond the situation before they escalate to the worst. An example is the April 20th 2010 BP oil spill crisis in the Mexican Gulf during deep water drilling activity (Freudenburg & Gramling, 2011). The deep-water drilling rig explosion caused massive contamination of the seawater by of millions of gallons of unprocessed. In addition, since BP was the principal and key contributor to the technology behind the deep-sea oil drilling and was solely to blame for the crisis. The oil spill incidence posed a great threat to nearly 400 species and resulted into more than 2.5 billion dollars damage to the fishing industry in the affected area (Farrell, 2011). The situation further cause massive BP Oil loss. BP Oil Company had to incorporate strategic business skills in response to the condition and as an attempt to maintain its reputation to the public and diverse stakeholders. During its initial response to the Oil spill crisis, BP failed in most instances. The company spent long to detect and acknowledge the oil spill problem. Its management spent long before expressing its apology to all the stakeholders and victims affected by the oil spill. Initially, the company engineers working on the oil spill site underestimated the extent of its spread to 1000 barrels per day, which was a misinformation to the public. The team later revised the figure to 5,000 barrels per day, and therefore, father tainting public trust on the information provided by the company. Investigations by independent companies on the extent of the leakage on the gulf in June 2010 revealed an estimated 60,000 barrels of volume in oil leakage from the spill as reported by Mejri and Daniel (2013). Tony Hayward, BP Oil CEO as at the time of the spill incidence, failed to ensure timely and effective communication on the status of the accident. There was a considerable delay in the flow of information to members of the public. Company employees were limited to make public statements on the status of the accident. Despite the failure in its initial response to the spill incidence, BP Oil Company was consistent on informing the public of the progress made during its clean-up strategies. Use of the company’s website was an effective strategy in an attempt to repair the company reputation and public interest through expression of concern. Further, BP Oil management was efficient in communicating compensation offered to victims of the spill. In addition, BP engaged in public relations strategies aimed at repairing its reputation. It used ads as a strategy to apologise to the public, its stakeholders and victims over the oil spill incidence. Some of the ads features Hayward apologizing to all individuals and businesses affected by the disaster. The management expressed responsibility to the accident while admitting its failure to launch quick response. Ads also informed the public of BP’s initiative to clean up the gulf. There were print ads on U.S. newspapers that informed the public of the apologies and clean-up strategies. Social network sites were useful for BP Oil to run its public relations messages. Efforts to reassure its stakeholders involved visits to the Middle East by the Hayward, the former CEO. Hayward visited countries including Abu Dhabi, Singapore, Kuwait and Qatar to convince major sovereign wealth funds to maintain the company’s shares. The strategy was effective in restoring trust among stakeholders and avoiding further downward performance of the company in the stock market. Change of management was among the strategies launched by BP Oil. On July 27, 2010, BP Oil management announced its intentions to change the CEO of the company in October. Bob Dudley assumed the role of BP Oil CEO in October 2010 in place of Tony Hayward. The change of management was fundamental to regain trust in the company among the public (Mejri & Daniel, 2013). BP Oil announced a compensation package worth $20 billion for all the victims of the spill. The compensation was to run over three and a half year period. In addition, the company announced a further $ 52 million fund directed at supporting behavioral health initiatives and outreach programs in the Gulf Coast regions conducted by federal and state health agencies. There were financial decisions aimed at covering the expansive loss incurred during the spill. The management resolved to divest the company’s assets worth $38 billion (Reed, 2012). Its target was to divest the assets between 2010 and 2013. It sold assets worth $7 billion to Apache Company. It further sold assets worth $610 million to Perenco Company. Other partners of BP Oil also contributed to settling the costs of claims during the spill. Anadarko, one of the partners, contributed $4 billion to BP in support of claims settlement. Mitsui contributed $1.06 billion. Weatherford International Ltd contributed $75 million to support in settling the claims. Image Restoration Theory The image restoration theory is a real approach for developing and understanding messages related to the organisation that have questionable reputations. There is different approach in image restoration by individuals and organisations (Heath & O’Hair, 2010). Firms use different strategies than individuals and even incorporate the use of vast recourses to image repair process than the individuals. Barristers within the organisation may require certain bylaws in enacting the rules to reduce the risk of litigation, but both the corporate and the individual image improvement rules remain the same. Image Restoration Theory as Used by BP Oil Image restoration theory was widely applicable in enhancing the company’s response to the oil spill crisis (DiStaso & Bortree, 2014). Although the company management admitted full responsibility for the spill, it shifted blames to the contractors mandated to ensure safety at the site. Three companies including Transocean, Halliburton, and Cameron International were the key contractors mandated to ensure safety measures that would prevent the spill on the sea (Pfeifer & McNulty, 2011). BP Oil filled lawsuits against the two subcontractors while blaming them of failure to prevent the accident. The Company, however, lost its bid to compel the contactors help pay for the claims (The Guardian Staff and agencies, 2012). Strategies such as the lawsuit were effective in restoring positive reputation of the company among the public and stakeholders by shifting the blame to the subcontractors (Merry, 2013). Another effective strategy used by BP Oil to enhance public trust in the company was through sustainability reporting. The company engaged in sustainability reporting and issuance of independent assurance statements to the public. Through its sustainability reports, BP Oil Company constantly informs the public of its oil spill preparedness and efforts set to enhance response strategies. It informs the public of it strategies to ensure safety based on lessons from the oil spills experienced in 2010. It assures the public, through the sustainability reports, of its enhanced capabilities to respond to any similar incidence in the future and dedication to avoid possible damage to the environment or other victims. The company has statistics to demonstrate its dedication towards reducing oil spills. BP Oil is dedicated to using effective modelling tools to enhance its response plans, both at sea and in offshore settings. It expresses its intention to reduce impacts of oil spills on water resources and marine habitats. It constantly assures the pubic of its intention to consider environmental sensitivities and possible implications of its processes. It promises to boost oil spill response through satellite remote sensing of its shipping services. The management of BP Oil is keen to finance scientific research programmes as a measure to enhance safety of its products and during incidences of oil spills. BP Oil constantly reports on its performance through the sustainability reports (Swann, 2014). It its 2014 sustainability report, the company reported massive reduction in the number of oil spills experienced since 2010 (fig. 1). Volume of oil recovered from spills has also increased significantly since 2010 (fig. 2). Through its statistics in the sustainability reports, BP Oil management intends to restore public trust in the company’s operations and dedication to ensure safety. Fig. 1. Source: BP Oil. (2014). Oil Spill Preparedness and Response. Retrieved from http://www.bp.com/en/global/corporate/sustainability/environment/Oil-spill-preparedness-and-response.html Fig. 2. Source: BP Oil. (2014). Oil Spill Preparedness and Response. Retrieved from http://www.bp.com/en/global/corporate/sustainability/environment/Oil-spill-preparedness-and-response.html Conclusion BP Oil’s 2010 accident that caused oil spills on the Mexican Gulf initiated a serious organizational crisis. Although the management’s initial response was slow, the company’ management was influential in reinstating public trust among stakeholders. In addition, the company shifted claims highlighting failure of its contractors to enhance measures that would avoid the incidence. Compensation paid to victims and clean-up initiatives further restored public trust and help gain company reputation. References BP Oil. (2014). Oil Spill Preparedness and Response. Retrieved January 4, 2015 from http://www.bp.com/en/global/corporate/sustainability/environment/Oil-spill-preparedness-and-response.html Coombs, W. T., & Holladay, S. J. (2012). The Handbook of Crisis Communication. Malden, MA: John Wiley & Sons. DiStaso, M. W., & Bortree, D. S. (2014). Ethical Practice of Social Media in Public Relations. Routledge. Freudenburg, W. R., & Gramling, R. (2011). Blowout in the Gulf: The BP Oil Spill Disaster and the Future of Energy in America. Massachusetts: MIT Press. Heath, R. L., & O’Hair, H. D. (2010). Handbook of Risk and Crisis Communication. New York, NY: Routledge. Mejri, M., & Daniel, D. E. (2013). Crisis Management: Lessons Learnt from the BP Deepwater Horizon Spill Oil. Business Management and Strategy, 4(2), pp-67. Mejri, M., & Daniel, D. E. (2013).Crisis communication failures: The BP Case Study. International Journal of Advances in Management and Economics, 2 (2), 48-56. Merry, M. K. (2013). Framing Environmental Disaster: Environmental Advocacy and the Deepwater Horizon Oil Spill. New York, NY: Routledge. Pfeifer, S. & McNulty, S. (April 22, 2011). BP sues contractors over Gulf spill. Financial Times. Retrieved January 4, 2015 from http://www.ft.com/cms/s/0/86644be6-6be0-11e0-b36e-00144feab49a.html Reed, S. (September 10, 2012). BP to Sell Oil Assets in Gulf of Mexico for $5.6 Billion. The New York Times. Retrieved January 4, 2015 from http://dealbook.nytimes.com/2012/09/10/bp-said-to-be-in-talks-to-sell-gulf-of-mexico-assets-for-6-billion/?_r=0 Staff and agencies. (January 27, 2012). Gulf of Mexico oil spill: BP loses bid to make others pay compensation. The Guardian. Retrieved January 15, 2015 from http://www.theguardian.com/environment/2012/jan/27/gulf-mexico-oil-bp-compensation Swann, P. (2014).Cases in Public Relations Management, 2nd Edition: The Rise of Social Media and Activism. New York, NY: Routledge. Valackienė, A., & Virbickaitė, R. (2011). Conceptualization of Crisis Situation in A Company. Journal of Business Economics and Management, 12 (2), 317-331. Read More