Logistics : the shift from niche players to global providers

Table of Contents

1. Introduction + The Importance of Logistics in Responding to Globalisation
2. The Role of Knowledge Management in the New Logistics
3. The Rise of Corporate Social Responsibility in Logistics Industries
4. Technology: An Incentive and a Mean of this Shift
5. The Importance of Culture and Communication in Global Logistics
6. Geography: How Globalisation Made the World Flat for Logistics Operations
7. Conclusion
8. References


Introduction

The past decades have witnessed important changes in the business world due to the phenomenon of globalization, and one of its major impacts has been in the area of logistics that shifted from niche players to global providers. Companies, and especially multinational companies, thus had to adapt their operations to take fully advantage of the many benefits that can offer an effective logistics management on the global stage and to expand their business activities and opportunities abroad. But operating at the international level also presents a lot of challenges and this is why it has become critical for businesses to develop a broad understanding of the logistics complexities in order to maximise their potential in order to succeed overseas.

This article will describe and explain this shift in the area of logistics from five different perspectives which are: knowledge management, corporate social responsibility, technology, culture and communication, and globalisation and geography. But first of all, this article will discuss the importance of logistics in responding to globalization, as illustrated with the case study of Aramex International, and how logistics now concerns both big and small businesses as well as individuals.

The Importance of logistics in responding to Globalization

In and ever changing business environment it is crucial for organisations to expand and develop their business portfolios. The effects of globalization mean that businesses are now under pressure to compete on a global level like never before. For a multinational organisation, logistics is the most important factors of growth and their day-to-day operations now rely on the efficiency of logistics. Take, for example, an automobile manufacturer. They rely on logistics in both the supply and demand side of their operations, relying on the delivery of materials from suppliers and the shipping of their finished automobiles to dealerships. Any complication in the logistical processes, such as late deliveries, could cost a manufacturer millions of dollars.

Supplier → Manufacturer → Dealership
(Logistics)

Logistics for all

For a multinational the need for global expansion goes without saying, but even relatively small national businesses are now looking to gain an advantage by investing in overseas operations. Indeed, businesses now run the risk of being left behind their competitors if they do not seek global expansion. As the demand for globalisation has increased, logistics have become more complex and advanced. This has seen logistics become an industry in itself, with multinational carriers such as Fed-Ex and UPS offering solutions to business logistics.

This current Fed-EX commercial shows the extent that businesses will go to in order to become a global player. UPS offers similar solutions and in one of its most recent commercials uses the motto, ‘helping small business act like big businesses’.

This goes to show that globalisation is not exclusively for large multinationals which command vast resources, the smallest of businesses can become involved too. Even an individual, can become involved in a global market thanks to the development of logistics. The online market EBay sees people from all over the world trading goods with each other. Many individuals use this website as a host for their online businesses and rely on its services to make a living. The advancements in logistics have accelerated globalisation like never before. This can be illustrated with the case study of Aramex International.

Aramex - Consolidation in the logistics industries

Aramex International is a good example of the consolidation and the shift from niche players to global providers that is taking place in the logistics industries. Aramex International is a logistics company which began life as the Middle East partner of a number of American delivery companies. Partnerships and alliances are what allow operators in the logistics industry to link with others in order to offer services in areas where they do not have their own operations. All was going well until 2003, when DHL bought Airborne Express, Aramex's chief partner in America. The deal gave DHL a way to compete in against UPS and FedEx in what is a very competitive market.

For Aramex however, this meant its link to the crucial American market was cut off. As a result, Aramex set out his own strategy of alliances and acquisitions, replicating what his big rivals were doing. The latest example is from February 2011, Aramex acquired an Irish liner agent and freight forwarder to further strengthen its presence in the Irish market and expand its ocean freight capabilities in Europe. This acquisition in Ireland is the latest in a series of recently formalized international partnerships and acquisitions, including in Turkey, Malaysia, Bangladesh, Vietnam and Kenya. Through this expansion strategy, Aramex is basically building a more geographically robust network capable of providing comprehensive logistics and transportation services.

The Role of Knowledge of Management in the New Logistics

As the world shifts from distinct national markets to linked global markets, knowledge management in the area of logistics has become a major source of competitive advantage for companies developing their supply chain on the international stage. Indeed, as globalisation enables sellers and buyers to be more efficiently connected, information management has become crucial to unify the different areas of operation and coordinate organisational resources by providing the right knowledge of the right quality at the right place and time (Gudehus, 2003). It is widely recognised that knowledge management provides an essential contribution to the planning and performance of logistics activities and is strongly linked with the quality and success of logistics services. Logistics providers now have a new role in the global market place, that of combining their professional knowledge in the areas of inventory management, purchasing, transportation, warehousing, and planning, in order to improve the whole supply chain efficiency and add superior value and benefit to the customer.

Operating at the international level presents a great challenge for logistics managers, considering the global market complexities and variability. In addition, customers are now increasingly demanding in terms of quality, lead time, and order fulfilment, which require companies to constantly try to find ways to improve their efficiency and flexibility and develop more customer-driven logistics models to anticipate and adapt to changes (Brutto, 2010). Cicsco Systems is a good example to illustrate how knowledge about business processes combined with a customer-oriented approach help the company to design networks for its customers with a great possible flexibility of product or service development. This strategy enables Cisco to achieve its four main goals that are: providing complete solution for businesses, making acquisitions a structured process, defining the industry-wide networking protocols, and forming the right strategic alliances (Cisco, 2010). The Case of Cisco Systems also indicates that knowledge management enables logisticians to become consultants as they inform and assist both managers and customers on complicated documentation, duties, and other issues related to the implementation of a cost-effective supply-chain. Their knowledge about trade agreements, tariffs, and location advantages for instance, enable them to advise companies on the best sourcing decisions they should make.

As logistics processes have become an essential part of the operations of a multinational organisation, integration with overseas suppliers and end-to-end visibility through the supply chain have arisen as a core concern. Creating an integrated workspace for all stakeholders of a product delivery requires a common and easy access to information including movement schedules, shipment details, costs, contracts, performance measures and reporting. Timeline and data accuracy is extremely important nowadays which is why developing visibility tools such as web-based supplier portal technology that integrates tracking and tracing systems improves logistics processes, ensures the smooth flow of goods, and reduces overhead costs. The increasing role of the Internet and e-commerce technologies strongly facilitates information sharing and data transparency and enables real-time global connectivity (Neumann and Tomé, 2005). Furthermore, I.T. enables to create efficient networking and collaboration between business partners over the world, which is necessary to maximize knowledge management efficiency and gain a better control of the business activities and schedules.

The ability to achieve real-time visibility and receive accurate and quality data and information is not only critical for planning effectiveness and time compression, but also increases the supply chain agility in general, which presents a great competitive advantage when doing business on the global scale. Flexibility and dynamic capabilities are indeed key components in reducing time and cost of inbound processing (Verlag, 2008), by coping with changes and uncertainty in demand, minimizing stocks, and developing the most effective combination of carriers, routes, and freight forwarders. Visibility, and thus flexibility, can only be achieved through continuous up-date of information of the different areas of logistics operations such as inventory, transportation, and warehousing (For example: information about available stock at each location, replenishment capabilities, information about the various modes of transportation costs, availability, and suitability, information about space capacity and utilization, unit load, work schedules, etc.) In addition, end-to-end visibility enables a constant control of costs and helps determining the overall effectiveness of operations and distribution. Though visibility is not easy to achieve within a multinational company, collecting accurate information and systematically analyse it will help maximise organisational efficiency and ensure important time and cost savings.

Knowledge management is thus definitely a core element in modern logistics operations success, particularly for businesses carrying activities overseas and in different geographically dispersed areas. It also represents a key challenge for companies operating in this highly competitive business environment to develop and maintain effective knowledge sharing through reciprocity and transparency across national and organisational boundaries (Buhler, 1999). Building a network structure that integrates knowledge and real-time information about the whole company is thus crucial to align organisational process and logistics operations in all parts of the multinational system (Kasper and Haltmeyer, 2002), as shown on the scheme below.

The Rise of Corporate Social Responsibility in Logistics Industries

Deutsche Post DHL, a multinational logistics company, is the first logistics company to commit a carbon efficiency target in the world by improving 30 percent by 2020 compared with 2007. According to the Intergovernmental Panel on Climate Change (IPCC, 2007), logistics is responsible for approximately 13.1 % of global greenhouse gas. The reduction of carbon emissions has become a common goal in the logistics industry and has been adapted in their CSR practices.

Though Corporate Social Responsibility (CSR) is not a new concept in the logistics industry, the content of CSR practices has changed over time. Back in 1979, Carroll’s raised a framework of “Four Responsibilities of Business” with the order of priority: economic (must do), legal (have to do), ethical (should do), and discretionary (might do). What logistics companies focused, at that time, was on improving their economic factor which was mainly referring to their financial strength in order to maximize the benefit of their shareholders. For them, their only social responsibility was to increase their shareholders and companies’ wealth. The phenomenon was indicated by Stock (1990), "Few individuals have as yet examined the relationship of logistics with issues such as consumerism, social welfare, and other societal concerns."

Today, with the technological breakthrough, economic integration and the increasing power and independence of stakeholders under globalization, multi-national logistics companies and SMEs start to have their own CSR practices in their companies. The real question is not that all firms should do CSR in the same form, but rather that firms should tailor certain specificities of CSR to their business strategy, to become more competitive. Apart from the employees’ education provision, participation of social volunteers, and use of technology, the goal of CSR practices of logistics companies is to reduce carbon emissions.

DHL in its “Environmental Report 2003” mentioned the importance of reducing CO2 to the environment and indicated its two major sources of CO2 in which 31 percent from electricity generation and 44 percent from fuel use. As a result, DHL adapted its operations to use alternative environmentally friendly fuel – Biogas, under the request of their customers with additional charges. The environmental awareness of customers is one of the main driving forces for the logistics companies to adapt CO2 reduction practices. In a study conducted by Deutsch Post/ DHL on the subject of sustainable logistics found that 63% of customers out of more than 3600 companies believed the key role of transportation on the carbon reduction.

Conflict of Interest between Stakeholders

Reducing CO2 is good to our environment but would leave the cost of investment on logistics companies. Without the legislation, companies have to analyse their cost and benefit before committing their social responsibility. But, letting logistics companies to control CO2 emission under the lack of incentive or punishment cannot push them to walk further.A legislative power is essential not only on the enforcement aspect but also on showing the direction. Some countries are now investigating the probability of implementing carbon pricing on logistic companies as a way to increase their cost of emit carbon. The progress is slow and controversial especially on the ways of measurement and pricing method; in addition, no all the countries are aware of the environmental protection. However, it is a good start for discussion. Some countries, like Sweden, have set their targets on the reduction of CO2 in the hope that other countries as well as other companies would follow: Sweden hopes to reduce 5 million tonnes by 2010, 10 million tonnes by 2020 and 50 million tonnes by 2050.

Nevertheless, the role of multinational logistics companies is important considering their influence and investment on carbon reduction. The key to encourage them to improve their performance further is customers’ environmental awareness. With the increase in oil price and the increase in environmental awareness of their customers, logistics companies, in the coming future, would focus on the value-added services and optimizing their cost by using alternative environmental friendly fuel with less environmental damage and affordable price that can help them to differentiate themselves. In a survey conducted by McKinsey on the order of importance of CSR issue in the next five years in 2007, the environment is ranked number one. The profitability of a firm nowadays is strongly related to the success of its brand. CSR has come about as a new way for companies to protect and enhance their firm’s brand and reputation. Thus, Customers is one and only one way to help CSR logistics to grow.

Youtube Globe Forum 2009 Speaker and DHL CEO Frank Appel interview on CNN

Technology - An Incentive and a Mean of this Shift

On one side, technology has sometimes been the incentive for logistic companies to shift from niche players to global providers. For instance, consolidation in the logistics industry also extends to postal services. Postal services are facing a decline in standard mail as more people pay their bills online and send e-mails instead of letters. Coupled with deregulation and privatization, this has led some mail firms to move into other areas. For example, Deutsche Post, which became a listed company in 2000, has been the most active with its purchases of DHL and Exel. On the other side, Internet has also been a way for logistics companies to upgrade their services and by offering online tracking. Customers can follow the progress of their packages by entering their tracking number. Some systems also allow shippers to see online who has signed for an item, thanks to the digital devices now carried by delivery drivers. A London courier company even offers a service that lets people watch their packages move in real time on a web browser.

When talking about technology and the shift from niche players to global providers in the logistics industry, RFID is more and more often mentioned as a promising technological. Supply chains are become longer and more complex so they are becoming harder to look after. With RFID, labels carry a lot more information. With the addition of suitable sensors, it would become possible to tell whether a product had been dropped or kept at the wrong temperature. Finding a single product in a mountain of containers would become a simple matter of getting an RFID reader to analyze the contents—without even opening the doors. And combining RFID technology with GPS tracking would mean that nothing would ever get lost in the supply chain again, also reducing inventory pilfering. One of the biggest boosts to the adoption of RFID tags has come from Wal-Mart, which in 2004 began testing them in 150 stores around Dallas, Texas. Wal-Mart has seen some benefits, including a 16% reduction in out-of-stock items in stores using RFID. Moreover, items with RFID tags were replenished three times faster than non-tagged items. It is now predicted that most items in shops will carry RFID tags within 15 years.

With technology, the amount of information that a supply chain can provide changes the way in which companies deal with both shipments and inventory. Companies can know exactly when they will receive goods and make the right decisions. In the past, only multinational companies could afford to compete with global supply chains, not just because of the cost and complexity of operating trucks, aircraft and warehouses on different continents but also because of the difficulty of managing all these diverse elements. Nowadays, thanks to technology, even small companies can now afford to operate internationally, either themselves or by contracting out the management of the process.

The Importance of Culture and Communication in Global Logistics

Culture as a factor of logistics

Advances in logistics has seen the development of global markets and, for multinationals, the world has become much smaller and more accessible. In order to be successful in foreign markets it is important for a business to understand the culture of the country in which it is operating. Business practices will vary greatly from one country to another. It is important to understand and respect different cultures as it could ultimately be the difference between agreeing a deal or failing to enter a new country.

Culture has had a huge impact on logistics. The need to understand another culture is essential in order to achieve globalization. Take, for example, marketing. The way in which a business sells its product will vary from one country to another. The need for cross-cultural knowledge has been one of the main drivers behind logistics in business.

This HSBC commercial highlights the difficulties that a Western business can have when entering the Chinese market. HSBC is an organisation that prides itself on being an international business. Many see it as setting the standard for cross-cultural business relationships.

Culture must also be understood in order to meet the demands of the consumer. A business must alter aspects of its product in order to ensure its success in foreign markets. The fast food market is one of the best examples to illustrate the importance of understanding culture. McDonalds is the leader in many Western countries fast food markets but it did, however, initially struggle to achieve the same radical success in China. McDonalds slow market growth prompted the organisation to alter many of the items on its menu in order to suit the tastes of the Chinese consumer. Despite these changes it still lies second to KFC in the Chinese market.

Communication as a factor of logistics

For a multinational organisation operating in global markets there are great demands placed on logistics. Many factors have to be considered, none more important than communication. Traditionally, language barriers and technology would prove the greatest obstacle to overcome for cross-cultural trading. With advancements in technology, however, such concerns are a thing of the past. Multinationals can now hold video conferences where global meetings can be held, greatly reducing travel expenses and time. Such technology is often taken for granted as it is now widely available but the fact remains that it is a crucial part of a business’s logistics.

Globalisation has reached the stage where businesses are now operating in twenty-four hour markets. Dealing in various markets around the world rely on the communications and operations of a business must being of the up-most efficiency. A multinational organisation will have global operations around the clock which rely on complex logistics. By means of an example; when the closing bell sounds at the Hong Kong Stock Exchange, a multinational business will begin trading in London. If there should be any efficiency in communications, it can cost vast amounts of money through the loss of trading. Logistics facilitate such global operations and allow multinationals to maintain a constant operations, making it the most valuable asset to a business.

Communication has had, and will continue to have, a huge impact on logistics. For a business to expand it must reach it’s target market. This may involve the transportation of goods hundreds and even thousands of miles in a very short space of time. In order to meet the demands of the consumer, a business must find solutions to such complex logistics. Communication with the consumer relies on effective logistics, this can be the difference between a successful multinational and one which fails.

Geography: How Globalisation made the World Flat for Logistics Operations

With today’s business operations shifting from a regional or local focus towards a more global and international production, logistics companies arguably now play their most significant role in the history of business. As a result of this revolutionary shift, globalization is fuelling more advanced opportunities for logistics companies in the future. The myth that globalization has made the world “smaller” or “flatter” carries some truth.

According to the novel The World is Flat by Thomas Friedman the term “flat” refers to the aspect of global playing fields in business are more levelled.

“It is now possible for more people than ever to collaborate and compete in real time with more other people on more different kinds of work from more different corners of the planet and on a more equal footing than at any previous time in the history- using computers, email, teleconferencing…etc”. (Friedman page 8)

In essence globalization has made our world smaller.

Globalization has directly contributed to the boom in the logistics industry in recent years however, it can be easily said that without said boom in the logistics industry the magnitude of globalization that we see and speak about today would never have been reached. Logistics companies have essentially flattened the world. By bringing foreign products to other countries they are integrating cultures. Coupled with technology, Logistics is one of the many players responsible for the phenomenon of globalization.

As international business grew coincidentally the logistics industry grew as well. This quote fully expresses the magnitude and significance of the logistics industry in international business today.

“UPS is a global leader in logistics, and at any moment our business manages more than 2 percent of global GDP”

As bright as the future looks for logistics companies they still have many governmental policies and laws to overcome such as tariffs and trade restrictions. On the contrary, other economic factors are now forcing countries to lessen trade restrictions. In order to get many economies back on track due to recession several countries expanded their borders and allowed more imports into their countries. Globalization is another factor that can drive countries to broaden their trade horizons. Liberalization allowed China’s entrepreneurs to indulge more heavily in business. With more lenient trade restrictions and a new found entrepreneurial spirit China quickly became an export focused economy. With the massive inflow of information and technology as a result of globalization China was able to translate these factors into a booming economy. Logistics was the driving force behind what is now the worlds 2nd leading economy. Coupled with looser trade restrictions, Logistics was able to propel China into the world power it is today.


Conclusion


In conclusion the complexity and need for logistics operations in the business world today has become cirtical for the management and success for multinational companies. It is a vast area of acitivities that unifies knowledge management, culture, technology, corporate social responsibility and geography. In order to succeed overseas, a company must develop an extensive understanding and execution about the logistics industry. The management of logistics presents many competitive advantages in which companies operating an an international scale should indulge in. Globalization has fueled more advances opportunities for the logistics industry today as a result of the shift in business operations from a national or regional level to an international level.



References

Brutto, D. (2010) “Globalisation 4.0 and the New Logistics: The Gravity of Trade Has Shifted” Delivered to the Foreign Press Association, New York, 22 Sept 2010.

Buhler, P. (1999) “The Impact of Global Arena on Managers at all Organisational Levels” Supervision Vol.60 No.8: 15-17.

Carter, J. Pearson, J. and Peng, L. (1997) “Logistics Barriers to International Operations: The Case of People’s Republic of China”. Journal of Business Logistics.

Cisco Systems Inc. Website: www.cisco.com

Kasper, H. And Haltmeyer, B. (2002) “Knowledge Management and Organisational Learning in MNC’s” In International Management Week 9 readings.

Neumann, G. and Tomé, E. (2005) “Knowledge Management and Logistics : An Empirical Evaluation”.

SBN Staff (2009) “Going Global”. Smart Business 27/08/2009, Chicago

SupplyChainDigest “The 10 Keys to Global Logistics Excellence”. Accessed on http://www.scdigest.com/assets/Reps/SCDigest_Global_Logistics_Excellence.pdf

Verlag, E. (2008) “Global Logistics Management: Sustainability, Quality, Risks” Hubert & Co, Gottingen

(2008, January 17).CSR is Spreading around the World, but in Different Guises. The Economist. http://www.economist.com/node/10491136

Dave, Meyer. (2010, December 1).Could Cancun Promote Sustainable Logistics? Sustainable Business Forum. http://sustainablebusinessforum.com/davemeyer01/48569/seeking-links-between-supply-chain-sustainability-logistics-un-climate-conference-

SCMR Staff. (2010, December 20). Framework for Carbon Pricing Further Away than Before Cancun. Logistics Management. http://www.logisticsmgmt.com/view/framework_for_carbon_pricing_further_away_than_before_cancun/sustainability

Qiyuan, P. and Kelvin, C. P. Wang and Yanjun, Q. and Yun, P. and Xia, L. and Bin, S. (2009). International Conference on Transportation Engineering, 2009. P.376-379. http://books.google.com.hk/books?id=a_upPHeLmr8C&pg=PA379&lpg=PA379&dq=logistics+cost+pollution&source=bl&ots=ihF_OqUX-J&sig=wdEGt-HDs2jq21ZPiHabps2gl_M&hl=zh-TW&ei=TKuITbK7OcjJcdTJ6cUM&sa=X&oi=book_result&ct=result&resnum=4&ved=0CDoQ6AEwAw#v=onepage&q=logistics%20cost%20pollution&f=false

Amit, T. (2010, June 21). Logistics Cost of a Country. http://it.toolbox.com/blogs/everything-anything-supply-chains/determining-logistics-cost-of-a-country-39481

Deutsche Post DHL CSR Report. http://www.dp-dhl.com/en/responsibility-online_report_2010/general/downloads.html

David Cavett Goodwin. (2007, December 3). Making the Case for Corporate Social Responsibility.

BP Oil Spill, Obama Government and CSR

1.BP : Case study Overview

1.1 The Company:

  BP (British Petroleum) is a global oil and gas company whose headquarters are located in London. It is the third largest energy company and the fourth largest company in the world in terms of revenues. It is active in every area of the oil and gas industry, including exportation and production, refining, distribution and marketing, petrochemicals, power generation, and trading. It also has major renewable energy activities such as biofuels, hydrogen, solar, and wind power and currently invests over $1 billion per year in the development of renewable energy sources.

  BP operates in over 80 countries and produces around 3.8 million barrels of oil equivalent per day, and has 22,400 service stations worldwide.

  The company has been criticised several times over the years for its involvement in diverse environmental and safety incidents, as well as for its political influence. However, it also has been the first major oil company to publicly acknowledge the need to take measures against climate change and to establish a target to reduce its emissions of greenhouse gases.

1.2 Deepwater Horizon Explosion:

  In April 2010, a critical event, known as the Deepwater Horizon explosion, caused a lot of damage to BP’s brand name and corporate social responsibility image. Indeed, a floating drilling unit of BP in the Gulf of Mexico exploded, killing 11 workers and injuring 17 others. The explosion caused the Deepwater Horizon platform to burn and sink, and started a massive offshore oil spill in the Gulf of Mexico.

  There had been previous spills and fires on the Deepwater Horizon between 2000 and 2010, as well as other serious incidents, including one in 2008 which 77 people were evacuated from the platform where it began to sink after a section of the pipe was accidentally removed from the platform’s ballast system. Reports and investigations show that there was poor maintenance of the platform and an evident lack of safety practices: the blowout preventer was damaged in a previous unreported accident, and staff members complained that riskier procedures were chosen by BP to save time and money. In addition, workers reported poor equipment reliability, which they believed was a result of drilling priorities taking precedence over maintenance, and it was understood that they could get fired for raising safety concerns that might delay drilling.

1.3 Consequences:

  The oil spill flow for three months before the leak was finally stopped on July 15, after it had released 4.9 million barrels in the sea. According to the White House, the spill is the “worst environmental disaster the US has faced”. The spill had and continues to have disastrous environmental impact on the marine and wildlife habitats, as well as on the Gulf’s fishing and tourism industries:

• 6,814 dead animals have been collected and Scientifics stress the fact that more than 400 species that live in the Gulf islands are at risk
• Skimmer ships, floating containment booms, anchored barriers, sand-filled barricades along shorelines, and dispersants had to be used in an attempt to protect hundreds of miles of beaches, wetlands, and estuaries from the spreading oil
• High level of chemicals contained in the waters of the coasts of Louisiana poses various risks to human health and may enter the food chain through organisms like plankton or fish

The U.S. Government accused BP of being responsible for the disaster and officials have committed to holding the company accountable for all cleanup costs and other damage. The company admits its mistakes but also claims that other companies should accept some responsibility, such as Transocean (whose staff was hired by BP to operate the platform) and Halliburton (subcontracted to cement the wellhead into the sea floor). The company also released on June 3 a new advertisement featuring CEO Tony Hayward apologizing for the oil spill.

 

2.BP and Obama

When they met....

They fall in love...

After honeymoon..

Divorce...

  The infamous oil spill of 2010 can be classified as for more than an environmental disaster. As the entire tragedy unfolded, the public was exposed to obvious unethicial and disorganized decisions made by BP and the US government. As indicated in our comic, the Obama government accepted large sums of money to allow BP to drill for oil in the gulf of Mexico. Both sides are happy as illustrated by the honeymoon picture. Ironically, when one bad event happens (oil spill) which can reflect either party negatively the blaming begins. This is depicted in the final picture where both sides are mud slinging, which is another expression in English for blaming. An oil spill is impossible to hide from the public thus swift but proper decisions must be made in a situation such as this. Instead of accepting blame then collaborating, BP and the obama government exchanged blows and blamed each other for the spill. In an unethical manner, both parties placed the issue of liability ahead of the environment and public.

  It is understandable that BP would not openly accept full blame for the spill, but that does not mean they should blame others. They placed blame on the government and other companies such as Transocean instead of working together to provide the right aid. This displays unethical decsion making as well as disorganized decision making. While focusing to heavily on public relations and reputations, BP forgot an integral part of business ethics and CSR. Ethical business behavior and CSR theory stress the importance of taking shareholder interests into account. The first instances of CSR can be traced back as early as 1651.

"...stakeholder theory, as a type of social accounting of corporations, has roots within the field of political economy as well:"

Political economy is the study if the interplay of power, the goals of power wielders and the productive exchange system. As a framework, political economy does not concentrate exclusively on market exchanges. Rather it first of all analyses in whatever institutional framework they occur and, second, analyses the relationship between social institutions such as government, law and property rights, each fortified by power and the economy (Cooper, 31).For many years firms have strayed from the fundamentals of CSR, BP inclusive.By developing a public response to the gulf oil spill, BP had failed to properly place its stakeholders at the center of its strategy. This displays further disorganized dicision making as well as poor CSR.

 According to the article, Making the case for Corporate Social Responsibility, BP would have scored low in the three major areas that measure CSR. They demonstrated low reactiveness concerning addressing the media and people affected which demonstrates a poor sense of social obligation. A firm wants to be proactive and interactive in the face of the market or disaster. BP failed to execute the appropriate measures thus classifying them as a hardly reactive firm.

  BP should have empathized with external stakeholders that will suffer directly from the oil spill. They include residents who depend on tourism revenue, Gulf coast fishermen and individuals and groups concerned with harm to wildlife. Appropriate corporate social responsibility could have involved BP, Transocean, and other companies working together to formulate a relief package to address these economic and environmental factors, regardless of who was ultimately responsible for the spill. By focusing on corporate liability in its public statements, BP has hurt all of its stakeholders.

  The Obama government was heavily criticized for continuing to acknowledge the denial of press access to the spill. This raises ethical questions about what circumstances justify a government or private company restricting what information is made to the public.

Some other ethical and organizational questions involve what moral and legal obligations we have to the environment as well as the lateness of the president’s first public statements where he addressed the oil spill.

3 - A real-life case of a CEO (mis)handling an opportunity in saving the company's image

3.1 CEO Tony Hayward's personal involvement in BP's struggle over brand image control : story telling.

In matters related to "Business Ethics", the CEO must be involved. Instead of using "dry and abstract numbers" about BP's involvement in repairing the consequences of the incident, BP and its CEO wanted to translate [them] into compelling pictures.

This can be called story telling. In a effort to redeem it's corporate image, BP released on June 3 2010 a one minute advertisement featuring CEO Tony Hayward apologizing for the oil spill.

This is a good example of story telling and the objective of this story can be seen as :

Communicating who you are :
- A CEO who can admit full responsibility of its company and truly feels sorry for the victims.

Transmitting values :

- BP cares about the environment and has organised the biggest environmental response in the US.- BP employees are also common citizens and therefore also feel the impact.

Fostering collaboration :

- There are already many volunteers and the government is helping.

= How about you ? Come and help.

Taming the grapevine :

- BP is doing all it can to clean up the pollution (boats, people...).

- There will be no cost for tax-payers.

Leading people into the future :

- "We will get this done, we will get this right"

= BP will do things properly.

What is the response on BP's Youtube channel for this video ?

Tuesday March 1st 2011 :
741 222 views
1 539 like, 16 122 do not like

3.2 CEO Tony Hayward, a "long line of PR gaffes"

A potential explanation for the non-success of BP's efforts to control their brand image, apart from the disaster in itself, is that Tony Hayward kept making mistakes such as this statement he made after the oil spill on the 30th May 2010 :

  The comment "I'd like my life back" was widely perceived as selfish, putting his own personal situation before the dramatic ecological consequences of the incident.

  In an interview on NBC on 8 June, U.S. President Barack Obama actually stated that Hayward "wouldn't be working for me after any of those statements" if he actually worked for the President. This tough talk from Obama is thought to have been part of a concerted administration strategy to distance itself from the oil company and shield itself from growing public anger at the in the Gulf.

  In the end, BP eventually announced on the 27 July 2010 that Hayward would be replaced by Bob Dudley as the company's CEO.

3.3 Conclusion of story telling

No matter how good is the story telling, the person telling the story has to have an adequate attitude. Otherwise, the story telling and the story teller will just loose credibility.

  In our case, Hayward example became a character of South Park where is he is mostly responsible for the oil spill and can be usually seen making lots of videos saying he's sorry.

 

4 BP and their Employees

The oil spill does not only affect BP’s image, but also affects its employees and other stakeholders.

BP employees have been received BP’s stock as their saving plan. Offering stock to company’s employees is not unusual as it can give incentive to employees to work harder for the company in order to boost the stock price. It is also a way that prevents the conflict of interest between employees to the shareholders. After the oil spill, BP’s stock drops dramatically and remains half of its original values only. As a result, some BP employees have sue the company.

Obviously, BP employees have to pay for its mismanagement and improper business practices. The cost of oil spill is not just only on their financial loss, but also their safety and lives.

 Besides the financial loss, many BP employees are much more concern on their safety in working environment. A desirable work climate for employees includes “high trust”, “collaborative”, “feeling connected” and “feeling value”. But in the case of BP oil spill, BP employees may find themselves “are not valuable” to the company. When BP CEO returned to management in 2007, he tried hard to make the company operating in a more efficient way by so called “Repositioning cost efficiency” (from BP Strategy Presentation in London 2010). He has cut 7,500 jobs and focus on cost savings of the company.  K, Korosec describes BP has a reactionary management culture that puts an emphasis on cutting costs and efficiency while neglecting preventative maintenance. (BP’s History of Oil Spills and Accidents: Same Strategy, Different Day)

In the investigation of the oil spill, investigators discovered a letter to two congressmen that describe the clogged gas and oil pipelines during 2008 and 2009. But the letter has also identified and admitted the failure of equipment meant to prevent gas buildups and an improperly installed warning system for worker. Obviously, BP found out the problem before the oil spill.

To encourage employees to perform better in their job, BP cannot just rely on its financial saving scheme. In fact, a survey conducted by Fleishman-Hillard Inc. found that commitment to employees has been ranked No. 2 in 2007 and No. 1 in 2006 by consumers regarding to the meaning on CSR. It also identified that consumers are not satisfy only with financial contribution by firms, but they also concern on firm’s non-financial contributions. In addition, engagement grows important. One specific finding is that when employees move from being disengaged to being highly engaged, their productivity improves 20 percentage points in performance levels.”  Hence, any impropriate working practice or management can drive away employee’s engagement.

In conclude, creating a safety working environment can help to prevent accident, but also help BP to grasp their employee’s heart again.

5. REFERENCES

 

 Articles :

• Telling Tales 2004, "Stephen Denning", Harvard Business Review, May
• Peter Ketter. Jan, 2008. What's he Big Deal About Employee Engagement.
• Fleishman-Hillard Inc. May 2007. Rethinking Corporate Social Responsibility. A Fleishman-Hillard/National Consumers League Study.
• December 3, 2007. David Cavett-Goodwin. Making the Case for Corporate Social Responsibility
• Lee Gardenwartz and Antita Rowe. March 2001. Cross-Cultural Awareness.

 

 

Internet :

• Tony Haywar, http://southpark.wikia.com/wiki/Tony_Hayward  
•  A Message from Tony Haywar, http://www.youtube.com/watch?v=KKcrDaiGE2s&feature=player_embedded
• -BP's Tony Hayward: 'I'd like my life back'". USA Today. 1 June 2
  010. Retrieved 1 March 2011, http://content.usatoday.com/communities/greenhouse/post/2010/06/bp-tony-hayward-apology/1
• Melly Alazraki. Now, Even BP Employees Are Suing the Oil Company. Daily Finance. June 2010. http://www.dailyfinance.com/story/investing/now-even-bp-employees-are-suing-the-oil-company/19535004/
• Lisa Myers and Rich Gardella. Deepwater Horizon rig: What went wrong? Nightly News. 21 May, 2010. http://www.msnbc.msn.com/id/37279113/ns/nightly_news/
• Christopher Helman. BP’s Deepwater Disaster: What Happened And Why? Forbe. 30 April,2010.http://blogs.forbes.com/energysource/2010/04/30/bps-deepwater-disaster-what-happened-and-why/
• Environmental Magazine. Gauging the Long-Term Impacts of the BP Oil Spill. 6 May, 2010. http://www.thedailygreen.com/environmental-news/latest/gulf-oil-spill-impacts-460610
• T. Cahill. BP Oil Spill Accountability | President Obama Speaks to Nation. Worldnews Vine. 6th March, 2010. http://worldnewsvine.com/2010/06/bp-oil-spill-accountability-president-obama-speaks-to-nation/
• Graeme Wearden. BP to admit partial blame for Deepwater oil spill. 8 September, 2010. http://www.guardian.co.uk/business/2010/sep/08/bp-deepwater-report