Monday, March 26, 2012

The Gun’s Loaded: Don’t Shoot Your Foot!

By Virgil Carter
We are all too familiar with well-publicized stories—“black swan” events—of highly destructive calamities that seemingly came out of nowhere, with huge negative effects on the organizations and environments involved.  Examples include oil rig explosions, automobile recalls, financial meltdowns and more.

In a recent article “How to Prevent Self-Inflicted Disasters”, published in Strategy + Business, author Eric Kronenberg writes that “when you look in more detail at these crises, you often find that they were self-inflicted to some degree…after the event, the leaders of the company often have to admit:  “we did it to ourselves”.”

Kronenberg explains, “Self-inflicted “black swans” have occurred in many industries in widely varying circumstances, but always with one common factor.  Although the initial trigger appeared to be an exogenous event, the critical decisions were largely under the control of management”.  Typically, a number of people within the company knew about the situations and saw the potential downside in advance.
Then how could such disasters happen?  “Because the perception of risk diminishes over time”, according to Kronenberg.  Companies that overlook or sidestep their risk management practices may be primed for a self-inflicted “black swan” event.
Kronenberg recommends four steps for organizations to anticipate and manage large, unrealized risks:

·         Clarify who is responsible for which decisions, taking into account the influence that informal leaders already have (decision rights and norms);

·         Align incentives and other motivators to promote awareness of potential risks and their prevention (motivators and commitments);

·         Create formal and informal communications channels to raise awareness of current conditions on the ground (information flow and mindsets);

·         Set up better reporting relationships and prevention guidelines, using work-arounds as diagnostics (organizational structure and networks)

“With a close look at the core elements of your organizational DNA”, according to Kronenberg, “you can recognize the design steps that can lead to better behavior very soon”.

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