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The Ancient Greek tragedies invariably told the story of a character who
came to grief through a series of mistakes that all started with a failure
to heed strong warnings. The Titanic, Three-Mile Island (TMI) and NASA’s
space shuttles Challenger and Columbia are all modern examples of "corporate
tragedies" that occurred because of assumptions that were incorrect, systems
that were misunderstood, and actions that exhibited extraordinary lack of
preparation and insight. Above all, they were the result of reckless
disregard of alarming information.
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Almost every business disaster is the result of not one mistake, but a
succession of mistakes. At many points along the road to ruin, that chain
could have been broken and the situation corrected—if only people had seen
and believed the evidence that sat in front of their noses.
The great fault lies not in making mistakes, but in repeating them, and
not learning to catch them early. Organizations are like individual people.
They make the same mistakes over and over, unless they do something
definitive to try to stop. They are shortsighted. They don't always learn
from their own mistakes, or from others'. They also don't always learn from
their successes. They often neglect to ask, "What did we do right?"
Anyone in a management or executive position needs to learn how to
recognize the patterns of mistakes that precede most business disasters, and
to reduce a mistake (or above all, a series of mistakes) to something that
does not require full-scale crisis management.
How do we break the mistake sequence, or prevent it before it starts?
You'll generally find two forms of opportunity for early intervention. The
first is a matter of heeding early warnings of specific danger, and
detecting patterns in operations.
- Other ships had warned the Captain of the Titanic that his proposed
route was full of icebergs.
- A 1990 study had shown the potential for damage to the heat shield
of the space shuttle Columbia.
- Consumers were quick to complain about the flawed chip in Intel's
Pentium processor.
- Ford was aware of early failures of Firestone tires on its Explorer
vehicles in Saudi Arabia and Venezuela.
In each of those cases, the people at the top knew that something was
wrong, and simply pooh-poohed it—or didn't attend to the problem until it
had gotten out of hand. Ignoring early warnings allowed the mistake to slow
or reverse the "business flywheel."
The second way to intervene is to quickly detect and halt dangerous
patterns of action in operations and strategy.
- Several top executives were aware that Enron was highly leveraged
and was involved in far too many high-risk deal structures.
- Kodak knew that digital technology was coming in, and that other
companies were developing it, but Kodak continued to focus on
chemical-based technologies, giving their competition a head-start in
digital.
- Webvan made a series of ill-founded and ill-tested assumptions about
its on-line grocery-shopping system.
The problem with a warning is that it is not always clear that it is a
warning at all, or that the source of the information was reliable. How to
detect and react to warnings? Here are situations that should raise red
flags and warrant further analysis:
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- credible customer complaints that "your product isn't working";
- situations you have not seen before;
- operating experience different from that of your competitors;
- unusual or rapidly changing data about operations or customers;
- results off-plan;
- results on-plan—but only through luck;
- constant revision of plan/budget;
- failures of control systems;
- need to re-train significant numbers of personnel because they are
not performing;
- frequent operational problems that are not addressed by standard
procedures;
- problems caused by communications issues;
- problems where help was available but not used.
When you do see warning signs, you'll find several ways to stop a mistake
sequence.
- Adopt a customer-focused operating culture, from top to bottom.
Everyone knows the customer, everyone improves quality, everyone markets
and sells.
- Delineate responsibilities, standard operating procedures, and
metrics. Paramount to avoiding mistakes is knowing who has primary
responsibility for each important task and objective.
- Implement training, simulation, and devised safety. Do not move
safety limits to accommodate your clients, as Enron's, WorldCom's, and
HealthSouth's auditors did. Imagine disastrous scenarios, and ask your
employees, "What would you do if…?".
- Believe your indications, never ignore customer data, and
communicate. Instead of trying to explain bad news, try to understand
why something is happening as indicated. Act on your indications even if
you don't like them. In particular, listen to customer data—because by
the time it reaches your desk, the problem will have been going on for a
while.
- "Fly the airplane." Focus on the primary mission, and don't be
distracted by non-critical problems.
- STOP is your last line of defense. Train your employees to
understand that they have a responsibility to exercise this option when
the situation warrants it.
About the Author:
Author Robert E. Mittelstaedt, Jr. is Dean and professor of the W.P.
Carey School of Business, Arizona State University, and former, Vice Dean
and Director, Aresty Institute of Executive Education, The Wharton School.
He has consulted with organizations ranging from IBM to Weirton Steel,
Pfizer to the U.S. Nuclear Regulatory Commission and is a member of the
board of directors of three corporations in electronics and healthcare
services businesses. His book
Will Your Next Mistake Be Fatal? Avoiding the Chain of Mistakes That Can
Destroy Your Organization is published by Wharton
School Publishing September 2005;$25.95US/$36.95CAN; 0-13-191364-6
Reprinted with permission.
January 2006
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