How to Avoid Catastrophe in Your Business

January 20, 2006 | By | Reply More

Catastrophes don’t just happen. Virtually every disaster is the result of a series of overlooked mistakes – each one set in motion because people simply refused to believe the evidence right in front of them. Will a mistake be fatal to your organization? How you deal with mistakes will determine whether your organization is successful and survives in the long run.

It’s called the Mistake Chain, a series of compounding errors that can bring about crisis and front-page status. You will make mistakes, but you can make fewer, less serious mistakes by recognizing a mistake or failure and breaking the mistake chain before it results in a major mishap.

All disasters large and small have in common a string of mistakes – the Mistake Chain. From the Titanic to Firestone Tire, Three Mile Island to “New Coke”, all were preventable and the mistake chains that caused them could have been broken.

To avoid a fatal blow to your business, keep in mind these vital strategies:

1. Learn to Recognize the Pattern of Mistakes.

Prepare your organization and its employees to recognize these patterns before a disaster happens. Damage from a crisis tends to grow exponentially. It can take the form of lost customers, lost sales, lower employee morale and higher costs and lost companies, so taking action to eliminate the threat early on can help avoid full-blown crisis management down the road.

2. Fly the Airplane.

This is an old adage in aviation. Airplanes have crashed simply because of pilot distraction in the cockpit. This is what happened when Eastern Airlines flight 401 crashed in the Florida Everglades in December 1972. In preparation for landing in Miami, a light bulb indicating ‘gear down and locked’ failed to illuminate. As the crew became absorbed by what they thought what could be a nose gear problem, the plane lost altitude, going unnoticed until it was too late. After the crash, it was determined a burned out light bulb started the sequence of mistakes.

Businesses can get caught up in a similar chain of execution mistakes. For instance, Webvan – the now defunct Internet grocer – took on expansion too fast. It failed to work out operational problems in its initial markets in California, before taking on Atlanta and Dallas. As a result of many execution mistakes, the company ate up more than $1 billion in capital, before declaring bankruptcy in 2001 and laying off 2,000 employees.

3. Establish and Enforce Standard Operating Procedures.

Aviation and complex manufacturing operations do this. You need to look for everything that can be standardized and make the procedures known. Employees must be trained and those who do not follow them must be held accountable.

4. Avoid Ignoring Data or Misrepresenting Customer Data.

Intel’s new Pentium computer chip was tearing up the processor market in 1994, but a math professor discovered it produced incorrect results for a computation beyond eight decimal places. The company was slow to admit the problem and offer a free replacement chip to customers who asked. That only irritated many customers and ignited criticism in the media, making things much worse. Here was a case of executives not learning from other industries. Communications and public relations fiascos are often part of the mistake sequence that increases the damage in business disasters.

5. Create a Culture with a Purpose.

Most corporate cultures develop by accident. Yet those that are designed to accomplish a purpose are more effective. They understand what they need to focus on and reinforce it repeatedly. McDonald’s Corp. in 2003 posted its first quarterly loss in its history. The company rebounded by going back to basics. It closed underperforming stores and sold off brands not central to the core business. It focused on clean stores, friendly service and hot food. It slowed expansion and stopped pricing wars. Overall, it found out its core competence is in operations and marketing in a fairly narrow area. Extending those competencies to similar but different product areas was more difficult than imagined.

6. Beware of Economic Forces and Laws.

Industry changes are real. The mistake chain in which entire industry changes occur is driven by a failure to recognize the need to make fundamental changes in a business model early enough to avoid being consumed by the natural laws of economics. Eastman Kodak Co. lost its dominance in the photography business by being slow to recognize the impact of digital technologies.

The U.S. auto industry is in a mistake sequence that has been achieving momentum and destroying value for nearly 50 years. Mistakes include: believing profitability and market share were inalienable rights, failing to modernize manufacturing and strangling suppliers by demanding concessions.

You will make mistakes. If you don’t, you are not taking enough risks. But you can make fewer of them. Catch them early and keep them from spiraling out of control.

Reprinted with permission. January 2006
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

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Category: Business Survival

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