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(originally published by Booz & Company)


How to Prevent Self-Inflicted Disasters

3. Create formal and informal communication channels to raise awareness of current conditions on the ground (information flow and mindsets). In preventing self-inflicted black swans, one central challenge is ensuring that senior decision makers can get an accurate, timely, and independent overview of “ground truth”: the realities of project progress and potential problems. They need to independently verify the information they receive from their direct reports. In most companies, executives receive messages selectively filtered and tailored to what people believe they want to hear. Basic human nature seems to include reluctance to communicate bad news.

Outsourcing and offshoring exacerbate the problem. Subcontractors may be located far from the headquarters of their client companies. Supplier contracts typically limit the type and amount of information that can be shared, and sometimes impose penalties for delays — thus giving subcontractors an extra incentive to withhold troubling information, for fear of becoming the messenger of bad news or in hope that another subcontractor might be forced to communicate first. These challenges can be overcome, but only by establishing open communication channels — both formal and informal — through which senior leaders can interact with lower-level employees to get their perspective. Regular review meetings will not suffice; it takes regular interaction, ideally in casual face-to-face settings, to give senior management an accurate picture of what is happening.

This kind of conversation also gives lower-level personnel a clear understanding of management goals — and improves their judgment about which types of problems are worth reporting, and how to report them. Beyond that, some senior leaders make a point of cultivating multiple sources of information; you might, for example, ask a quality department and a production department to report independently on the same projects. The point in all this is to broaden the flow of information to and from senior management, as well as around the organization generally.

4. Set up better reporting relationships and prevention guidelines, using work-arounds as diagnostics (organizational structure and networks). When under pressure to produce, employees often develop work-arounds, shortcuts that allow them to sidestep the formal checks and balances of risk prevention. After a work-around has been in place for a while, it becomes second nature; people almost forget that the old rules exist. In fact, maybe the formal rules are truly superfluous and unneeded — or perhaps they’re genuinely important, like the law against texting while driving. You may have to find out the hard way if you have never examined these rules.

The presence of a work-around can provide a valuable clue that some process is unclear or cumbersome and needs to be either enforced or changed. If you try to outlaw the work-around strictly through edict and penalty, without addressing the issues that made people turn to it in the first place, then they will simply find another nonstandard approach. Instead, you need to bring formal structures and informal networks together; talk to people directly about the reasons that work-arounds have developed, and institute new policies that address the underlying issues.

One common work-around is found at the corporate level: An organization becomes focused on managing the public perception of a problem (or potential problem) rather than actually trying to solve it. If you find yourself continually defensive about queries from the public or from regulators, that’s a clue that you have a deeper internal issue to explore. Defend your company, by all means, but also begin to follow the trail. Is there something within your organization that is masking a potential catastrophe?

An Ethic of Integrated Action

In companies primed for a self-inflicted black swan, some or all of these problems may exist side by side. The lack of open information flow, unclear decision-making authority, an inefficient organizational structure, and inconsistent values and incentives all negatively reinforce one another. By the time the problem comes to light — whether through an explosion, a technological failure, a legal challenge, or some other visible catastrophe — it is too late to stop the damage.

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Editor’s note: This article is part of a body of management theory and practice called organizational DNA. Take our new online survey to see your own organizational DNA profile — and gauge, among other things, how well equipped your company is to prevent and mitigate self-inflicted crises. Click here for the survey and more information.
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