The Idea in Brief
Even the best-run companies can get blind-sided by disasters they should have anticipated. These predictable surprises range from financial scandals to operational disruptions, from organizational upheavals to product failures.
But you can minimize your risk by lowering the barriers—psychological, organizational, and political—preventing you from foreseeing calamity. It isn’t just a matter of better environ-mental scanning or contingency planning. You need a rigorous approach called RPM:
- Recognize the threat.
- Prioritize it.
- Mobilize resources to stop it.
Failure at any stage exposes your company to predictable surprises. Given the stakes involved, RPM should count among every business leader’s core responsibilities.
The Idea in Practice
How We Fail
The most skilled executives may fail at any RPM stage:
- Recognition. Leaders remain oblivious to emerging threats.
Example:
Jack Welch never anticipated that GE’s acquisition of Honeywell might flounder during antitrust reviews. Then the European Commission nixed the deal. Had he attended to the warning signs, Honeywell might be part of GE today.
- Prioritization. Leaders recognize a threat but don’t consider it serious enough.
Example:
Though Monsanto CEO Robert Shapiro knew Europeans had food-related concerns, he entered the genetically modified food industry. His failure to win public acceptance of GMO food products cost him his company.
- Mobilization. Leaders recognize and prioritize a threat but don’t respond effectively.
Example:
After the Big Five accounting firms pressured the SEC to allow auditors to continue providing consulting services to clients, the accounting scandals erupted.
Why We’re Vulnerable
Predictable surprises stem from three kinds of vulnerabilities:
- Psychological. Cognitive biases lead us to see the world as we’d like it to be—not as it is. We favor only evidence supporting our preconceptions, fail to notice others’ behavior, and ignore problems we haven’t personally experienced.
- Organizational. In large organizations, decision makers receive fragmented, distorted, and incomplete data. Everyone assumes someone else is accountable; no one acts.
- Political. Power imbalances lead executives to overvalue some groups’ interests and slight others’. Vested interests can impede action.
What We Can Do
To anticipate and avert crises, first ask yourself and your colleagues, “What predictable surprises are currently brewing in our organization?” Obvious, yes—but rarely asked. People often know of approaching storms but remain silent. Encourage them to speak up.
Then, ferret out threats invisible to insiders by using:
- Scenario planning. Gather individuals from inside and outside your company to analyze external trends and identify business drivers. Create scenarios for surprises that could emerge over the next two years, then design preparatory measures.
- Risk analysis. Estimate future events’ probabilities and costs and benefits. Create cross-functional teams of insiders and outsiders to synthesize industry intelligence.
- Incentives. To promote information sharing, reward managers for balancing corporate and local interests.
- Networks. Gather internal and external advisers to test and refine early impressions and counter unconscious biases. Build formal coalitions to mobilize people outside direct lines of control.
April 29, 1995, was not a good day for Royal Dutch/Shell. That morning, a small group of Greenpeace activists boarded and occupied the Brent Spar, an obsolete oil-storage platform in the North Sea that Shell’s UK arm was planning to sink. The activists brought with them members of the European media fully equipped to publicize the drama, and announced that they were intent on blocking Shell’s decision to junk the Spar, arguing that the small amounts of low-level radioactive residues in its storage tanks would damage the environment. Greenpeace timed the operation for maximum effect—just one month before European Union environmental ministers were scheduled to meet and discuss North Sea pollution issues.