Predictable Surprises

The Disasters You Should Have Seen Coming and How to Prevent Them

Max H. Bazerman
Michael D. Watkins
Harvard Business School Press

I told you so! You should have known! Those are the sort of “after the fact” refrains we’ve all said and heard subsequent to an unfortunate occurrence that, in hindsight, could have been prevented or avoided. Why wasn’t it? It’s because of the “predictable surprise” phenomenon. We all know about it but in too many instances we don’t know what to do about it. The magnitude of the Hurricane Katrina disaster and the dramatic nature of the predictable surprises that affect all of us in our business and personal lives – think identity theft- necessitate a change in this mindset.

To begin with, authors Max H. Bazerman and Michael D. Watkins stress that we don’t confuse predictable surprises with unforeseen disasters:

Unlike an unpredictable surprise, a predictable surprise arises when leaders unquestionably had all the data and insight they needed to recognize the potential for, even the inevitability of, a crisis, but failed to respond with effective preventive action.

The authors go on to identify six general characteristics that are invariably associated with predictable surprises:

1. Those in a position to take a leadership position to prevent the occurrence know that the problem exists. In other words, it’s predictable because there’s knowledge of the nature and content of the phenomenon.
2. Those in a position to know are aware that the dynamics associated with the occurrence are increasing in intensity. The situation is getting worse and deteriorating.
3. Fixing the problem now will incur costs.
4. Avoiding dealing with the problem at the present time is cost free or minimal.
5. There is a natural tendency to maintain the status quo. Fixing the problem will necessitate changes being made, some of which may cause discomfort or conflict.
6. A small interest group has a vested interest in maintaining the status quo and will either receive no benefit or sustain a loss if the problem is addressed.

Rethink Hurricane Katrina! Take a look at these six characteristics. There was knowledge of the potential of the occurrence and particularly with Katrina. Several studies indicated the levee situation in New Orleans was progressively deteriorating. However, bringing the levees up to standard would cost money while playing the odds that a hurricane wouldn’t land in New Orleans would cost nothing. It was much easier to maintain the status quo and appease interest groups who wanted to avoid increasing taxes and impeding the bourgeoning tourism industry. The consequences for the occurrence of this predictable surprise are unfortunately massive and unpredictable.

Before we lay all of the blame for predictable surprises on our leaders, we must be cognizant of the distinction between individual knowledge and organizational or institutional knowledge. After the fact investigations into occurrences associated with predictable surprises invariably find that individuals knew bits and pieces about the predictability factor but there was either a failure or inability to mine and massage these bits of data into a comprehensive knowledge base. This can often be traced to what is labeled as the “noise” factor. Oftentimes there is just so much going on and so much activity being generated that what we need to know remains buried in a mound of detail.

Closely associated with these six characteristics is the human tendency to dissociate thinking and reason from acting. We’re all aware of the global warming threat. We know that the U.S. with less than 5% of the world’s population can’t continue to consume 25% of the world’s resources indefinitely. Eventually the emerging powers like China and India will revolt against the west and demand their fair share of the world’s natural resources and material goods. However, to paraphrase recent remarks by President Bush, America remains a nation addicted to oil. On an individual basis no one is willing to walk the walk We’ll arguably continue on with our status quo life styles until the predictable surprise of a global crisis puts a devastating stop to it.

This is a lot of bad news. However, there is a good news scenario. The authors have developed a set of tools to minimize the incidents of predictable surprises:

• The measurement tool - we need to examine the methods and mechanisms we currently use to measure occurrences and redesign them to capture data and measure it with relevant key performance indicators (KPIs).
• The intelligence tool – we need to foster the development of intelligence and empower intelligent people.
• The scenario planning tool – we need to embrace scenario planning and incorporate it into our organizational management structure. Scenarios enable people to think outside the envelope and transform the unpredictable into a manageable predictable.
• The disciplined learning process tool – we need to reinvent learning to factor in new issues like the noise factor and the management of data overload. We need a learning discipline that incorporates the measurement results from KPIs and scenario planning into a knowledge management methodology.

The authors devote considerable attention to the measurement tool, given the importance of massaging data into the intelligence that enables parties to understand and articulate predictable surprises. They point out the following common problems with measurement that insurance litigation managers would do well to consider in analyzing their own measurement programs:

• Organizations place too much emphasis on measuring internal performance and not enough on external performance. In doing so it misses the opportunity to receive critical signals from the market place.
• The focus is on measuring outputs rather than the key processes that determine the quality of the outputs.
• Too many tasks and activities are measured. The organization doesn’t adhere to KPI methodology which narrows measurement on the few matters that are significant.
• There is no orchestrated response to measurement results. There is a lack of strategy and an absence of execution to rectify problems brought to light through the measurement process.

The authors are advocates of Kaplan and Norton’s Balanced Scorecard methodology as the best practices application of measurement programs. In their opinion, a balanced scorecard provides organizations with the robust platform necessary to support success with the other three steps. As indicated in previous articles, your executive editor is the author of an application of balanced scorecard methodology. If you’d like a first hand look at an application of this methodology for insurance litigation management, send me an e-mail and I’ll forward you a copy of the Litigation Management Scorecard.

Once all is said and done, and the surprise is properly defined with its projected probability and consequences fully evaluated, resolution and avoidance of the consequences only comes through mobilization. Once again, think Katrina. In hindsight it’s now acknowledged that many of the severe consequences associated with the storm and after effects were caused by the inability of organizations with mandates to mobilize their resource capabilities. You need to develop a crisis response system with a deployment structure that can successfully manage and resolve all of the predicted consequences of the predictable surprise, a topic for entire texts on its own right.

Quotable Quote  

In short, an organization’s knowledge never equals the sum of its members’ knowledge. Various parts of the organization may have all of the information necessary to perceive and prevent a predictable surprise, but no person or unit is capable of putting it all together. In theory, senior management should play the role of synthesizer, compiling fragmented information into “the big picture.” But the barriers to this goal are great. Organizations filter information as it rises through hierarchies. The temptation to withhold or gloss over sensitive, confusing, or embarrassing information is great. Those at the top inevitably receive incomplete data and overload may prevent them from keeping up-to-date with incoming information.

Kelly Critique

In a sense, this book tells the reader nothing new. However, its value comes in providing the reader with insight into why we live and work in an “I told you so” environment. Insurance litigation managers are frequent recipients of predictable surprises from outside law firms. This book is informative in placing service provider/client surprises in an analytical context and giving the reader a game plan with clear steps to minimize their occurrence and when they do occur, to cost effectively manage the consequences.