Sunday, 8 May 2016

Culture: The imperative for survival in today's complex world

More Complexity = More Risk

The world has changed dramatically over the past two decades. Email, the Internet, and now social media have increased the interconnectedness of the world. Globalization has led to intense competition, forcing companies to expand product portfolios and design increasingly complex manufacturing processes and supply chains. Government regulation has become progressively more active, forcing companies to create new organizations and processes to ensure compliance. All these changes have driven substantial complexity into the environment in which companies operate, and the pace of change continues to accelerate.

Characteristics of Complex SystemsCharacteristics of Complex Systems
Complex systems have several characteristics that make them especially susceptible to high consequence/low probability events. First, complex systems have many interdependent variables that do not necessarily act in linear or predictable ways. Second, they have feedback loops that act to amplify or dampen reactions. As these interdependent variables are amplified or dampened by feedback loops, complex systems often exhibit emerging properties causing them 
Flock of Birdsto behave in ways that are virtually impossible to predict.

A flock of birds is a classic example of a complex system.  No one bird is in control of the flock.  In fact, no single bird even knows in which direction the flock will move.  Each bird follows a few simple rules (i.e. don’t run into each other, maintain a standard distance, align flight to match neighbor, etc.), and from these simple rules, a very complex pattern of behavior emerges.  As companies become more and more complex, their performance becomes more like the flock of birds in that it is difficult to predict and impossible for a single person to control.

Traditional approaches to risk management are not well suited to preventing the high consequence/low probability events that arise from complexity. First, traditional approaches rest on the ability to predict potential failure modes so that actions to prevent or mitigate the risk may be put in place. The emerging properties exhibited by complex systems make this virtually impossible. Second, the feedback loops present in complex systems often cause circumstances to change so fast that there is not adequate time to identify the risk. Finally, these events happen so infrequently, and with so little notice, that there is not ample opportunity to study and learn from them.

More Risk = More Disasters

Unfortunately, recent history is evidence of this trend. High consequence/low probability events are becoming more and more frequent. Disasters of the scale of BP’s Deepwater Horizon, Fukushima Daiichi, and the West fertilizer plant are becoming all too common.  And this increase in catastrophic failures is not limited to safety and environmental incidents.  We have seen similar trends in financial markets (e.g. 2008 housing collapse, current collapse of oil prices) and product quality incidents (e.g. Takata air bag recall, Blue Bell Listeriosis outbreak).  The bottom line is that unless we do something differently, as the world grows increasingly complex, we will continue to find new ways to cause destruction and devastation.  In fact, some leading thinkers have resigned themselves to this fact and simply accepted these catastrophes are the new normal.

Complexity Threshold In fact, a select few organizations have been able to defy this trend. These High Reliability Organizations (HROs) have been able to demonstrate extraordinary levels of performance even in highly complex operating environments.  We look to these HROs to understand how they are able to achieve extraordinary levels of performance, over sustained periods of time, despite operating in highly complex, high-risk environments.

Culture Can Overcome Complexity

One of the most significant lessons we take from HRO’s is the importance of culture.  An organization that expects people to just do what they are told, mind their own business, and not question authority, simply will not succeed in today’s complex world.  It can’t because it is impossible for leaders to predict what will happen next and direct all activities.  To survive and thrive in a complex environment requires a culture that encourages people to understand not just what they do but why they do it, question things that are out of the ordinary, and back each other up.  Organizations that can create a culture consistent with these characteristics of HROs will not only avoid catastrophic failures, they will outperform their competition across every measure of operational performance

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