Better risk management requires mindful organizing that creates high-reliability organizations. Mindful organizing develops decision-making processes to protect against high volatility, chaotic markets, and surprises.
This post synthesizes the key points of Managing the Unexpected: Sustained Performance in a Complex World by Karl Weick and Kathleen Sutcliffe.
The mindful organization focuses on the firm’s coordination problem. The core problem of any firm, and its reason for existence, is to coordinate activities to increase efficiency and lower costs. Yet coordination is not easy. There is good and bad coordination. According to Barry Turner, “organizations achieve a minimal level of coordination by persuading their decision-makers to agree that they will all neglect the same kinds of consideration when they make decisions.”
A good organization can adapt to surprises and be resilient. A highly resilient organization (HRO) should act through what the authors classify by the simple acronym as FSORE - failure, simplification, operations, resilience, and expertise.
Mindful organizations look for continuity with specific focus on some key principles:
- A preoccupation with failure - Work hard to detect failures and pay attention to anomalies, information that does not fit the normal; do not normalize; anticipate mistakes or show institutional wariness of mistakes and anomalies; realize that knowledge is incomplete and organize doubt of what may be occurring. There is a tendency to exaggerate the best case and most optimistic view, so be a skeptic.
- A reluctance to simplify - Clarification does not mean simplifying in a complex world. Accept that complexity is a process and part of the environment. Simplifying tasks or explanations will cause you to miss important details.
- A sensitivity to operations - Focus on the work itself, what is actually being done, to protect the system and keep the work flowing. A breakdown in operations will be costly. There should be an integration map, so everyone knows how processes are conducted in a failure or crisis. This requires strong situation awareness.
- A commitment to resilience - Maintain key functions during a crisis or failure. Manage and anticipate the unexpected, so you create resilience, not just expect it. A response to surprises doesn’t happen without training to account for them.
- A deference to expertise - CHAOS - “the chief has arrived on scene”. To avoid chaos, organizations need to defer to experts or those dealing with an issue in real time.
Adaptive managing from Gary Klein should follow the simple format - STICC:
- The situation - What problem or situation are we facing?
- The task - What task has to be undertaken?
- The intent - What is the intent of our actions for this task?
- The concerns - What concerns are associated with this problem and solution?
- The calibration - What are we missing or need to adjust given this situation, task, and intent?
Organizations need to think beyond the measurement of risk and the models for valuation and focus on forming better organizations.
