Predictable Surprises:The"Disasters

You Should HaveSeen Coming

by Michael D. Watkinsand Max H. Bazerman

A P R I L 29, 1995, WAS NOT A GOOD DAY/ \ for Royal Dutch/Shell. That morning,

X JL a small group of Greenpeace activistsboarded and occupied the Brent Spar, an obscnlete oil-storage platform in the North Sea thatSheli's UK arm was planning to sink. The activistsbrought with them members of the Europeanmedia fully equipped to publicize the drama,and announced that they were intent on block-ing Shell's decision to junk the Spar, arguingthat the small amounts of low-level radioactiveresidues in its storage tanks would damagethe environment. Greenpeace timed the oper-ation for maximum effect-just one monthbefore European Union environmental min-isters were scheduled to meet and discussNorth Sea pollution issues.

Shell rushed to court, successfully suingGreenpeace for trespassing. In the full glareof the media spotlight, the activists wereforcibly removed from the piatform. Forweeks afterward, as the cameras continuedto roll. Shell blasted Greenpeace boatswith water cannons to prevent the groupfrom reoccupying the Spar. It was a pub-lic relations nightmare, and it only gotworse. Opposition to Shell's plans-andto Shell itself-mounted throughoutEurope. In Germany, a boycott of Shell

W

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The signs of animpending crisis

often lie all around us, yet westill don't see them. Fortunately,there are ways to S130t

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gas stations was organized, and many of themwere fire bombed or otherwise vandalized. Pil-loried in the press and criticized by govern-ments. Shell finally retreated. It announcedon June 20 that it was abandoning its plan tosink the Spar.

Shell's uncoordinated, reactionary, andultimately futile response to the Green-peace protest revealed a lack of foresightand planning. The attack on the Spar hadclearly come as a surprise to the company.But should it have? Shell actually hadall the information it needed to predictwhat would transpire. The company'sown security advisers entertained thepossibility that environmental activistsmight try to block the dumping. Otheroil companies, fearing a backlash, hadprotested Shell's plans when they

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Pred i c tab le Surp r i ses : The D isas ters You Shou ld Have Seen C o m i n g

were originally announced. Greenpeace had a history ofoccupying environmentally sensitive structures. And theSpar was nothing if not an obvious target: Weighing14,500 tons, it was one of the largest offshore structuresin the worid and only one of a few North Sea platformscontaining big storage tanks with toxic residues.

But, even with all the warning signs. Shell never sawthe calamity coming. Unfortunately, its experience is alltoo common in the business world. Despite thoughtfulmanagers and robust planning processes, even the bestrun companies are frequently caught unaware by disas-trous events-events that should have been anticipatedand prepared for. Such predictable surprises, as we callthem, take many forms, from financial scandals to dis-ruptions in operations, from organizational upheavalsto product failures. Some result in short-term losses or dis-tractions. Some cause damage that takes years to repair.And some are truly catastrophic-the events ofSeptember 11,2001, are a tragic example of a pre-dictable surprise.

The bad news is that all companies-includingyour own-are vulnerable to predictable sur-prises. In fact, if you're like most executives, youcould probably point to at least one potentialcrisis or disaster that hasn't been given enoughattention-a major customer that's in financialtrouble, for instance, or an overseas plant thatcould be a terrorist target. But there's good newsas well. In studying predictable surprises thathave taken place in business and government,we have found that organizations' inability toprepare for them can be traced to three kindsof barriers: psychological, organizational, andpolitical. Executives might not be able to elimi-nate those barriers entirely, but they can takepractical steps to lower them substantially. Andgiven the extraordinarily high stakes involved,taking those steps should be recognized as a coreresponsibility of every business leader.

Three Ways to FailIt's all too easy, of course, to play Monday-morn-ing quarterback when things go terribly wrong.That's not our intent here. We readily admit thatmany surprises are unpredictable-that somebolts out of the blue really do come out of theblue-and in those cases leaders shouldn't beblamed for a lack of foresight Nor should they

be blamed if they've taken all reasonable preventive mea-sures against a looming crisis. But if a damaging eventhappens that was foreseeable and preventable, no excusesshould be brooked. The leaders' feet need to be held tothe fire.

So how can you tell the difference between a true sur-prise and one that should have been predicted? Antici-pating and avoiding business disasters isn't just a matterof doing better environmental scanning or contingencyplanning. It requires a number of steps, from recognizingthe threat, to making it a priority in the organization,to actually mobilizing the resources required to stop i tWe term this the "RPM process": recognition, prioritiza-tion, mobilization. Failure at any of these three stagesw\]\ leave a company vulnerable to potentially devastat-ing predictable surprises. (See the sidebar "Are You toBlame?" for a further discussion of the RPM process.)

to Blame?

Michael D. Watkins is an associate professor ofbusiness administration at Harvard Business Schoolin Boston. Max H. Bazerman is the Jesse IsidorStraus Professor of Business Administration at Har-vard Business School.

Predictable surprises arise out of failures of recognition, prioriti-zation, or mobilization. The best way to figure out whether adisaster could have been avoided, as the diagram at right illus-trates, is to ask the following:

Did the leader recognize the threat? Some disasters can't beforeseen. No one, for instance, could have predicted that the HIVvirus would jump the species barrier to infect humans on sucha vast scale. But in examining the unforeseen disasters that strikecompanies, we've found thatthe vast majority should have beenpredicted. The way to determine whether a failure of recognitionoccurred is to assess whether the organization's leader marshaledresources to scan the environment for emerging threats. That in-cludes ascertaining whether he did a reasonable job of analyzingand interpreting the data. If not, then the leader should be heldaccountable.

Did the leader prioritize appropriately? Predictable surprisesalso occur when a threat is recognized but not given priority.Failures of prioritization are particularly common, as businessleaders are typically beset by many competing demands on theirattention. How can they possibly distinguish the surprise that willhappen from the myriad potential surprises that won't happen?The answer is that they can't make such distinctions with 100%accuracy. Uncertainty exists-high-probability disasters some-times do not occur, and low-probability ones sometimes do. If,therefore, a leader performs careful cost-benefit analyses andgives priority to those threats that represent the highest costs,he should not be held accountable for a failure of prioritization.

Did the leader mobilize effectively? When a threat has beendeemed serious, the leader is obligated to mobilize to try to pre-vent it. If he takes precautionary measures commensurate withthe risks involved, he should not be held accountable. Nor shouldhe be blamed if he lacked the resources needed to mount aneffective response.

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Lapses in recognition occur when leaders remain obliv-ious to an emerging threat or problem-a lack of atten-tion that can plague even the most skilled executives.After European Commission regulators refused to ap-prove General Electric's $42 billion acquisition of Honey-well in 2001, for example, Jack Welch was quoted as say-ing, "You are never too old to be surprised." Welcb is afamously hard-nosed executive, and if anyone could havebeen expected to do his homework, it would have beenhim. But was Welch correct in viewing the decision as atrue surprise, an event that couldn't have been foreseen?The evidence suggests he was no t The Economist re-ported at the time that there were many warning flagsof the EC's intent to scuttle the deal. For some time, themagazine pointed out, a philosophical gap had beenwidening between Europe and America over the regu-lation of mergers. And Mario Monti, the recently ap-

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pointed head of the European Commission's competitionauthority, was widely believed to be looking for an oppor-tunity to assert Continental independence.

It seems the real reason Welch was surprised is that hejust didn't pay enough attention. According to the Associ-ated Press, when GE's CEO and his counterpart at Honey-well, Michael Bonsignore, were rushing to close the deal(United Technologies was also eager to acquire Honey-well), they "reportedly never held initial consultationswith tbeir Brussels lawyers who specialize in Europeancompetition concerns." Welch appeared to assume thattbe merger would sail through the antitrust review. Butwhile it did pass easily through the U.S. review-no doubtfurther reinforcing his confidence-it smashed on therocks in Europe. Had Welch recognized the potential fora negative decision ahead of time, he ahnost certainlywould have managed the merger negotiations and anti-

trust consultations differently-and Honeywellmight well be a part of GE today.

Failures of prioritization arise when potentialthreats are recognized by leaders but not deemedsufficiently serious to warrant immediate atten-tion. Monsanto fell into this trap in late 1999when CEO Robert Shapiro and his advisers failedto concentrate on winning public acceptance ofgenetically modified foods in Europe. Bettingthe company on a "life sciences" vision, Shapirohad sold or spun off Monsanto's traditionalchemical businesses and moved aggressively toacquire seed companies. Dazzled by the seem-ingly vast commercial opportunities of geneti-cally modified plants, the company pressed for-ward with launches of GMO food products inEurope, giving far too little weight to the fact thatEuropeans were still reeling from the mad cowdisease crisis, reports of dioxin-contaminatedchicken, and numerous other food-related con-cerns. By focusing on technical and strategic chal-lenges, not on the hard work of winning heartsand minds, Shapiro ultimately lost his company.He was forced to sell Monsanto to Pharmacia-Upjohn, which bought it for its pharmaceuticaldivision, valuing tbe agricultural biotechnologyoperations at essentially zero.

Breaks in the third link in the chain-failuresof mobilization-occur when leaders recognizeand give adequate priority to a looming problembut fail to respond effectively. When the Securi-ties and Exchange Commission tried to reformthe U.S. accounting system-well before the col-lapses of Enron and WorldCom-the Big Fiveaccounting firms fiercely lobbied Congress toblock new regulations that would have limitedauditors' ability to provide consulting services.Appearing at congressional hearings in 2000,

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Predictable Surprises: The Disasters You Should Have Seen Coming

accounting firm CEOs assured legislators that no realproblem existed. Joseph Berardino, then the managingpartner of Arthur Andersen, stated in a written testimonythat "the future of the [accounting] profession is brightand will remain bright-as long as the commission doesnot force us into an outdated role trapped in the old econ-omy. Unfortunately, the proposed rule [on auditor inde-pendence] threatens to do exactly that." The Big Five alsospent millions of dollars urging members of Congressto threaten the SEC leadership with budget cuts if it im-posed limits on auditor services. The lobbying worked.The SEC backed off, and the all-too-predictable account-ing scandals soon began to unfold.

It's important to note that the leadership failure herelies not just with the SEC but also with the accountingfirms, which were well aware that their addiction to con-sulting fees was compromising their independence as au-ditors. Also culpable were polirical leaders-Republicansand Democrats, in the executive branch and in Congress -who lacked the courage to risk political damage and takea stand on the issue.

Sometimes, leaders actually set themselves up for pre-dictable surprises. A classic example is the 1998 decision bya coalition of 39 pharmaceutical companies to sue the gov-ernment of South Africa over its attempt to reduce thecost of HFV drugs through parallel importation (buyingPharmaceuticals in countries with lower pricesand then importing them) and compulsory licens-ing (requiring patent holders to allow others tomanufacture and sell their drugs at far lowercost). The companies feared that the precedentset by the South African move would under-mine their control over valuable intellectualproperty in the developing world. But the suitsparked international outrage against theindustry, prompting a very public and un-flattering look at drug flrms' profit marginsand industry practices, which the press jux-taposed against the grim realities of AIDSin southern Africa. In response, governmental and non-governmental organizations formed a coalition that ulti-mately won big public health exemptions on interna-tional intellectual property protection in developingcountries. By mobilizing to win the narrow legal battlein South Africa, and not focusing on the broader context,the industry suffered a severe setback.

Why We're Vulnerablewhen we studied examples of predictable surprises oc-curring at every stage of the RPM process, we found thatthey share similar causes. Some of those causes are psy-chological-cognirive defects that leave individuals blindto approaching threats. Others are organizational-bar-riers within companies that impede communication and

dilute accoimtability. Still others are political-fiaws in de-cision making that result from granting too much influ-ence from special Interests. Alone or in combination, thesethree kinds of vulnerabilities can sabotage any companyat any time. All of them, as you'll see, were apparent inShell's failure to anticipate the Brent Spar controversy.

Psychological Vulnerabilities. The human mind is anotoriously imperfect instrument Extensive research hasshown that the way we process information is subject toa slew of flaws-scholars call them cognitive biases-thatcan lead us to ignore or underestimate approachingdisasters. Here are a few of the most common:

• We tend to harbor illusions that things are better thanthey really are. We assume that potential problems won'tactually materialize or that their consequences won't besevere enough to merit preventive measures. "We'll get by,"we tell otirselves.

• We give great weight to evidence that supports ourpreconceptions and discount evidence that calls those pre-conceptions into question.

• We pay too little heed to what other people are doing.As a result, we overlook our vulnerability to predictablesurprises resulting from others' decisions and acrions.

• We are creattu-es of the present. We try to maintainthe status quo while downplaying the importance of thefuture, which undermines our motivation and courage

Anticipating and avoiding DUSIIICSSQlSclStGrS requires a number of steps,

from recognizing the threat, to making it a priorityin the organization, to actually mobilizing

the resources required to stop it

to act now to prevent some distant disaster. We'd ratheravoid a little pain today than a lot of pain tomorrow.

• Most of us don't feel compelled to prevent a problemthat we have not personally experienced or that has notbeen made real to us through pictures or other vivid in-formation. We act only after we've experienced signifi-cant harm or are able to graphically imagine ourselves, orthose close to us, in peril.

All of these biases share something in common: Theyare self-serving. We tend to see the world as we'd like it tobe rather than as it truly is. Much of Shell's failure to an-ticipate the disastrous response to its decision to dumpthe Brent Spar can be traced to the self-serving biases ofits people-to their unshakable belief that they wereright Shell was an engineering company run by execu-rives trained to make decisions through rigorous techni-

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Predictable Surprises: The Disasters You Should Have Seen Coming

cal and economic analysis. Having reviewed more than30 independent studies and arrived at "the correct answer"about the Spar, and having received approval from theBritish government to sink it, executives at Shell UK wereutterly confident that their decision made the most sense,and they assumed that every reasonable person wouldsee the issue their way. They were unprepared to dealwith a group of true believers who opposed any dumpingon principle and who were skilled at making emotionalarguments that resonated with the public. In the contest

for people's hearts and minds, emotion easily defeatedanalysis-much to the consternation of Shell executives.Even well after it was obvious that they were losing thebattle, the leaders of Shell UK still couldn't back awayfrom a failing cotirse of action.

Self-serving bias can be particularly destructive whenthere are conflicts of interest. Think of the many businessscandals that arose after the Internet bubble burst. Al-though corruption certainly played a role in these disas-ters, the more fundamental cause was a series of biasedjudgments. Professional auditors distorted their account-ing in ways that served the interests of their chents. Ana-

lysts on Wall Street gave overly positive assessments ofcompanies that were clients of their firms' investment-banking arms. Corporate directors failed to pay enoughattention to the actions of the CEOs who appointed andpaid them. Many of these auditors, analysts, and boardmembers knew that the bubble would burst, but theirunconscious biases prevented them from fully acknowl-edging the consequences or taking preventive action.(For an in-depth discussion of how biases distort ac-counting results, see "Why Good Accountants Do Bad

Audits," by Max H. Bazerman, GeorgeLoewenstein, and Don A. Moore, in theNovember 2002 issue of HBR.)

Organizational Vulnerabilities. Thevery structure of business organiza-tions, particularly those that are largeand complex, makes it difficult to antic-ipate predictable surprises. Becausecompanies are usually divided intoorganizational silos, the informationleaders need to see and assess an ap-proaching threat is often fragmented.Various people have various pieces ofthe puzzle, but no one has them all.In theory, corporate managementshould play the role of synthesizer,bringing together the fragmented in-formation in order to see the big pic-ture. But the barriers to this happeningare great Information is filtered as itmoves up through hierarchies - sensi-tive or embarrassing information iswithheld or glossed over. And those atthe top inevitably receive incompleteand distorted data. That's exactly whathappened in the months and yearsleading up to September 11. Variousgovernment agencies had pieces ofinformation on terrorists'methods andplans that, had they been combined,would have pointed to the type of at-tack that was carried out against theWorld Trade Center and the Pentagon.

Tragically, the information remained fragmented. (Formore on September n, see the sidebar: "9/11: The SurpriseThat Shouldn't Have Been.")

Organizational silos not only disperse information;they also disperse responsibility. In some cases, everyoneassumes that someone else is taking responsibility, andso no one ever acts. In othei" cases, one part of an organi-zation is vested with too much responsibility for a partic-ular issue. Other parts of the organization, includingthose with important information or perspectives, aren'tconsulted or are even actively pushed out of the decision-making process. The result? Too narrow a perspective is

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brought to bear on the issue, and potential problems gounrecognized or are given too little priority.

Put another way, decision makers focus on an "impacthorizon" that is too narrow, neglecting the implicationsfor key constituencies. This sort of organizational paro-chialism was clearly evident within Shell. The companyfailed to see that sinking the Spar would set a precedentfor dealing with other obsolete structures in the NorthSea and that it was probably the worst structure to startwith given its size and toxic residues. The company's de-centralized management structure, made up of auton-omous national business units, worked well when dealingwith routine problems such as customizing marketingefforts to local customers. But it worked very badly whendealing with crises that crossed national lines. The BrentSpar was located in the British part of the North Sea, soresponsibility for disposing of it was naturally vested withShell UK. Shell UK, in tum, dealt with theBritish government to get the necessary per-missions and consulted with British environ-mental groups. But Greenpeace changed thegame by focusing its public relations attacknot in Britain but in Germany. The GermanShell operating company had not been in-volved in the process and had no part in thedecision to dump the Spar. But it becamethe target of most of the pressure-financialand political - from Greenpeace. Indeed,the chairman of Shell Germany, Peter Dun-can, remarked publicly that he first heardabout tbe planned sinking of the Spar "moreor less from the television." Once the crisisbroke. Shell's decentralized structure inhib-ited the company from coordinating crisisresponse activities and notifying employeesof decisions and events. Senior Shell manag-ers outside the UK publicly criticized boththe disposal plans and each other throughthe press.

Political Vulnerabilities. Finally, pre-dictable surprises can emerge out of systemicflaws in decision-making processes. Imbal-ances of power, for example, may lead exec-utives to overvalue the interests of one groupwhile slighting those of other equally important groups.Such imbalances tend to be particularly damaging dur-ing the mobilization phase, when vested interests canslow or block action intended to resolve a growing prob-lem. A case in point is the U.S. Congress, where single-interest groups, such as the National Rifle Association orthe AARP, wield disproportionate influence. Through acombination of focused contributions to reelection cam-paigns, well-connected lobbyists, nurtured relationshipswith committee chairpeople and staff members, and in-timate knowledge of leverage points in key processes.

special-interest groups routinely stall or torpedo policychanges, even when there is a broad consensus that actionis needed.

We saw this dynamic play out after Enron collapsedand WorldCom and other companies restated their finan-cial results. Following an early burst of enthusiasm forseriously tightening corporate governance rules. Congressretreated in the face of intense lobbying by an array ofbusiness groups. In the critical area of auditing, for ex-ample, accounting industry lobbyists succeeded in water-ing down the Sarbanes-Oxley Act on corporate responsi-bility, enabling "independent" auditors to continue toprovide consulting and other lucrative services to auditclients and to be rehired indefinitely by the clients, aswell as allowing audit-firm staffers to take jobs with theirclients. Efforts to reform pension laws to help protectworkers ftom future Enron-like debacles were also beaten

9 / 1 1 The SurpriseThat Shouldn't Have Beenwhen fanatics commandeered jetliners on September 11,2001,and steered them into buildings full of people, it came as a horri-fying shock to most of the world. But however difficult it mighthave been to imagine individuals carrying out such an act, itshouldn't have been a surprise. Portents had been building upfor years. Itv f̂as well known that Islamic militants were willing tobecome martyrs for their cause and that their hatred and aggres-sion toward the United States had been mounting throughout the1990S. In 1993, terrorists set off a car bomb under the World TradeCenter in an attempt to destroy the building. In 1995. other terror-ists hijacked an Air France plane and made an aborted attemptto fly it into the Eiffel Tower. Also in 1995, the U.S. governmentlearned of a failed Islamic terrorist plot to simultaneously hijack11 U.S. commercial airplanes over the Pacific Ocean and then crasha lightplane filled with explosives into the CIA's headquarters nearWashington, DC. Meanwhile, dozens of federal reports, includingone issued by then Vice President Al Core's special commission

back by lobbyists representing employers. As a result,companies and investors remain vulnerable to damagingnew "surprises."

Companies are all too often oblivious to the dynamicsof governmental systems. Shell, for example, failed to an-ticipate and shape European political responses to itsBrent Spar plan. Company officials had finahzed the dis-posal plan after four years of study and quiet negotia-tions witb the British government, which approved thedumping. After signing on to the Shell plan, the Britishgovernment notified the other European governments

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Predictable Surprises: The Disasters You 5hould Have Seen Coming

with oil development and other interests in the NorthSea. These governments raised no objections at that time,but the absence of objecrions is by no means the same asactive support. As Greenpeace applied more pressure onthe Continent, the German government responded byopenly undercutting the UK's decision to allow Shell tosink the Spar. Through public criticism and direct re-quests, Germany pressured the UK to reverse its decision.Not building a broad consensus-with governments andwith other oil companies-on how to deal with agingNorth Sea oil rigs cost Shell dearly.

Political vulnerabilities can also crop up within com-panies. Sanford Weill, the chairman of Citigroup, recentlycame under fire for apparently using corporate resourcesto provide personal assistance to Jack Grubman, a star an-alyst at Citi's Salomon Smith Barney. Weill allegedlyhelped get Grubman's children into a prestigious day care

on aviation security, provided comprehensive evidence that theU.S. aviation security system v^^asfull of holes. Anyone v»/hoflevi/on a regular basis knew hov̂ f simple it was to board an airplanewith items, such as small knives, that could be used as weapons.

But despite the signals, no precautionary measures were taken.The failure can be traced to lapses in recognition, prioritization,and mobilization. Information that might have been pieced to-gether to highlight the precise contours of the threat remainedfragmented among the FBI, the CIA, and other governmentalagencies. No one gave priority to plugging the security holes inthe aviation system because, psychologically, the substantial andcertain short-term costs of fixing the problems loomed far largerthan the uncertain long-ternn costs of inaction. And the organiza-tions responsible for airline security, the airlines, had the wrongincentives, desiring faster, iower-cost screening to boost prof-itability. Inevitably, plans to fix the system fell afoul of concertedpolitical lobbying by the airline industry.

center in return for issuing a more favorable report onAT&T, a very important client of Salomon's investment-banking unit. But broader organizational politics also ap-pear to have played a role in Weill's actions. As the Econ-omist reported, "There is much speculation, and somee-mail evidence, that the recommendation helped to winsupport for Mr. Weill's successful ousting of [Citigroup'sco-CEO, John] Reed from Michael Armstrong, AT&T'schief executive, who also happened to sit on Citi's board."The resulting damage to the reputations of Weill and hiscompany was entirely predictable.

What You Can Do

"Prediction is very difficult," physicist Niels Bohr oncesaid, "especially about the future." Difficult, yes. Impossi-ble, no. Even though many organizations are caught un-prepared for disasters they should have seen coming,many have successfully recognized approaching crisesand taken evasive action. In the public sector, for exam-ple, governments, corporations, and charitable organiza-tions banded together to curtail the use of CFC refriger-ants once it became clear they were damaging the ozonelayer. In the business arena, leaders are today sponsoringwhat we call "surprise-avoidance initiatives" on topicsranging from genomics research and stem cell biology toInternet security to the reform of corporate governance.

Individual companies can learn a lot from such efforts.We have distilled from our own research a set of practical

steps that managers can take to better recognizeemerging problems, set appropriate priorities,and mobilize an effective preventive response.The first step is the simplest: Ask yourself andyour colleagues, "What predictable surprises arecurrently brewing in our organization?" Thismay seem like an obvious question, but the factis, it's rarely asked. People at various levels in or-ganizations, from the top to the bottom, areofren aware of approaching storms but chooseto keep silent, often out of a fear of rocking theboat or being seen as troublemakers. By activelyencouraging people to speak up, executives canbring to the surface many problems that mightotherwise go unmentioned.

Some threats, of course, are invisible to insid-ers. To ferret out these potential dangers, com-panies should use two proven techniques-sce-nario planning and risk assessment In scenarioplanning, a knowledgeable and creative group ofpeople from inside and outside the organizationis convened to review company strategies, digestavailable information on external trends, andidentify critical business drivers and potentialfiash points. (It's essential to include outsiders inthis group as a counterweight to the self-servingbiases of employees.) Based on this analysis, the

group constructs a plausible set of scenarios for potentialsurprises that could emerge over, say, the coming twoyears. These scenarios form the basis for the design of pre-ventive and preparatory measures. This exercise shouldinclude scenarios that, while unlikely, would have a verylarge impact on the organization if they occurred. A fullscenario-planning exercise should be conducted annually,and formal updates of changes in the organization and itsenvironment should be scheduled every quarter.

Rigorous risk analysis-combining a systematic assess-ment of the probabilities of future events and an estima-

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Predictable Surprises: The Disasters You Should Have Seen Coming

tion of the costs and benefits of particular outcomes-canbe invaluable in overcoming the biases that afflict orga-nizations in estimating the likelihood of unpleasantevents. It can be useful not just in setting priorities butin sifting through alternative responses. During theCuban Missile Crisis in 1962, for example, U.S. militaryleaders wanted to attack. Fortunately, however. Presi-dent Kennedy organized a decision-making process thatexamined in detail the risks of available options. Twogroups, each including government officials and outsideexperts, were organized to fiesh out two particular alter-natives, attack and blockade, and assess their associatedrisks and rewards. Based on the analysis, Kermedy even-tually decided to conduct a blockade. Recently, Kennedy'sSecretary of Defense Robert McNamara made it clearthat if the United States had invaded, the consequencesmight well have been catastrophic. Even ifAmerican forces had quickly destroyed allthe weapons known to exist in Cuba, severalU.S. cities could still have been struck bynuclear missiles-missiles that the militarywere unaware of at the time.

At its best, risk analysis combines sub-jective and objective evaluations. Teamsof experts, like the ones Kennedy reliedon, can be organized to make regularqualitative assessments of conditionsand threats. At the same time, decision analysis has de-veloped useful techniques for helping individuals andorganizations to more effectively assess the probabilitiesof future events and their potential consequences. (JohnHammond, Ralph Keeney, and Howard Raiffa's bookSmart Choices provides a particularly good overview ofthis field.)

Organizational vulnerabilities are often the toughestto overcome. But while it's rarely possible to eradicate allthe internal barriers within an organization, it is possibleto counter their effects by establishing cross-companysystems to gather intelligence. Typically, this requires thatleaders create one or more cross-functional teams re-sponsible for collecting and synthesizing relevant infor-mation from all comers of the business. Some companiesuse what are called action-learning groups-teams of fu-ture leaders that meet to share data and analyze key busi-ness challenges. Also required is a change in incentives toget employees to see beyond their parochial interests andbegin to share information freely. In the case of the BrentSpar fiasco, the leaders of Shell UK and Shell Germanywere each focused exclusively on their own bottom linesand as a result pursued conflicting parochial interests- tothe detriment of the company as a whole. Had a broadersystem of measures and rewards been in place, one thatprovided incentives to balance corporate and local inter-ests. Shell would have been better protected against in-ternal infighting and miscommunication.

Finally, executives need to build good networks-bothinformal advice networks and formal coalitions-for in-fiuencing political decisions. Leaders' beliefs and impres-sions about the potential challenges facing their organi-zations are based, in large measure, on their intuition. Byorganizing a set of knowledgeable advisers, drawn fromboth inside and outside the company, leaders can test andrefine their early impressions and help counter their ownunconscious biases. Hank McKinnell, the CEO of Pfizer,is a good example of a leader who routinely calls on agroup of external advisers to avoid predictable surprises.One of McKinnell's most valuable "leadership counselors"is Dan Ciampa, former CEO of Rath & Strong. By servingas both a sounding board and an adviser on key issues anddecisions, Ciampa is reportedly instrumental in helpingMcKinnell avoid undesirable outcomes.

By actively encouraging peopleto S13C3-K u p , executives can bring

to the surface many problems that mightotherwise go unmentioned.

And when managers have to mobilize people outsidetheir direct lines of control to confront a difficult prob-lem-as is almost always necessary-they need to buildformal coalitions. Coalition building is particularly im-portant for getting anything done in highly politicizedenvironments like the U.S. Congress. But it is importantin business, too. Sometimes, executives have to makemajor organizational changes to guard against a potentialdisaster. Such changes always create winners and losersand generate overt and covert resistance. To prevail, lead-ers must be able to consolidate their supporters, neutral-ize their opponents, and persuade fence-sitters to backthe changes. That requires, in tum, that they be good atfiguring out who wields influence, inside and outside theorganization, and then use that knowledge to build sup-port and momentum for their cause.

Taking these steps will help you get an effective RPMprocess up and running in your company. Once the pro-cess is in place, you'll need to shift your attention to speed-ing it up and making it more responsive. Events moveswiftly, and they can quickly spin out of control-as Shellfound out. If you're unable to stay ahead of a potentialdisaster as it unfolds, you'll be stuck in a reactive mode.You'll become a victim of circumstances rather than amaster of your own destiny. ^

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