The perils of the plan: developing a highly reliable organization (HRO) requires flexibility and an ability to react effectively to the unexpected, but most business models don't allow for this. A look at effective HROs could offer valuable insight into how to change this.

Contemporary literature presents managers with a fairly standard model of decision making and organizational structure. Most organizational analyses, it seems, begin and end with decisions grounded in known quantities. Unfortunately, this doesn't address important risks that could render these decisions worthless. Without an understanding of critical weaknesses, and how to organize and mobilize to detect them, organizations maintain a weak link in their structure.

Decision-making practices are often inconsistent, notoriously unstable, and externally driven. Links between decision making and action are often not linear but, rather, are loosely coupled and changeable. The past is also an unreliable guide to the future. In addition, business literature suggests that political and symbolic considerations play a dominant role in decision making.

Strategic goal development traditionally occurs within the planning function decision-making system, where budgets and the budgeting process have long been central considerations. Plans involve thinking about the future, developing courses of action, and evaluating the consequences. However, there are shortcomings. As Henry Mintzberg eloquently described via the fallacy of predetermination, planners plan in stable and known environments; thus, there is no place in the process for unexpected events.

[ILLUSTRATION OMITTED]

Plans create mindlessness in organizational behaviour in three distinct ways. First, plans originate from assumptions and beliefs about the world. These expectations thus influence what people see, which in turn affect interpretations and actions. Planners need some structure, and the expectations formulated through planning provide exactly that structure. But because plans influence perceptions, they reduce the number of things that people see. Planning fits everything into neatly defined categories one way or another--items that don't fit the categories are disregarded.

Second, plans preclude improvisation because they restrict attention to what we expect, and limit our present view of capabilities to those that currently exist. This description is equally valid in budgeting processes that are supposedly decentralized to remove the obstacles traditionally associated with centralized planning. Although the perspective may be slightly different, the basic approach remains the same--thus, the mental processes involved are also the same.

Third, plans assume that repeating activities from the past will continue to produce high quality outcomes in the future. However, routines can't handle novel events.

Highly reliable organizations (HROs)

According to Karl Weick and Kathleen Sutcliffe, HROs are organizations that understand that producing reliable outcomes requires the ability to sense the unexpected in a stable manner and the ability to deal with the unexpected in a variable manner. HROs manage infrastructures much differently than most organizations. These organizations include managers of nuclear aircraft carriers, nuclear power plants, or business sectors experiencing highly volatile external environments, like firms in the semi-conductor business.

Most organizations keep their activities constant and vary their processes of managing the unexpected. Unfortunately, those who invest heavily in plans and standard operating procedures tend to become less mindful of uncertain risks, and respond only to actions that are built into their repertoire of consistency. This type of system is less able to sense discrepancies, learn and invent new ways to deal with the unexpected.

Traditional organizations focus on efficiency, success, homogeneity, and certainty. Examples of this approach include variance analysis and total quality management (TQM) efforts. HROs, in contrast, focus on inefficiency, failure, diversity, and surprise. When HROs practice good management, they behave in ways that free their perceptions from expectations. Thus they see more, and sooner.

Managing the unexpected well

Managing the unexpected well means acting mindfully. HROs organize themselves to sense the unexpected and arrest its progress. However, if they can't halt its progress, they focus on containing the unexpected. If the containment gives way, they focus on resilience and rapid repair.

Mindfulness works because of the counterintuitive response to early stages of trouble at the heart of mindful behaviour. There is a strong response to weak trouble signals. Normally, organizations experiencing trouble mismanage people, operations, and strategy. They fail to articulate what mistakes must not occur and don't organize to detect them. HROs focus on inputs whereas traditional risk management focuses on outputs. HROs complicate the input side of the system. They develop complex sets of expectations. Thus, mindful managing is the basis of HROs and is encompassed in the five foci outlined below.

1. Preoccupation with failure

HROs are immersed in detecting and looking for failure, oddly as it may seem. They thrive on this process. In fact, they encourage the reporting of errors rather than the repression of mistakes. Almost always, they analyze and review near misses. They downplay success, which increases mindfulness and decreases automatic processing.

For instance, there is the example of a seaman who lost a tool on the deck of a nuclear carrier. When he reported the tool missing, all aircraft aloft were redirected to land bases until the tool was found. This action avoided a potential disaster, and the seaman was praised at a formal ceremony the following day.

2. Avoid simplification

HROs avoid simplifying interpretations of errors and distain Group Think. Nothing is worse for them than a pool of experts who have the same background, same training, and think the same way. They encourage diversity and discourage routine approaches to problems.

For instance, employees at nuclear power plants are very cautious in making modifications of any kind. They do not trust any blueprint but, instead, walk down the whole system searching for any new pipes, or valves, or reroutes that might have been made but are not on the drawings in their hands. These changes may well contain serious surprises if some part of the system is tampered with.

3. Sensitivity to operations

HROs spend considerable effort linking all levels of management. There is no disconnect between headquarters and the front line. Especially noticeable is the attention given to latent failures, which are frequently assessed. Emphasis is also placed on micro and continuous adjustments to system functions. Fear is not tolerated because it sparks failure.

For instance, the best performing companies in the highly volatile microcomputer industry constantly monitor real-time information through frequent operational meetings, conveying operational performance measures across departments and hierarchical layers, and nearly perpetual face-to-face interaction. In this way, problems are managed quickly before they grow.

4. Commitment to resilience

HROs are able to reallocate slack resources as required. Thus, errors don't disable the organization, and are kept relatively contained. In this manner, formalization decreases and improvisation increases--unexpected risks are managed with agility. Anticipation dominates where risks are highly predictable--specific defenses can be deployed. But where risks are highly uncertain, resilience plays a key role. Resources are retained to specifically cope with this type of risk--anticipating the unexpected is handled by increasing resilience capabilities.

Acting in a resilient way is predicated on learning from errors and responding very quickly to errors with negative feedback. Resilience, then, asks people to act first and think second, while anticipation clearly reverses this order. For instance, the Coca-Cola Company managed its major "New Coke" blunder in the mid-1980s with resilience. Offering New Coke in place of its premier product taste for 90 years brought the entire world down on the Company within one month, despite enormous research and promotion costs. However, within less than three months, the company was able to turn around what many analysts had called the mistake of the century.

5. Deference to expertise

HROs avoid a command and control mentality even though there is a clear order in the hierarchy. Instead, they try to cultivate diversity and, thus, the idea of a flexible hierarchy increases. When there are problems, decisions migrate to those with the requisite expertise, regardless of rank. Leadership roles shift to the person with the expertise. This transition is swift in HROs because they structure themselves to be flexible and supportive of experts at any level. These kinds of patterns appear, for instance, in the microcomputer industry, where executives focus attention on the most experienced managers to gather real-time information for problem resolution.

These five features of HROs provide a striking contrast to other organizations. HROs stress the amount of value people place on catching unwanted developments early. They also prize how much knowledge people have of the system and the capacity to detect and correct. In particular, there is vital support from management in allocating resources to sniff out the early detection and management of the unexpected.

In short, traditional managers often attribute failure to external factors and ascribe success to their efforts. In contrast, HROs specifically look for internal reasons for failure, to identify what they can control. HROs acknowledge success but don't focus on it, for fear of complacency. Success for them simply means that errors are being managed properly. The only safeguard against complex disruption for them is continuous vigilance.

Moving forward

Some Canadian organizations do manifest properties of HROs. However, many, if asked what event could happen that would negatively affect operations, don't have any answer. Moreover, even if a large number of organizations could answer this, how to resolve the unexpected would most likely draw blank stares.

Currently, there is no study that offers a picture of HROs in the Canadian private or public sectors. There is a large and often overlooked literature that suggests a positive relationship between higher performance and the qualities of HROs. We believe that organizations would benefit by assessing themselves with the five attributes that characterize HROs. There could be significant differences in performance across different sectors of the economy attributable to the presence of HROs within certain sectors.

Importantly, all levels of an organization are implicated in this thinking. By extension, corporate governance, and even ethics, may be affected differently in HROs. The recent settlement by 10 ex-WorldCom directors is testimony to the types of behaviour that are preventable in a HRO. Gary Lutin, an investment banker at Lutin & Co. in New York indicated that the accounting improprieties in this case could have been detected by an alert board director familiar with the basics of corporate budgets.

In the last five years, many organizations have changed their accounting systems and other structures to deal with a volatile external environment. Unfortunately, little or nothing is known about these changes and how they might relate to organizational performance.

Because of this dearth of knowledge, we have developed measures for the five signature features of HROs. Our objective is to gain insight into the performance of Canadian organizations and how it might be influenced by ethical, governance, work environment, and accounting changes. Over the coming months, we will be gathering data to quantitatively analyze these issues. We invite you to visit http://survey.business.mcmaster.ca/HRO.htm to find out more about participating in this project. Your involvement is essential to obtain insight into the status of HROs in Canada and special attributes they possess to improve business performance.

For a list of references for this article, please contact the editor, Robert Colman, at [e-mail].

By Al Seaman, CMA, and John Williams, CMA, FCMA

John J. Williams, PhD, CMA, FCMA, is a professor at Nanyang Technological University, Singapore. Alfred E. Seaman, PhD, CMA ([e-mail]) is an assistant professor at McMaster University. Hamilton, Ont.