Decision Making and Choices
The Egg and I
Ever wonder about the question of which came first, the chicken or the egg? It’s hard to escape the current media about eggs, salmonella outbreaks again! I confess that part of me is a chicken, more than a bit concerned about the eggs. Although the broadcasted data says my eggs are likely to be safe, the current outbreak is disturbing. Egg farmers everywhere are sharing the chilling thoughts of what fear can do to our buying behaviors. A bad egg amongst the good can spoil the lot. It’s not just about eggs, is it? So, what would we be willing to pay for the good eggs? I know all about the value of data in decision making, the power of an objective lens, the better understanding of what risk really means, how it improves performance, and that is all good. That is, in fact, good as long as we have evidence that the data is good, timely, and reflective of what we really need to know for good decisions. So, how do I make up my mind about the eggs, particularly when my grandkids want some “cheesy eggs”? Cooking them thoroughly is supposed to kill the microbial varmints, but the old, “just in case” whispers in. I’m making decisions with second hand information with a cost versus perceived risk imbalance. Does that happen with other decisions we make at home, work, or play? (The golf course counts here)
It’s complicated since good eggs look the same to me as bad ones. What I need to know is inside the shell, and I don’t have the tools or knowledge to check. Here’s the challenge. I only know that eggs are bad by the damage they’ve done to someone and if somehow the word gets out and if the media decides to share it and if I happened to catch the news. Those are lots of ifs. Someone has to crack the shell and eat the egg. I don’t have testing data on the carton, and food safety failures are nothing to ignore. The wonders of science and high tech supply chain systems make eggs plentiful and really cheap. I suppose that applies to lots of other stuff that’s really cheap. So if we were in the egg business, we would want our customers to enjoy our eggs safely, always safely, and come back and buy some more. A history of great safe eggs is important and I would want to make sure only good ones hit the skillet.
But, this is not really an egg problem; it’s a quality management problem. The golden rule of “thou shall not use your customer as your inspector,” has been broken. That’s a rule that is foundational to ethical business practices. When we make a sale, accept an order or sign a contract, we are in fact making a promise that our customer will get what they expect, based on either a standard, a contract, or what we advertise or put on our “boxes.” Accepting a specification is the same as making a promise, and those that don’t intend to keep it but still sell the “stuff” are “fibbers” as my grandkids might say, or something much uglier in our adult language. It’s a real problem in industries where all the suppliers make the same promises and claims.
So, how do we make promises to our customers? How do we keep them? Do we rely on customer failure data to know, or do we know that the likelihood of failure is unlikely? How unlikely? Do we need someone with a badge and a club looking over our shoulder or is our respect our customers, employees, and investors a big enough motivator? There is really no difference between eggs, or cars, or cough syrup, or toys, or the innumerable products and services we provide. A promise is a promise and when we break one and harm is done, it’s on our name and reputation.
• Do we know what we’ve promised, or more importantly, what our customers believe we’ve promised?
• Do we lead and manage from the big print or the fine print?
• When was the last time we checked our processes? Are they about always keeping the promises? To whom?
• When did we last evaluate how effective and efficient our controls are? How likely are we to keep the promise?
• How and when do we decide what is “good enough” for our customers?
• What evidence could we produce on demand that would support our promises and earn the trust of our customers?
“Quality is not an act, it is a habit.” Aristotle
Whose Life Is It Anyway?
It’s absolutely fascinating how much leverage going green has gained. It’s hard to miss the marketing, packaging, and commitments that continue to grow and show. Many of us make green choices daily, some bigger, some smaller, and some to feel better, all with positive impacts. My observations are that, in consumer goods, the visible focus is on producing “from recycled” materials or from producing from benign components or processes. But what about all the really big stuff we build, produce, or operate?
The globe is dotted with far too many closed facilities, done with their productive lives, some nasty, awaiting a future that may never look green. Nobody likes them and they serve as reminders and warnings for decision makers. It is easy to presume sinister capitalists or overzealous weapons producers as the blame, but it is hard to escape that it’s a lot about economics and prosecution of the national will and multiple interests. Economics is a bit like physics in that processes will frequently follow the paths of least resistance. Similarly, extraction and harvesting economies have denuded the landscape, inviting regulation and in some sectors and countries, restoration efforts, but not yet without irreversible consequences. Getting to green may require multiple generations and someone to pony up on the costs. There is no Utopia, and the noble natives of the planet Pandora exist only in fantasies; and illusions that these harmonious societies ever existed are unsupported history. It’s challenging, because what got us here may eventually constrain us from getting there. What got us here was our capacity to solve problems and overcome obstacles, motivation notwithstanding. How we frame what are problems and opportunities drives important directional decisions.
After all, decisions are typically biased by the productive capability of what we make, build, or operate. What that means is that there is far more weight and attention given to the costs, effectiveness, and efficiencies of fabricating, constructing, and operating than to what happens at end-of-life. For lots of the big stuff, end-of-life is typically far into the future, messier to deal with, and makes the review and approval process more “difficult.” I’ve tested this hypothesis multiple times over many years, and the responses are consistent, end-of-life and decommissioning are not a big factor in the design discussions. Perhaps that is changing.
Over the last 50 years, some of the ugliness that we contend with as enterprises, governments, and consumers has to do with the direct costs and externalities ensuing from unplanned outcomes or effects at end-of-life. Granted, many plans and proposals have language addressing full life cycle costs, yet the evidence of subsequent actions have not aligned. A lens that I’ve found to be helpful is that what we get is precisely what our design, fabrication, and operation is supposed to give us. If it is not giving us that, then we have to investigate, the design fabrication and operation, where the errors or defects were generated that result in what we’re getting. It is as true for what we’re doing today as for what yet awaits us when we have stop or abandon the process. We’ve already designed, built, and operate with end-of life costs, to a good or poor degree.
The challenge ahead is not simple, simplistic, nor easy. Our economic systems create powerful forces and motivators. I really love the life that technology enables and don’t really want to give it up. I have many friends who build and operate some of the really big stuff and they are good, intelligent, highly principled, and ethical people. They care about the welfare of our world and their legacy as much as we do. The challenge is striking the balance between a more certain today and a sometimes very uncertain tomorrow. It gets really hard, when our positive economic rewards are about what we do in the present. They are immediate and positive, versus far into the future and negative. Which would you pick?
For visionaries, this creates an opportunity. The storms of growing public sentiment and distrust of some industries creates an awesome opportunity to design and differentiate with a smarter end-of-life offering. Smarter end-of-life creates value, reduces compliance burdens, fosters complementary lines of business, impacts investor perceptions, and can have a transformative effect on vision, values, and behaviors. For revisionists, a different family of motivators is often necessary. Carrots have longer lasting benefits than sticks.
Sometimes, the military does this well. The really good conquest and occupation strategies are done and executed against a well developed exit strategy. Forethought enables us to manage the present from the future.
“The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.” Sun Tzu
What’s Luck Got To Do With It?
“Plans are nothing; planning is everything.” Dwight D. Eisenhower
How much depends on the yearly business plan? For many, it triggers budgets, funding, capital approvals, sanctioned projects, operating targets, salaries, product launches, support activities, hiring, office renovations, perks, …, lots of movement and a myriad of decisions, hopes, dreams, and nightmares. It is often the summary of what we expect, maybe wish or hope, to happen, commit to do, and the outcomes that the world of business should see, translated into the language of finance. How we get to a business plan is often very complex and incorporates science, judgments, guessing, posturing, analysis, modeling, gaming, negotiating, positioning, negotiating, horse trading, quid pro quos, and most importantly, the uneasiness of uncertainty. For some, it starts with a number that becomes the hard operational constraint, or a number that becomes the aspiration goals, or a combination or permutation of both. After years of roles building, executing, and navigating through business plans, many of us have concluded that they are often great for initial direction and alignment, but getting much more challenging for decision making as the fiscal year ensues. Reality looks more like Von Clausewitz’s “fog of war” than the futures we describe in our plan.
One aspect of business planning that continues to surface is the frosting of optimism that flavors them. After all, the business plan underpins our budget request, and we have a lot of interest in its approval. Nobody would ever accuse a turkey of voting for Thanksgiving. Recently we’ve witnessed the BP catastrophic events in the Gulf of Mexico, Apple’s embarrassing iphone reception flaws, and other unanticipated and unplanned failures, perhaps first hand. How outside of the known laws of physics or economics were they? What could we have considered to make a better choice? Would we change our decision with the benefit of retrospect?
As we begin to refine and polish our business plans for the fall submittals, are we confident, hopeful, or fearful? Did we subject our thinking to a skeptic’s review? Do our tools for evaluation ask the right questions? Do our planning, review, and approval process incorporate more science or art? How much is sales and how much is substance in the presentation?
What’s luck got to do with it?
Reddy or Not, Here I Come!
We have an app for that,” so goes the ad for a smart phone. I am still amazed by how life is changing through technology. The accessibility and choices at our disposal have redefined nearly everything, and to a great part for the better. Several years I joked about the day when I could sit atop a mountain with a laptop connected to the world and able to conduct my business, only to see someone smile and say, “It’s not that far away.” So, here I am on a mountain, loving the view, with the world at my fingertips, conducting my business and knowing that our readers across the world can share in the output this experience, when, how, and where they chose. We’ve shared the transformation of our lives and our enterprises as a consequence of leaps in telecommunications and the myriad of choices and facilitated activities available to us, our customers, suppliers, competitors, and our world.
New enterprises have jumped on the electronic carpet ride, perhaps working in a “cloud”, and creating new value propositions in a connected world. Business models have literally crumbled, leaving relics, much like those of Ozymandias, because brick, mortar, and paper have been replaced by electrons. In his grave, my very old friend, Reddy Kilowatt, both rejoices, and perhaps weeps as well, as the role of his offspring continue to transform the world. Perhaps it’s a bias, a consequence of a prior professional life, but I believe that nothing has come close to transforming the quality of human life as the availability of reliable electric power. In fact, the arguments that it’s about water, food, education and health care cannot stand alone without the platform built on our friends the electrons. We depend on many energy sources, but in many ways, they are often diminished in value without the electrons at play. Our electrons are such important servants that we store them in forms that make them available 24-7; in fact they make the world available to us 24-7.
I do confess the ancient part of me still enjoys reading books, paper books, but news and virtually all other content comes to me electronically. The effectiveness and efficiencies from 24-7 accessibility to current information and content is perhaps the most un-constraining breakthrough since the steam engine. There is little doubt that many enterprises have made huge investments in technological capacity and many have reinvented their capacity to transform. I wonder how much investment has gone into transforming the way we use the electrons within, within our own neural networks … the brain.
Questions:
• What proportion of decision making content is produced for us in a “report”? Does that report contain real time or past time data? Do we decide from the past even when the present is available?
• Is our critical information serviced to us through human “filters” or functions who decide what to search and how to package the answers?
• How long does it take to get an answer? Do we get a version of a Google or a bunch of gaggle?
• Do we get our critical “news”, much like many of us by waiting until the 6:00 PM broadcast on the “tube”; or does the critical data from which to manage and decide stream to us into the right virtual form?
• Does the data wait for you or do you wait for the data?
• When something is happening across the world that could impact the enterprise, do we learn about it when the impact arrives, much like a tsunami?
• Does out data warn us about what is about to happen or is likely to happen:
o To our business?
o To our customers?
o To our resources?
o To our employees?
o To our constraints?
Have we truly transformed our human systems to unleash the genius within, the genius that can create value and innovation from the real time accessibility available?
Are we Reddy?
Oh, Can You See By the Dawn’s Early Light?
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness.”
So begins the second paragraph of the Declaration of Independence from Great Britain signed by the United States Congress on July 4, 1776. We in the US, celebrate July 4th as Independence Day this weekend with festivities, fireworks, picnics and devotionals to those whose lives were dedicated and often taken to secure these unalienable rights. In fact, the words could serve as anthem to peoples all over the world as a never ending objective and pursuit.
The instrument declared states as the independent parties, and in doing so established, “that these united colonies are, and of right ought to be free and independent states; that they are absolved from all allegiance to the British Crown, and that all political connection between them and the state of Great Britain, is and ought to be totally dissolved; and that as free and independent states, they have full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent states may of right do.”
The Declaration of Independence was a consequence of a people rebelling against abuses with no responsiveness to appeals or due recourse for resolution. It is interesting to recognize that the only activity specified that is specific to an individual is the right to establish commerce. The document enumerates abuses by the Crown and intolerable and unendurable behaviors and, not surprisingly, many can be traced to actions to serve commercial objectives, those of the Crown and to the detriment of the colonists. (It took a subsequent Constitution and Bill of Rights to establish governance.) But, to continue the thread, business strategies are in fact conquest strategies and occupation strategies, and governments align to these to different degrees. Political colonies have typically as occupation entities to be harvested.
The consequences of the boldness of the Declaration of Independence and subsequent execution have enabled many of us to pursue happiness, enjoy liberty, and create life with hope. Three important dimensions are forever present in my mind:
1. Declaration was followed by sacrifice and vigilance to earn the liberties and the responsibilities to sustain them. Declaring that we are or we will be better or great can warm the tummy for a bit, but it is execution and on-going management that makes it real. Projects exist to create processes and processes must manage to the objectives of the entities. This applies to governance of individuals, organizations, enterprises, societies, religious orders, groups, and nations.
2. As the world changes and our prosperities grow, our opportunities are a powerful magnet for others seeking life, liberty, and the pursuit of happiness. Although many believe that these rights come as a consequence of national versus global birth, perhaps through education or lack thereof, it is the right to earn them that effectively determines what we do and whether life, liberty and the pursuit of happiness is achieved.
3. The first two create obligations and responsibilities, societal and commercial. Recognizing the unalienable rights do not come as a geographical or political birthright … not because of where we were born, but rather, because you were born is important, particularly if we are to be civil in our behaviors among our global community. We must not act in a way that denies the right to the pursuit of opportunity to earn happiness, personal or commercial, simply because we can at this point in time.
I cherish the opportunities life in the United States brings every day, and am grateful that my loved ones can pursue their own dreams. I honor and respect those that live and die daily to protect these opportunities and am ashamed of those that deny them to others, here or abroad.
Today, independence is more complex, perhaps because prosperity has redefined for many what the pursuit of happiness is or ought to be. Somehow, I find it is easier to find clarity in challenging times, and rewarding to reflect on the earned independence we enjoy and the responsibility to continue to earn and never deny.
Happy 4th!
Truth or Consequences?
I heard someone on the news use the term “oil tsunami” to describe the river of oil currently sweeping across the gulf and the devastation it is delivering to those in the water and on shores. It is an interesting analogy in imagery, but it misses the big point, this growing glob of pestilence was triggered by man, by many people making a whole bunch of choices and decisions. The complexities of how it began and the complexities on how it may one day end are still unraveling. The forces of nature that have been unleashed still defy our technology, techniques, and even our collective confidence. Sadly, it does illuminate a darker side, not new, about the economics of the process. Responsible economists articulate the importance of incorporating the impacts of externalities into decision making. What that means is that what we do can have an adverse impact that transfers the burden, costs, and consequences of dealing with the mess to someone else. In the broadest sense, the total costs of what we do are bigger than our accounted costs and subsequent prices we charge.
This is not only about oil, it is about lots of stuff, including many of the apparent bargains we grab at the supermarket and the fast food chain; or other apparent benefits from subsidized markets . In retrospect, the people that are responsible for perpetuating the calamities like the oil spill can appear as sinister, sometimes a true characterization, but they are seldom so in isolation. To a great extent, the engines we put into play, as consumers demanding lower prices, and as investors expecting greater returns, create value systems with biases, meaning skewed or unbalanced. The levels of bias or balance are important dimensions of good or poor decision making. My oversimplification is that historically we are rewarded by one system, economic, and are constrained and sometimes punished by another, societal and public. These systems are not equal and have never been balanced, primarily because of one set of these consequences is pretty immediate and the second set is improbable and if so, in the distant future.
We, as individuals and as enterprises, are very cognizant of these consequences. Our perception and expectations of these consequences are big, really big drivers of behaviors. Lots of research by very capable people has validated this relationship between consequences and behaviors. Let’s not expect balanced behaviors from unbalanced consequences.
We, when in pain, will exercise economic consequences, but often as a reaction to harm done. On the flip side, our efforts to regulate and control some of these “big” behaviors are sadly oversimplified, undernourished, and in systems that are unattractive to the clever, talented, and ambitious among us. When we overlay on this system the behaviors of those focused on reelection and keeping their local economies well fed, we already know what happens.
Interestingly, this week, squeals are emanating from across the big “pond” about the economic impact that pensioners (investors in BP) are feeling from the precipitous drop in the value of, and anticipated dividends from BP. Posturing and deflected blame, insinuated bias on the part of the US press, public, and politicians as a cause for the externalities. Consequences are driving these behaviors as well.
Messy and complex, isn’t it? Thoughts?
It’s Your Call
A blown call costs a pitcher a perfect game. This week, it really happened and everybody felt terrible, apologies ensued and the guilty umpire felt genuine remorse and accepted full responsibility for the failed measurement. A poor measurement did not change the perfection of the real performance, a better gage, instant replay validated that, but rather the record of what happened. Those that missed this story and are evaluating the statistics of pitching performance will only have the historic data to evaluate, data that is a false witness of events. Imagine the effects of all the poor measurements in one year of major sports events. Do they change important outcomes? Do they steer rewards or punishments? How about all the stuff that goes on with gamblers in or out of Las Vegas?
Bad measurement in sports evokes big emotions, outrage, indignation and a score of aftereffects that include bragging rights. Does bad measurement in our enterprises conjure similar reactions? What are the chances that we are making decisions as a result of poor measurement, the wrong lens, an obstacle in the way, poor technology, get the picture? If so, the issue is ubiquitous. In over two decades of helping organizations with performance gaps, poor measurements have always been at play, sometimes with disastrous consequences.
The issue is not a simple one. For example:
• Do we use the data that we have and try to conjure meaning from it? Or do we start with what we want to know and then measure accordingly?
• Are we sure that the movement in the data is representative of what is actually happening within the process?
• Do different individuals or functions measure differently? Would they come up with the same value when measuring the same process?
• Does the data just not make any sense?
• How about our “calls” on what we evaluate? Do two managers reach the same conclusion about someone’s performance? If not, who is right? What are the consequences to the individual?
• Do we introduce our own bias into the measurement and evaluation?
• Do we have folks who are easier graders and those that are more demanding? Do they evoke similar or different performance?
• How much of our decision process rely on a subjective call (an opinion) versus an objective measurement (an actual number)? Do we know how often our calls are wrong?
• Do compliance requirements change how we measure performance?
• What happens when lab results are wrong? What if wrong results bring really bad news or they mask the bad news and bring good news?
• Are we ever surprised by events that would have been very visible had we measured differently?
• Does a part of the organization hide or hoard data?
• Do our customers measure our deliverables and call about problems that we should have prevented them from experiencing? What did our data say?
• Do we have our vision checked from time to time? Why is that?
• Do we ever catch how some advertisers deceive with clever use of statistics? How about in our enterprises?
• Is it safer for ourselves to call someone “safe” rather than “out” when we’re not sure, just in case? Consequences are often more severe in one direction versus the other.
• Have we ever spent a lot of money and resources on a decision made with poor data?
So, how’s our data today?
When is the Exam?
Ever been caught in a situation for which you were not prepared? Ever dream where you forgot to attend a certain class at school, did not go for months, and then remembered, and the exam was to be in one hour, forgot the room, hadn’t studied, and then … panic? It can be unnerving. It evokes a very special anxiety, an unforgettable sensation. This type of anxiety is different than a surprise calamity that came from nowhere and it was something you could not have prepared for. The anxiety that comes from being unprepared is different because the consequences are typically very severe, sometimes disastrous, but very possibly preventable, had we prepared for it or to be surprised. It is but one dimension of the cost of unreadiness. That cost of unreadiness is terrible, nightmarish, fraught with self doubt and remorse, and becomes overwhelming when it is basking in the public eye. Sometimes, others suffer because of our unreadiness.
Unreadiness has different faces; the most distinguishable differences often exist between those that serve the interest of shareholders and those that serve the interests of the public. There are events of unreadiness that are shared among sectors. One that is hard to escape is capturing our attention because it painfully highlights a frightening level of apparently ubiquitous unreadiness. One indicator of the issue is the overwhelming amount of rhetoric and buzzing about from spectators to visible execution from those jumping into the fight as ready and agile gladiators.
The current crisis with the river of oil gushing upward in the Gulf of Mexico is a behemoth that resists constraints and carries dimensions of destruction that will change economies, lives, careers, communities, and perhaps the lens through which we view ourselves. It behaves much as Pandora’s Box, opened and releasing unbridled and irreversible calamities. There are overlays of causes, inclusive of a stated strategy to reduce dependence on foreign oil, one that may have created or perpetuated cozy questionable regulatory behaviors with the offshore drilling permitting and oversight process. There will be plenty of time for blame to be delivered. Right now, however, it is a distraction from the priority plugging the spewing hell.
Plenty of pundits are weighing in with “who is in charge, which is guilty, how much should we punish ….” Yet the still small voices of, “we can help, we have experts, I will lead, follow me lads” can’t be heard or remain silent. When no one is ready, everyone is guilty. It comes back to the eternal conflict between decision making systems, values, paradigms between the world and rules of economics and the world ruled by the rules of variability, uncertainty, the laws of physics, today’s engineering, and yesterdays science. It is very much about yesterday’s science and yesterday’s patterns applied to tomorrow’s problems. We create black swans from white ones, by the decisions we make (might want to read the book … “The Black Swan” by Nassim Nicholas Taleb) and what we chose not to consider in those decisions.
David Brooks, the columnist, has articulated several times that extraction of energy resources (oil, gas and coal) continues to have costly risks, albeit acceptable by consumers so far. The laws of physics make that undeniable. The coal mine disaster, the current oil geyser, Somali pirates hijacking tankers, refinery fires; there are many. Yet, energy is essential to life as we want it to be and as we need it to become. Our current demand is not likely to drastically change anytime soon, but maybe our strategic objectives should. The 800 pound gorilla in the room is too big to avoid. What we are witnessing are the secondary effects of harvesting and extraction economies and technologies. All extraction and harvesting sources have to be converted and that process leaves scars. Whether lumber, pulp, agriculture, food, minerals, fuels, all leave scars.
So our gorilla wonders about our choices. Do we set the same standards across the choices? Do alternatives share the same decision hurdles? Do they share the same oversight and regulatory burdens? How does the consumption immediacy of today reconcile with tomorrow’s predictable constraints?
Consider one example. If oil and coal had to meet the yoke of regulation from cradle to grave that the nuclear generation alternative endures, we would have very different behaviors. Today, the cleanest and safest choice is treated like the red-headed stepchild, a behavior not shared by the rest of the technologically literate world. We unknowingly or passively take on the risks of oil spills and mining accidents, but howl at the thought of a geologically sound repository site for spent fuels and continue to foster an onerous permitting process for new generating facility construction. It’s a tough one to reconcile. Balancing the laws of economics with the laws of physics is tough enough, but when mixed with the laws of political electability, it can become next to impossible. This issue is more about tomorrow than about today.
But the nuclear debate did not get us Pandora’s Gusher, unreadiness did, cut corners did, questionable regulatory behavior and integrity did, poor situational awareness did, and maybe some hubris did. There seem to be some choices, and none are cheap, fewer easy. Raising the standards of readiness call for a different way to plan, manage, and reward. It means ensuring with preparedness and responsiveness rather than insuring with financial instruments and distributed risk coverage. The risks and consequences are radically different. Again, we can pick the laws of physics, build agility, and respond; or the laws of economics, acceptance of fragility, and react. There are differences between managing from fear or confidence.
The 800 pound gorilla wonders about how we will decide. When we have tough choices, do we seek affirmation or confrontation? What will be the costs of our unreadiness tomorrow?
“The art of war teaches us to rely not on the likelihood of the enemy’s not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable.” Sun Tzu
Thoughts?
A Gulf of Inconvenience
The oil well disaster events of the last weeks have been nothing short of ugly. In the background, the echoes of simplistic politicians ranting “Drill, baby, drill!” strike discordance with the fears and unavoidable harm playing out in the Gulf and spotlighted on the nightly news. Congressional hearings into the events are fraught with finger pointing at those called to testify and between those testifying with blame becoming the volleyball, destined to be set up, passed, and slammed until it hits a score. In the meantime, on-the-fly brainstorming is generating and testing ideas to stop the river of oil spewing from its lifelong imprisonment below the surface of the sea; and has rendered predictable disappointments. There are lots of spectators watching, pundits blasting, gladiators battling to survive the ordeal, and some hiding from repercussions.
In the ensuing panic and spotlight, another scary dimension reemerges, how ready are we to tackle what we have not experienced before? Executives of the drilling operations confess, in retrospect, inadequacies in the analysis, evaluation, and preparation for the failures leading to the explosion and the current river of oil. It is messy, the oil spill, the accompanying chaos, and the level of activity to assign blame from the bleachers and the court of public opinion. There is one huge problem with the court of public opinion; it is typically concerned with assigning retrospective blame and exacting a full measure of justice. Often that justice comes as punishment for the convicted and increased regulation for everyone else. On the other side of these events, we will have to contend with choices about getting less and paying more. I wonder what the real cost of our current energy enriched lifestyle might be? I believe we all may experience some level of repugnance and disapproval of these energy extraction accidents, indeed very ugly, but are they a dark side of the convenience we enjoy? These events could have certainly been less likely, with different choices by the operators, their leadership and our shopping demands.
I want to be safe and comfortable, living the convenience that energy provides, but may be reluctant to bear the total costs. I don’t believe that I am alone. An interesting aspect of this scenario is fundamental to situations many industries may be facing. Do we create strategies with aggressive goals that lead to optimistic planning and biases in risk analysis? How much does the business strategy influence the science of decision making? Specifically, how are the random surprises of the variability in Mother Nature considered? When Mother Nature does not want to behave according to plan, do we change tactics? Do we change with deliberation or desperation? After all, when any of us are running behind schedule, the rise in anxiety and fear of failure is inescapable! How then, are choices made? Where do we anchor our thinking and decision making? How far do we explore the expensive options that Mother Nature may present, particularly when behind schedule and sunken investments are climbing!
What happens often is the juxtaposition of goals and decisions driven by the laws of economics and the subsequent actions driven by the laws of physics. We run the business with an economic lens, but Mother Nature can only behave with the physics lens (we can add the other sciences like chemistry, mathematics, geology). Sometimes we have to guess about what Mother Nature is going to do, and we’ll be wrong to some degree, sometimes really wrong. It happens to most of us, but we don’t necessarily think about it when things are going well at the well. As this plays out, we will discover poor decisions and we may be tempted to assign sinister or evil behind them. Right or wrong, we will seek blame and justice. Ugly positioning, influence peddling, legal battles, insurance nightmares and extended stalling strategies await us … these are driven by the laws of economics.
I want to be careful and keep the broad brush of judgment put away. I believe that regulation will constrain future actions and better protect us from harm, at a price. I still wrestle with my, or our, lifestyle and business decisions against this backdrop. Do I have the right scale when I choose? So, what price are we willing to pay and what risks are we asking some to bear?
How wide is the gulf that separates our convenience?
“Destiny is no matter of chance. It is a matter of choice: It is not a thing to be waited for, it is a thing to be achieved.” William Jennings Bryan
Thoughts?
What If?
There may be a really big storm brewing. It may be a signal from a political barometer, or positioning, real outrage… not sure, but the thunder is increasing. The last few months have stoked the fires of outrage, anger, frustration, and deteriorating confidence from a public that may feel that they may have been too trusting. Mine disasters are prompting a more diligent review of whether laws were broken and whether responsible regulators did not regulate, or were distracted when they should have been focused. The oil spill disaster is challenging the process of due diligence and the veracity of permitting submittals, leaving people scrambling to solve the should-have-been foreseen or explicitly considered in operational risk assessments. The financial crisis and the ensuing Goldman Sachs nightmare is ringing lots of alarm bells around the public service halls, prompting the questions of, “Did we do enough? Were we diligent in our responsibility? Where will the light of review shine next?” I suspect that readership will skyrocket for Government Accountability Office (GAO) reports that have been ringing the bells for regulatory reform, transparency, accountability, and better oversight for many years. The scary part of a pendulum swinging is that it often has an axe attached at the end. The court of public opinion is a feeding frenzy for responsible and irresponsible media.
The challenges ahead are not easy, simple, or clear insofar as right or wrong, the role of government, and the balance between protecting the public trust and preserving an environment that is economically fertile for business. The polarity of positions makes the task of finding societal answers that are workable frighteningly complex, requiring agile minds, principled players, and strategic balance. The ravages of unemployment and a riskier economic outlook may stoke the fires for those in search of the guilty. Anger and the search for public justice enjoy a history of harming too many innocent in search of the guilty.
For those enterprises where compliance is a large economic investment or burden, consider getting ahead of this storm. For those who were doing “just enough to get by,” change is likely around the corner.
Compliance brings three categories of costs:
• The Cost of Non-Compliance. That is all the bad stuff that happens when someone is caught and held accountable for breaking the rules.
• The Cost of Compliance. This is a really big number that captures all the activities and costs associated with understanding the rules, complying, or doing whatever is necessary so as to not be found in non-compliance. This usually has many, many more hidden costs that the explicitly budgeted costs.
• The Cost of the Fear of Non-Compliance. This one is very nasty as it captures all the unnecessary, just in case, better look it over, get more reviews, run it by the lawyers, get lots of extra approvals, let’s have a meeting, and endless tons of costs and constraints heaped on because we are afraid of getting in trouble.
Far too many of the assurance and compliance systems rely on “detect and correct.” The unfortunate consequence of control and contain systems that rely on downstream checks and inspections is that they will always fail to some degree. That means that sometimes we learn that we’re dead before we learn that we’re sick. Yep, failure is what tells us that something is wrong. The smarter folks are applying the principle of “predict and prevent.”
Now, what if the yoke of regulation and compliance is about to get heavier, and those who are responsible for guardianship of the public trust are under greater scrutiny, might they also be thinking about their own fear of non-compliance? What’s the cost to everyone else if that is true?
Where are our enterprises? Is this something to think about, or something to think through?
“A man does what he must – in spite of personal consequences, in spite of obstacles and dangers and pressures – and that is the basis of all human morality.” Winston Churchill
