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Predictable Surprises:
The Disasters You Should
Have Seen Coming
by Michael D. Watkins and Max H. Bazerman
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Are an Expense
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Predictable Surprises: The Disasters r0303e
You Should Have Seen Coming
Michael D. Watkins and Max H. Bazerman
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and Rhonda Kaufman
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You Should Have
Seen Coming
A
The
Copyright © 2003 by Harvard Business School Publishing Corporation. All rights reserved. 5
Predictable Surprises:
by Michael D. Watkins
and Max H. Bazerman
Disasters
blasted Greenpeace boats with water cannons to prevent
the group from reoccupying the Spar. It was a public rela-
tions nightmare, and it only got worse. Opposition to
Shell’s plans – and to Shell itself–mounted throughout
Europe. In Germany, a boycott of Shell gas stations was
organized,and many of them were firebombed or other-
wise vandalized. Pilloried in the press and criticized by
governments, Shell finally retreated. It announced on
June 20 that it was abandoning its plan to sink the Spar.
Shell’s uncoordinated, reactionary,and ultimately fu-
tile response to the Greenpeace protest revealed a lack of
foresight and planning.The attack on the Spar had clearly
come as a surprise to the company. But should it have?
Shell actually had all the information it needed to predict
what would transpire. The company’s own security advis-
ers entertained the possibility that environmental ac-
tivists might try to block the dumping.Other oil compa-
nies,fearing a backlash, had protested Shell’s plans when
pril 29, 1995, was not a good day for Royal
Dutch/Shell. That morning, a small group
of Greenpeace activists boarded and occupied
the Brent Spar, an obsolete oil-storage platform in the
North Sea that Shell’s UK arm was planning to sink. The
activists brought with them members of the European
media fully equipped to publicize the drama, and an-
nounced that they were intent on blocking Shell’s deci-
sion to junk the Spar, arguing that the small amounts of
low-level radioactive residues in its storage tanks would
damage the environment. Greenpeace timed the opera-
tion for maximum effect – just one month before Euro-
pean Union environmental ministers were scheduled to
meet and discuss North Sea pollution issues.
Shell rushed to court, successfully suing Greenpeace
for trespassing.In the full glare of the media spotlight, the
activists were forcibly removed from the platform. For
weeks afterward, as the cameras continued to roll, Shell
The signs of an
impending crisis
often lie all around us, yet we
still don’t see them. Fortunately,
there are ways to
spot
danger
before it’s too late.
Michael D. Watkins is an associate professor of
business administration at Harvard Business School
in Boston. Max H. Bazerman is the Jesse Isidor
Straus Professor of Business Administration at Har-
vard Business School.
be blamed if they’ve taken all reasonable preventive mea-
sures against a looming crisis. But if a damaging event
happens that was foreseeable and preventable, no excuses
should be brooked. The leaders’ feet need to be held to
the 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 matter
of doing better environmental scanning or contingency
planning. It requires a number of steps, from recognizing
the threat, to making it a priority in the organization,
to actually mobilizing the resources required to stop it.
We term this the “RPM process”: recognition, prioritiza-
tion, mobilization. Failure at any of these three stages
will leave a company vulnerable to potentially devastat-
ing predictable surprises. (See the sidebar “Are You to
Blame?” for a further discussion of the RPM process.)
they were originally announced. Greenpeace had a his-
tory of occupying environmentally sensitive structures.
And the Spar was nothing if not an obvious target: Weigh-
ing 14,500 tons, it was one of the largest offshore struc-
tures in the world and only one of a few North Sea plat-
forms containing big storage tanks with toxic residues.
But, even with all the warning signs, Shell never saw
the calamity coming. Unfortunately, its experience is all
too common in the business world. Despite thoughtful
managers and robust planning processes, even the best
run companies are frequently caught unaware by disas-
trous events – events that should have been anticipated
and prepared for. Such predictable surprises, as we call
them, take many forms, from financial scandals to dis-
ruptions in operations, from organizational upheavals
to 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 of
September 11, 2001, are a tragic example of a pre-
dictable surprise.
The bad news is that all companies – including
your own – are vulnerable to predictable sur-
prises. In fact, if you’re like most executives, you
could probably point to at least one potential
crisis or disaster that hasn’t been given enough
attention – a major customer that’s in financial
trouble, for instance, or an overseas plant that
could be a terrorist target. But there’s good news
as well. In studying predictable surprises that
have taken place in business and government,
we have found that organizations’ inability to
prepare for them can be traced to three kinds
of barriers: psychological, organizational, and
political. Executives might not be able to elimi-
nate those barriers entirely, but they can take
practical steps to lower them substantially. And
given the extraordinarily high stakes involved,
taking those steps should be recognized as a core
responsibility of every business leader.
Three Ways to Fail
It’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 that
many surprises are unpredictable – that some
bolts out of the blue really do come out of the
blue – and in those cases leaders shouldn’t be
blamed for a lack of foresight. Nor should they
6
harvard business review
Predictable Surprises: The Disasters You Should Have Seen Coming
Predictable surprises arise out of failures of recognition, prioriti-
zation, or mobilization. The best way to figure out whether a
disaster 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 be
foreseen. No one, for instance, could have predicted that the HIV
virus would jump the species barrier to infect humans on such
a vast scale. But in examining the unforeseen disasters that strike
companies, we’ve found that the vast majority should have been
predicted. The way to determine whether a failure of recognition
occurred is to assess whether the organization’s leader marshaled
resources to scan the environment for emerging threats. That in-
cludes ascertaining whether he did a reasonable job of analyzing
and interpreting the data. If not, then the leader should be held
accountable.
Did the leader prioritize appropriately? Predictable surprises
also occur when a threat is recognized but not given priority.
Failures of prioritization are particularly common, as business
leaders are typically beset by many competing demands on their
attention. How can they possibly distinguish the surprise that will
happen 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 and
gives 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 been
deemed serious, the leader is obligated to mobilize to try to pre-
vent it. If he takes precautionary measures commensurate with
the risks involved, he should not be held accountable. Nor should
he be blamed if he lacked the resources needed to mount an
effective response.
Are
You to Blame?
pointed head of the European Commission’s competition
authority, was widely believed to be looking for an oppor-
tunity to assert Continental independence.
It seems the real reason Welch was surprised is that he
just 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 consultations
with their Brussels lawyers who specialize in European
competition concerns.” Welch appeared to assume that
the merger would sail through the antitrust review. But
while it did pass easily through the U.S. review – no doubt
further reinforcing his confidence – it smashed on the
rocks in Europe. Had Welch recognized the potential for
a negative decision ahead of time, he almost certainly
would have managed the merger negotiations and anti-
trust consultations differently – and Honeywell
might well be a part of GE today.
Failures of prioritization arise when potential
threats are recognized by leaders but not deemed
sufficiently serious to warrant immediate atten-
tion. Monsanto fell into this trap in late 1999
when CEO Robert Shapiro and his advisers failed
to concentrate on winning public acceptance of
genetically modified foods in Europe. Betting
the company on a “life sciences” vision, Shapiro
had sold or spun off Monsanto’s traditional
chemical businesses and moved aggressively to
acquire 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 in
Europe, giving far too little weight to the fact that
Europeans were still reeling from the mad cow
disease crisis, reports of dioxin-contaminated
chicken, and numerous other food-related con-
cerns. By focusing on technical and strategic chal-
lenges, not on the hard work of winning hearts
and minds, Shapiro ultimately lost his company.
He was forced to sell Monsanto to Pharmacia-
Upjohn, which bought it for its pharmaceutical
division, valuing the agricultural biotechnology
operations at essentially zero.
Breaks in the third link in the chain – failures
of mobilization – occur when leaders recognize
and give adequate priority to a looming problem
but fail to respond effectively. When the Securi-
ties and Exchange Commission tried to reform
the U.S. accounting system– well before the col-
lapses of Enron and WorldCom – the Big Five
accounting firms fiercely lobbied Congress to
block new regulations that would have limited
auditors’ ability to provide consulting services.
Appearing at congressional hearings in 2000,
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.” Welch is a
famously hard-nosed executive, and if anyone could have
been expected to do his homework, it would have been
him. But was Welch correct in viewing the decision as a
true surprise, an event that couldn’t have been foreseen?
The evidence suggests he was not. The Economist re-
ported at the time that there were many warning flags
of the EC’s intent to scuttle the deal. For some time, the
magazine pointed out, a philosophical gap had been
widening between Europe and America over the regu-
lation of mergers. And Mario Monti, the recently ap-
march 2003
7
Predictable Surprises: The Disasters You Should Have Seen Coming
emerging threat
or problem
effective
preventive
response
was it
recognized?
should have
recognized?
unavoidable
surprise
predictable
surprise
should have
prioritized?
unavoidable
surprise
predictable
surprise
yes
no
should have
mobilized?
unavoidable
surprise
predictable
surprise
was it
prioritized?
was a response
mobilized?
no
yes
no
yes
Mobilization
Prioritization
Recognition
no
no
no
yes
yes
yes
accounting firm CEOs assured legislators that no real
problem existed. Joseph Berardino, then the managing
partner of Arthur Andersen, stated in a written testimony
that “the future of the [accounting] profession is bright
and will remain bright – as long as the commission does
not 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 also
spent millions of dollars urging members of Congress to
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 here
lies not just with the SEC but also with the accounting
firms, which were well aware that their addiction to con-
sulting fees was compromising their independence as au-
ditors. Also culpable were political leaders – Republicans
and Democrats,in the executive branch and in Congress–
who lacked the courage to risk political damage and take
a stand on the issue.
Sometimes, leaders actually set themselves up for pre-
dictable surprises. A classic example is the 1998 decision by
a coalition of 39 pharmaceutical companies to sue the gov-
ernment of South Africa over its attempt to reduce the
cost of HIV drugs through parallel importation (buying
pharmaceuticals in countries with lower prices
and then importing them) and compulsory licens-
ing (requiring patent holders to allow others to
manufacture and sell their drugs at far lower
cost). The companies feared that the precedent
set by the South African move would under-
mine their control over valuable intellectual
property in the developing world. But the suit
sparked international outrage against the
industry, prompting a very public and un-
flattering look at drug firms’ profit margins
and industry practices, which the press jux-
taposed against the grim realities of AIDS
in 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 developing
countries. By mobilizing to win the narrow legal battle
in South Africa, and not focusing on the broader context,
the industry suffered a severe setback.
Why We’re Vulnerable
When we studied examples of predictable surprises oc-
curring at every stage of the RPM process, we found that
they share similar causes. Some of those causes are psy-
chological– cognitive defects that leave individuals blind
to approaching threats. Others are organizational – bar-
riers within companies that impede communication and
dilute accountability. Still others are political – flaws in de-
cision making that result from granting too much influ-
ence from special interests. Alone or in combination, these
three kinds of vulnerabilities can sabotage any company
at any time. All of them, as you’ll see, were apparent in
Shell’s failure to anticipate the Brent Spar controversy.
Psychological Vulnerabilities. The human mind is a
notoriously imperfect instrument. Extensive research has
shown that the way we process information is subject to
a slew of flaws – scholars call them cognitive biases – that
can lead us to ignore or underestimate approaching
disasters. Here are a few of the most common:
• We tend to harbor illusions that things are better than
they really are. We assume that potential problems won’t
actually materialize or that their consequences won’t be
severe enough to merit preventive measures.“We’ll get by,”
we tell ourselves.
• We give great weight to evidence that supports our
preconceptions 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 predictable
surprises resulting from others’ decisions and actions.
• We are creatures of the present. We try to maintain
the status quo while downplaying the importance of the
future, which undermines our motivation and courage
to act now to prevent some distant disaster. We’d rather
avoid a little pain today than a lot of pain tomorrow.
• Most of us don’t feel compelled to prevent a problem
that we have not personally experienced or that has not
been 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, or
those close to us, in peril.
All of these biases share something in common: They
are self-serving. We tend to see the world as we’d like it to
be rather than as it truly is. Much of Shell’s failure to an-
ticipate the disastrous response to its decision to dump
the Brent Spar can be traced to the self-serving biases of
its people – to their unshakable belief that they were
right. Shell was an engineering company run by execu-
tives trained to make decisions through rigorous techni-
Predictable Surprises: The Disasters You Should Have Seen Coming
8
harvard business review
Anticipating and avoiding
business
disasters
requires a number of steps,
from recognizing the threat, to making it a priority
in the organization, to actually
mobilizing
the resources
required to stop it.
cal and economic analysis. Having reviewed more than
30 independent studies and arrived at “the correct answer”
about the Spar, and having received approval from the
British government to sink it, executives at Shell UK were
utterly confident that their decision made the most sense,
and they assumed that every reasonable person would
see the issue their way. They were unprepared to deal
with a group of true believers who opposed any dumping
on principle and who were skilled at making emotional
arguments that resonated with the public. In the contest
for people’s hearts and minds, emotion easily defeated
analysis – much to the consternation of Shell executives.
Even well after it was obvious that they were losing the
battle, the leaders of Shell UK still couldn’t back away
from a failing course of action.
Self-serving bias can be particularly destructive when
there are conflicts of interest. Think of the many business
scandals 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 biased
judgments. Professional auditors distorted their account-
ing in ways that served the interests of their clients. Ana-
lysts on Wall Street gave overly positive assessments of
companies that were clients of their firms’ investment-
banking arms. Corporate directors failed to pay enough
attention to the actions of the CEOs who appointed and
paid them. Many of these auditors, analysts, and board
members knew that the bubble would burst, but their
unconscious 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, George Loewenstein, and
Don A. Moore, in the November 2002 issue of HBR.)
Organizational Vulnerabilities. The very structure of
business organizations, particularly those that are large
and complex, makes it difficult to anticipate predictable
surprises. Because companies are usually divided into
organizational silos, the information leaders need to see
and assess an approaching threat is often fragmented.
Various people have various pieces of the puzzle, but no
one has them all. In theory, corporate management
should play the role of synthesizer, bringing together the
fragmented information in order to see the big picture.
But the barriers to this happening are great. Information
is filtered as it moves up through hierarchies – sensitive or
embarrassing information is withheld or glossed over.
And those at the top inevitably receive incomplete and
distorted data. That’s exactly what happened in the
months and years leading up to September 11. Various
government agencies had pieces of information on ter-
rorists’methods and plans that, had they been combined,
would have pointed to the type of attack that was carried
out against the World Trade Center and the Pentagon.
Tragically, the information remained fragmented. (For
more on September 11, see the sidebar: “9/11: The Surprise
That Shouldn’t Have Been.”)
Organizational silos not only disperse information;
they also disperse responsibility. In some cases, everyone
assumes that someone else is taking responsibility, and
so no one ever acts. In other cases, one part of an organi-
zation is vested with too much responsibility for a partic-
ular issue. Other parts of the organization, including
those with important information or perspectives, aren’t
consulted or are even actively pushed out of the decision-
making process. The result? Too narrow a perspective is
brought to bear on the issue, and potential problems go
unrecognized or are given too little priority.
Put another way, decision makers focus on an “impact
horizon” that is too narrow, neglecting the implications
for key constituencies. This sort of organizational paro-
chialism was clearly evident within Shell. The company
failed to see that sinking the Spar would set a precedent
for dealing with other obsolete structures in the North
Sea and that it was probably the worst structure to start
with given its size and toxic residues. The company’s de-
centralized management structure, made up of auton-
omous national business units,worked well when dealing
with routine problems such as customizing marketing
efforts to local customers. But it worked very badly when
dealing with crises that crossed national lines. The Brent
Spar was located in the British part of the North Sea, so
responsibility for disposing of it was naturally vested with
Shell UK. Shell UK, in turn, dealt with the British govern-
ment to get the necessary permissions and consulted with
British environmental groups. But Greenpeace changed
the game by focusing its public relations attack not in
Britain but in Germany. The German Shell operating
company had not been involved in the process and had no
part in the decision to dump the Spar. But it became
the target of most of the pressure – financial and polit-
ical – from Greenpeace. Indeed, the chairman of Shell
Germany, Peter Duncan, remarked publicly that he first
heard about the planned sinking of the Spar “more or
less from the television.” Once the crisis broke, Shell’s de-
centralized structure inhibited the company from coordi-
nating crisis response activities and notifying employees
of decisions and events. Senior Shell managers outside
the UK publicly criticized both the disposal plans and
each other through the press.
Political Vulnerabilities. Finally, predictable surprises
can emerge out of systemic flaws in decision-making
processes. Imbalances of power, for example, may lead
executives to overvalue the interests of one group while
slighting those of other equally important groups.
Such imbalances tend to be particularly damaging during
the mobilization phase, when vested interests can slow
or block action intended to resolve a growing problem.
A case in point is the U.S. Congress, where single-interest
groups, such as the National Rifle Association or the AARP,
march 2003
9
Predictable Surprises: The Disasters You Should Have Seen Coming
wield disproportionate influence. Through a combination
of focused contributions to reelection campaigns, well-
connected lobbyists, nurtured relationships with com-
mittee chairpeople and staff members, and intimate
knowledge of leverage points in key processes, special-
interest groups routinely stall or torpedo policy changes,
even when there is a broad consensus that action is
needed.
We saw this dynamic play out after Enron collapsed
and WorldCom and other companies restated their finan-
cial results. Following an early burst of enthusiasm for
seriously tightening corporate governance rules, Congress
retreated in the face of intense lobbying by an array of
business 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 to
provide consulting and other lucrative services to audit
clients and to be rehired indefinitely by the clients, as
well as allowing audit-firm staffers to take
jobs with their clients. Efforts to reform pen-
sion laws to help protect workers from fu-
ture Enron-like debacles were also beaten
back by lobbyists representing employers.
As a result, companies and investors remain
vulnerable to damaging new “surprises.”
Companies are all too often oblivious to
the dynamics of governmental systems.
Shell, for example, failed to anticipate and
shape European political responses to its
Brent Spar plan. Company officials had fi-
nalized the disposal plan after four years
of study and quiet negotiations with the
British government, which approved the
dumping. After signing on to the Shell plan,
the British government notified the other
European governments with oil develop-
ment and other interests in the North Sea.
These governments raised no objections at
that time, but the absence of objections is
by no means the same as active support.
As Greenpeace applied more pressure on
the Continent, the German government
responded by openly undercutting the UK’s
decision to allow Shell to sink the Spar.
Through public criticism and direct requests,
Germany pressured the UK to reverse its de-
cision. Not building a broad consensus – with govern-
ments and with other oil companies – on how to deal with
aging North Sea oil rigs cost Shell dearly.
Political vulnerabilities can also crop up within com-
panies.Sanford Weill, the chairman of Citigroup,recently
came under fire for apparently using corporate resources
to provide personal assistance to Jack Grubman, a star an-
alyst at Citi’s Salomon Smith Barney. Weill allegedly
helped get Grubman’s children into a prestigious day care
center in return for issuing a more favorable report on
AT&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 some
e-mail evidence, that the recommendation helped to win
support for Mr. Weill’s successful ousting of [Citigroup’s
co-CEO, John] Reed from Michael Armstrong, AT&T’s
chief executive, who also happened to sit on Citi’s board.”
The resulting damage to the reputations of Weill and his
company was entirely predictable.
What You Can Do
“Prediction is very difficult,” physicist Niels Bohr once
said,“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 crises
and 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 ozone
layer. In the business arena, leaders are today sponsoring
what we call “surprise-avoidance initiatives” on topics
ranging from genomics research and stem cell biology to
10
harvard business review
Predictable Surprises: The Disasters You Should Have Seen Coming
The Surprise
That Shouldn’t Have Been
When 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 might
have been to imagine individuals carrying out such an act, it
shouldn’t have been a surprise. Portents had been building up
for years. It was well known that Islamic militants were willing to
become martyrs for their cause and that their hatred and aggres-
sion toward the United States had been mounting throughout the
1990s. In 1993, terrorists set off a car bomb under the World Trade
Center in an attempt to destroy the building. In 1995, other terror-
ists hijacked an Air France plane and made an aborted attempt
to fly it into the Eiffel Tower. Also in 1995, the U.S. government
learned of a failed Islamic terrorist plot to simultaneously hijack
11 U.S. commercial airplanes over the Pacific Ocean and then crash
a lightplane filled with explosives into the CIA’s headquarters near
Washington, DC. Meanwhile, dozens of federal reports, including
one issued by then Vice President Al Gore’s special commission
9/11
tential surprises that could emerge over, say, the coming
two years. These scenarios form the basis for the design of
preventive and preparatory measures. This exercise
should include scenarios that, while unlikely, would have
a very large impact on the organization if they occurred.
A full scenario-planning exercise should be conducted an-
nually, and formal updates of changes in the organization
and its environment should be scheduled every quarter.
Rigorous risk analysis– combining a systematic assess-
ment of the probabilities of future events and an estima-
tion of the costs and benefits of particular outcomes – can
be invaluable in overcoming the biases that afflict orga-
nizations in estimating the likelihood of unpleasant
events. It can be useful not just in setting priorities but
in sifting through alternative responses. During the
Cuban Missile Crisis in 1962, for example, U.S. military
leaders wanted to attack. Fortunately, however, President
Kennedy organized a decision-making process that ex-
amined in detail the risks of available options. Two
groups, each including government officials and
outside experts, were organized to flesh out two
particular alternatives, attack and blockade, and
assess their associated risks and rewards. Based
on the analysis, Kennedy eventually decided to
conduct a blockade. Recently, Kennedy’s Secre-
tary of Defense Robert McNamara made it clear
that if the United States had invaded, the conse-
quences might well have been catastrophic. Even
if American forces had quickly destroyed all the
weapons known to exist in Cuba, several U.S.
cities could still have been struck by nuclear mis-
siles – missiles that the military were unaware of
at the time.
At its best, risk analysis combines subjective
and objective evaluations. Teams of experts, like
the ones Kennedy relied on, can be organized to
make regular qualitative assessments of condi-
tions and threats. At the same time, decision
analysis has developed useful techniques for
helping individuals and organizations to more
effectively assess the probabilities of future
events and their potential consequences. (John
Hammond, Ralph Keeney, and Howard Raiffa’s
book Smart Choices provides a particularly good
overview of this field.)
Organizational vulnerabilities are often the
toughest to overcome. But while it’s rarely pos-
sible to eradicate all the internal barriers within an orga-
nization, it is possible to counter their effects by estab-
lishing cross-company systems to gather intelligence.
Typically, this requires that leaders create one or more
cross-functional teams responsible for collecting and
synthesizing relevant information from all corners of the
business. Some companies use what are called action-
learning groups – teams of future leaders that meet to
Internet 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 recognize emerg-
ing problems, set appropriate priorities, and mobilize an
effective preventive response. The first step is the simplest:
Ask yourself and your colleagues, “What predictable sur-
prises are currently brewing in our organization?” This
may seem like an obvious question, but the fact is, it’s
rarely asked.People at various levels in organizations, from
the top to the bottom, are often aware of approaching
storms but choose to keep silent, often out of a fear of
rocking the boat or being seen as troublemakers. By ac-
tively encouraging people to speak up, executives can
bring to the surface many problems that might otherwise
go unmentioned.
Some threats, of course, are invisible to insiders. To fer-
ret out these potential dangers, companies should use two
proven techniques – scenario planning and risk assessment.
In scenario planning,a knowledgeable and creative group
of people from inside and outside the organization is con-
vened to review company strategies, digest available in-
formation on external trends, and identify critical busi-
ness drivers and potential flash points. (It’s essential to
include outsiders in this group as a counterweight to the
self-serving biases of employees.) Based on this analysis,
the group constructs a plausible set of scenarios for po-
march 2003
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Predictable Surprises: The Disasters You Should Have Seen Coming
on aviation security, provided comprehensive evidence that the
U.S. aviation security system was full of holes. Anyone who flew
on a regular basis knew how simple it was to board an airplane
with 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 remained
fragmented among the FBI, the CIA, and other governmental
agencies. No one gave priority to plugging the security holes in
the aviation system because, psychologically, the substantial and
certain short-term costs of fixing the problems loomed far larger
than the uncertain long-term costs of inaction. And the organiza-
tions responsible for airline security, the airlines, had the wrong
incentives, desiring faster, lower-cost screening to boost prof-
itability. Inevitably, plans to fix the system fell afoul of concerted
political lobbying by the airline industry.
share data and analyze key business challenges. Also re-
quired is a change in incentives to get employees to see
beyond their parochial interests and begin to share infor-
mation freely. In the case of the Brent Spar fiasco, the
leaders of Shell UK and Shell Germany were each focused
exclusively on their own bottom lines and as a result pur-
sued conflicting parochial interests – to the detriment of
the company as a whole. Had a broader system of mea-
sures and rewards been in place, one that provided in-
centives to balance corporate and local interests, Shell
would have been better protected against internal in-
fighting and miscommunication.
Finally, executives need to build good networks – both
informal advice networks and formal coalitions – for in-
fluencing political decisions. Leaders’ beliefs and impres-
sions about the potential challenges facing their organi-
zations are based, in large measure, on their intuition. By
organizing a set of knowledgeable advisers, drawn from
both inside and outside the company, leaders can test and
refine their early impressions and help counter their own
unconscious biases. Hank McKinnell, the CEO of Pfizer,
is a good example of a leader who routinely calls on a
group of external advisers to avoid predictable surprises.
One of McKinnell’s most valuable “leadership counselors”
is Dan Ciampa, former CEO of Rath & Strong. By serving
as both a sounding board and an adviser on key issues and
decisions, Ciampa is reportedly instrumental in helping
McKinnell avoid undesirable outcomes.
And when managers have to mobilize people outside
their direct lines of control to confront a difficult prob-
lem – as is almost always necessary – they need to build
formal coalitions. Coalition building is particularly im-
portant for getting anything done in highly politicized
environments like the U.S. Congress. But it is important
in business, too. Sometimes, executives have to make
major organizational changes to guard against a potential
disaster. Such changes always create winners and losers
and 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 back
the changes. That requires, in turn, that they be good at
figuring out who wields influence, inside and outside the
organization, and then use that knowledge to build sup-
port and momentum for their cause.
Taking these steps will help you get an effective RPM
process 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 move
swiftly, and they can quickly spin out of control – as Shell
found out. If you’re unable to stay ahead of a potential
disaster as it unfolds, you’ll be stuck in a reactive mode.
You’ll become a victim of circumstances rather than a
master of your own destiny.
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Predictable Surprises: The Disasters You Should Have Seen Coming
