Avoid Business Failure by Breaking the Chain of Mistakes

Most business disasters are preceded by not just one but many mistakes. In this excerpt from Will Your Next Mistake be Fatal?, learn how to recognize warning signs and break the chain of mistakes.

By Robert E. Mittelstaedt, Jr.
Author of, Will Your Next Mistake be Fatal?

The Ancient Greek tragedies invariably told the story of a character who came to grief through a series of mistakes that all started with a failure to heed strong warnings. The Titanic, Three-Mile Island (TMI) and NASA’s space shuttles Challenger and Columbia are all modern examples of “corporate tragedies” that occurred because of assumptions that were incorrect, systems that were misunderstood, and actions that exhibited extraordinary lack of preparation and insight. Above all, they were the result of reckless disregard of alarming information.

Almost every business disaster is the result of not one mistake, but a succession of mistakes. At many points along the road to ruin, that chain could have been broken and the situation corrected–if only people had seen and believed the evidence that sat in front of their noses.

The great fault lies not in making mistakes, but in repeating them, and not learning to catch them early. Organizations are like individual people. They make the same mistakes over and over, unless they do something definitive to try to stop. They are shortsighted. They don’t always learn from their own mistakes, or from others’. They also don’t always learn from their successes. They often neglect to ask, “What did we do right?”

Anyone in a management or executive position needs to learn how to recognize the patterns of mistakes that precede most business disasters, and to reduce a mistake (or above all, a series of mistakes) to something that does not require full-scale crisis management.

How do we break the mistake sequence, or prevent it before it starts? You’ll generally find two forms of opportunity for early intervention. The first is a matter of heeding early warnings of specific danger, and detecting patterns in operations.

• Other ships had warned the Captain of the Titanic that his proposed route was full of icebergs.
• A 1990 study had shown the potential for damage to the heat shield of the space shuttle Columbia.
• Consumers were quick to complain about the flawed chip in Intel’s Pentium processor.
• Ford was aware of early failures of Firestone tires on its Explorer vehicles in Saudi Arabia and Venezuela.

In each of those cases, the people at the top knew that something was wrong, and simply pooh-poohed it–or didn’t attend to the problem until it had gotten out of hand. Ignoring early warnings allowed the mistake to slow or reverse the “business flywheel.”

The second way to intervene is to quickly detect and halt dangerous patterns of action in operations and strategy.

• Several top executives were aware that Enron was highly leveraged and was involved in far too many high-risk deal structures.
• Kodak knew that digital technology was coming in, and that other companies were developing it, but Kodak continued to focus on chemical-based technologies, giving their competition a head-start in digital.
• Webvan made a series of ill-founded and ill-tested assumptions about its on-line grocery-shopping system.

The problem with a warning is that it is not always clear that it is a warning at all, or that the source of the information was reliable. How to detect and react to warnings? Here are situations that should raise red flags and warrant further analysis:

• credible customer complaints that “your product isn’t working”;
• situations you have not seen before;
• operating experience different from that of your competitors;
• unusual or rapidly changing data about operations or customers;
• results off-plan;
• results on-plan–but only through luck;
• constant revision of plan/budget;
• failures of control systems;
• need to re-train significant numbers of personnel because they are not performing;
• frequent operational problems that are not addressed by standard procedures;
• problems caused by communications issues;
• problems where help was available but not used.

When you do see warning signs, you’ll find several ways to stop a mistake sequence.

• Adopt a customer-focused operating culture, from top to bottom. Everyone knows the customer, everyone improves quality, everyone markets and sells.
• Delineate responsibilities, standard operating procedures, and metrics. Paramount to avoiding mistakes is knowing who has primary responsibility for each important task and objective.
• Implement training, simulation, and devised safety. Do not move safety limits to accommodate your clients, as Enron’s, WorldCom’s, and HealthSouth’s auditors did. Imagine disastrous scenarios, and ask your employees, “What would you do if…?”.
• Believe your indications, never ignore customer data, and communicate. Instead of trying to explain bad news, try to understand why something is happening as indicated. Act on your indications even if you don’t like them. In particular, listen to customer data–because by the time it reaches your desk, the problem will have been going on for a while.
• “Fly the airplane.” Focus on the primary mission, and don’t be distracted by non-critical problems.
• STOP is your last line of defense. Train your employees to understand that they have a responsibility to exercise this option when the situation warrants it.

Author Robert E. Mittelstaedt, Jr. is Dean and professor of the W.P. Carey School of Business, Arizona State University, and former, Vice Dean and Director, Aresty Institute of Executive Education, The Wharton School. He has consulted with organizations ranging from IBM to Weirton Steel, Pfizer to the U.S. Nuclear Regulatory Commission and is a member of the board of directors of three corporations in electronics and healthcare services businesses. His book Will Your Next Mistake Be Fatal? Avoiding the Chain of Mistakes That Can Destroy Your Organization is published by Wharton School Publishing September 2005;$25.95US/$36.95CAN; 0-13-191364-6