vs.
Since 1906 in the United States there has been an interesting transition in perspective worth noting as we move forward into unknown and uncertain times. Business leaders have gone from being coldly calculating; effectively ignoring a business’s responsibility to workers and the public (e.g., made famous in Upton Sinclair’s “The Jungle”), through a more balanced approach to doing business, to a current mode that is wrought with figuring out what could possibly go wrong before taking too many steps. This newer mode has leaders deeply evaluating financial risks, far reaching public risks and brand risk in order to mitigate against negative outcomes. Though I am a fan of hedging against the downside, I wonder if the pendulum has swung too far from being blind to black swan events (defined as low probability but high impact events) to being scared of everything?
Let me contrast the two extremes. In the 1970’s, Ford introduced the Pinto – soon to be rated one of the worst cars in history because of a fatal flaw in gas tank design that was not handled well by management. The downfall wasn’t just the catastrophic explosion, but the now infamous internal memo in which Ford executives determined that the cost to fix all the Pintos would be less than the threat of any lawsuits caused by a faulty product. The $11 fix was therefore not worth it in their minds from an economic perspective. Wrong. In hindsight all we can say is “what were they thinking?” Moving forward, this lesson has been well learned in corporate America in hopes of never having a repeat event. Every day we hear of a case of salmonella being diagnosed and subsequently 100,000 lbs of meat thrown out even before a diagnosis is made that the culprit is actually cases are on fruit, veggies, etc.
Philosophically, however, at what point are we officially over-worrying about the next low probability black swan event? To illustrate the far side of the pendulum swing is Del Monte’s recent decision to go to market with individually wrapped bananas. Leaving aside the redundancy of “isn’t that what the peel is for” realize it is in reaction to a perceived consumer want mixed with an over-weighting of the potential downside effects. Consumer backlash came almost immediately calling Del Monte executives “foolish” and that the company was “destroying the environment and filling landfills.”
Del Monte erred on the side of doing too much yet Ford did too little. How can we remain vigilant yet sensible?
“Focus on contribution to the larger good—not just the achievement of your immediate singular objective.” Marshall Goldsmith encourages leaders to focus on contribution to the larger good, and not just the achievement of the immediate singular objective. Basically, do what is right and you naturally inoculate yourself against most risk. Then, seek feedback in multiple ways such as 1) encouraging and rewarding your team to Challenge Up, 2) creating feedback loops with consumers to take advantage of dynamic situations, and 3) calibrating decisions with legal and/or behavioral economics experts who can remain objective from outside your team.
Following the above advice will drastically lower the probability that an entire wedge of black swans will occur at once.
If curious, here is the Original Pinto Advertisement
Comments