How What You Know Can Hurt You

Some sage said, ’The trouble with people is not that they don’t know, but that they know so much that ain’t so.’ That can be a killer in risk management. Guest columnist Mark Chussil offers tips for testing what you know.

By Jen McCarthy

February 06, 2006 — CSO —

This is the true story of how a multinational company successfully avoided a business crisis. The moral of the story applies as well to government as it does to industry. We’ll get to the story in a moment.

Even though a "crisis" may seem to begin at a point in time—the hurricane makes landfall, the business faces bankruptcy—it may begin in decisions made, or not made, long before the crisis event. The decisions-made to strengthen building codes in Florida and California mean that many hurricanes and earthquakes aren’t crises there, even though similar hurricanes or earthquakes would be crises elsewhere. The decision-not-made to improve New Orleans’ levees (despite the frightening outcome of the simulated Hurricane Pam) made the real Hurricane Katrina much worse than it had to be. In other words, it takes more than brutal winds and rain to make a hurricane a crisis. It takes lack of preparedness, too.

The same holds true in business. The pirate attack last fall on a Seabourn luxury cruiser off the coast of Somalia was an emergency; it wasn’t a crisis, though, because the captain, crew and vessel were prepared (due to decisions-made), and fended off the attack. The theft of confidential consumer records from ChoicePoint Systems wasn’t a crisis because thieves tried to get into their computers. It became a crisis because they succeeded in getting data out.

An event that threatens a business’s survival is a crisis. Such events include deliberate attacks (product poisonings, cyberterrorism) and consequences of impersonal actions (changes in government regulation, trade wars). Sometimes the arrival of a new competitor is a crisis, sometimes not. The Grand Opening Sale at Steve’s Stove Store won’t cause sleepless nights at General Electric or The Home Depot. The entry of Microsoft’s Internet Explorer (at the attractive price of free) was definitely a crisis for Netscape, which succumbed as surely as if someone had spread a virus that crippled its software.

Not every crisis arrives with a neon light announcing "Crisis! Crisis!" Sometimes, like a cancer, it grows slowly. Did Sears pay attention when Sam Walton opened his first store? Did General Motors, Ford or Chrysler worry when Japanese econoboxes came to America in the 1970s? Based on results, apparently not. Today Wal-Mart is seven times the size of Sears, and GM, Ford and Chrysler are desperately fighting for their lives.

We have time to respond, we tell ourselves, and we don’t feel the risk or urgency because today is only a little bit worse than yesterday. (Maybe it doesn’t feel worse at all, if there’s no hurricane or pirate.) Nonetheless, these decisions-not-made contribute to crises. They can—and do—destroy the largest, most-powerful companies and venerable, beloved cities.

• Print