Predictable Surprises
Why do decision-makers misread the handwriting on the wall?
BAZERMAN: There are many examples of predictable surprises at the corporate level.
Photo by MARK ALCAREZ
In a succession of wakeful nights after the attacks of 9/11, HBS professor Max Bazerman began to ponder the question of how the terrorists’ actions could have caught the leaders of the world’s principal superpower so completely off guard. Drawing on social science theory, he developed a tentative notion that “there are negative events out there waiting to happen, which people have sufficient information to predict or prevent, but for various reasons fail to.” When Bazerman later discovered that Michael Watkins, then his HBS colleague, was already working on a concept he called “predictable surprises,” the collaboration that led to their widely read book by the same title was launched.
A distinguished expert on man- agerial decision-making, Bazerman is the Jesse Isidor Straus Professor of Business Administration at HBS and is also formally affiliated with Harvard’s Kennedy School of Government, Psychology Department, Center on the Environment, and Program on Negotiation. Predictable Surprises (HBS Press) was published in 2004.
You and Michael Watkins analyze the role of cognitive, organizational, and political biases in preventing leaders from recognizing and acting on warning signs of impending disasters. Could you give an example of each?
In the book, we talk about the cognitive biases of those involved in the fishing industry who oppose tighter catch limits even though overfishing will sooner or later — and many experts say sooner — lead to the demise of their live-lihood. There are a number of cognitive issues here, but one of the most universal is the tendency people have to dramatically discount the future. For the most part, people are reluctant to accept immediate hardship, such as immediate loss of income, in exchange for a better situation at some point down the line.
What about organizational biases?
Since the events of 9/11, it’s been well documented that the CIA and FBI didn’t coordinate their information. Each had useful intelligence about some of the terrorists involved in the attacks, but that information was in separate silos. Richard Clarke, whose job it was to integrate across those silos, was a leftover from the Clinton administration, with limited influence in the new Washington power structure. Clarke knew, for example, that there had been an aborted attempt in 1994 to turn an airplane into a missile aimed at the Eiffel Tower. And yet, post-9/11, then–national security advisor Condoleezza Rice talked about the impossibility of predicting that someone would use an airplane as a missile. So there was a communication failure not only between two vital government departments, but also between two presidential administrations.
It seems that there were also elements of political bias at work there.
Yes, but to shine the spotlight on the Democrats’ failings for a minute, back in the mid-1990s, Clinton-Gore could have taken action to increase airline security, but politically, it would have been a very unpopular decision. The airlines, which had contributed to the Clinton-Gore campaign, didn’t want it, it would have cost taxpayers $3 billion, and we all would have had to wait in much longer lines at the airport. No one would have declared Clinton and Gore heroes for solving a problem that, at the time, very few knew existed.
Shouldn’t we be able to look to our political and business leaders to make decisions that are in our long-term best interest, regardless of how popular those decisions are in the short term?
There’s a bit of a Catch-22 here. The most obvious answer is that we must fundamentally change the system. The predictable surprise that helps create all the other predictable surprises is the destructive force of special-interest groups in this country. I am a great believer in campaign-finance reform, because it would take away many of the influences that corrupt sound decision-making. However, neither Bradley nor McCain, the candidates who were running on campaign reform in 2000, was able to sell it to the American people.
We haven’t talked very much yet about predictable surprises in business.
There are many examples of predictable surprises at the corporate level. United Airlines is one of many companies with serious pension-fund problems. You have to feel a little sorry for a new CEO who came on as part of a restructuring event and now has to take the heat for defaulting on the promises made by that company’s CEOs several decades ago. The airline’s previous generation of leaders settled tough union negotiations, made agreements that allowed them to operate profitably and look good in the short term, and dumped their pension obligations into the future.
But given shareholder pressure to maximize profits, how can a CEO avoid making decisions that favor short-term results, even if those choices lead to predictable surprises?
What I would like to take out of corporate decision-making are situations where a special-interest group within the corporation is distorting the objective of the corporation for its own idiosyncratic preferences. The CEO controls the company culture. One key, I think, is to listen broadly, with an open mind. The board of directors is an important sounding board, but the CEO is in a position to gather and synthesize information from across and beyond the company.
The book deals extensively with the fall of Enron. Could you comment on the auditing industry’s failure to bring that company’s problems to light?
The auditing industry has failed us over and over again in recent decades, and not just with Enron. Its lack of independence has been a leading factor in a host of problems we’re now facing, including unfunded pension obligations. It has done nothing to stop corporations from making promises to their employees and shareholders without the resources to back them up. Extensive reform is necessary. To be effective, auditors should function without regard for how pleased their clients will be with the results of their audit. Even with Sarbanes-Oxley, we’re still a long way from that.
Are there predictable surprises in the queue now that might be preventable?
I always tell everyone who will listen to use their frequent-flier miles as soon as possible. This is a huge and growing debt owed by the airlines, and it’s only a matter of time before those frequent-flier miles disappear. That’s something consumers can do right now, but most of the other problems we touch on are far less easily acted on. There isn’t a lot individuals can do to reverse global climate change or ensure the future of U.S. public entitlement programs. It will take leadership and a brave new approach to decision-making by those at the highest levels.
— Deborah Blagg
