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Fundamental Challenges at the Heart of Organisations

In order to achieve its goal of generating a return on the capital invested, a company has to resolve two specific tensions: risk and control (Garud & Shapira, 1997). In an economic sense, as opposed to safety, the risk is the anticipated difference between aggregated revenue inflows and promised payments to agents: in effect, it is the probability of generating the expected return. Control, again in an economic sense, refers to the right to make decisions about asset use not explicitly defined in law' or contracts. From an organisational perspective, risk, in the sense it is used here, will shape decisions about asset configuration. Control can be seen as a negotiated space between the management and the workforce, and it is in this space that the safety risk is amplified if the economic risk and control are not aligned wnth system performance.

Although the term ‘risk’ has been used in two different contexts, the underlying concept is the same: will what we expect to happen actually come to pass? In a safety sense, we offset risks by putting mitigations in place. In a financial sense, we offset risks through interest rates and financial instruments, such as fuel hedging and insurance. Mitigation is an additional cost, but the excessive intolerance of risk (extreme caution) can represent foregone opportunity with, as a result, reduced reward. This interplay of the two modes of risk can be seen in this report of a Southwest Airlines 737-700 aircraft that ran off the end of the runway at Chicago-Midway Airport on 8 December 2005 (NTSB. 2006). The airline used three models of Boeing 737, the -200 and -500 have performance characteristics that allow a landing at Midw'ay without the use of thrust reversers. The -700 series aircraft can only land at this airport without the use of reversers if the runway braking action is good. At the time of the accident, snow was falling and so the braking action was reduced. The crew had planned to use the thrust reversers, as was expected, but their delayed deployment resulted in the over-run. Although all the passengers and crew were unhurt, the aircraft could not stop on the runway. It passed through the perimeter fence and struck cars on a public road, killing a child.

The three models of aircraft in use all have different capabilities in terms of passenger capacity and range. The use of thrust reversers for landing performance planning allows the company greater flexibility in terms of routes and capacity it can offer into Chicago-Midway. In effect, the airline can carry more passengers from more airports. The financial risk, in this case, was the probability that the use of the -700 would be viable: could the airline fill the aircraft? The safety risk associated with this combination of aircraft and runway condition was managed through a performance calculation (runway braking action and the use of reverse thrust) and was dependent upon the crew’s correct execution of the landing technique. This event is a manifestation of the safety/production paradox. Rather than being mutually exclusive, safety and production are two facets of the same problem that must be resolved in part by the organisation through its configuration of systems and, in part, by the crew through competent performance.

At an organisational level, financial risk is managed through the configuration of assets. The selection of routes, acquisition of aircraft, pricing of tickets, quality of service and so on reflect decisions made by management. The conduct of operations is controlled in such a way that crew performance will support the generation of anticipated returns. The problem we face is that the concept of ‘control’ as outlined in this section is fundamentally about the right to decide on the use of assets. So, implicit in this view is that it is the right of management to decide on how the crew will perform in relation to the company’s business goals.

Just as the concept of risk has two different manifestations, control also has two meanings. These different perspectives create tension in a system. Control, in the sense that I have previously used it in my hierarchical model, invariably involves delegation. Each level in the model has, to some degree, to delegate authority for the actual conduct of work to the layer below for the system to function with any degree of efficiency. Where delegation occurs, performance is still expected to be delivered such that the observed outcomes fall within a tolerable range. The contradiction here is that the delegated authority contains a degree of discretion, or freedom of action, resulting from the gap between the formal controls and the flexibility needed to complete the task, given the vagaries of everyday life. The delegation also comprises both authority and responsibility. Captains, for example, are required to exercise authority in order to conduct business in such a way as rewards (profit per flight) are maximised but to act responsibly in order to minimise risk (and here we can also include financial risk in that crew behaviour can affect actual returns from a flight). Responsibility is bounded, on the one hand, by legal and procedural constraints and, on the other, a mutual understanding of what constitutes acceptable behaviour in the absence of controls. We saw in Chapter 5 that risky decisions are typically made under conditions of ambiguity, uncertainty and information overload. In order for the outcome of the decision process to be optimal, different levels in a hierarchy must have shared perceptions and understanding and a convergent set of expectations. The degree of convergence between the hierarchical tiers is reflected in the level of trust existing between the levels in an organisation.

This discussion rather assumes that an organisation exists as a coherent entity sharing a common set of goals. We know that organisations exist independently of the people filling specific positions within that organisation, but it is also true that organisations comprise disparate collections of groups, each with their own set of goals (Hutter, 2005). Members of an organisation take on obligations and expectations and contribute to corporate goals. However, at the same time, different levels within my model, and different functional groups within each hierarchical level, have independent goals and processes that are often in conflict. The problem of organisational silos was addressed by Tett (2015). She identified three main properties of silos: competition, ignorance and misplaced trust. Competition occurs when organisations have different performance goals or reward structures between the departments. In effect, it is not in my interest to cooperate with you because my own performance measures might be impaired. Ignorance is created when bits of an organisation fail to communicate. Data about a problem may exist but are buried in a department. Misplaced trust occurs when one bit of an organisation assumes that the other bit knows what is going on, which seems like a plausible precursor to organisational drift.

The issues discussed in this section represent a strategic view of an organisation but, in order to understand how strategy is transformed into action, we now need to look more closely at processes at the operational level. It is here that strategy becomes tactics. In effect, decisions about strategic goals are translated into desired work processes.

 
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