Marriott Alumni Magazine

Summer 2012

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people make decisions in other settings, such as in public agencies, nonprofits, and politics,” he asserts. Desai, who attended grad school with Madsen, says that recently the theory has been used to explain important types of organizational decisions with fairly good accuracy—decisions such as when companies innovate, acquire other companies, or start new factories and, in the case of Madsen’s paper, how and when companies devote resources and attention to safety. “We’ve seen an era in which organizations in different industries have experienced massive failures because they were unable to maintain or enhance their operational safety and process reliability,” Desai says. For example, in 2001, Toyota, the maker of Lexus, received a sharp increase in complaints about acceleration problems. The company downplayed the grievances until a California Highway Patrol officer and three of his family members were killed in a Lexus because the gas pedal stuck. The attention this accident received in the social and traditional media realms convinced the company that the complaints weren’t happenstance. Toyota eventually recalled more than 6 million vehicles and lost about $2 billion in North American sales. “The crisis could have been avoided or dramatically mitigated if Toyota—a company that seemed to be at the head of the class—had recognized the deviation and correctly acknowledged the thousands of complaints for what they really were: near misses,” Madsen points out. Examining these close calls and identifying them is one way a firm can apply the behavioral theory. How companies react to near misses might differ depending on how well they are performing relative to their aspirations, Hendron says. “Those performing very well may not pay enough attention to close calls and may not learn anything. If they fail to examine the causes, odds are that eventually disaster will strike,” he says. Desai says the theory highlights two things managers should watch for. “The first is complacency when their organizations are performing successfully,” he explains. “The second is for managers, investors, and other stakeholders to not count out organizations that perform slightly below expectations for short periods of time. These organizations often bounce back and outperform in the future.” There is another aspect to consider, says Desai, who has studied this theory for ten years. “When performance is so far below the aspiration level that the organization’s survival is threatened,” he says, “survival instincts tend to kick in and the organization becomes more risk-averse and less likely to innovate.” However, it’s not all doom and gloom if a company dips into negative territory. “There is a window of performance below expectations where organizations increasingly behave in novel and innovative ways, which is cool because you usually think of that sort of behavior from the most successful firms across the industry,” Desai acknowledges. “This theory says that it makes sense, in some cases, to root for the underdog.” Safe Travels Even with these tools to analyze airlines’ safety tucked under his hat, Madsen doesn’t really care which logo is on his plane’s rudder. “I never set out to find which airlines are unsafe,” he says. “Instead I’m focused on developing a generalizable theory of when organizational risk for accidents goes up.” Airlines have only gotten better during the past decade, Madsen says. “Even a 7 percent increase in accident risk is still incomprehensibly small,” he says, noting a study from the early 2000s that indicated if someone flew on a U.S. commercial airline every day, statistically, it would take 36,000 years before he’d be killed in a crash. Madsen doesn’t break a sweat when his flight over the Rockies hits a bit of turbulence. “Your risk of being killed in an auto accident is significantly larger than your risk of being killed in a plane accident,” he points out. “The airline industry is very safe.”

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