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FT editor Roula Khalaf selects her favourite stories in this weekly newsletter.
The author is the author of ‘Willful Blindness: Why We Ignore the Obvious at Our Own Peril’
The inquiry into the Grenfell Tower fire detailed a deep-seated wilful blindness, where catastrophic decisions were made by people who should have known better, leading to tragic consequences. This week’s second and final report revealed the incompetence, error, greed and mismanagement that lay behind those decisions. Construction companies, standards bodies, the local authority, fire services and central government are all implicated in the avoidable deaths of 72 people.
I have been analysing these systemic institutional failures for over a decade and have seen the patterns repeated all over the world: Enron, BP, Wells Fargo, various NHS scandals, General Motors, Volkswagen, Facebook, Boeing, Hillsborough, Fukushima, Carillion, Theranos, the opioid scandal, the Postal Service and many more. But Grenfell shows that beneath all these causes lies a web of ideological failure. These tragedies arise from core beliefs and mental models about business and management that often fail in the real world.
One of the most surprising revelations is the sheer number of organisations involved in tower maintenance and refurbishment. It’s hard to keep count. Why so many? Over the past 30 years, outsourcing has been in vogue, on the grounds that it allows access to specialist expertise of a kind too expensive to maintain in-house. This has three under-appreciated consequences.
Outsourcing atomizes responsibility. Who is ultimately responsible: the company doing the work or the one that hired it? Outsourcing is a recipe for avoiding responsibility. Valukas Report on GM Failures They cited the “GM salute”; when asked who was responsible, executives crossed their arms, pointing to their left and right.
Second, outsourcing leaves the contracting organization ignorant about materials, techniques, and technologies for which it no longer feels responsible. I cannot forget a conversation with a senior Ford executive who admitted, after decades of outsourcing the manufacture of many parts, that no one at head office knew enough about them to decide between the companies bidding for the work.
Worse, if it is outsourced too much, each part of the job becomes so far removed from its central purpose that it loses all meaning. This is what I call the demoralization of work, when everyday tasks are so far removed from an end result that they make jobs just about money, not housing, security or human lives.
These contracts are largely decided by price – bidders compete to reduce costs, win and retain business. The inquiry found many instances of concealment, false statements, manipulation of evidence and outright lies designed to keep customers happy. Standards bodies were privatised in the belief that making them compete would make them more efficient. Instead, the inquiry found that they had lost their integrity.
Competition advocates insist that it forces the best to rise to the top, but it is time we also recognised that it systematically does the opposite, encouraging dishonesty, misinformation, deception and fraud in education, sport, politics and commerce.
Efficiency dominates management thinking. The magical belief that everything can be done better, faster and cheaper has forced a focus on cost reduction. Time is money, so it’s best to do it quickly – a fire safety report at Grenfell that should have taken a week was done in “15 billable hours”. It is well understood in engineering that resilient systems should not be exorbitantly priced, as they leave no scope for recovery. Robust systems, by definition, must address contingencies. But blind belief in efficiency ignores the circumstances where low prices exacerbate risk.
Unquestioning faith in outsourcing, competition and efficiency have been three of the dominant ideologies in business and management for decades. Why do I call them ideologies? In 2008, when Alan Greenspan testified Speaking before the US Congress to explain the global financial crisis, he admitted that he had an ideology. Everyone, he said, had one: a conceptual framework by which people deal with reality. He had been distressed to find a flaw in his own.
The accumulation of tragic corporate failures reveals major flaws in the business ideologies that have dominated management for most of my life. Outsourcing inherently carries invisible risks and costs – this has to be admitted. Competition does not automatically force the best to the top, but it also leads to perverse outcomes. Efficiency can be dangerous. Unless we are prepared to challenge and change these ideologies, we will continue to apologize for the death and destruction they cause.