Apache Energy Varanus Island Gas Plant Explosion wipes $A65 million from Alcoa's bottom line

A systematic way to analyse and respond to ambiguous signals of impending crisis

While the Newspaper reports may make it appear that Apache Energy management have demonstrated management behaviour that is less competent than other organisations; even if it is all proven to be true, their behaviour many not be that unusual.

In fact this type of behaviour is often the norm for large enterprises; including NASA (Colombia Disaster), Merck Pharmaceutical (Vioxx Incident), Kodak & Schwinn Cycles.

Enterprises that have a culture that is highly reliant on evidence and data can have a cultural weakness when faced with problem-solving in an environment where the available data is ambiguous. There is a systematic way to analyse and respond to weak signals of impending crisis.

M. Roberto (Bryant University) & J. Bohmner and A. Edmondson (Harvard) conducted an in-depth 2-year study, following the Columbia Disaster, that revealed that a culture that responded poorly to ambiguous threats was a naturally occurring behavioral trait in enterprises.

This problem-solving skill shortfall was more pronounced in enterprises where hard facts and data are the cultural norm for decision making. Of it’s self this data-focused trait is a strength but when combined with a mature organisation that has many accepted norms it tends to limit individuals ability to speak up when ambiguous threats start to appear.

Post incident analysis inevitably reveals that there was a “recovery window” where the enterprise could have responded in a way that would have averted the disaster:
· NASA management did not authorise a space-walk or approve additional satellite images be produced to study the possible effects of the foam strike after take-off.
· Merk did not act quickly enough to ambiguous data linking Vioxx to cardiovascular risk bringing their product to market with significant reputation damage.
· Kodak dismissed early signs that their film business was in decline
· Schwinn did not act quickly enough when mountain bikes hit the market, announcing the rapid decline for their road bike business.

Why do organisations fail to deal with ambiguous threats well?

Roberto, Bohmner and Edmondson found that the big three contributing causes were:
· Human Cognition - suppression of danger, emphasising information that confirms our existing belief and supports our existing execution strategy.
· Group Dynamics – Teams for high-risk and high-complexity projects are often designed with a strong focus on the expertise of the individuals; limited planning is invested in the dynamics of the group to ensure it works effectively as a team. Including the creation of an environment of ‘psychological safety’.
· Organisational Culture –Strong bias to data-driven decision making combined with a presumption that how things are being done (have been done for years) is a sound way to respond. Any challenger is therefore required to present data that is not going to be available in the short term.

For Apache Energy, their Varanus Island Gas Plant has been shut down since June 3; the immediate consequence of the explosion was that WA’s domestic gas supplies were reduced by 30%. Westfarmers are reported to be facing a total cost blow out of $A120 million, paying $A20 million a month for replacement gas supplies, and now Alcoa are facing a loss this quarter of $A65 million due to the same incident.

A valve replacement is reported to be a major directly contributing cause of the explosion but from a systemic change perspective the problem-solving culture may play a bigger role in deploying a corrective action strategy that would prevent a similar incident from re-occurring.

Police Superintendent Dave Parkinson is reported to have said “Apache had been told of a potential problem with a valve similar to the one the company is now trying to replace as a result of the explosion”. When told to buy a duplicate valve, Apache had commented "how can we justify having an $8 million component sitting on the shelf?" Mr. Parkinson commented "I got the impression they were not taking the need for contingencies too seriously".

The study by Roberto, Bohmner and Edmondson noted that enterprises that respond well to an ambiguous threat, do not improvise during the “recovery window”, they set in place a rigours process of detection and response capabilities that they have developed and practices prior to the crisis.

This rigorous process of detection and response includes:
· Rapid problem-solving and teamwork skills
· Recognise and take advantage of the ‘recovery window’
· Amplify the threat, making it culturally ‘safe’ for employees to ask potentially disconcerting ‘what-if’ questions.
· Explore (scenario model) possible responses to threats through low-cost experimentation.

We look forward to seeing what the findings of the investigation reveal and hopefully they will be using a root cause analysis tool like REASON® that will reveal causes that take them beyond the immediate engineering fix to the real structural and systemic issues that could provide valuable lessons to all involved in the Energy Sector.

If you would like more information in developing you own internal problem-solving capacities contact Kimmaree Thompson at srp@systemic-resilient-precision.biz


© 2008 K. A Thompson http://www.systemic-resilient-precision.biz/
Please cite web-link with reference.

REFERENCE & LINKS TO RELATED ARTICLES:
http://www.theaustralian.news.com.au/story/0,25197,23995860-5005200,00.html
http://news.smh.com.au/national/police-warned-varanus-plant-report-20080628-2yez.html
http://www.businessspectator.com.au/bs.nsf/Article/Wesfarmers-counts-up-lost-hatchlings-from-Varanus--FXVBD?OpenDocument
http://www.theaustralian.news.com.au/story/0,25197,23883858-2702,00.html
http://harvardbusinessonline.hbsp.harvard.edu/hbrol/en/search/saSearchResults.jhtml?Ntt=R0611F&N=0&Ntk=hbrsa&Ntx=mode%2Bmatchallpartial&x=19&y=13