Learning from mistakes

"Central banks don't like analysing their past mistakes but should." That's what Tim Geithner, former US Treasury Secretary, told the FT's Martin Wolf.
 

Analysing mistakes is one of the best ways of learning from experience for everyone, not just central banks.  But it isn't as easy as it sounds.
 

When a big mistake has a bad outcome, the mistake becomes public knowledge and there is often a post-mortem.  As Anthony Hilton has sagely observed, post mortems are often inadequate: 

"...[I]nquiries focus on the processes within an organisation until they find some hapless individual or group who departed from the manual. Identifying that person becomes a proxy for solving the problem.

Such inquiries are often superficially impressive but fail to deliver what is needed because they fall short on psychology. It is not what people did but why they did it that matters. Too few inquiries actually unpeel the layers of a problem to get to its root; to pinpoint what it was about the firm’s culture — the incentives, the regulatory environment — which caused a normal employee to engage in rogue behaviour."

But the vast majority of mistakes don't have bad or obvious outcomes and can easily be kept quiet.  This may be because someone doesn't wish to acknowledge having made a mistake.  Perhaps they fear the reaction of their boss.  Or they may have have a boss who doesn't want to hear about problems as long as the problem is solved.   These and other behavioural risks drive underground the knowledge of mistakes without obvious consequences.  They stay there, unacknowledged and unanalysed.  The organisation learns nothing.  

It all seems very comfortable until something big goes wrong and it is discovered that the organisation has known about the problem for years and done nothing.  Often the problem is well known below a certain level but a 'risk glass ceiling' keeps it hidden from leaders.  So the board thinks all is well until it discovers that there is a huge unknown known - important stuff they really want to know but can't find out.
 

When things eventually come into the open, and they usually do, the organisation is seen as dysfunctional, an organisation that doesn't learn from its own mistakes.  It loses its reputation and heads roll.  Justifiably.
 

The challenge for business leaders is to embed a learning culture through out the organisation and its supply chain.
 

This isn't pie in the sky.  It can be done.  Aviators, including the entire aviation supply chain, work hard at it. It's no accident that flying has become so safe.

With good leadership, any organisation can do it.  Even a Central Bank.

Anthony Fitzsimmons

Reputability LLP

London

Anthony Fitzsimmons is Chairman of Reputability LLP and, with the late Derek Atkins, author of “Rethinking Reputational Risk: How to Manage the Risks that can Ruin Your Business, Your Reputation and You”