Business Psychology - Latest Findings

Article No. 258
Business Practice Findings, by James Larsen, Ph.D.

Losing Control

Researcher discovers a surprising effect when changes are introduced.

Supervisors are hiding something from their managers. They're hiding deliberate violations of operational procedures by their employees. This happens when employees are asked to follow procedures they find awkward or inefficient. They don't want to follow them, and if you ask them why, they will complain about managers devising procedures for employees to follow that they don't have to follow themselves. So employees devise their own procedures, and the work gets done.

Supervisors see this occurring, yet they assure their managers that proper procedures are being followed. But even as they are giving these assurances, they are supervising employees who are following different procedures. It's a deception, and it occurs in most employment settings.

Things run smoothly, sometimes for years, but occasionally, something goes terribly wrong. People get hurt and businesses lose money. Investigators quickly assign blame: proper procedures weren't followed. But often, they also note that important changes in the work place occurred just prior to the catastrophic event. They note it, but they can't explain how such changes may have contributed to the problem.

This curious presence of change attracted the attention of Rangaraj Ramanujam, from Purdue University, who wondered if change was a contributing cause of business disasters. However, it was a difficult research question to answer, so he framed his research around a different question, the influence of change on the occurrence of deliberate violations of procedures, the other contributing factor often noted by investigators.

Ramanujam found a large financial services firm that had an ongoing program of internal audits of company units. One factor they rated was deliberate procedural errors. They called them "latent" or "hidden" errors.

Ramanujam collected 80 of these audits and then noted the presence of three kinds of change occurring just before the audits. 1) organizational structure changes (reporting relationships, and consolidating functions), 2) a new unit manager, and 3) a change in technology such as new software. These were deliberate changes, often intended to improve operations. He also noted the risk in the unit's work, the potential for harm if things go poorly.

Ramanujam found that low risk units with little change revealed no increase in hidden errors in their audits. High risk units with little change revealed even fewer hidden errors. In the absence of change, few errors were detected, but things were dramatically different when change had occurred.

High risk units with the most change revealed four times as many hidden errors as low risk units experiencing change. This was a steep increase over past audits. They were powder kegs waiting for a spark. They were out of control, and it was change that caused the problem.

Ramanujam believes two things happen when change occurs. 1) People withdraw attention from routine operations to implement the change, and 2) units lose shared memory that helps prevent unauthorized procedures from turning out badly.

Shared memory involves the collective knowledge of everyone in a unit about the routine procedures they follow. It's like your spouse reminding you to lock the dead bolt on the door when you leave because she knows you don't like to do it. If you remove the spouse or occupy her with other activities, you won't get reminded and the door will stay unlocked. Probably, nothing will happen, unless a burglar tries your door that day.

Four high risk units that experienced much change survived their audits with no hidden errors at all. These four units were different from the others, so Ramanujam investigated to learn more.

He found that the managers of these error-free units acted to stimulate and preserve the shared memory of their people about their routine operations. Managers did this even as they introduced significant changes. They actively involved themselves in these routine operations. They read the reports they received, and they knew what they said.

Ramanujam believes that managers should copy this example when they introduce change, especially if the work is risky. He also believes they should augment the shared memory in their units by assigning people to monitor routine operations during change and by conducting audits that look for deviations from policy.

Reference: Ramanujam, Rangaraj (2003) The Effects of Discontinuous Change on Latent Errors in Organizations; The moderating Role of Risk. Academy of Management Journal, 46 (5), 608-617.

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