Management of Uncertainty

Most of the time, we like things to happen in a predictable way. We plan our business ventures, our families, and our holidays and we want reality to follow the plan. Uncertainties associated with the availability of resources, the occurrence of events along the way, and ultimately with goal achievement are undesired inconveniences, tolerated at best. But then there are the odd occasions when we want to be surprised, to be held in suspense, to discover the unknown. It seems, especially in Western societies, that there is a growing tendency to oscillate between these two attitudes towards uncertainty. While for the most part, we wish to control our lives and our environment in ever increasing detail and to cover the uncontrollable by insurances of various kinds, at certain times we seek adventure in ever more extreme forms. The financial crisis – unfolding as the writing of this book was in its final stages – seems to indicate that a few people have made a very good living out of their need for adventure, while the rest of us suffer, as our economic and psychological foundations of certainty and control are shaken.

Uncertainty is about not knowing for sure. In organizations, this may concern daily business and entail questions such as: Will the material be delivered on time for next week’s express orders? How many doctors should be scheduled to cover the demand in the shock trauma centre over the holiday season? Will the newly hired product development team cooperate well? On a more strategic level, uncertainty is encountered in decisions such as: Should we spend more on research and development? Which qualifications do our employees need to improve customer orientation? Should we increase the level of standardization in our production processes? Uncertainty is also involved in many personal decisions: Should I follow the production schedule even though it is suboptimal? Will the new job offered to me allow me to develop my career better?

In Chapter 2, the aim was to show different facets of uncertainty in order to better understand the basic concept of uncertainty. In this chapter, approaches to managing uncertainties are focused upon. Quite obviously, there are very different demands on organizations both in terms of the uncertainties they are faced with and the requirements for turning uncertainties into business opportunities. As two extreme examples, take a company like Google and a nuclear power plant. While Google tries to achieve fast innovation in a very dynamic environment by giving the maximum possible freedom to bright young software developers, nuclear power plants are concerned with shielding their processes from uncertainty and maintaining highly professional routine operation for as long as possible. However, Google also needs certain structures and standards to ensure coordination within and between software development teams, whereas nuclear power plants face requirements for handling non-routine situations and for innovation in response to technological and regulatory developments. Analysis of internal and external uncertainties and decisions on how to manage them on a strategic and operational level are key to successful performance in both cases, even though the decisions taken will differ substantially.

“Without the specification of the lines and areas of responsibility and the methods of control, it is difficult, if not impossible, for any social structure to direct its suborganizations and members towards the achievement of the organization goals. These specifications may be formalised or they may be carried on in the cognitive structures and goals shared by the persons concerned. The attempt to formalise all possible uses of delegated powers is a fruitful source for ’red tape’. ’Overstructuring’ in this respect can create a situation where the organization goals are lost sight of in a maze of prescription [...] and newly emerging problems are the responsibility of no-one and the playthings of whoever cares to go beyond his rigidly prescribed power.” (Emery 1959, S. 38)

“It is no accident that much of the literature on the management or administration of complex organizations centres on the concepts of planning or controlling. Nor is it an accident that such views are dismissed by those using the open-system strategy.” (Thompson 1967, p. 6)

“The correct functioning of the train control system and the automatic traffic control system is to be monitored by the signaller. If necessary, he/she has to intervene manually. During normal operation, no monitoring is necessary as long as the operational requirements are met. In the case of disturbances or incidents, the notification of the required services and the required alarm procedures must be guaranteed.” (Excerpt from the rule book of a European railway company.)

The most common understanding of safety is the absence of bad things happening, be it accidents, illness, pollution or global warming. As absolute safety in terms of complete absence of bad events is impossible, safety is usually framed as acceptable risk, where risk is defined as the product of probability and damage. The combination of safety and risk into the term safety risk is often used to denote risks which are not financial risks or political risks, but risks to human health and the environment.

So far, a predominantly organizational perspective on the management of uncertainties has been taken, focusing on uncertainties that are directly related to organizational and work processes. In this chapter we will switch perspectives and take on the view of the individual actors in organizations as they try to cope with uncertainties in their everyday work, as well as in their working lives more generally. As it is people that accomplish an organization’s goals, this change in perspectives is very instructive. The individual-focused perspective will be translated back into an organizational view at the end of the chapter discussing consequences for human resource management.

I began this book by suggesting a framework for defining and analyzing uncertainties in organizations. Starting from the assumption that individual decision-makers and organizations aim to gain and maintain self-control, contents, sources, causes, and consequences of uncertainties were distinguished that may impede control by reducing the predictability and transparency of situations. In accordance with the prerogatives of a particular decision to be taken – be it about which supplier to choose, how much to rely on rules for internal coordination, whether to invest in automation, or how to handle production disturbances – this framework can be used to sketch an uncertainty landscape within which choices on reducing, maintaining or increasing uncertainties can be made. Minimizing versus coping with uncertainty were presented as two generic approaches to handling uncertainties. From the discussion of their advantages and disadvantages in relation to different contingencies the argument was developed that most of the time, organizations need to mix the two approaches in order to achieve an adequate balance between stability and flexibility. Various concepts and examples from different industries were provided to illustrate how different ways of handling uncertainties increase or decrease an organization’s control capacity and thereby also, firm performance. In the subsequent chapters, the generic principles derived for managing uncertainty were applied to different organizational domains. In particular, coordination through routines and rules, collaborative planning within supply chains, design of automated systems, safety management, and human resource management were discussed. In this final chapter the aim is to show how the generic framework for managing uncertainty can be used to improve the compatibility of design decisions across a variety of organizational and technological issues, thereby supporting a more integrated management approach. Also, implications for research and practice will be suggested.