“We are never deceived, we deceive ourselves.”
IN APRIL 2010, an oilrig off the Gulf of Mexico operated by BP exploded, killing 11 people. An environmental disaster followed as millions of barrels of oil spilled into the sea. It took three months for the flow of oil to be stemmed. When Tony Hayward, BP’s chief executive, heard the news he reportedly said, “How the hell could that happen?”
How indeed? Deepwater drilling was supposed to be safe. Besides, BP had plenty of opportunities to improve the safety of its operations. In 2005, an explosion at its Texas refinery killed 15 people and injured 170. The same year it suffered a major oil spill in Alaska resulting in a forced shutdown of the Prudhoe Bay plant followed by the replacement of 22 miles of corroded pipes. Had BP’s management learned nothing from these disasters?1
Chapters 1 and 2 focused on how decisions can go awry when individuals have a poor grasp of reality. Yet organisations are prone to the same problems of overconfidence as individuals. Moreover, just as individuals filter information to make sense of their environments, so do organisations. This chapter explores how organisations construct their realities. In theory, firms are forever scanning their environments looking for threats and opportunities. In practice, they generally concoct their environments. Decisions go awry because they take their concoctions seriously and so end up living in a fantasy world. ...