“Social normalization of deviance means that people within the organization become so much accustomed to a deviant behavior that they don’t consider it as deviant, despite the fact that they far exceed their own rules for the elementary safety.” – Diane Vaughn, PhD
Professor Vaughn coined the phrase “normalization of deviance” during her analysis of the circumstances that led to the NASA space shuttle disaster. Engineering tests of the O-ring on the rocket boosters showed variances from anticipated test results, but no ill effects were seen and, for a variety of reasons (cultural, psychological, etc.), the aberrations were deemed to be within the bounds of normal. In effect, the guardrails were changed to fit the data.
In our business lives, we all can become prey to this problem in managing our operational and financial metrics. Sometimes this happens because incremental changes are harder to notice than event-driven changes. Other times it is because we went out of tolerance but no bad effects were seen.
Also, finance may be pressured to allow these deviations in order to avoid slowing down the pace of business. Companies are pushed to “move fast and break things” or move via “Ready, fire, aim” to grow, develop, innovate and change. Sometimes this works, other times there are serious repercussions for the business, as those company’s scandals show.
How can finance balance these pressures against our responsibility to play our corporate role as stewards of shareholder capital? Here are five ideas:
- Re-visit your metric and KPI results with an eye towards this phenomenon and ask yourself a few questions: What variances are persistent? What is out-of-tolerance but you have accepted? Are there variances that have slowly increased over time? Create opportunities for deep-dive analyses on specific topics.
- Risk-taking is good, but should be winnowed down through successive gates. To balance the need for business risk and disruption, there should be a wide tolerance for risk at the ideation and initiation stage. As the idea takes form, creating data, the business and finance can review and decide whether to allocate additional time, money and resource for continued work. Many ideas should be created, tested and failed out of the process in order for the best to survive.
- Look for a culture of honest challenges. Are people encouraged to ask questions, especially to those in authority? Are honest conversations valued? To avoid group-think, have a diverse group analyze the strategy, assumptions and calculations around investments, budgets and forecasts. This means members from different functions, educational backgrounds, gender and ethnicity.
- Formalize challenges. At the upcoming AFP 2018 this November in Chicago, there will be a discussion of creating “red teams” to simulate challenges and actions of the opposition. Internal audit or subject matter experts from other parts of the organization can play this role as well. For example, during the Cuban missile crisis President John F. Kennedy famously had one person in every meeting who would question assumptions.
- Remember that the business is your colleague, not your client. Finance supports the business in making good decisions but reports to the CFO who is accountable to the board of directors. Our role is to ensure the best application of financial resources, which may require slowing down.
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