Resilience, Risk, and Personality

Stephen DeAngelis

December 26, 2011

Having read this post’s headline, you might be wondering what personality has to do with resilience and risk. In a very interesting interview that Dustin Mattison conducted with Maja Puljic, a doctoral researcher and PhD candidate at Manchester Business School in England, Puljic explains why she believes personality matters. [“Influence of Personality on Supply Chain Risk Management,” Dustin Mattison’s Blog, 1 December 2011]. The first question Mattison asked was, “Why are psychological aspects interesting and why should the psychology of individuals be considered in supply chain risk management?” He continues:

“Maja believes we need this approach so that we can learn how to appropriately consider the so called ‘people’ dimension in the management of supply chain risk. That way you get a more complete picture of what is going on behind decisions that determine supply chain risk strategies. In addition to the structural and technical aspects of managing supply chain risk, there is another set of crucial variables – the human variables that need to be considered if we are to fully understand how supply chain risks are perceived, how they are assessed and how supply chain risk management decisions are made.”

I’m sure that most executives would like risk management to be a cut and dried system that mathematically calculates risks and offers an optimized plan for dealing with those risks. We know, however, that risk management is not that simple. Puljic is correct that human variables matter. One of the first things that a good financial advisor asks a client is, “How much risk are you willing to take?” One way or another, all companies ask themselves that same question. The answer to that question relies primarily on the psychology and personality of the decision makers involved. As Puljic notes, “The decisions are not made by the supply chain, they are made by supply chain managers. That is why we need the behavioral approach to supply chain risk management just as much as we need other approaches to help us shed light on that particular factor in the equation.” The second question posed by Mattison was, “Which specific issues are being investigated?” He continues:

“The starting point or underlying assumption is that the initial assessment of supply chain risk, especially when it comes to probability and estimated frequency of supply chain disruptions is still very much down to the individual perception of the supply chain managers. The impact of supply chain disruptions is usually easier to estimate because companies can work with financial records. The probability that a supply chain disruption will occur is much more difficult to estimate. This is usually where the individual perception of the supply chain manager takes the lead.”

Frankly, Puljic’s answer surprised me a bit. I would have thought that probabilities and frequencies of risks would have been based more on historical factors than individual perceptions. Puljic explains why she believes her position is correct.

“We know from previous research in other areas that managers perceive risk objectively and that it is a highly individual matter. Managers perceive risk in a way that deviates from what is so called unbounded rationality. It means that managers, due to time constraints, unlimited transparency of information, etc., as a rule will not analyze the whole situation or environment. To a certain extent or perhaps a large extent they will have to rely on their own perception of risk.”

I believe she meant to say that managers perceive risk “subjectively” vice “objectively.” An objective viewpoint is supposed to be unbiased whereas a subjective viewpoint is biased. Her thesis is that these biases affect supply chain risk management decisions. Mattison reports, “This is where Maja works with the individual’s risk perception.” He continues:

“Other factors which come in are individual differences. Other issues investigated are personality traits, individual cognitive biases, judgment and decision making biases, and differences such as past experiences, individual working style, problem solving style, coping with uncertainty, ambiguous situations etc.”

For me, all of those factors bear on how much risk a manager believes his company can tolerate, but, I suppose, they could also influence the perception of the probability that a particular risk will or will not occur. The third question posed by Mattison was, “What is the contribution or benefit of this new research approach for supply chain management practice?” He concludes:

“With this research Maja and her team will learn about the degree of subjectivity in the perception and management of supply chain risk. This means that they will be able to isolate that human element from the whole situation. They will be able to attribute certain variances in decisions to the individual or behavioral elements, as opposed to structural and technical factors and financial objectives. They will be able to see the main causes for variations in supply chain risk perception. They will also be able to determine if these variations are due to the leadership and personality traits, individual styles, cognitive patterns, the way the person copes with uncertainty, etc. When they know these things they will be able to provide strategies, tools and methods that will help supply chain professionals improve their decisions associated with managing supply chain risk. De-biasing and improving the quality of your decisions to become more objective and accurate is actually something that can be learned and trained. A particular contribution of this research will be that they will be able to develop and provide methods and tools for de-biasing and improvement in decision making in supply chain risk management.”

Puljic is not the only researcher interested in the psychology aspects resiliency. Diane L. Coutu, a senior editor at Harvard Business Review, wrote, “Resilient people share three traits: acceptance of reality; a deep belief that life is meaningful; and an uncanny ability to improvise.” [“How Resilience Works – Improvising Your Way Out of Trouble,” Working Knowledge for Business Leaders, 26 August 2002] Coutu asserts that “resilience can help you survive and recover from even the most brutal experiences.” [“How Resilience Works,” Harvard Business Review, Vol. 80, No. 5, May 2002] If Coutu is correct, CEOs would do well to ensure that their risk managers are grounded in reality rather than being eternally Pollyanna-ish. She claims that a resilient person “take[s] a sober, down-to-earth view” of reality and the situation in which they find themselves. When a person does that, they are able “to endure.” She calls this, “training … to survive before the fact.”

Being based in reality doesn’t mean that a person is either dour or pessimistic. Coutu claims that a resilient person never cries, “Why me?” Instead, they “build bridges” from any “present-day ordeal to a fuller, better future.” The important part of this “search for meaning,” she claims, is that “those bridges will make the present manageable, by removing the sense that the present is overwhelming.”

Perhaps the most important characteristic of a resilient person, however, is the ability to improvise. In the first article by Coutu cited above, she focuses on that trait. She writes:

The third building block of resilience is the ability to make do with whatever is at hand. Psychologists follow the lead of French anthropologist Claude Levi-Strauss in calling this skill bricolage. Intriguingly, the roots of that word are closely tied to the concept of resilience, which literally means ‘bouncing back.’ Says Levi-Strauss: ‘In its old sense, the verb bricoler…was always used with reference to some extraneous movement: a ball rebounding, a dog straying, or a horse swerving from its direct course to avoid an obstacle.’ Bricolage in the modern sense can be defined as a kind of inventiveness, an ability to improvise a solution to a problem without proper or obvious tools or materials. Bricoleurs are always tinkering—building radios from household effects or fixing their own cars. They make the most of what they have, putting objects to unfamiliar uses.”

The Indians also have a word that fits this concept — “Jugaad” (pronounced jewgard). It is an Indian term used to describe a unique innovation process. Literally, “jugaad” means ” somehow get it done.” Apparently, this is a great trait for a risk manager to possess. The reason, according to Coutu, is that “when situations unravel, bricoleurs muddle through, imagining possibilities where others are confounded.” She continues:

“Resilient organizations are stuffed with bricoleurs. … Indeed, companies that survive regard improvisation as a core skill. Consider UPS, which empowers its drivers to do whatever it takes to deliver packages on time. Says CEO Eskew: ‘We tell our employees to get the job done. If that means they need to improvise, they improvise. Otherwise we just couldn’t do what we do every day. Just think what can go wrong: a busted traffic light, a flat tire, a bridge washed out. If a snowstorm hits Louisville tonight, a group of people will sit together and discuss how to handle the problem. Nobody tells them to do that. They come together because it’s our tradition to do so.’ That tradition meant that the company was delivering parcels in southeast Florida just one day after Hurricane Andrew devastated the region in 1992, causing billions of dollars in damage. Many people were living in their cars because their homes had been destroyed, yet UPS drivers and managers sorted packages at a diversion site and made deliveries even to those who were stranded in their cars. It was largely UPS’s improvisational skills that enabled it to keep functioning after the catastrophic hit. And the fact that the company continued on gave others a sense of purpose or meaning amid the chaos.”

Coutu stresses that encouraging bricolage is NOT the same thing as tolerating “unbridled creativity.” She notes that “UPS lives on rules and regulations.” She continues:

“As Eskew says: ‘Drivers always put their keys in the same place. They close the doors the same way. They wear their uniforms the same way. We are a company of precision.’ He believes that although they may seem stifling, UPS’s rules were what allowed the company to bounce back immediately after Hurricane Andrew, for they enabled people to focus on the one or two fixes they needed to make in order to keep going. Eskew’s opinion is echoed by Karl E. Weick, a professor of organizational behavior at the University of Michigan Business School in Ann Arbor and one of the most respected thinkers on organizational psychology. ‘There is good evidence that when people are put under pressure, they regress to their most habituated ways of responding,’ Weick has written. ‘What we do not expect under life-threatening pressure is creativity.’ In other words, the rules and regulations that make some companies appear less creative may actually make them more resilient in times of real turbulence.”

So what are the lessons to be learned from Puljic’s and Coutu’s studies? First, and foremost, is the fact that you cannot eliminate human variability from the risk management equation. Any attempt to do so will result in frustration. Second, question assumptions. If, as Puljic insists, supply chain risk managers perceptions affect contingency plans, then every assumption upon which such plans are based should be fully vetted by a team of people with different perspectives. Finally, identify people within your organization who are natural bricoleurs. Make them a part of your crisis management team. You will find them to be corporate treasures.