Excerpt from Beyond Traditional Systems Thinking: Resilience as a Strategy for Security and Sustainability*
Organizations have two basic choices in preparing for, managing and mitigating crises. They can try to anticipate and avert them and/or become resilient.It’s desirable, of course, to anticipate and avert crises whenever possible, but anticipation can be effective only in situations where (1) we know with high probability the worst risks we face and (2) we can apply that knowledge to avoid or mitigate negative outcomes. Unfortunately, these two conditions often do not apply.
The worst risks that organizations face usually turn out to be surprises: Firms in New York’s World Trade Center were destroyed on September 11th 2001 by attacks few Americans would have ever suspected possible. Enron and others were destroyed by the complicated transactions that originally generated great wealth.  In the CMO-induced financial crisis of late 2007, Morgan Stanley lost $9.2 billion dollars buying AAA bonds.
Related resilience research:
"Moral Purpose and Organizational Resilience Sandler O'Neill & Partners, L.P. in the Aftermath of September 11, 2001." Academy of Management Best Papers 2003
Beyond Systems Thinking: Resilience as strategy for safety & sustainability. Presentation at the 3rd International Conference on Systems Thinking in Management Session on Sustainability -- Philadelphia, May 20, 2004
“The Power of Moral Purpose: Sandler O'Neill & Partners in the Aftermath of September 11, 2001” Organizational Development Journal (December 2004)
Even when organizations are accurately apprised of risks, knowledge often fails to guide policy. Although the flooding of New Orleans had been widely predicted before 2005, few were prepared for the event, including the repsonsible federal, state and local agencies.  Organizations have notorious difficulty developing effective policy even for inevitable threats such as the need for innovation (Christensen 2004) and leadership succession (Khurana 2002).
Anticipation is especially problematic for organizations that are innovative, unique, or boldly set out to transform themselves or their environments. Anything never before done could conceivably be undone by a vast array of hypothetical low probability risks. To try to anticipate, prepare, and plan for all of them would be doom any mission; organizations that attempt to systematically anticipate all risks may reject a valuable innovation as too “risky” or reject it de facto by never getting beyond the analysis. Organizations with important missions such as defense or exploration, development of advanced technologies, and those undertaking wide-scale reform could easily become paralyzed given all the possible impacts of all the possible hazards.
But possibility of loss or disaster need not doom a project with important potential benefits. To protect against the almost infinite number and variety of hypothetical hazards that could conceivably go wrong, innovators need not develop hundreds of scenarios and plans. Rather, security can be obtained by adopting strategies of resilience and developing corresponding capabilities.
Resilience can allow an organization to survive, and sometimes thrive, even when unpredicted adverse events occur. Recent work has identified six characteristics that allow organizations to adapt successfully to the unexpected:
Strong core values and a central purpose that motivate a community to rebuild rapidly
Psychological containment systems to prevent grief and anxiety from overwhelming rebuilding efforts
Cognitive capabilities such as an ability to process feedback quickly
Organic structural characteristics such as replicative abilities, distributed authority, and decentralized structures with redundant nodes
Attitudes of resilience such as self-responsibility to assume one’s own place in the world, rather than to let others dictate it (being proactive allows one to accept the new conditions and move forward effectively) Slack resources -- money, social capital, and leadership reserves -- that can be drawn upon in an emergency
* Presentation by Steven F. Freeman at the 3rd International Conference on Systems Thinking in Management Session on Sustainability -- Philadelphia, May 20, 2004
 Accounting giant Arthur Anderson was brought down by shredded Enron-related papers
 Another example: Hollings’ (1979) study of forestry firm decisions regarding spraying for budworm. Experts at the time uniformly recommended spraying based on a tree-stress index, but usage data over 20 years showed no correlation at all between the index and actual spraying. Rather, decisions on how much spraying (if any) was used were made based on individual attitudes towards budworms (some decision-makers just loath them), external negotiations (e.g. for government assistance), and annual budgets.
DYN 672 Class session on Organizational Resilience