How Do Organizations and Individual Actors in Organizations Manage Uncertainty? Lessons from High Reliable Organizations

Since Max Weber, organizations are regarded as coordination mechanisms of social processes which can be characterized by a high level of calculation and predictability compared to other coordination mechanisms such as networks and markets.

This understanding of organizations holds although organizations are embedded in highly dynamic and complex environments. Especially nowadays, in a social situation that is explained by Ulrich Beck et al. (1996) as “reflexive modernity”, when modern achievements and institutions reflexively tend to undermine themselves as a result of  unforeseeable consequences, organizations as producers and adaptationers of uncertainty come to admit that the standard procedures of organizational planning and control -- that is, an increasing use of technology and scientific expertise -- are no longer sufficient  to reduce uncertainty (Apelt/ Senge 2014). Therefore, the consequences of organizational decisions cannot be foreseen in full and it becomes questionable whether organizations will be able to exploit the indeterminate future to their advantage.  As Fligstein states, organizations operate in “murky worlds” (Fligstein 1996: 659).

Working with, and transferring, the analyses of Beckert, Berghoff, and Dequech to an organizational perspective, I employ the term   “organizational uncertainty” to designate situations where there is (only) uncertainty regarding the organization’s capability to analyze and plan organizational processes due to insufficient monetary and human resources. I apply the term “fundamental organizational uncertainty” to situations where there is uncertainty regarding organizational capabilities and, in addition, uncertainty resulting from the non-predetermined actions of other organizations and the reflexivity of the interaction situation (Beckert 2013; Beckert/ Berghoff 2013; Dequech 1999).

With my paper I want to answer the question of how organizations, and individual actors in organizations, respond to fundamental uncertainty. Therefore, I focus on banks as for-profit organizations and the internal risk management practices of banks. The problem of uncertainty becomes especially severe for for-profit organizations because they are oriented towards the maximization of profits (Beckert 1996). In order to answer my question I will focus on analyses put forth by scholars such as  La Porte and Cosolini (1991), Schulman (1993a, b), as well as Weick and Sutcliff et al. (2010) and Rochlin et al. (1987).

Schulman (1993b) differentiates between two models of how organizations deal with uncertainty. The first model he calls the “anticipatory model.”  Here (ebd. 368) organizations respond to fundamental uncertainty by means of a strengthening of formalization. Through the use of a close-meshed net of formal rules, accountabilities and hierarchical control organizations, their members try to arrive at a reliable performance. As studies by Brückner/ Wolff (2014) and Bode/ Turba (2014) show, with the use of this model and the intention to reduce uncertainties by means of formalization, uncertainty cannot be reduced, but, on the contrary, new uncertainties are created.

The second model Schulman describes derived  from characteristics which are typical for High Reliable Organizations (HROs). This model I will call the “HRO-model”. HROs, such as nuclear power stations, military organizations, and organizations of danger defense such as fire departments, emergency services etc., operate highly complex technical systems, operate in environments of fundamental uncertainty.