Organizational Liability Assessment and Avoidance

Organizational Liability Assessment and Avoidance
Tom Taormina, CMC, CMQ/OE

Friday, December 19, 2008

Successfully Avoiding Product and Service Liability

If you are in a manufacturing, service or distribution business, sooner or later you are likely to be blind-sided by a product liability claim or a law suit. The suit may or may not have any basis, but you have little choice but to spend large sums of money and time defending the allegations.In my seven years as an expert witness, I have seen plaintiffs walk away with a cash settlement even though their claim defied reason. Some insurance carrier’s pay-off “nuisance” claims to minimize their exposure while they unwittingly encourage unethical people to continue to file frivolous complaints.

On the other hand, manufacturers and service providers seldom look objectively at their processes, products and services from the perspective of potential risk. It is not our nature to systematically analyze each step in our business operations, looking for potential opportunities for a consumer to be victimized or injured by our product or services. At best, most organizations grudgingly implement risk mitigation guidelines from their insurance carriers and consider these measures an imposition and added cost.

There are also a handful of companies that consider risk a usual cost of doing business. In my work as a quality control engineer and business consultant, I have witnessed company leaders who have built “acceptable risk” into their business model. They build (or import) products that are of questionable quality, sold at discounted prices to an unsuspecting public, knowing that very few will complain and even fewer will attempt to sue the company. The inevitable law suits become just another cost on the balance sheet with no regard to individual or social consequence.

Most business leaders have never contemplated or anticipated a scenario such as described in a law suit complaint and their first reaction is shock, followed immediately by denial and anger. They become so obsessed with remediation and defense that the personal and financial trauma may be irreversible.

Over forty years and my work with over 500 companies, I have found a more robust solution to “risk mitigation.” Forensic Business Pathology® (FBP) is a set of tools companies can use for “risk avoidance.” The tools have long been proven by enlightened business leaders for continual process improvement and proactive quality management.

The “pathology” metaphor was chosen to prepare us for a diagnostic approach to risk avoidance. FBP proactively performs a structured, holistic assessment of your business similar to how medicine uses a CAT scan to diagnose disease hiding within our bodies. The procedure requires that everyone in the organization subject their methods and processes to clinical examination with the real possibility that there may exist cancerous cells that we would rather not know about, admit to or treat surgically.

The tenets of FBP for risk avoidance are elegantly simple:

  • Develop an irrevocable company goal that NO critical defect shall ever reach a customer.
  • Use quality process improvement tools to map all business processes, their interrelationships and their dependencies.
  • Assess each process on its own and assign metrics for effectiveness, quality and reliability.
  • Dissect each process until all opportunities for defects or mistakes are identified and understood.
  • Objectively improve the processes until they are innately safe, reliable and continually-monitored metrics warn of pending problems before they happen.
  • Remove the concepts of defect inspection, rework, punishment and blame from your organization.
  • Replace them with individual and organizational accountability for the outcome of everyone’s work.
  • Continually elicit and scrutinize customer feedback for potential issues and correct them immediately and proactively as a “gift” of valuable information.

While the tenets are simple, their implementation requires uncommon courage by business leaders to assess their business for systemic disease and eradicate it with tenacity and finality. It requires driving any signs of mediocrity from the organization just as you would remove pre-cancerous cells from your body.

There is another dramatic benefit to pro-activity. That is profitability. Just as it is customarily assumed that quality management is an indirect cost, so has risk assessment shared that mythology. Any initial costs to establishing proactive quality and risk avoidance processes are very quickly overcome by the reduction in rework, customer complaints, customer returns, recalls and, inevitably, avoidance of law suits.

We have not learned pro-activity in business school. Our model is minimizing risk rather than avoiding it. The rewards to an FBP-modeled company can be enormous when we replace rework with products and services that are always compliant, when we replace management with leadership, when we replace punishment with accountability and when we no longer need a customer service department.

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