Disaster incubation theory: Adidas 1996 warehouse meltdown

The disaster incubation theory is a “theory of accidents and draws the attention to the causes of disasters.” It was derived from Barry Turner’s critique of the Normal Accident Theory against the High Reliability Theory.  Turner presented “a sequence model of intelligence failure”, which describes a disaster’s development. During this incubation period signals about this fore coming danger arise while being ignored or misunderstood therefore creating way for a disaster. I will start explaining the Disaster Incubation theory while associating it to real life by linking Adidas’ warehouse meltdown of 1996 to the stages.

Stage1: There are Initial beliefs and norms. Precautions arise but no action is taken.

During this stage, Adidas had a very good distribution system for their warehouses. They even won prizes such as “Warehouse of the month”. Everything was going good for them.  They were very well positioned with their distribution system, so they decided that they wanted to improve it to gain a bigger competitive advantage over their competitors.

Stage two: This is the incubation period which is divided into seven causal factors:

1)      This stage is determined by beliefs that things won’t go wrong.

As I said before Adidas had an award winning distribution system and they wanted to improve it in order to have an advantage over their competitors. They felt as if nothing could go wrong by doing this because they had already been very successful.

2)      Decoys:  solving a well-structured problem can draw attention from a less structured problem.

Here Adidas focused on their distribution system. They wanted to use a different software to run their system and didn’t pay attention to what was compatible with their customers therefore creating another problem.

3)      Organizational exclusivity. Disregarding complaints from individuals outside the organization.

Adidas vendors started complaining that the new software wouldn’t work with their current soft wares. These vendors asked Adidas to stay with their current software in order to keep functioning well, but Adidas decided to adjust the new software and work to make it compatible with their vendors’ software.

4)      Information difficulties: Information in complex situations might cause information handling difficulties.

Adidas didn’t realize that this move of adapting the new software wouldn’t help them. It was making them waste time, money and resources to achieve something that wouldn’t work smoothly with their vendors.

5)      Strangers exacerbating the chance of risks: Members within the organization contributing to the disaster.

Most of Adidas staff that contributed to create the award winning distribution system had already left the company. New workers and managers were in charge of the distribution system therefore changing the idea on how it should work.

6)      Failure to comply with discredited or out of date regulations:

Adidas keeps working with the new software in order to adjust it and make it compatible to their vendors’ softwares but they have not been successful. They have come up with new versions but each keeps failing.

7)      Minimizing of emergent danger: The failure to fully assess the dimension of certain risks.

Even though they had been working with the new software for a long time, Adidas keeps insisting in implementing even though they are still far from completing it. They don’t realize that these new strategy and software they want to implement will not benefit them because they were blinded by their previous success.

Third stage: Event that triggers the onset of the disaster.

After many failures, Adidas decides to start using the new software even though it still not fully compatible with their vendors.

Fourth stage: Disaster.

Adidas new implemented system didn’t work and they weren’t able to process and ship their orders.

According to their numbers, Adidas was only able to fill 20% of their $50 million orders in North America therefore creating market share losses that lasted for a long time.

Sixth stage: Rescue and salvage actions are taken.

It took Adidas many months to change their software for their distribution system but at the end they were able to overcome this disaster and recover their market share after a while.

 

http://www.thedacs.com/techs/abstract/28144#.UI1Z429WySo

http://www2.isye.gatech.edu/~jjb/wh/tidbits/top-sc-disasters.pdf

International Journal of Economic Sciences and Applied Research 2 (1): 51-70 The Financial Crisis: Caused by Unpreventable or Organized Failures?

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1 Response to Disaster incubation theory: Adidas 1996 warehouse meltdown

  1. mariaredeker says:

    Hey Carlos,
    I really enjoyed your blog! Especially the example given of Adidas and therefore linking it to actual issues within a global company. I would like to hear your opinion on my blog about the different theories within the financial crisis, what do you- which theory justifies the occurence of the financial crisis, if one of them?
    Best,
    Maria

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