Journal of Operations Management 31 (2013) 52–61 Contents lists available at SciVerse ScienceDirect Journal of Operations Management jo ur n al homep a ge: www.elsevier.com/locate/jom Learning from others’ misfortune: Factors influencing knowledge acquisition to reduce operational risk Manpreet Hora a,* , Robert D. Klassen b,1 a College of Management, Georgia Institute of Technology, 800 West Peachtree Street NW, Atlanta, GA 30308-1149, United States b Richard Ivey School of Business, University of Western Ontario, 1151 Richmond Street North, London, ON N6A 3K7, Canada a r t i c l e i n f o Article history: Available online 28 June 2012 Keywords: Operational risk Learning Knowledge acquisition Behavioral operations Vignette-based field experiment a b s t r a c t Risks arising from operations are increasingly being highlighted by managers, customers, and the popular press, particularly related to large-scale (and usually low-frequency) losses. If poorly managed, the result- ing disruptions in customer service and environmental problems incur enormous recovery costs, prompt large legal liabilities, and damage customer goodwill and brand equity. Yet, despite conventional wisdom that firms should improve their own operations by observing problems that occur in others’ processes, significant operational risks appear to be ignored and similar losses recur. Using a randomized vignette- based field experiment, we tested the influence of organization-level factors on knowledge acquisition. Two organization-level factors, namely perceived operational similarity, and to a lesser extent, market leadership, significantly influenced the risk manager’s likelihood of acquiring knowledge about possible causes that triggered another firm’s operational loss. These findings suggest that senior managers need to develop organizational systems and training to expand the screening by risk managers to enhance knowl- edge acquisition. Moreover, industry and trade organizations may have a role in fostering the transfer of knowledge and potential learning from operational losses of firms. © 2012 Elsevier B.V. All rights reserved. 1. Introduction Identifying and mitigating risks arising from operations and sup- ply chains are increasingly being highlighted (Sodhi et al., 2012) as having important implications for consumer safety and operational competitiveness (Lewis, 2003; Marucheck and Greis, 2011). When poorly managed, the disruptions (Hendricks and Singhal, 2005) and environmental harm (Kleindorfer and Saad, 2005) resulting from operational losses impose enormous recovery costs, reduce cus- tomer goodwill and brand equity, and attract expensive litigation (Lewis, 2003; Muermann and Oktem, 2002). Moreover, there are often spillover effects, with the problems of one firm causing a loss of revenue and increased regulation across the industry, whether it be from an oil spill, reports of food contamination, or recall of defective products (Lewis, 2003; Salin and Hooker, 2001). Thus, when disaster befalls one firm, it is only rational that first, others should take notice; and second, managers should undertake improvements in their own operations to avoid a similar fate. For example, the CEO of British Petroleum (BP), acknowledged mis- takes and a lack of preparedness that occurred with the oil spill of * Corresponding author. Tel.: +1 404 385 3465; fax: +1 404 894 6030. E-mail addresses: manpreet.hora@mgt.gatech.edu (M. Hora), rklassen@ivey.uwo.ca (R.D. Klassen). 1 Tel.: +1 519 661 3326; fax: +1 519 661 3959. 2010 because it was viewed as a “low-probability event.” He further added, “However, BP has learned a tremendous amount from the Gulf of Mexico disaster that can enhance safety in the future. . . The silver lining of the event is the significant and sustained advance in industry preparedness” (Herron, 2010). Yet, others noted that BP’s recent oil spill was not an isolated event; other firms experienced similar, but smaller scale problems in years immediately leading up to this (Gold and Casselman, 2010). Thus, this purported learning should have taken place by BP before the spill occurred. These observations raise at least two important tensions. First, learning by an observing firm from the operational losses at another incident firm affords an important proactive opportunity to reduce firm-specific operational risk, as well as improve industry- wide practice (Ingram and Baum, 1997; Kim and Miner, 2007). Historically, such learning has been rather limited (Cannon and Edmondson, 2005); initial research in behavioral operations man- agement pointed toward potential shortcomings in how managers use information (Gino and Pisano, 2008). Moreover, observing firms can view such losses as idiosyncratic to the incident firm, have over- confidence in their own processes due to past success, and find it challenging to disentangle the cause–effect relationship under- lying operational losses with limited information (Cannon and Edmondson, 2005; Denrell, 2003). Second, risk managers – as organizational gatekeepers for risk-related knowledge and as facilitators for fostering process improvement – should broadly scan for operational losses of other 0272-6963/$ – see front matter © 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.jom.2012.06.004