I hope you had a good Labor Day weekend. Now, it’s back to work. Time to buckle down for the last part of the year, right?
Along these lines, I recently visited a defense plant. It occupies an important place in the scheme of America’s national security, and I had to sign a nondisclosure agreement (NDA) just to drive up to the front gate and park in the parking lot, let alone go inside and have a tour. There’s an investment angle here, but it’ll take time to unfold.
For now, though, I want to discuss a few takeaway thoughts, even though I can’t give away any details of this particular visit.
High Reliability Organization
First, ask yourself… Would you board an airliner if you thought that there was a chance you’d crash? Umm… no, I don’t think so.
Let’s consider some pertinent numbers with respect to airline travel. According to the Federal Aviation Administration, in 2024 the U.S. air system logged over 16.4 million flights. That’s almost 45,000 flights per day. And the average daily passenger load was about 2.34 million flyers.
Think about that, about what makes it all work. It’s a lot of skilled people, functional airplanes, airports, itineraries, flight tracking, baggage handling, fuel, tires, food concession courts, trash hauling, floor cleaning and much more.
Meanwhile, we’re truly blessed and fortunate not to hear much about airline accidents, let alone a major crash. Yes, bad things happen every now and then, but they’re rare and that’s the point when you consider such massive numbers.
Or let’s look at the numbers for another challenging procedure, heart surgery. According to the American Heart Association, the U.S. medical system performs about 1.1 million cardiac procedures every year, or just over 3,000 per day.
The vast majority of procedures are successful in prolonging life, and those that fail are usually due to morbidity factors that were present before the patient rolled into the operating room. Overall, in this field we see very few raw screwups or mistakes; again, yes they sometimes occur but are rare.
And once more, think about what it takes to accomplish so much successful heart surgery. The U.S. medical system is filled with skilled people, functioning hospitals, all manner of astonishing equipment, medical supplies and much more.
Sure, you might not like it when the doctor says that you need heart surgery, whether it’s planned ahead of time, or perhaps after a sudden trip to the emergency room in an ambulance; but you’re grateful that there’s a medical system to deliver the goods and keep you going. And yes, the U.S. spends a lot of money on the medical side, but at least it’s there.
I could offer other examples besides the airline system or heart surgery, but my focus here is on the idea of “high reliability” organizations.
Some Thing Just Cannot Fail
That is, some things require an environment where everyone, from top managers to people on the figurative (or literal) factory floor, must be totally preoccupied with avoiding failure, or even the possibility of failure due to the smallest imperfection. Think about pilots and mechanics who pre-flight an airplane. Or the operating room staff who count every item of equipment that moves toward a patient and then recount everything on the way out.
This takes a certain kind of personality because it always boils down to dedicated people who make these difficult things work. But there’s an institutional angle as well. That is, every high reliability organization must have a culture that emphasizes what’s at stake in the end product. No detail is too small, and simplification is not necessarily a virtue. While cutting corners or what’s called “quality fade” over time is entirely unacceptable.
In high reliability endeavors, everything must work down to the tightest specification. To use a Navy analogy, there can be no leaks on a submarine, right? This demands a work environment of super-high standards, rigorous training, constant attention to detail, continuous learning, and deference to technical expertise if not to the laws of math, physics and chemistry.
Over the years, I’ve visited many different sites that are high reliability facilities. Consider, say, an oil refinery where the air contains combustible hydrocarbons, and pipelines are filled with high pressure gases and steam. It would be relatively easy for someone to screw up, cause an explosion and everybody dies; so at every level the process strives to screen out those unsafe people.
And I’ve been aboard deepwater drill-ships, holding position within a meter or two of a spot on the ocean, in surging seas, and with a massive derrick dangling a mile or more of risers and drill pipe above a hole in the ocean floor that may go down to two miles below seabed. Indeed, I was the last “civilian,” one might say, to visit a drilling project in the Gulf of (then) Mexico before the BP Macondo well blowout in 2010. Macondo definitely illustrated how bad things can get.
Or consider the defense plant that I recently visited. The company builds devices and systems that require high tolerances for use in entirely intolerant environments; think deep underwater, if not outer space. And with the distinct possibility of somebody else trying to destroy you with their own systems and electronics.
Inside the equipment that the company builds, electronic products work at the speed of light; well, at the speed of electrons in copper. And at the kinetic end of things, think in terms of missiles that fly at supersonic speeds, nearly hypersonic; and more if they’re in earth orbit.
Building and fielding things like this requires a certain kind of approach to doing everything not just “right,” but totally perfect down to the last step of execution. And let’s use a missile as an example. Begin with all the energy contained within such a device: the fuel, batteries, explosives, fast-moving parts and more.
And consider how most missiles are not assembled for rapid use but are instead put together with the intent to store them. The nickname for these articles is “wooden rounds,” meaning that they will sit in a land-based warehouse, or in a ship’s weapon magazine, for many weeks or months. But when it’s time to shoot? These things must ignite, move, accelerate, steer, maneuver, perform and function flawlessly, and in an environment of high speed, energy transients, shock, high vibration and more.
Companies that make high reliability products, or deliver such services, tend to exhibit a crisp, no-nonsense approach to getting things done. The best companies show off their technical style even in the quarterly earnings reports. That is, when you look at the numbers a company reports to Wall Street you see clean, polished facts.
Allow me to mix a military metaphor here: with the financial statements as with the missiles, there’s nothing sticking out to corrupt the laminar flow. There’s nothing in the slipstream, disrupting boundary layers and creating turbulence.
Distilled to an essence, you want to see a company or organization that’s all about designing and delivering high-performance, high-reliability products. And that’s a tough business, where it’s hard to meet the specs all day, every day. Then again, that’s the challenge.
Wrap-Up
Okay, enough musing… And again, it’s the day after Labor Day weekend. Time to get back to work. Shake off the summer cobwebs, buckle down and get rolling into the rest of the year.
We have challenges ahead, and everywhere. Stay healthy and look after yourself and your family. Work hard at your job or at least play the game right and make some money. Deal with the world as it is, not as you wish it might be. Stay ahead of events, and if you have to hit the “sell” button, make sure you do it too soon versus too late.
Byron King is a Senior Geologist at Rickards' Gold Speculator. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
https://dailyreckoning.com/the-secret-sauce-of-high-reliability-and-success/
