Myths That Undermine Decision-Making
Most of the problems executive teams face is rooted not in their psyches, but in widespread myths about the teams themselves.
Gail McGovern, the president and CEO of the American Red Cross, assumed leadership of this iconic organization at a particularly tough time. In 2008, when she was chosen from among 170 candidates, the institution’s reputation had been tarnished by the response to Hurricane Katrina and by a string of leadership scandals. A thousand employees, most of them in the Red Cross headquarters, had recently been laid off. A series of floods in the Midwest one week before she took over had seriously depleted resources. Fundraising was going badly, and she entered office facing an operating deficit of $209 million.
A longtime corporate executive, McGovern had previously run AT&T’s consumer markets division, a $26 billion business with 40,000 employees, and had been president of Distribution and Services at Fidelity Investments. She had also spent a half dozen years teaching at Harvard Business School. In less than two years, during one of the most difficult economic periods in American history, she and her team turned the Red Cross’s $209 million operating deficit into a surplus, restored the institution’s reputation, and expanded its broad range of services while cutting costs.
The scale and diversity of those services are enormous. With nearly 700 local chapters, 35,000 employees, and half a million volunteers, the Red Cross must respond to some 70,000 disasters a year—everything from apartment fires to floods to earthquakes. It is also the largest supplier of blood and blood products in the United States and provides extensive community services and educational programs.
Given those diverse obligations, the organization runs in two strikingly different gears—business-as-usual and crisis mode. Business-as-usual proceeds in the weekly, quarterly, annual, and multiyear planning rhythm familiar to most large enterprises, for-profit and nonprofit alike. But faced with a crisis, the organization shifts into the urgent rhythm demanded by the almost instantaneous, life-and-death decisions Gail and her team need to make. Aside from other emergency response organizations and the military in combat, few organizations experience the fierce immediacy that the American Red Cross does in a disaster.
When disasters strike, the members of the Red Cross leadership team not only go into crisis mode but also physically go into the organization’s Disaster Operations Center, designed expressly for such crises.
‘‘The room actually is like Mission Control,’’ says Peggy Dyer, chief marketing officer, whose experience includes 10 years at Allstate Insurance Company and stints representing such brands as Citigroup, Sara Lee, and Quaker Oats. ‘‘There is a huge table, probably 40 feet long—with microphones, big screens, Internet connections—and people outside of Washington, D.C., call in on the telephone. Most of the discussion and decisions take place with everyone, out in the open. You might have people who are on the ground in Haiti, for example, participating in the discussion, and anybody can weigh in.’’
With all the parts moving at once, it is a management team on fast-forward. ‘‘During a disaster, I cannot tell you how fast and furious this all is,’’ says McGovern. ‘‘We knock off decisions so quickly and I go pretty much into directive mode.’’
A particular disaster response is like a critical initiative, only at warp speed, and a vivid reminder that dependencies matter. The speed and compression with which the Red Cross team manages dependencies in a crisis—and the immediacy of the consequences—make it a particularly instructive example for companies, bringing into sharp focus management team issues that often get lost in the far slower business rhythms of many for-profit organizations. Doability comes unavoidably to the fore, and success in addressing it is directly measured in the numbers of people living or dying, instead of the abstract outcomes that are rarely measured or followed up on in many business settings.
‘‘In my former life in for-profits, when people would get crazed during discussions, I would say ‘Relax, we’re not saving lives here,'” says McGovern. ‘‘But when we’re sitting in a room and making decisions that are affecting 1.3 million people in Haiti who are living in tents and under tarps, I don’t get to say that anymore.’’
When Hurricane Earl, a category 4 storm, was threatening the East Coast of the United States in 2010, McGovern, her top team, and other key personnel convened in the Disaster Operations Center. The dependencies were many and those responsible for specific functions could make invaluable contributions. McGovern ticks off some of the key players who were in the room and their responsibilities: ‘‘My head of government relations is there because five states are threatened and we will have to coordinate with their governors. My auditor sits there because there’s huge opportunity for fraud as we send supplies here, there, and everywhere. My finance guy sits there because he’s got to see that this disaster doesn’t take us under financially. My head of development is there because we’re calling for in-kind donations and financial donations. And of course my head of disaster operations is sitting there because he orchestrates everything.’’
Although the team conducts numerous tabletop exercises to prepare themselves for various emergency scenarios, each disaster is unique, creating unique dependencies. For example, for a disaster in the Americas, like the Haiti earthquake, the immediate fundraising effort may be less difficult than it would be in the case of a similarly devastating earthquake in a faraway country, to which many U.S. donors might be less sympathetic. In each of those cases, the dependencies to be worked out between, say, the head of Finance and the head of Development would differ. Is the fundraising likely to bring enough money to cover the scale of the organization’s commitment? If not, to what extent can or should the organization tap into its reserve resources to cover the costs? How large can the commitment be without endangering the organization’s viability?
In managing dependencies during a disaster, the team is not acting purely in the mode of Mission Control, simply providing a ‘‘go’’ or ‘‘no go’’ for each of the organization’s functional areas. Nor are the members operating as Knights of the Round Table, although everything they are doing is for the greater good of the organization and its mission of service. They are operating in their areas of specialization, no question, but they are also coordinating with other functions by communicating what they believe they can commit to.
What they are not doing, however, is acting as though their role is to be the ‘‘nine wise people of the Red Cross,’’ collectively deliberating on each decision and attempting a consensus style of decision making. Decisions are made either by individuals around the table or passed up to McGovern. Team members are there to provide supporting data and context to individual decisions and to coordinate activity among themselves—all within the rapid-fire environment of life-and-death decisions as a disaster is unfolding.
What makes acting in this situation even more complicated is that it’s impossible for the Red Cross to know what its future portfolio of emergencies will look like. It just knows that disasters are both inevitable and unpredictable and that the organization’s success depends in part on the ability to accommodate arising disasters both in relation to each other and in relation to the portfolio of initiatives undertaken in the organization’s business-as-usual mode—initiatives in information technology, blood services, marketing, fundraising, and other areas.
Most companies don’t face nearly so complicated a challenge. To dramatically improve dependency management at the very top of your organization, you don’t need to somehow simulate an emergency-response situation. The best place to start is to make some clear and explicit changes to one of the most critical yet neglected tools at your disposal—the business-case process. In this process, fundamental questions of doability, dependencies, and execution should, but rarely do, come together.
1. What are the significant nonfinancial resources the organization will require to implement this business case, and will the initiative run into constraints on any of those resources?
2. What resources beyond the immediate scope and control of the sponsoring organization will be required, and is this initiative baked into those organizations’ plans and objectives?
3. How does this business case fit into the opportunities that have been approved already or are in the pipeline for approval later?
4. Does this project need to be done now, and what are the alternatives for either scaling it down or delaying it if resources are constrained?
Read an excerpt from Who’s in the Room? about “Life or Death Decision-Making: What Businesses Can Learn from the Red Cross”.