Volume 7, Issue 10
ă 2005 Hopkins and Company, LLC
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The natural disasters wreaked by Hurricanes Katrina and Rita in recent weeks got us thinking about how executives deal with crisis. In medical terminology, the crisis is that critical point after which the patient either deteriorates (usually dies) or improves (usually thrives). For some executives, crisis represents that critical point where the executive’s actions help the organization become stronger, or where the executive and the organization face disappointment and failure. As you read this issue, reflect on your preparation for the unthinkable crises that you and your organization could face. Assess your capabilities to responding quickly to mitigate the risk that the crisis will lead to failure. When you reach the point of crisis, are you prepared to lead toward vitality or will you bungle toward infirmity?
Fifteen new books are rated in this issue, beginning on page 5. Nine books are recommended with three stars; four are mildly recommended with two-star ratings, and two books have a one-star recommendation. Visit our 2005 bookshelf at http://www.hopkinsandcompany.com/2005books.html and see the rating table explained as well as explore links to all books we’re reading or considering this year. If there’s something missing from the bookshelf that you think we should be considering, or if there’s a book lingering on the Shelf of Possibility that you think we should read and review, let us know by sending a message to email@example.com.
While public officials seemed overwhelmed by the successive hurricane challenges in recent weeks, certain corporate executives responded quickly and effectively. The cover story of the October 3 issue of Fortune (http://www.fortune.com/fortune/articles/0,15114,1105649,00.html) is “… not about who did what wrong. It is about how we cope with the realities of risk, uncertainty and crisis.” Inside, there are plenty of specific examples of corporate mobilization and advice for executives from those executives who’ve been tested by crisis. Here are a few specific ideas: “Howard Schultz Chairman, Starbucks
Learning from one crisis at a time. The
rules of crisis management have changed. … During Katrina we followed a
script that we used in 2001 after the earthquake hit
Preparing for the next big one. After each catastrophic event we do a
postmortem, and we become more experienced and prepared. From
Getting everybody taken care of. When the levees broke, you had a
humanitarian crisis. Not a storm. … Just getting everybody taken care of was
the first thing. The rest of the stuff is frankly just money. We were
initially missing 35 employees; after the first night we were missing 22;
then 11. We worked that down to two and then one. We used the network
infrastructure to trace her phone. Now, her last call had been that water was
rising fast, and she didn't think she was going to be able get out. She was
sending a text message to one of her friends in
How prepared are you and your organization to deal with a crisis? Will you be capable of contacting and caring for all of your employees? How do you incorporate lessons from others in your plans? How do you test the effectiveness of your plan? Have you assessed your vulnerabilities in a realistic way? Are you more likely to respond to crisis with the sluggishness of some public officials, or with the efficient execution of certain corporate executives?
claims adjustors are swarming over the Gulf Coast and deciding how much of a
property’s damage was due to wind damage, which is normally covered by a
hazard insurance policy, and how much was due to water damage, which is
normally excluded, but might be covered by a separate flood insurance policy.
Homeowners are in for surprises, and insurance companies are in for
litigation and political heat. On September 7 longtime
Are you subject to political or regulator pressure to act beyond your expected and documented commitments? What’s your position on the subsidization of reckless behavior? How do you mitigate the risks from pressure on you and your organization from those who want you to do what you think is wrong?
One of the best practices used by effective executives to prepare for crisis involves scenario planning. We had the opportunity to learn at least one lesson from The 9/11 Commission Report: there is often a failure to imagine what could happen. The report noted, “… scenarios were slow to work their way into the thinking of aviation security experts. … It is therefore critical to find a way of routinizing, even bureaucratizing, the exercise of imagination.” We read in the Financial Times on 9/15 (http://news.ft.com/cms/s/b20ef12e-25eb-11da-a4a7-00000e2511c8,dwp_uuid=358e659a-2068-11da-b59e-00000e2511c8,ft_acl=,s01=1.html) that those executives who most often assess risks may not be best at coming up with alternate scenarios. “One of the challenges in implementing scenario thinking effectively is to maintain the new risk management mindset throughout the process. It is sometimes tempting to demand that scenario thinking processes offer the type of outputs that traditional risk management approaches offer, such as predictions, hedging strategies and insurance plans. But scenario thinking has a more ambitious goal: it enables a more complete view of the risks and opportunities a company faces and offers a framework for engaging those findings into the strategic planning process.
The new mindset for risk managers requires rituals and approaches that are deeply embedded in the scenario thinking process: a capacity for learning, an appreciation of uncertainty and ambiguity, an understanding of the value of strategic conversation and a willingness to explore uncharted territory. Increasingly, executives are appreciating that the changing nature of risk requires approaches that may initially be uncomfortable, but over time turn out to be more effective in embracing the unknown.” In the Fortune Oct 3 issue (http://www.fortune.com/fortune/valuedriven/0,15704,1105672,00.html), Geoff Colvin offers 5 ways managers can use scenario planning to prepare for disasters: turbocharge your imagination; build scenarios; think in probabilities; use the power of markets and create a culture that insists on facing reality. Executives looking for ways to improve skills at using scenarios should find these methods helpful. Another fine article on the power of imagination is in the September 19 issue of Forbes, “The Taming of the Screw” (http://www.forbes.com/business/forbes/2005/0919/066.html) about a product development director at Illinois Tool Works who reinvented the screw, despite internal critics who doubted what he did could be done.
Have you and your organization devised a range of scenarios from the likely to the improbable that could evolve? How have you tapped into the imagination of those who report to you? How good are you at imagining the unthinkable? How often do you update the scenarios of what could happen?
Here are selected updates on stories covered in prior issues of Executive Times:
last commented on Dennis Kozlowski,
former CEO of Tyco, in the November 2003
issue of Executive Times when we provided
a link to a video that the jury was shown in his trial. All media outlets
reported in September that Kozlowski and former CFO Mark Swartz were
found guilty on 22 counts, sentenced to 8 1/3 years to 25 years in prison and
ordered to pay $240 million in fines and restitution. While the verdict will
be appealed, some commentators have noted that unlike other white collar
convictions for federal crimes, this state action and the sentence may
deliver Kozlowski to a state maximum security prison, like the famous one in
rarely call attention to Microsoft
in issues of Executive Times, mostly
because its ubiquity makes additional coverage unnecessary. When we read a
spate of stories in recent weeks about reorganizations at the company, and
cover stories about reinventing Microsoft (Business Week, 9/26) (http://www.businessweek.com/magazine/content/05_39/b3952001.htm),
and “Microsoft’s Midlife Crisis” (Forbes, 10/3) (http://www.forbes.com/business/forbes/2005/1003/088.html)
we remembered including in our August 2002
issue a quote of advice offered to CEO Steve
Ballmer to stop telling employees what to do and start showing them.
Maybe that advice is now being followed.
quality for some executives is the ability to remain open to new information,
and then change direction based on a new set of facts. Perhaps because of his
training in mechanical engineering, former Hewlett-Packard CEO Lewis
E. Platt was always gathering data, testing, and moving in the direction
the facts indicated, whether it was the same path as yesterday or not. Lew
spent 33 years working at H-P, and was known for his openness, humor and
energy. He followed founder David Packard as CEO, and continued to grow the
company aggressively. When he reviewed the state of the various businesses of
H-P, he spun off the company’s medical instruments business based on the
metrics, despite his affinity for that segment which was where he began his
career. His low-key management style allowed employees at all levels of the
company to feel comfortable in sharing their thoughts and feelings with him.
When faced with the fact that the company needed fresh ideas, he helped the
H-P Board select Carly Fiorina as
CEO who brought massive new ideas to the company. After she proposed a merger
with Compaq, and because he disagreed, he switched from support of Carly to
opposition. While lead director at Boeing,
Lew ordered an investigation of CEO Harry
Stonecipher, whom he helped select, following an anonymous tip concerning
a code of conduct violation. When the facts came in, Lew was quick to lead
the Board in firing Stonecipher. Lew died in
Latest Books Read and Reviewed:
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2005 Hopkins and Company, LLC. Executive
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