Now You Need a CHRO!

Now You Need a CHRO!

I have always believed that a great Chief Human Resources Officer (“CHRO”) was essential to a business’s success. Most CEOs know that because businesses don’t create value, and people do, they depend on their company’s human resources to achieve success. However, CEOs are distanced from and often dissatisfied with their chief human resources officers (CHROs) and the HR function in general. According to a study, while CEOs see human capital as a top challenge, they rank HR as only the eighth or ninth most crucial function in a company.

In the 1990s, CHROs were focused on compliance to keep their employers out of court and the press. Following several executive pay scandals in the 2000s, they became more involved in remuneration. In the 2010s, they gained a more significant say in hiring for top jobs, as the failed successions multiplied. Recently, they have had to deal with the often very public “me too” troubles.

As a result, CHROs backgrounds are changing. Once filled with people who had master’s degrees in labor relations, today, many hold business degrees. While most firms recruit CHROs from HR jobs, more are choosing outsiders or unconventional candidates. According to Russell Reynolds Associates, HR heads appointed to Fortune 100 companies between 2016 and 2019 were around 50% likelier than earlier hires to have worked abroad, in general management or finance.

The CHRO’s role is to assist the CEO in building and assigning talent, especially key people, and that will help the organization reach its potential. Human capital management now needs the same priority that managing financial capital was in the 1980s.

To accomplish this role, the CEO has to:

  • elevate HR and to bridge any gaps that prevent the CHRO from becoming a strategic partner;

  • understand the valuable contribution the CHRO could be making and spell out those expectations in clear, specific language; and

  • redefining the work content of the chief human resources officer.

In this new role, the CHRO’s responsibilities will include:

  • traditional HR responsibilities—overseeing employee satisfaction, workforce engagement, benefits and compensation, diversity, etc.;

  • predicting outcomes – crystallizing what a particular job requires and realistically assessing whether the assigned person meets those requirements;

  • diagnosing problems – pinpointing precisely why an organization might not be performing well or achieving its goals; and

  • prescribing actions on the people side that will add value to the business – agile companies need flexibility with their human capital, and CHROs should recommend steps that will unlock or create value.

CHROs are expected to have or quickly acquire business acumen specific to the company they are serving, as well as to work with executive peers to shape and influence business strategy. These three areas of expertise are essential for success in any C-Suite position. Gartner has developed a model for the CHROs role, set out below. The five pillars that sit atop the foundation require the CHRO to step beyond HR functional management to lead the business in the critical areas of talent strategy, enterprise change, and company culture, as well as to serve as a trusted advisor to the CEO and the board.

Copyright Gartner

In this new role, CEOs and CHROs have to ask more of each other.

CEOs: Ask for and expect more from your CHRO

  • Expand Your Thinking. If your expectations for the CHRO role are just the traditional HR function, 90 percent of the opportunity is lost.

  • Critical Skills. What are the essential skills required for your CHRO? Today’s CHRO role requires a wide range of additional strengths, i.e., the ability to use data and analytics to drive strategy and organizational design; a structured way of thinking; and excellent people-assessment skills.

  • Align priorities. Use the model for candid conversations about priorities. Since CEOs don’t have a clear idea of where CHROs spend their time, this will provide a framework for expectations and performance evaluation.

  • Expanded Role. Beyond the traditional HR function, the CHRO needs skills that impact business success, i.e., social media, customer, and employee activism, changing employee expectations of jobs and the work environment, the gig economy, and many more.

  • Interview Better. When interviewing for a CHRO, key considerations: Do you trust them? Are they looking three to five years ahead to determine talent strategy? Do they have a firm grasp on business dynamics within your industry and your company? Are they able to connect the dots between your company’s mission, values, and every other aspect of the business?

CHROs: ask for and expect more from your CEO

  • Role. Since many CEOs don’t understand the purpose, show how the CHRO adds value to the organization and is a crucial player in the C-Suite.

  • Priorities. Ensure HR priorities are aligned with business priorities.

  • Build and maintain a strong team. As traditional HR requirements never go away, ensure the team to keep those functional areas moving smoothly while the CHRO focus aspects that directly drive business success.

  • Know your strengths and weaknesses. The CHROs role will continue to increase, so understand where you already provide value, and where they need to grow.

Many companies have not lifted the CHRO to this new role or seen the benefits that they offer; however, the coronavirus crisis has thrust corporate HR chiefs into the spotlight. A CHRO can make or break a company during a pandemic. Never before have more firms needed a hard-headed HR boss.

During the 2008 financial crisis, there was the mantra, “A good CFO could save a company; a bad one might bury it.” Covid-19 now requires a strategic CHRO that is part of what Harvard Business Review calls the G3 – CEO, CFO, and CHRO. CHROs are critical at this time because they are responsible for keeping employees healthy; maintaining morale; overseeing a rapid move to vast remote-working, and, as firms retrench, consider whether, when, how, and who to lay off. How you treat people during this time will live as part of your reputation and culture long after the pandemic is passed. I heard of a company that laid off 300 employees last week and did it with a prerecorded Zoom message. So much for putting employees first! Unlikely the best and greatest will be knocking their doors down when this is passed.

The pandemic makes such “people analytics” more relevant. Beth Galetti, Senior Vice President of Human Resources at Amazon, is an engineer with no HR experience. She oversees 1,000 developers working exclusively on HR software. Amazon’s pre-outbreak investment in digital induction for fresh hires is paying off. “We onboarded 1,700 new corporate employees on [March 16th] alone,” Ms. Galetti reports. Covid-19 may lead to more HR chiefs to adopt such digital systems to improve HR functionality, which will last long after Covid-19 is gone.

At the moment, many CHROs have a multitude of problems. Mala Singh, chief people officer at EA, represents the C-Suite on the pandemic response team, which occupies 60-70% of her day. Her team has been getting staff desks, computers, even noise-canceling headphones for work from home. A significant concern was balancing work with child care, so Ms. Singh gave the caregivers on EA staff as much time as they needed to adapt without using up paid leave. She is digitally monitoring employee sentiment, particularly anxiety. In all businesses, but especially creative ones like EA’s, “having someone stressed about their family situation does not enable productive work,” she explains.

In many companies outside the knowledge industry, HR leaders must strike a balance between treating staff decently and the bottom line. While the instinct is to cut costs through mass layoffs, the crisis provides strategic CHROs with the opportunity to reconfigure company workflow. What needs to be done by whom, what can be automated, and what requires people to share the same space? Workers who were initially considered redundant may be redeployed or reskilled.

The most strategic CHROs should be looking to the other side of the crisis for what skills they may need and start courting key talent wherever it is. Since everyone is working from home, no one is listening to personal calls. For a savvy CHRO, “it’s the perfect recruiting opportunity.”

For those companies that believe they are too small to have a CHOR, I recommend a part-time CHOR who can provide the essential skills required, and leave many of the traditional HR responsibilities to a Professional Employer Organization, i.e., Insperity. PEOs allow the organization to have a full set of HR services while benefiting from the strategic input of a CHOR.

While budgets are tight and you are letting people go, one of the last people you will consider laying off is your CFO; however, maybe you should be considering adding CHOR to manage your human capital better. After the crisis, there will be fantastic talent available to those that are poised to get it.

Copyright (c) 2020, Marc A. Borrelli

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Leading During a Crisis

Leading During a Crisis

How a leader responds to a crisis defines them. During a crisis, there is uncertainty, confusion, and fear. Do they panic like Francesco Schettino or lead like Ernest Shackleton. What should you do? Great leaders can balance getting things done with inspiring and empowering others. Those leaders who are highly task-focused tend to have tunnel vision in their drive for results and ignore the needs of the organization. Leaders who balance task- and people-focus are equally driven and while striving for results keep the broader organizational needs in mind. They also recognize that it’s not just about being efficient — it’s about being effective.

In a crisis, effective leaders need to communicate facts, layout a plan and lift morale.

 

Communicate Facts

Before you can deliver the circumstances, you need to figure out the situation. Once that is done, you can define reality for the team and manage expectations.

  •  Figure Out the Situation. Listening to Commander Kirk Lippold speak about the attack on the USS Cole, it was evident that while his crew knew how to perform in a crisis, this was something no one had expected. It was critical to figure out the actual situation on the ship. The key to figuring out the response was to get status reports for his officers. The same applies to business when a crisis hits; it often best to assign the responsibilities of determining the actual and expected situation to key employees and then calling a subsequent meeting to update everyone. Doing this helps impose order on a chaotic situation and creates greater clarity.

  • Define Reality. Your employees are amazingly able to deal with reality even if it has a significant downside. It’s the unknown that is paralyzing. A leader’s job is to bring the facts about “exactly where we are” to their organization and teams. However, in communicating, it is best to be honest and humble. Failing to be accurate leads to a credibility gap between official reports and the truth, as was reflected in the “Five O’Clock Follies” and what is and current White House briefings.

  • Manage expectations. When a crisis hits, people want it to be over immediately! However, there is seldom a quick resolution, especially when faced with a situation like Covid-19. It falls to the leader to address the size and scope of the crisis. You don’t want to alarm people, yet do not be afraid to speak to the magnitude of the situation. If you don’ t know the full extent, be honest but present what is known. As Winston Churchill said in 1940, “You ask, what is our aim? I can answer in one word. It is victory; victory at all costs; victory in spite of all terror; victory, however long and hard the road may be, for without victory there is no survival.”

  • Provide Continual Updates. People want to know, “How we are doing.” Thus, provide regular updates to the team on where the company is, the gains that it has made, the challenges that it faces. With more knowledge, your employees will feel more comfortable and better able to help you.

  • Demonstrate Control. During a crisis, control is hard to gain, but a leader must assume it. While the leader cannot control the disaster, they can control the response. A leader brings the people and resources to bear that will deal with the crisis. While the situation may seem uncontrollable, showing leadership with a great team creates control.

 

Lay Out a Plan

  • Keep loose. Not only does this apply to your demeanor, but a leader also can never afford to lose composure, it refers to the leader’s ability to adapt rapidly. All great leaders have shown this trait. In crises, things change quickly; thus, success is the ability to change quickly in response to the environment. Your first response may not be your final response, and the leader cannot be tied to a single strategy. In the immortal words of Mike Tyson, “Everybody has a plan until they get punched in the mouth.” Leaders must absorb new information, listen carefully, and consult with the frontline experts who know what’s happening and determine the appropriate strategy. Shackleton’s great trait was adjusting his plan as things changed.

  • Focus on Strategy. Many senior leaders believe this is a time to pitch in and help with the heavy lifting. However, not necessarily, the leader’s primary role is setting the strategy. If they are engaged in the front lines, then who is setting the vision? If you, as the leader, enjoy doing that hands-on work and the adrenaline rush that comes from direct action, Sorry! That is not your job anymore.

  • Delegate. In a crisis, there are just too many decisions for the leader to make all of them. If the leader has to make all the decisions, reaction times slow, and by the time the decision has made its way up and down the organization, the environment has changed. Instead, leaders define the challenge and strategy and then delegate decisions down the organization. As David Marquet says, “take the authority for making decisions and push it down to the people with the information.”

  • Provide Perspective. Generals and battle commanders are rarely in the front line because they need to see the bigger picture of the entire battlefield and the conditions that can affect each area so resources can are deployed more effectively. Those leaders who can engage directly, but still maintain their sense of perspective, are the ones that will help the organization survive.

  • You need a new baseline. During times of crisis, people at all levels of an organization can become fixated on what we lose, bonuses, jobs, promotions, etc. Now all bets are off. Focusing too much on what people have lost prevents concentrating their energy on the “new normal.” During these times, it is not the time for “woulda, coulda, shoulda.” Letting go of what could have been is a crucial first step to being focused on success in the new environment. Shackleton continuously had to do this as conditions changed for his team.

  • Use urgency as an ally. Gravity tends to focus the mind, thus use it accelerate your efforts to analyze and act on problems instead of wandering around them. Appropriately used, urgency, can frame challenges better, get people engaged in a deeper understanding of the issues, and equip them with the responses necessary to be successful. It is a powerful unifying force.

  • Check-in routines. Now, most employees are working virtually, staying in touch with your people is more important than ever. Set a routine of 15-30-minute check-ins every day is essential crucial than ever. Since no one is commuting, this time is now available. These interactions provide opportunities to share updates, highlight the latest critical information, and identify adjustments that are required. These check-ins reinforce that we are responding together to the challenges the organization faces.

  • Celebrate all victories. Give recognition of the adaptive actions that get positive results, especially when people are adjusting on the fly. Don’t over-hype the small gains but use them to show how each gain gets the organization closer to the goal.

  • Opportunities. The Chinese word for crisis is composed of two Chinese characters signifying “danger” and “opportunity,” respectively. Create “opportunity scouts” within the organization. If the employees know the current challenges, get them involved in imagining a response and a recovery plan that creates value in the current environment. When facing essential threats, people always see more opportunities. Your team’s ideas for surviving on both the cost and revenue sides of the business are often better than what you can implement on their own.

 

Lift Morale

Great leaders see the bigger picture that more than money is at stake; that people must put themselves and their loved ones ahead of business needs?

  •  Concern for employees. Great leaders care about their employees as people first and workers second. That distinction is not noticeable during a typical workday, but it becomes critical during a crisis. It’s important to acknowledge and validate how your people feel, as they’re often operating in survival mode – a natural “fight or flight” response. But fight (anger) of flight (escape) reactions keep us from acting on our opportunities. Ignoring how your employees feel will only magnify these feelings. For employees to see that management cares about them, they need to understand the “why” behind the decisions. Thus, the CEO needs to overcommunicate when sharing information about the choices they are making. If you watched Chernobyl, you will have seen when they had to ask employees and others to volunteer for things that the employees knew would kill them, the employees would do so if they knew why. However, once the rationale was explained, the employees volunteered. As Ben Horowitz says in The Hard Thing About Hard Things, “Take care of the people, the products, and the profits — in that order.”

  • Appeal to a Common Purpose. Effective leaders convince people to want to take action–and that requires appealing to a common purpose. If you just tell them what to do, you get little buy-in. A great example was Governor Cuomo’s speech on social distancing on March 22. Angry after seeing large groups of people congregating in New York City parks and not following social distancing instructions, he said, “This is just a mistake. It’s insensitive. It’s arrogant. It’s self-destructive. It’s disrespectful to other people. It has to stop now. This is not a joke, and I am not kidding.” However, this would unlikely to get the response he was looking for, so he reframed the challenge as a once-in-a-generation opportunity to get better, stronger, and more resilient. “America is America because we overcome adversity and challenges…and that is what’s going to make this generation great,” he concluded.

  • Focus on the Greater Goal. For companies that have followed the Chicago School mantra that they exist only to make money for shareholders, a focus on the goal is unlikely to gain much traction during a crisis as most employees don’t care. However, if you defined the Company’s purpose for existing on the following four criteria:

1.     Focusing on the impact on the world and people;

2.     Is not centered on the financial gain;

3.     Is something unattainable; and

4.     Rallies employees

You are more likely to enable employees to remain committed during this period of uncertainty and fear. Also, it allows your employees to rally around the goal to help the community and others at this time. An example of such a purpose is “To refresh the world, to inspire moments of optimism and happiness, and to create value and make a difference.” [Company is identified at the bottom]. I recently heard of a CEO of a who claims that Covid-19 is Democratic Hoax to damage the President and as such has not implemented social distancing or changed behaviors at his office where everyone works in close proximity. His workers are now comping down sick. When this is all over, no one with integrity will want to work at his company. Some have argued that it is irrelevant as there will be many unemployed, so you will quickly fill job openings. However, who do you want on your team? The best employees, with integrity, and belief in your organization, or just the flotsam and jetsam of the labor market?

  • Empathy. In crises, bad things happen to good people. Some people who did everything to be safe will get sick, and some will die. Great leaders have empathy; however, they realize that going through hard times makes people stronger. Thus, they provide support and care while encouraging those people to push on. By doing this, leaders get people to invest in themselves and learn how they respond to events that contribute to the outcome. Furthermore, investment in your people during such times creates better networks, community, and belief in the organization, which makes these employees more valuable to the team when things return to normal.

  • Community engagement. Every company is part of a broader community. Employees often live in subdivisions or apartment complexes. Their children go to schools. If they get sick, they go to a hospital for care. While companies in discretionary industries are in danger during a pandemic as sales fall, they are still a crucial part of their communities. If they rise to the challenge by giving back through donations, public service videos, or contributing resources, they can prove that they are an essential part of the community. It will help them gain more loyalty as crisis recedes.

““A great leader, I think—that a great leader walks into the room and you feel bigger. You don’t think, “Wow! What a great leader.” You think, “Wow! I’m willing to say this thing. I feel more comfortable on my own skin. I’m just having ideas I haven’t had before.” A great leader makes other people better. I think that’s the fundamental difference between the charismatic, heroic image of leadership, that has been a help for us and also a hindrance for us as a human right for a long time, and the kind of leadership that we need now, the kind of leadership that the world is calling for from us now, which is not about having one person and following that one person, but having someone who can create the conditions that make us all better—make us all bigger, smarter, more creative, more moral, just better.””

— Jennifer Garvey Berger, CEO, Cultivating Leadership

Answer: Coca Cola

 

Copyright (c) 2020, Marc A. Borrelli

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Actions to Take When Leading Your Organization through Covid-19

Actions to Take When Leading Your Organization through Covid-19

In looking back at the Spanish Flu pandemic in 1918, the one major lesson that we learned was the importance of planning to protect your organization’s greatest asset—its people.

 

Make the Workplace Safe

From your organization’s perspective, the pandemic represents a readiness issue—the availability of your workforce—not a medical problem. To ensure you have the maximum workforce available, first make the workplace as safe as possible. Vaccines and anti-viral medications will not be available for some time, so classical, non-medical public health measures will offer the most significant security. To ensure a healthier workspace do the following:

  • Emphasize basic personal hygiene practices, such as hand washing.
  • Disinfect and sterilize work surfaces.
  • Rearrange the workspace to place distance between people.
  • Restrict or limit movement, activities, and gatherings.

Additional measures that will add to workplace safety preparedness include:

  • Use of alcohol-based hand sanitizers (not to be confused with anti-bacterial soap).
  • Ensuring an ample supply of tissues and disposal receptacles.
  • Moving to a “paperless” society—avoiding the circulation of unnecessary documents.
  • Designating home and remote work locations (telecommuting).
  • Inserting “infectious disease control” clauses in contracts—ensuring that those with whom you do business have tight controls to prevent the spread of disease (particularly crucial for companies serving multiple buildings, such as contract cleaning crews).

 

Manage your Workforce

Managing the available workforce poses tremendous challenges due to the following three psychological responses:

  1. Fear. Everyone will have a level of anxiety and fear about contracting the disease.
  2. Discrimination. There will be blatant and subtle discrimination against groups who are thought of as spreading the disease, i.e., Chinese, Asians, and foreigners.
  3. Psychological trauma from hearing or reading about Covid-19 incidents.

At the group level, various “tipping points” may be reached, such as loss of faith in leaders and the belief that available assets are not being distributed fairly which could significantly influence group behavior. Right now, gun sales are through the roof as people are concern that those without jobs will come and take their “Stuff.” Identify informal group leaders to help keep the workforce organized, and those leaders may serve as trusted sources of information. Consider establishing helplines and providing grief counselors to give the employees assistance through this time.

 

Communicate with the Workforce

As I have written about elsewhere, the most important is the style of communication to the workforce and external constituents. Excellent communication involves four very sophisticated steps:

  1. Avoid errors in decisions and messages.
  2. Maintain trust in the sources of information.
  3. Avoid amplifying the risk.
  4. Encourage individuals, communities, and families to use coping mechanisms.

By keeping your workforce well informed, you will help to reduce the level of anxiety and fear. Thus, how you handle risk communication is critical. Risk communication, as I mentioned before, is not just telling people the “facts;” it is about the “Plan,” the prospect of loss, and about relationships. 

 

Establish a Covid-19 “War Room” Team

Appoint a senior, entirely dedicated COVID-19 “War Room” team, to focus on this all day, every day. As CEO, you must be out in front with a planned cascade of possible actions based on which scenarios unfold. These scenarios need to be more aggressive than your team can imagine right now.

 

You NEED a Plan

A pandemic is not a terrorist or natural catastrophe, and those plans cannot be adapted to fit the flu. Natural disasters, i.e., Hurricanes and floods, are usually characterized by being isolated in time and space, with extensive infrastructure damage. However, the Covid-19 is worldwide and will last longer lasting than a natural disaster. The 1918 pandemic lasted 18 months, with three distinct peaks of increased morbidity and mortality. Current estimates by Imperial College show that by “Flattening the Curve,” the healthcare systems will not be overwhelmed. Still, it will take about 18 months to achieve protection for a vaccine or herd immunity. Thus, your response to the Coronavirus will be distinctly different from the response to a singular, catastrophic event.

While the Federal Government is behind on this issue, States and cities have stepped up and started implementing their plans for Coronavirus. These plans call for all sectors of their societies to prepare. Specifically:

  • Individuals Must Actively Participate. Simple infection-control measures, including handwashing and staying home when ill, are critical. Individuals should actively participate in their communities’ responses.

  • State and Local Governments Must Prepare. State and local governments to varying degrees implementing community-wide measures, such as school closures and suspension of public gatherings, to halt the spread of disease.

  • The Private Sector Must Prepare. The private sector must develop plans to provide essential services, even in the face of sustained and significant absenteeism. Businesses also should integrate their planning into their communities’ planning.

Once your organization has written its Coronavirus plan, you must test it. Simple “tabletop” exercises are an excellent way to look for points of “friction.” Several tabletop exercises may be necessary, using the employees who wrote the plan to role-play more senior officials, until they determine it is ready. Once the plan is prepared, a tabletop exercises including senior-level players, preferably your fully dedicated COVID-19 “war room” team, is required.

 

Additional Considerations

There is a multitude of other considerations, and your organization will have its unique challenges. However, things to consider include:

The Workload

Determine the tasks required for your organization to continue operating and prioritize them. Ensure that “mission essential” tasks can be met, even with only half your staff. Cross-train employees so that everyone is familiar with the mission-essential tasks and can perform them.

Proportionate Absenteeism

If your organization can perform remotely, then office absenteeism does not necessarily mean that an employee’s absenteeism will cost eight hours of work. While some workers will be ill at home and unavailable for work, others will be well, but needed at home to care for those who are sick. Depending upon the circumstances, (i) severity of illness, and (ii) the number of infected people at home, an absent employee may be able to complete a few hours of work during a day. Other workers who are well may be unavailable because they need to care for children out of school. However, they may still be available for a full or partial day’s work.

24-Hours a Day

If possible, establish a 24-hour work cycle. By moving to eight-hour shifts, you reduce the number of people at your workplace by two thirds, significantly aiding the effort to establish social distancing.

Establish Helplines

Dedicate phone lines and numbers as employee helplines. Identify individuals to man the hotlines and train them now. Establish hotlines at the lowest possible level, i.e., each distinct group within your organization would have a specific number to call, and the group members would know the person answering the phone.

Review of Personnel Policies

Check there are no legal or regulatory implications to your plan. Also, make sure your workforces fully understand the policies on leave and telecommuting.

The Golden Egg

The U.S. public and private sectors spent an estimated $114 billion preparing for Y2K, and some estimates are that worldwide Y2K expenditures may have exceeded $600 billion. As companies corrected their computer code to avoid the Y2K problem, they found and eliminated unnecessary code, resulting in substantial savings in data storage and processing costs. As Y2K preparation resulted in unexpected benefits for corporate America, there may be an upside to the preparation for Covid-19. Revisit all your processes and ask the following questions:

  • “If we didn’t do it this way already, how would we do it?”

  • “If you had to do what you do a budget = 50% of the current budget, how would you do it?”

  • “Where can we cut waste?” Look at Toyota’s Seven Wastes for an understanding of where there is waste in your organization

While the instinctive reaction of most employees is to say, “Not possible,” I ask you to think of Apollo 13 when they had to restart the command module. There was no easy way, but they worked a team and figured it out. That is what is required now!

Preparing the workplace for telecommuting may require additional expenses on IT upgrades that will eventually result in increased productivity. You may need all employees to have high-speed Internet connections, and improvements in web-based applications may improve usage and performance.

Getting Started

Prepare for the worst and be thankful if it doesn’t eventuate; “A Wait and See” approach is a non-starter. YOU DO NOT HAVE THE LUXURY OF WAITING.

Several websites provide plans for specific organizations. It is doubtful that any of these plans will meet your organization’s needs. However, plagiarism is not a crime in this instance! Use the smorgasbord approach, pick to choose form what looks applicable to create something you can use. 

Tabletop Exercises

Several websites provide tabletop exercises that can be adapted to fit your organization’s particular needs.

Organizational Tabletop Top Exercises – Customizable Hazard Specific Scenarios

Tabletop exercise template By the Editorial Staff of SearchDisasterRecovery

Tabletop Exercises – Some thoughts from DHS

Designing, conducting, and evaluating tabletop exercises: A primer on optimizing this important planning tool

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Survival in a Time of Crisis

Survival in a Time of Crisis

As we are in crisis, determining how you will survive and the financial health of your company is essential. Here are a couple of things to consider.

 

Listen to and Communicate with Your Clients

As this crisis continues, it is essential to communicate with your clients. You need to remind them why you are there, what benefits you deliver, and how they need you to survive. Everyone is going to eliminate whatever costs they deem unnecessary, and if you cannot show the value you are providing, you are gone.

Take a customer-centric view of this situation – how will you build trust, loyalty, and market share through and beyond this crisis? You want to develop that loyalty so that you protect your revenue streams during this crisis, and afterward, when many companies are trying to acquire your customers, they are loyal.

Also, listen for issues your clients are having so that (i) you can better serve them, and (ii) you are not caught with a significant value of receivables if they file for bankruptcy.

 

A Rolling 13 Week Cash Flow Model

Have a 13-week cash flow model for your business and also one for each of the scenarios that you are considering. This model must show:

  • Your cash balance. Know your cash balance is essential; companies don’t go bankrupt because they lose money, they go bankrupt because they run out of cash. While the government has said it is providing loans, assume that these take longer to get than expected. Also, model what happens if your revenues fall by 20%, 40%, 60%. Consider what happens if your clients start paying you in 120 days rather than 60. Build extreme downside scenarios – this has the potential to be a “100-year” event. At what point do you have cut expenses further to maintain a positive cash balance.

  • Bank covenants. As you model, these different scenarios look for points at which you breach your bank covenants. Banks may be looking to pull lines and loans, and if you violate the covenants, even though you are making payments, your loans might get called.

  • Delays in supplies. What happens if there are further supply chain disruptions. How will that affect your ability to supply products and get paid?

  • Talk to your bank and suppliers. Honest communication with your bank is essential. Banker hate surprises. See if you can change your loan to interest-only for a period. Will your landlord consider a lower rent for.a year with higher rents on the back end. This is a time to get creative.

  • Know what you are going to do when! Set aggressive ‘break glass’ cost actions triggered by more extreme revenue scenarios – This is about saving the company – no ideas are too radical.

 

Understanding What You Easily Scale Down/Up

Look at your expenses and operations. What can you quickly scale down now and scale up when appropriate? The ability to quickly turn off expenses will help during the liquidity crisis. As you consider these items, look at the forecasted demand for each item. If you have luxury goods or travel-related goods, demand may evaporate for some time, so shut down that product line, but consider a sale to clear inventory.

If you have a product or service for which there is an expected increase in demand, how can you scale that up? How can you deliver it more efficiently? What can you do differently? This requires some different thinking; consider getting out of your comfort zone.

Look for alternative supply chains for items that you need to meet demand. You cannot afford to fail to supply during this time, as that could be an event from which there is no recovery.

 

What Expenses Can Be Deferred

All CapEx is probably on that list unless it is essential to the business operations. Look at all operating expenses to see what is not essential. Go through all subscriptions; it is amazing at how many duplicates people have or how many no one uses. Cut everything non-essential. You can add it back if it is. As a Vistage member told one of his departments, “I want you to do what you are doing now with just 50% of the budget.”

 

Who Has To Go?

If people have to go, who goes? Seriously look at each employee and the value they contribute.

  • Can they cover multiple areas?

  • Are they essential in the rebound?

  • Are they pulling their weight now?

  • What is their attitude and added value?

On these bases, make the decision. It is hard, but if people have to go, make sure it is the right ones.

 

A Chance to ReInnovate

This is an opportunity to recreate. Looking at the way things are done and ask if we didn’t do it this way, how would we do it? Also, giving a department a smaller budget and telling them to do the same thing requires creative thinking. No idea is too extreme. I think of Apollo 13 at times like this when there was no choice, but they had to create something new to save the crew.

Good luck and hang in there, this too shall pass.

 

Copyright (c) 2020, Marc A. Borrelli

Leadership in a Time of Crisis

Leadership in a Time of Crisis

Face it; we are in a time of crisis, and leaders earn their pay when the proverbial “solids hit the air conditioning.” 

While many in the Administration, including the President, claimed that no one could have forecast Covid-19 and when it would hit, many people, including the Administration, had produced papers and done “war games” on a pandemic hitting the world. Unfortunately, those at the top had not read them or did want to hear the bad news. That is failed leadership as leaders get the big bucks to deal with ambiguity, and during crises, uncertainty becomes exponential. Know what is coming helps that and denial of what you don’t want to hear is not leadership.

Research has shown that three of the four qualities of a great business leader are:

  1. Sets vision and strategy;
  2. Drives growth;
  3. Displays financial acumen.
  4. Crisis management. This skill is underappreciated, overlooked, and often not even one of the top requirements — until a crisis hits.

So, where does the leader start in times like this? Start with Maslow’s Hierarchy. In a crisis, people are scared, and before they are willing to consider the position of the company, they need to know their most basic needs are met, and they feel safe. If they cannot buy hand sanitizer, a significant other is lost their job, or a loved one is sick, you are unlikely to get much attention on the corporate strategy. Blaming others will not help.

Once you have addressed their essential needs, then the panic moves towards the organization, and people turn to the leader for definitive answers. However, as the situation is fluid, sometimes the answer is, “I don’t know right now.” While that is the answer, it doesn’t satisfy the people. Thus leaders have to quickly follow such a reply with, “but we are going to do X.” Having a response to ambiguity is essential and comfort for your employees. When dealing with a crisis like we are today,  leaders need more than a plan; they need Plan B, Plan C, and Plan D as well. As Bain Consulting put it in a recent document, whatever you imagine the worst-case scenario to be, it will be worse.

What will become obvious during a crisis is the culture of the organization. If the culture is bad, there is little a leader can do to save it. Culture is key from the beginning. However, Korn Ferry has identified six steps for leaders to plan and comfort their people.

  1. Anticipate. Predict what lies ahead
  2. Navigate. Course correcting in real-time
  3. Communicate. Continually and honestly
  4. Listen. To what you don’t want to hear
  5. Learn. Learn from the experience and apply in the future
  6. Lead. Improve yourself to elevate others

 

Communication

I believe the key is communication.

How to communicate. Often!

But in what method? Looking at two great crisis leaders, many will think of Roosevelt and Churchill. Many CEOs are not able to write speeches like Churchill, nor should they try. Instead, Roosevelt’s fireside talks are a better model. In crisis communication, the style is as critical as much as having the right message.

The CEO has to communicate a message to two audiences: the workforce and the customers. The message needs to demonstrate that the company has a plan to deal with the crisis. In the case of Covid-19, this may involve Work From Home or Supply Chain adjustments to ensure production. Staff and customers need reassuring that the company has sufficient financial resources to survive the economic downturn.

  • Be Honest. Shawn Engbrecht, a former US Army ranger, says in his book, “Invisible Leadership,” “As a leader, you can promise everything to the many until you are unable to deliver even a little to the few.” In the end, “Failure to tell the truth rapidly erodes trust and confidence in higher command.”

  • Face the Bad News. As Jim Collins says in “Good to Great,” “Who tells you the bad news?” Further, as Ben Horowitz in the “Hard Thing About Hard Things” notes that your employees know there is a crisis, trying to hide it from them and pretend all is well is not reassuring, but by doing so, you fail them and the organization. Tell the bad news, or as Mr. Engbrecht advocates, “embracing the suck.” You need to accept where you are at a given moment: “Wishing, hoping, and praying the problem away does not work, so don’t waste your time with coulda, shoulda, or woulda.” In short, no sugarcoating.

 

Anticipate
To anticipate the “unknown” of the current crisis against the “known” of previous ones, leaders gain perspective, identify patterns, connect the dots, and determine appropriate and timely responses. Too often, people don’t consider all the possibilities. It is critical to be out in front with a planned cascade of possible actions based on which scenarios unfold, likely more aggressive than your team can imagine right now. Anticipation becomes a Monte Carlo simulation in action. At times like this, move to think in ranges using probabilistic analysis rather than certainty, the latter is bound to be wrong. As most project management looks to Critical Path, probabilistic analysis shows Critical Bottlenecks. A good quick read is Why Can’t You Just Give Me the Number?

At each stage, what are the implications for employees, customers, and investors? A strategy is making a bet, and the skill of anticipating improves one’s odds. For the broader strategy, take a look at the National Defence University (NDU) ‘s “Weathering the Storm: Leading Your Organisation Through a Pandemic.” Produced in 2006, it is a useful and prescient document. Leaders need to analyze the tasks required for the organization to continue operating and prioritize them. Ensure the performance of essential functions, and employees are trained across different disciplines. Have succession plans throughout the organization, so your employees know who will cover for each other if someone is sick.

 

Navigate
As you manage through the crisis, plans may no longer be viable or workable. You need to change quickly and pivot to a new strategy. Darwin did not say, “It is survival of the fittest,” as many have claimed, but those that are the quickest to adapt to the changing environment survive. Daily briefings, updating everyone with the latest information to determine if the plans are still viable and, if not, what changes are required.

 

Lead
Many leaders’ natural inclination in a crisis is to go into a command-and-control mode. That’s not leadership. As David Marquet noted in “Turn the Ship Around,” move the decision making to where the information is. You, as the leader, cannot make all the decisions, too much information is coming in, and there are too many decisions during a crisis. Thus, leadership is creating a “bottom-up” culture to accurately perceive today to predict tomorrow. Also, create a fully dedicated crisis “war room” team to help through this; you cannot do it alone.

  • Urgent vs. Important. The constant battle in our lives! The urgent emails and claims on our time, take us away from what is essential. We have all become Pavlov’s dogs, responding to the urgent, that we don’t see what is critical. During a crisis, everything blurs as events and their implications continuously change. What’s important often becomes urgent, and what’s urgent becomes critical. However, leaders must delegate the urgent by empowering others to lead around a common purpose.

  • Leave No One Behind. In a crisis, effective leaders must connect with, motivate, and inspire others, and show genuine compassion. As I have said before, leadership is hard, and it is not about you, but about those you lead. Military leaders who put the safety and well-being of others before themselves best reflect this leadership. Those military leaders who say, “I’ve never lost a soldier” reveal a deep mindset of humility and accountability, rather than hubris and bravado.

  • Know What to Do When You Don’t Know What to Do. In a crisis, learning either accelerates or you fail. The agility to learning to the “Nth” degree, applying past lessons to new and unfamiliar situations, is now essential. You need to know what to do when you don’t know what to do, but be willing to pivot at a moment’s notice if new information requires it.

 

Listen
A good leader must listen to staff concerns and answer their questions. During a crisis, that may require some patience as dismissing their concerns reveals a lack of empathy, destroying trust. However, as Mr. Engbrecht’s notes, “the quieter you become, the more you can hear.” Given where we are with Covid-19, online town-hall gatherings are great. My Vistage groups are having weekly Zoom meetings to check-in, support each other, and share best practices.

So, have a clear message, keep calm and honest. Do not sugarcoat things, blame others, and remember who this about. Share the pain, i.e. take a larger pay cut than the employees. Good leaders show they face at least some of the same dangers as their troops.

I wish you all the best, and may you all survive!

 

Copyright (c) 2020, Marc A. Borrelli