30. Lessons?

After the disasters, the thirst to identify lessons learned seemed unquenchable. The call for better preparedness came from all corners — the government, civic, charitable and emergency organizations, and the business community.  The staggering loss of property and life – and the prolonged hardship of the displaced – cried for improvements.

The highest levels of government got involved.  In February 2006, the White House issued a 228-page report, “The Federal Response to Hurricane Katrina Lessons Learned.”[1]  This document identified “17 specific lessons the federal government has learned” and made more than 100 recommendations.  They ranged from policy to govern integrated use of the military to operational matters such as search and rescue.  After a reading, I found the report less than satisfying.

The real lessons

At Hibernia, what we learned is that people rise to remarkable levels when challenged by brute events.

Lessons of courage, of helping one’s neighbor, of ingenuity – these lie deep in people, sometimes beyond the grasp of analysis.

After hundreds of hours of interviews and study of recovery documents, I still had trouble drawing up a list of meaningful business recovery recommendations.  Most ideas seemed obvious.  For example, many people said the company needed to prepare a better remote recovery site.

What intrigued me most were things that ran contrary to conventional wisdom.  For example, immediately after the storms, it was common to predict large bank losses as customers fled and left loans unpaid and drew down deposits.  Instead, Hibernia saw an unprecedented inflow of deposits, spurred by insurance and relief payments.  Thousands of new customers came to the bank after going to Texas.  The bank also experienced an unprecedented number of job openings, quite confounding those who thought many jobs would be lost.

What was to be learned from these counter-intuitive trends?

Four critical areas

Searching for a framework to make sense of what employees were saying to me, I found an article in Strategy+Business magazine by Gary Neilson and Bruce Pasternack, which suggested four critical areas to “restore an organization to robust health…”  They were writing, not about a natural disaster, but about the rebirth of Caterpillar Inc., a $30 billion global heavy equipment manufacturer.  Nevertheless, their framework seemed apt for distilling some of Hibernia’s “learnings:”

  • Decision rights: The rules and mechanics that govern who makes which decisions.
  • Information: The metrics that measure performance and practices that transfer knowledge.
  • Motivators: The incentives, objectives and career alternatives that drive people’s behavior.
  • Structure: The overall organizational model, including the “lines and boxes” of reporting relationships.[2]

Decision rights

The key “rule” during Hibernia’s recovery, although it was never stated, was to “Do the right thing, and don’t wait to be told.”   It was understood somehow that something done now, even if not “perfect,” was better than something done later that might be a little better designed.  Time was of the essence.

There was not a lot of vetting or hand-wringing about on-the-ground decisions that in normal times might have required approvals at higher levels.  Decisions and actions were reported and acknowledged but not changed very much or rescinded.  Mid-course corrections were acceptable and encouraged, so long as positive movement wasn’t compromised.

It became understood that going outside normal boundaries was essential (like carrying cash to bank branches in the back of one’s personal car, for example.)

Information

We found the ability to communicate was deeply compromised at first.  In addition, we all understood that you can’t do anything meaningful without functioning channels.

We were challenged by how and what to communicate, and also when.

The practice that evolved after the storms was to “communicate everything” no matter how trivial it seemed.  This approach clogged channels and demanded people keep up with the flow – but it seemed best in early days.

The lesson at the executive level was that in the chaos of a disaster, you don’t know what is trivial and what is not.  Apparently small things become large, i.e., How do we get fuel to generators at branches?

A great deal of information from the field is necessary, even if it is difficult to digest.  Most important, unfettered information up the chain is more important than edicts going down.  Senior management had to step back, provide broad guidelines and let people on the ground do the work they knew best, even if there were occasional missteps.  We learned that in a physical disaster, an electrician was  more important than an executive.

Motivators

An asset at Hibernia was its deeply imbedded strong work culture. The company had an efficient operating style, carried out by a seasoned cadre of people.  Many at Hibernia were longtime employees, used to getting things accomplished with somewhat limited resources and minimum fuss.  Interestingly, a small but significant percentage of Hibernia employees were related to one another.  This was partly a product of company policy that permitted a degree of “healthy nepotism.”  Employees like these – invested in the company and in one another — had a deep stake in the company’s survival.

In addition, management quickly put in place a generous support program that helped employees focus on work instead of on how they and their families were going to survive.

Structure

The “lines and boxes” of banks are pretty well drawn.  Clearly structured reporting relationships did not go away because of the crisis.  Nevertheless, as the CEO, Herb Boydstun, remarked more than once during the recovery, the best thing executives and other senior managers could do was “get out of the way.”  Let the engineers, the computer specialists, the maintenance staff, the tellers, the operational people do their jobs.  They knew best how to recover “their stuff.”

We learned that, given some latitude, people from many different specialties came together to meld their talents to get a particular job done.  In the field and in the recovery center, people from many different departments “found each other” and pitched in to accomplish something that, probably, none of them could have done by themselves.

This was a valuable and unexpected result of throwing so many departments together helter-skelter in Shreveport — virtually on top of one another.  The synergies that occurred might have occurred in a more organized, more comfortable work environment, but the chaotic atmosphere proved extraordinarily effective.

We also learned that the most important thing senior management could do was to provide resources – money mainly — to buy the things that had to be replaced or repaired or to provide a place to sleep – and in that, Hibernia’s leaders did the right thing and opened the checkbook.

What Hibernia did not do well

Then comes the question of how to learn from what Hibernia did not do so well, and how to be better prepared the next time.  In my opinion, two weaknesses emerged in Hibernia’s recovery – one was related to redundancy and the other with human resources.

Redundancy

Although the company had a detailed disaster plan, it contemplated a single event.  We were not prepared for three destructive blows in short succession.  Perhaps it is too much to ask for a plan that covers something so unusual, but that is another thing we learned about disasters:  They are all unique in some way.

Greater redundancy in and diversification of physical resources was an unmistakable lesson.  The company did not have enough scope in its disaster recovery sites – enough space, computers, telephones, etc.  Somewhat naively, we also thought we could rely on vendors (some specifically contracted for disaster recovery work).  However, contractors were themselves compromised by the storms or they over-promised what they could deliver.  Sometimes they simply refused to do what they had contracted to do.

How much?

Which raises the important policy question: How much operational redundancy?

Should a company completely duplicate its operational infrastructure in other locations and let it sit idle most of the time?  At what cost?

Because banking is both capital- and people-intensive, it is an especially difficult equation.  Invest too much in recovery capability, and you may be misspending capital.  Do too little, and you may cripple the ability to generate capital.  Hibernia tiptoed down that line during the two days its mainframe was down.  Had it not been successful getting a replacement running in a secure location, it might have had to close its banking doors until it could reconcile its books.

Some experts suggested a “triangle rule.” That is, create 150% operational capability, divided evenly among three sites, separated by enough distance that they all would be unlikely to fall prey to the same natural or manmade disasters.

In normal times, processing activity would be split between two of the three.  This would rotate regularly to keep all the sites up to speed.  Then, in a disaster where one site was hit, the other two would do the work in a relatively normal way.  Even if two were hit, the third would be able to operate, even if in a slower mode.

Although the triangle idea is sound, it does require investing in a third operating center and it would not be without synchronization issues.

People come first

Our second weakness became apparent very quickly.  Although Hibernia — as most companies — gave lip service to the importance of its people, we in management did not fully realize that our employees were the most critical element.

Most of our preparations focused on protecting or replacing physical assets.  We had to create, “on the run” as it were, a means to “recover” our people.

Disaster planners and employees – indeed management at the highest ranks – underestimated the havoc such a powerful combination of events could wreak.  Most thought people would be driven out of the strike zone for a few days, perhaps a week.  No one conceived of months of dislocation.

On this point, we failed to understand fully that our most important resource was also our most vulnerable.

Each disaster is unique

The large lesson from our experience was that every disaster is unique.  Despite common elements, each presents hurdles that have not been encountered before.  Because no two are exactly alike, crisis plans are only partly useful when another strikes.

For example, in our plan, no thought was given to how vulnerable safe deposit box vaults might be to flooding.  What will be the surprise in the next disaster?

Communications offer another example.  What do you do when almost every aspect of wire- and antenna-based communications is blown away or drowned?  How then do you communicate with thousands of employees and customers?

In the next crisis, what will the communications weakness be?

Principles, not just plans

A central question is how to plan for uniqueness — for changing and sometimes unpredictable circumstances?  One answer lies in principles for action more than detailed plans.  Hibernia’s simple disaster guidelines created after hurricane Ivan in 2004 are an example:

  • Err on the side of conservatism.
  • If the city closes, the bank closes.
  • Update communication lines hourly.
  • Customers will understand.
  • Encourage managerial autonomy, based on specific circumstances.

Some more to consider:

  • Expect to be surprised.
  • Plan, but assume your plans will not cover everything.
  • Pre-position as much as you can, but expect resources to be inadequate.
  • Provide purchasing power and decision authority to on-the-ground managers.
  • Encourage, even demand, creativity.
  • Pay as much attention to the recovery of people as machines.
  • Expect recovery to last longer than you think.

Get advice from others

As Hibernia’s executives began to understand the unique features of their crises, they turned to others who had experience with disasters.  Two such explorations were typical:

  • The first, a discussion with managers at the Bank of New York (BONY) who guided that company through 9/11, and
  • The second, the employment of a disaster academic expert, Daniel Alesch, and economist, Dr. Loren Scott.

Help from the Bank of New York

In the second week after Katrina, Ron Samford and I arranged a telephone meeting with people at the Bank of New York, which had endured the terrible 9/11 tragedy in offices near the World Trade Center.  During that call and a subsequent one, many ideas were discussed.  The BONY group led by Jeff Kuhn[3] offered valuable assistance and encouragement.

Participants acknowledged that the two crises were different in several important respects:

  • The 9/11 tragedy was a surprise attack, while there was enough advance notice of Katrina to make preparations.
  • Although 9/11 and the hurricane both took thousands of lives, this occurred very differently and required different responses.

There were other differences.  For example, BONY employees who found they had nowhere to work were able to go to their own homes at night, while New Orleanians had neither their workplace nor their home.

BONY offered these recommendations:

  • Communication.  Arrange employee town hall meetings, provide extensive communications, and offer psychological counseling.  The CEO needs to be visible, uplifting, provide a call to action, and show concern for balancing work with family.  Senior managers can and should get out and around, shake hands, bring coffee, food, help in the trenches.
  • Find out what is on their mind.  Offer a confidential survey to find out what’s driving behavior after the disaster.  Find out whether you should set up child-care, elder-care, how to deal with FEMA, create a school, provide temporary housing.
  • Work with other companies.  Find ways to collaborate with other firms to solve safety-net issues for employees and customers.
  • Focus on the missing.  Find out who is unaccounted for.  Search for them, whittling down the list.  Be responsible for them.  Don’t expect government to do it.
  • Pay them … but.  Provide pay for a period, but be prepared to cut it off if employees do not come back.  Make sure they know you really want them back.
  • Reward heroes.  Give incentives and rewards for the “around-the-clock” people.  Ask your managers who they are.  Do it sooner rather than later.
  • Do not ignore grief.  Provide free counseling, both group and individual.  Require people to take “R&R.”  People use work as their “get-away” and neglect their own situation, but soon family troubles will overwhelm them.
  • Train managers about feelings.  Require managers to talk to professional counselors to better understand the feelings of their people as well as their own.
  • Feed your people.  Provide meals at work – breakfast, lunch and dinner – for as long as disaster recovery lasts.
  • Rebuild employee data fast.  Human resources must figure out where people are, get mailing addresses, phone numbers, and rebuild their information system.  Internal phone directories and voicemail systems must “follow” the people, and quickly.
  • Diversify operations.  Split operations among different locations.

Disaster recovery experts

Hibernia and Capital One also wanted to learn how the disaster might affect the area’s economy, both short- and long-term.  Capital One hired Daniel Alesch, Ph.D., an authority on natural hazards and co-author of a 1985 book, The Politics and Economics of Earthquake Hazard Mitigation.

Alesch said areas in economic decline before a disaster generally failed to recover to their pre-disaster level, and areas that were robust before a storm tended to recover reasonably well.  He emphasized nothing ever returned to the “old normal,”  and he urged bankers to caution customers not to expect to rebuild what they had previously. Some businesses simply should not rebuild, and banks should not lend to them, he concluded.

Hibernia sponsored four economic reports by Loren Scott, Ph.D., emeritus professor of economics at LSU, who tracked the recovery from Katrina and Rita across the Gulf region.  His first report described the amount of damage done by the storms.  New Orleans, predictably, had the greatest housing damage, with 430,000 structures affected, over 200,000 so badly they were uninhabitable.  In his June 2006 report, he focused on banking, noting that the impact “…not surprisingly was greater for those closer to storm eyes than those elsewhere.”  He found that bank net operating income fell to about one-twelfth of the worst quarter in about 10 years.  He also saw significant declines in return on assets and loan growth, and he expressed concern about credit quality.

What Hibernia people said

In addition to outside experts, Hibernia people contributed their own “lessons learned,”  ranging from formal presentations to personal reflections.  The Incident Management Team in November 2005, signaled the official end of disaster recovery with a report that outlined some learnings:

Incident Management Team (IMT)

  • Planning for employee check-in with ties to employee assistance
  • Communications strategy
  • Plans for hotel management and other temporary housing accommodations
  • Advance planning for an extended outage

Information technology

  • Moving mainframe data created unique risks
  • Staff shortages in the first few critical days …required … very long extended hours
  • Over-estimated resiliency of public telecommunications … in New Orleans area
  • Need for mitigation of concentration of risks in the New Orleans central business district

Bank resiliency report

In January 2006, a more detailed presentation was made to senior management, one section of which is summarized in the table below:

LESSONS LEARNED AND PRINCIPLES FOR RESILIENCY
Lessons Learned Principles for Resiliency
§  Be prepared for severe operational disruption (longer than 72-hour threshold) §  Establish redundant facilities outside the hurricane zone§  Locate back-up systems and data outside the hurricane zone
§  Focus on business processes, people, and longer-term outages in addition to technology§  Enhance disaster communications, including possible use of:-  Out-of-region cellphones

– Backup email addresses

–  Alternate phone numbers

§  Maintain effective associate (employee) crises tools for:§  How to communicate§  Where people should go§  How they will get placed in an alternate work location§  How employees will be compensated
§  Further prioritize business functions to ensure appropriate order of recovery §  Perform a business impact analysis for each business to develop a prioritized recovery schedule

Ideas from interviews

In the nearly 80 interviews I conducted, Hibernia people also described what they had learned.  Two examples:

  • Darrell Dragon:  Disaster recovery plans usually call for fewer operations people on the theory that there will be less volume during and after a storm.  However, there is much more “exception” volume, items that require significant attention.

Lesson:  More people, not fewer, are needed, even in non-critical areas, after a real disaster.

  • Kelly Shepherd: In most disasters, we assume we can leave (unfinished) work and records behind and return to it in a few days.  But in a severe disaster, the documents are damaged or destroyed.

Lesson:  Take more business information out of offices in a real disaster.

Other reflections

Many employees reflected a “gallows humor” when describing personal lessons.  Prized belongings, for example, that had been destroyed by flood became “just stuff.”

The lesson:  Never be so attached to “just stuff” again.

Employees also vowed that next time they would evacuate with more than three days of clothing (and, something besides cutoffs and flip-flops).  Some also said they would keep a “leave kit” in the trunk of their car.

Some of their most poignant reflections were about pets.  They would never ever leave their dogs or cats (iguanas, snakes, fill-in-the-blank) behind again, even if it meant they might not find lodging or might have to sleep in their cars with the animals.

Many also said they would cook or throw away the perishables in their refrigerators before evacuating, or at least they would put the food into a securely-tied plastic bag inside the fridge.

The lesson:  If the food spoiled, it might not ruin the refrigerator.

Finally, every single one pledged to be sure their insurance premiums were paid before the big event.

[1] The complete report is available at the White House Website.

[2] “The Cat that Came Back,” Gary L. Neilson and Bruce A. Pasternack, Strategy + Business, Issue 40, Fall 2005,  p. 32.  Neilson was a senior vice president with Booz Allen Hamilton in Chicago who led a team that developed the concept of organizational DNA; Pasternack was president and CEO of Special Olympics and previously a senior vice president and managing partner of Booz Allen Hamilton in San Francisco, where he specialized in transforming business models.

[3] Other participants were Bob Griffin, Steve Henny,  Elaine Eberhardt, Laura Desiderio, Amy Pershing, Greg Facili, Dennis Jobin and Chip Logan.

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