“The most important failure was one of imagination” – The 9/11 Commission Report
After more than a year of investigation and contemplation, the most powerful conclusion from the team of experts assembled to understand how America had been blindsided by the devastating terrorist attack on 9/11 was not of mishandled intelligence or poor collaboration, although both happened. It was the admission that we simply couldn’t imagine such an event – and so we weren’t prepared.
We swore that we had learned our lesson. But Hurricane Katrina in 2005, the Financial Crisis of 2008, the COVID 19 pandemic, and Russia’s invasion of Ukraine all indicate otherwise. And now the collapse of Silicon Valley Bank reminds us that we struggle to envision, much less prevent, the crises that emerge. And that is likely to remain true. We’ll never master the art of predicting when any of the myriad of potential calamities, large or small, will impact our organizations. And we probably waste time and energy trying.
Arguably, the secret lies in how well we respond in the moment. But the real secret lies in how we prepare to respond. As businesses face an increasingly complex and uncertain environment, leaders and leadership teams must ensure that they have robust systems and strategies in place to manage these sorts of risks effectively.
What We Can Learn About the Silicon Valley Bank Collapse
The idea isn’t complicated, but actually doing it takes deliberate effort. In Risk: A User’s Guide, Anna Butrico and I write about how leaders need to constantly assess their risk immune system, pressure test assumptions, and operations, and have a refined decision making process in place.
Despite our best efforts to predict and prepare for potential challenges, unexpected events will still occur. As the 9/11 Commission Report concludes, our inability to consider unlikely occurrences can lead to devastating effects. We must keep our eyes open and guard up to detect approaching threats, but what matters most is building the tools and capabilities necessary to respond quickly and effectively when these challenges arise.
While each industry and exact scenario may be different, the common threads in risk and ultimately seeing through unpredictable situations that will inevitably arise remain the same. From our team of experts and seasoned practitioners, we put together the four recommendations leaders can incorporate into their approach:
1. Pressure test risks and assumptions
It's essential for businesses to pressure test their risks and assumptions regularly. Analyze both before and after an event how your team is set up to question and push against the inherent institutional biases that exist within. This should happen on a regular basis. Outline explicitly what the multiple standard deviation events are that could have cataclysmic effects. Even if they’re slim chances, it’s worth a quarterly discussion and plan.
When you went to bed last evening you likely assumed that your business would have access to electricity, internet connection, normal banking services, and airline travel – because almost every morning that’s the case. Your HR director wasn’t in the hospital and your best client had not declared Chapter 11. But with morning any, or all, of those may no longer be true.
We’re not advising sleepless nights of vigilance, because it wouldn’t help. You’d just face the unexpected challenges sleep deprived. But a regular — and rigorous — cadence of testing the assumptions you operate on, and the most likely (also the most dangerous) risks that could arise can be incredibly helpful. Identifying potential vulnerabilities and taking actions to strengthen your capacity to deal with them both prepares your team to react – and builds a level of confidence that transcends responses to emergencies.
Do this by gathering your team to identify possible causes of failure for an upcoming project or scenario. Then, evaluate which of those causes can and must be modified and stopped far enough in advance. Finally, ensure that you and your team assess and see the risks to success the same way, or else the pressure testing is ineffective.
2. Prioritize communicating with your teams, stakeholders, and customers
During times of crisis, effective communication is critical for leaders to get out in front of their teams and steer their organization toward success. To achieve this, leaders need to prioritize over-communicating with their teams, stakeholders, and customers, ensuring that everyone understands the situation and the steps required to navigate through the crisis. It's essential for leaders to use multiple communication channels to keep their team members informed and engaged. Moreover, leaders need to communicate priorities effectively, so everyone knows what they need to focus on and why. Communication will expose assumptions and illuminate how people are thinking. If some are worried about a possibility on the horizon and others aren't, a discussion is warranted.
There is also a benefit to creating open lines of communication during a crisis as a leader may not know where the next important piece of intel is going to come from. Listen to your team members just as you expect them to listen to you. By doing so, leaders can inspire their team members and stakeholders to stay motivated while empowering them to take action to overcome the crisis. Ultimately, effective communication during a crisis works both ways and is critical for leaders to maintain business continuity and ensure the organization emerges stronger on the other side.
3. Create simple rules for your teams to follow
In a crisis, leaders must create simple rules for their teams to follow to ensure clear alignment and focus. Simple rules are concise, easy-to-understand guidelines that help teams make decisions and take action quickly and efficiently. Complexity goes hand in hand with risk and uncertainty, and having simple rules in place can help streamline decision making and information flow.
There are two types of simple rules: decision rules and action rules. Decision rules provide guidelines for making decisions, such as boundary rules that define what actions are acceptable and prioritization rules that determine what actions should be taken first. Stopping rules also provide guidance on when to stop an activity to avoid potential negative consequences. Action rules provide guidance on how to act, including how-to rules, coordination rules, and timing rules. For example, in a crisis response situation, simple rules such as "communicate every two hours" or "coordinate with stakeholders before taking any action" can help teams stay aligned and focused on the most critical tasks. By creating simple rules, leaders can provide a framework for their teams to act quickly and effectively in a crisis, ultimately increasing the chances of success.
4. Assess why parts of your plan or processes failed
Closing the feedback loop on a crisis response is crucial to improving a business's ability to handle future crises successfully. One effective way to achieve this is by conducting after-action reviews (AARs) to assess the effectiveness of the crisis response plan and the team's execution. AARs help identify areas where the response could have been more efficient or effective and identify potential gaps in the plan or the team's abilities. The next step is to conduct a gaps analysis to determine where the holes in plans, systems, and processes are. This analysis provides a comprehensive understanding of where the organization is falling short and where it needs to improve to handle future crises. By conducting AARs and gaps analysis, businesses can identify areas for improvement and make necessary changes to enhance their crisis response capabilities. This continuous improvement process helps organizations become more resilient and better prepared for future crises.
As leaders work to strengthen their preparation for risk, pressure test assumptions, and create simple rules for their teams to follow, they must also be prepared to learn from their experiences and continuously improve their crisis response capabilities.
The point is we don't know the widespread impact and systemic risk to the broader banking system from Silicon Valley Bank's collapse yet. That is why leaders can't focus on what they don't know. They can only do their best to prepare their teams. Proactively engage your teams. They will want guidance and direction to offset the natural urge to react to the constantly shifting news and events — an instinct that will only increase volatility.
The idea isn’t complicated, but actually doing it takes deliberate effort. In Risk: A User’s Guide, Anna Butrico and I write about how leaders need to constantly assess their risk immune system, pressure test assumptions, and operations, and have a refined decision making process in place.
Despite our best efforts to predict and prepare for potential challenges, unexpected events will still occur. As the 9/11 Commission Report concludes, our inability to consider unlikely occurrences can lead to devastating effects. We must keep our eyes open and guard up to detect approaching threats, but what matters most is building the tools and capabilities necessary to respond quickly and effectively when these challenges arise.
While each industry and exact scenario may be different, the common threads in risk and ultimately seeing through unpredictable situations that will inevitably arise remain the same. From our team of experts and seasoned practitioners, we put together the four recommendations leaders can incorporate into their approach:
1. Pressure test risks and assumptions
It's essential for businesses to pressure test their risks and assumptions regularly. Analyze both before and after an event how your team is set up to question and push against the inherent institutional biases that exist within. This should happen on a regular basis. Outline explicitly what the multiple standard deviation events are that could have cataclysmic effects. Even if they’re slim chances, it’s worth a quarterly discussion and plan.
When you went to bed last evening you likely assumed that your business would have access to electricity, internet connection, normal banking services, and airline travel – because almost every morning that’s the case. Your HR director wasn’t in the hospital and your best client had not declared Chapter 11. But with morning any, or all, of those may no longer be true.
We’re not advising sleepless nights of vigilance, because it wouldn’t help. You’d just face the unexpected challenges sleep deprived. But a regular — and rigorous — cadence of testing the assumptions you operate on, and the most likely (also the most dangerous) risks that could arise can be incredibly helpful. Identifying potential vulnerabilities and taking actions to strengthen your capacity to deal with them both prepares your team to react – and builds a level of confidence that transcends responses to emergencies.
Do this by gathering your team to identify possible causes of failure for an upcoming project or scenario. Then, evaluate which of those causes can and must be modified and stopped far enough in advance. Finally, ensure that you and your team assess and see the risks to success the same way, or else the pressure testing is ineffective.
2. Prioritize communicating with your teams, stakeholders, and customers
During times of crisis, effective communication is critical for leaders to get out in front of their teams and steer their organization toward success. To achieve this, leaders need to prioritize over-communicating with their teams, stakeholders, and customers, ensuring that everyone understands the situation and the steps required to navigate through the crisis. It's essential for leaders to use multiple communication channels to keep their team members informed and engaged. Moreover, leaders need to communicate priorities effectively, so everyone knows what they need to focus on and why. Communication will expose assumptions and illuminate how people are thinking. If some are worried about a possibility on the horizon and others aren't, a discussion is warranted.
There is also a benefit to creating open lines of communication during a crisis as a leader may not know where the next important piece of intel is going to come from. Listen to your team members just as you expect them to listen to you. By doing so, leaders can inspire their team members and stakeholders to stay motivated while empowering them to take action to overcome the crisis. Ultimately, effective communication during a crisis works both ways and is critical for leaders to maintain business continuity and ensure the organization emerges stronger on the other side.
3. Create simple rules for your teams to follow
In a crisis, leaders must create simple rules for their teams to follow to ensure clear alignment and focus. Simple rules are concise, easy-to-understand guidelines that help teams make decisions and take action quickly and efficiently. Complexity goes hand in hand with risk and uncertainty, and having simple rules in place can help streamline decision making and information flow.
There are two types of simple rules: decision rules and action rules. Decision rules provide guidelines for making decisions, such as boundary rules that define what actions are acceptable and prioritization rules that determine what actions should be taken first. Stopping rules also provide guidance on when to stop an activity to avoid potential negative consequences. Action rules provide guidance on how to act, including how-to rules, coordination rules, and timing rules. For example, in a crisis response situation, simple rules such as "communicate every two hours" or "coordinate with stakeholders before taking any action" can help teams stay aligned and focused on the most critical tasks. By creating simple rules, leaders can provide a framework for their teams to act quickly and effectively in a crisis, ultimately increasing the chances of success.
4. Assess why parts of your plan or processes failed
Closing the feedback loop on a crisis response is crucial to improving a business's ability to handle future crises successfully. One effective way to achieve this is by conducting after-action reviews (AARs) to assess the effectiveness of the crisis response plan and the team's execution. AARs help identify areas where the response could have been more efficient or effective and identify potential gaps in the plan or the team's abilities. The next step is to conduct a gaps analysis to determine where the holes in plans, systems, and processes are. This analysis provides a comprehensive understanding of where the organization is falling short and where it needs to improve to handle future crises. By conducting AARs and gaps analysis, businesses can identify areas for improvement and make necessary changes to enhance their crisis response capabilities. This continuous improvement process helps organizations become more resilient and better prepared for future crises.
As leaders work to strengthen their preparation for risk, pressure test assumptions, and create simple rules for their teams to follow, they must also be prepared to learn from their experiences and continuously improve their crisis response capabilities.
The point is we don't know the widespread impact and systemic risk to the broader banking system from Silicon Valley Bank's collapse yet. That is why leaders can't focus on what they don't know. They can only do their best to prepare their teams. Proactively engage your teams. They will want guidance and direction to offset the natural urge to react to the constantly shifting news and events — an instinct that will only increase volatility.
Resources
