[Editor’s note This is the third installment of a continuing series on issues that 600 CEOs told us keeps them awake at night. Today's topic The challenges of making organizational decisions in this uncertain environment.] While we may be living in unprecedented times, past events provide insights and practices as pandemic recovery plans are developed. Consider these five elements of organizational decision-making information gathering; strategy; combining long-term thinking with short-term actions; clear communication internally and externally; and a review of policies and processes to ensure the organization’s preparedness for future crises. Information gathering The flow of high-quality information is more important than ever. A United States military framework for thinking about the external environment that has gained traction in the business world is VUCA Volatility, Uncertainty, Complexity, and Ambiguity. While these words seem similar in many respects, a key point of VUCA is that each of these terms describes a different situation that requires a specific response. Nathan Bennett, a professor with the Robinson College of Business at Georgia State University, and G. James Lemoine, an assistant professor in the Organization and Human Resources Department of the School of Management at the University at Buffalo, have written extensively on VUCA, and argue, “If VUCA is seen as general, unavoidable, and unsolvable, leaders will take no action and fail to solve an actual problem.” Thus, diagnosis of the situation is a prerequisite to crafting a response. They argue that volatility should be met with agility; uncertainty with information; complexity with restructuring with internal operations reconfigured to address external complexities; and ambiguity with experimentation. Uncertainty in this sense refers not to scientific questions about the coronavirus, but to what effect the virus will have on the future. What new realities will it generate? What will recovery look like? How long will it take? What will a post-COVID world entail? "Seek out new data sources and gather new perspectives." Bennett and Lemoine recommend reaching out “to partners, customers, researchers, trade groups, and perhaps even competitors” in times of uncertainty, in order to understand the impact of this phenomenon. Seek out new data sources and gather new perspectives. Here’s how one CEO we’ve talked with builds in multiple perspectives to his decision-making. At his industrial products company, he has established bi-weekly meetings with his senior team focused on two questions What do we know now that we didn’t know before? How can we use that information to make decisions? Each team member is responsible for research within their area talking to big customers, participating in supplier forums and webinars, scouring competitor websites. At the meeting, team members share their findings and discuss the available data, what assumptions can be drawn from it, and insights to be leveraged. These discussions are then translated into action points. Organizations should ensure internal decision-making processes incorporate conflicting points of view, if necessary designating a devil’s advocate or what the military calls a “red teamer.” Colonel Eric G. Kail, who writes about VUCA and its application in the business world, says red teamers “don’t simply shoot holes in a plan … [they require] leaders to move beyond that won’t happen’ to what if this occurs.” Red team membership should be rotated, he says, and leaders must be careful to protect them from backlash from other organizational members. In response to the broader perspective offered by his team’s devil’s advocate, one CEO shared that he took proposed across-the-board price cuts and implemented them in a much more nuanced way, with price decreases segmented by customer and channel. Another hallmark of stressful situations is that they can lead to paralysis and inaction, what Nathan Furr calls “unproductive uncertainty.” He recommends three strategies for decision-making in such circumstances Managers need to step back and consider all options, both near term and long term. This is because gathering information in this environment can cause us to become “so focused on the immediate situation that we overlook the broader possibilities.” Rather than focus on binary outcomes, which rarely play out, managers should consider the full spectrum of possible outcomes and assign probabilities to each. Keep in mind that “possibilities always exist.” Even in the worst situations, there are opportunities and choices to be made. Thinking about strategy A clear sense of organizational direction is central to knowing what information is significant and avoiding information overload. David J. Collis, the Thomas Henry Carroll Ford Foundation Adjunct Professor of Business Administration at Harvard Business School, and Michael G. Rukstad, the late senior research fellow at HBS described a firm’s organizational direction as being a hierarchy that flows from the most enduring element, the corporate mission, through values, vision, strategy, and, ultimately, the implementation and monitoring of that strategy via tools such as balanced scorecards and key performance indicators KPIs. The strategy includes an organization’s objective, scope, and competitive advantage. In times of turmoil, CEOs should revisit their strategy and ask key questions What is the organization’s ultimate objective? In which directions products, customers, geographies, vertical integration will it go? In which directions will it not go? Finally, what does the organization do better or differently than others—in other words, what is our competitive advantage? "Another hallmark of stressful situations is that they can lead to paralysis and inaction." “In times of economic distress, clarity of strategy becomes even more important,” wrote Michael Porter in 2008. In an economic downturn, figuring out what part of the industry that you want to serve becomes incredibly important.” It’s also important to not take actions in the short term that seem expedient but could ultimately undermine what’s different or unique about the company, he says. Porter provides the example of a company focused on high-end features and service that is tempted during a recession to cut back in response to a customer’s price concerns. This is the wrong move, he says. By cutting back on what has made it successful, that company risks becoming just like its competitors. He also contends that downturns can provide a little flexibility because the pressure to deliver short-term financial results is lessened. When all companies are reporting poor results, acting to make your company look a little better is not particularly value-added. We see this in action with the CEO of a B2B company who has responded to current pressure from customers by agreeing to cut prices in the short term in exchange for contract extensions; thereby being sensitive to their customers’ short-term needs while simultaneously improving the firm’s long-term competitive positioning. Strategy execution and implementation Strategic planning, converting strategic objectives into activities, is central to most organizations. Still, it is not possible to anticipate every event that might impact those plans. Executives need to be agile in order to adapt plans in response to unforeseen problems or opportunities. In doing so, they need to balance flexibility and speedy reaction times with long-term strategic focus. It is difficult to get this balance right! When surveyed on execution challenges, 29 percent of managers said that their company reacted too slowly, while 24 percent responded that their company reacted with sufficient speed, but in doing so lost sight of their strategy. Darrell K. Rigby, Sarah Elk, and Steve Berez write about the importance of building an “agile enterprise.” Their message—CEOs and other executives need to adopt a “humble agile mindset” to effectively lead an agile enterprise—can be aptly applied to the type of leadership required in the current environment. The authors highlight the importance of a rapid feedback loop, such as a brief daily check-in to give and receive feedback. These sessions can be used to eliminate barriers and ensure continued progress. Shifting leadership style from commanding to coaching is another agile leadership tool. Leaders use two-way communication methods and positive language, focusing not on what can’t be done but on how we can get it done. Rigby, Elk, and Berez also advise abandoning old school meeting formats in favor of “collaborative problem-solving sessions.” These are action-oriented, beginning with a list of issues that need to be resolved, focused on constructive conflict, and ending with a decision. “Swarming sessions,” which bring together participants from multiple groups and functions impacted by a single issue, can be used as needed to facilitate rapid decisions. Many companies measure strategy execution with KPIs assessed annually or maybe quarterly. In times of crisis, consider assessing more frequently. This is even more important in a virtual work world where employees don’t have the benefit of ongoing conversations that happen when people are physically together, a distance that can easily result in misalignment. A dispersed working environment can only succeed if everyone is clear on their role. What are the objectives? What work should be prioritized? How is work being divided among employees? It is important to avoid duplicative efforts. Implementing 30- or 60-day KPIs drives action and keeps people accountable and aligned. Communication around the establishment of short-term measurements should stress that these are not an effort to micromanage, but an acknowledgement of the awkward and tricky working situation. Assessing short-term goals keeps everyone on the same page and pushing forward together. As employees start to shift gradually back into the office with hybrid at-home/in-office work schedules likely in many places, short-term goals will provide transparency, visibility, and some stability. Communicate Your recovery strategy will need to include a detailed communication plan focused on all internal and external constituents. Internal communication is as important, if not more important, than external communication. In Crisis Communication Lessons from 9/11, Paul Argenti writes, “What I discovered is that, in a time of extreme crisis, internal communications take precedence. Before any other constructive action can take place—whether it's serving customers or reassuring investors—the morale of employees must be rebuilt." Many of the CEOs we heard from highlighted their concerns about getting communication right, particularly communication with their employees. How often? What platform? What tone? In Leadership on the Line Staying Alive Through the Dangers of Leading, co-authors Marty Linsky and Ronald Heifetz discuss the importance of “achieving a balcony perspective” in structuring a communication plan. They advise stepping back from a situation—getting on the balcony—to get “a clearer view of reality and some perspective on the bigger picture by distancing yourself from the fray.” Then, you “must return to the dance floor...The process must be iterative, not static. The challenge is to move back and forth between the dance floor and the balcony, making interventions, observing their impact in real time, and then returning to the action.” This exercise allows leaders to assess their people’s mindsets and tailor their communications accordingly. Stepping onto the balcony is even more challenging in a virtual world. But CEOs can test out different messages before disseminating them widely, seeking feedback and using it to fine-tune their communications. Some leaders have opted to keep their normal employee communication sessions in place, conducting those sessions virtually. One CEO explained that he was continuing to host regular town hall meetings, weekly listening sessions, and skip-level employee lunches, all on Zoom. In these forums he asks employees about their concerns and where they would like more information. These interactive sessions allow for feedback that would not be available with one-way communication tools. After-action review Take the time to review how your organization responded to the current situation and ask, “What can we do better next time?” This is not about placing blame after the fact. The US military uses after-action reviews AARs to gather and record lessons to apply in the future. The Army’s Opposing Force OPFOR is a brigade whose function is to prepare troops for combat, in part by engaging them in simulated combat. Despite the fact that they provide the trainee forces with detailed advance information on their methods, OPFOR almost always win. Part of OPFOR’s secret to success is its use of after-action reviews. They begin reviews while the event is still ongoing, with multiple AAR meetings often hosted by the unit’s commander. Each meeting starts with the recitation of the rules “Participate. No thin skins. Leave your stripes [ indications of rank and status] at the door. Take notes. Focus on our issues, not the issues of those above us…Absolute candor is critical.” Meetings address four questions “What were our intended results? What were our actual results? What caused our results? And what will we sustain or improve?” Admittedly, the corporate world has seen less success with AARs, despite the popularity of the practice, according to Marilyn Darling, Charles Parry, and Joseph Moore in Learning in the Thick of It. In their study of more than a dozen non-military organizations, they found numerous problems with their after action review procedures, including those that were conducted so long after the event that recollections were hazy and that failed to effectively apply the lessons learned. They recommend organizations use AARs selectively given the significant amount of resources required to do them well. AARs should also focus on areas that are mission critical for the greatest payoff. They offer four fundamentals of the AAR process the learnings must be primarily for the benefit of the team involved in the AAR; the process must start at the same time as the activity being reviewed; lessons must be linked explicitly to future actions, and everyone involved must be held accountable. The midst of a pandemic may not seem like the best time for an after action review, but Darling, Parry, and Moore write that during periods of intense activity, brief daily AAR meetings can help teams coordinate and improve the next day’s activities. AARs can be done on discrete projects like a pandemic-focused marketing campaign in order to improve response quality and long-term effectiveness. "Managers throughout the organization should understand their exposure." Following the 2007-09 recession, Harvard University conducted its own AAR and, in 2019, captured those learnings in a “recession playbook” with the goal of ensuring financial resilience, defined as “stewarding resources to support and maintain excellence in teaching, research, and scholarship in perpetuity” during the next recession. The framework has four steps Managers throughout the organization should understand their exposure. What might the next economic crisis look like? How might it impact revenues under the current operating model? How might that exposure change as the organization’s operating model evolves over time? Groups should develop a clear set of principles that can serve as a guiding force when the time comes to make tradeoffs and balance priorities. Take a strategic approach to modeling downside projections by categorizing activities and businesses into “areas to invest, areas to maintain, and areas that can be reduced or eliminated.” Identify areas where revenues can be increased and costs cut in advance of a downturn. Strengthen the organization’s financial position proactively. Prepare for change. At some point, leaders will need to make a determination as to when and how this plan is put into action. Conclusion Inaction is not an option While the current uncertainty can be daunting for leaders of all types, it is critical not to fall back on inaction as the default position. A good starting point Ensure you are considering all available, relevant information but are not overwhelmed by information overload. Being clear about your organization’s strategy will provide focus to information-gathering and a roadmap for decision-making. Even then, many decisions will have to be made with imperfect data. Flexibility is important. Revisit your conclusions and pivot as needed. Utilizing short-term KPIs 30-day, or so is one way of monitoring decisions and assessing performance. This is a period of continuous learning. The lessons may be unchosen and unwanted, but they can be leveraged to guide future actions. It is important not to let them go to waste. Firms should ideally emerge from this crisis sturdier, wiser, and better prepared for future crises and events. [Image iStock Photo] Other Stories In This Series How Remote Work Changes What We Think About Onboarding What Leaders Can Do to Fight the COVID Fog About the Authors Boris Groysberg is the Richard P. Chapman Professor of Business Administration at Harvard Business School. Sarah Abbott is a research associate at Harvard Business School. Share your insights below.