Know Your Enterprise Ecosystem

by | Dec 17, 2015

The Dec. 14 piece by the investigative journalism watchdog suggests McGovern and the 10 or so former AT&T executives she recruited to join her have been applying old telco thinking – mainly by failing to appreciate and leverage the localized nature of the Red Cross ecosystem.

All organizations can be viewed as networks, or circulatory ecosystems. Some thrive on tight, centralized control – think airlines, fast food chains, car rental agencies and the old Bell phone system – with little need for local-level innovation or even decision-making. Most companies today, however, depend on their employees at the edge of their network to innovate, improvise and respond to user needs. As digital commerce changes the relationships between managers, employees and customers, it will be increasingly necessary to support customized decision-making and innovation at the edge of an enterprise ecosystem. The Ma Bell-inspired missteps at the Red Cross contain important lessons for all organizations seeking to transform and adapt to the digital economy.

ProPublica first took on the American Red Cross in 2013, with help from NPR, when it exposed the charity’s flawed responses to recent disasters, including the 2010 earthquake in Haiti and Superstorm Sandy in 2012. Now, Pro Publica reporter Justin Elliott focuses on the failings of upper management, in particular McGovern and her senior executive staff. “A broader look at McGovern’s seven years as chief executive shows her team has repeatedly fallen short of its own goals to secure the organization’s financial future and improve its delivery of disaster services,” Elliott writes.

McGovern, who got her start as a computer programmer at Bell Telephone Co. of Pennsylvania and served for 24 years with parent company AT&T before going on to other high-level positions elsewhere, was hired in 2008 to bring the troubled Red Cross to solvency from an annual deficit of hundreds of millions of dollars. Instead, Pro Publica reports, she “presided over a string of previously unreported management blunders that have eroded the charity’s ability to fulfill its core mission of aiding Americans in times of need.”

Specifically, Elliott writes, under McGovern’s leadership: Red Cross payroll was slashed by more than a third, eliminating thousands of jobs and closing hundreds of local chapters. Many veteran volunteers who are first on the scene to assist victims of local fires and floods, have departed, “alienated by what many perceive as an increasingly rigid, centralized management structure.” As a result, the charity, according to the article, is now unable to respond to even smaller-scale disasters that happen around the country.

And the organization’s financial troubles, while somewhat improved, remain. It had a $70 million deficit in 2014 and projects it will not break even before 2017.

McGovern declined to be interviewed by Pro Publica, but the article quoted a statement by her staff defending her performance, saying “she took over an antiquated organization that allowed each local chapter to create its own system for personnel, technology and bookkeeping.” The layoffs and shuttering of local chapters, the statement said, “was painful but essential for an organization that was both inefficient and financially unsustainable.”

But the Red Cross faced some challenges that should have looked familiar to AT&T veterans: Rapidly changing technology was spawning new competitors at the local edge of its network, from crowd-funding apps during disasters to less-expensive community CPR programs, cutting into their business model and making the old ways of doing business obsolete. The critical Red Cross bloodbank program, the article pointed out, lost $100 million in 2014 due to declining demand because of changes in medicine. Meanwhile, its own efforts to improve its legacy technology were behind schedule and expensive: The organization got bogged down building a new software platform that is supposed to standardize the labeling of blood units. While McGovern focused on getting local chapters to convey a unified marketing message, affection for the Red Cross at the grassroots level plummeted, with only 35 percent of employees responding favorably to the statement “I trust the senior leadership of the American Red Cross.”

It’s not hard to see the parallels to what happened to the old Ma Bell starting in the 1980s: What once was a huge, top-down telephone monopoly had to be forced over the years — by a federal judge and Congress — to break into regional territories and accept technology changes that pushed more power to the devices and applications on their networks. Similarly, the Red Cross no longer has a monopoly on the services it offers — yet its network is still being run top-down, resistant to the rapidly evolving changes in the way disaster aid and community service programs are delivered, donations are raised and blood needs are being met.

McGovern and her deputies are all smart, experience executives (McGovern taught at the Harvard Business School) who no doubt care deeply about the Red Cross and have done good things during their tenure. But that only underscores the difficulty all enterprises face as technological upheaval alters their ecosystems.

What kind of network is your organization? Are the employees and customers at the outer edges of your supply chain stifled by your network’s emphasis on conformity, efficiency and top-down control? Or do you allow information and support to flow freely from the center, empowering ever node on your network to create and adapt?

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