Walmart and Katrina

On August 28th 2005, a category 5 Hurricane, named Katrina by the weather analysts, made landfall in the region of New Orleans, laying waste to the region. Overnight the tropical storm had morphed from a level 3 to a level 5 on the Saffir-Simpson scale. As of that time Katrina became the 4th most intense hurricane on record. In economic terms Katrina is viewed as being the worst natural disaster in US history. The economic damage exceeded $200 billion, 1200 fatalities and all 50 states of America had evacuees within their borders.

The storm had gone through two periods of rapid intensification as it entered into the Gulf of Mexico. While the first cycle broke after 24 hrs due to a deteriorating inner eye, the second scale caused it to morph from a cat 3 to a cat 5 literally overnight. The National Hurricane Centre which had been tracking the storm from its development over the Bahamas and upgraded it to a Cat 1 hurricane as it crossed over the Florida tip. It was assumed that, like other hurricanes, it would follow an arc up the Florida panhandle. However the storm continued west, soaking up warm air from the Gulf, which gave it the first intensification boost, doubling the size of the storm. Michael Erb’s paper[1] covers how this happened in greater detail.

Investigations later identified that there had been poor reporting and decision making within the National Weather Service, resulting in New Orleans not being given the right information early enough. Such were the concerns over the lack of accurate details coming from the National Weather Service, the director of the Hurricane Centre contacted the Mayor of New Orleans direct to advise of the impending landfall of a Cat 4/5 hurricane very close to New Orleans. Due to its power, the hurricane was now creating a storm surge which headed directly for New Orleans, while the National Weather Service was reporting a number of small tornadoes forming, thus advising people to stay on the lower levels of their buildings; the exact opposite of what should be done when a storm surge is due to strike the town.

Within Walmart, the company had also been tracking the approaching storm event and saw another disastrous event about to arrive on its doorstep. It was already dealing with reputational damage caused by suggestions of unethical business practices, leaked documents and falling consumer support caused by a sustained internet campaign against the company.[2] There were also a number of lawsuits raised against the company as it forced employees to work off the clock, skip lunch breaks and tampering with wage records.[3] In 2000 it paid out $50 million to 69,000 workers in Colorado, while an external audit identified that 127 out of 128 stores across the US over a one week period carried out over 75,000 various violations[4]. It was also subject to a documentary film which sought to highlight how Wal-mart was damaging American values.

Wal-mart retaliated with the hiring of a war council to re-develop its corporate image and Mother Nature offered them a helping hand. The arrival of hurricane Katrina was a pivotal moment for the company, though the opening moves almost derailed the company’s reputation even more. With the landfall of Katrina imminent, the company deployed armoured cars to empty all stores of cash, but left behind weapons and ammunition; it also only paid its workers 3 days pay after closing down 126 stores in the region.[5] However, Within hours of receiving information that Katrina was due to strike New Orleans and the updated warnings of extreme devastation and risk of severe loss of life from the National Weather Service, Wal-Mart prepared 45 truckloads of relief supplies to be shipped to its stores prior to Katrina arriving. Managers and senior leaders used the language of ethics and moral obligation, rather than profit or self-interest, to generate understanding of the company’s efforts.[6] Though a number of the large companies had their own divisions who are responsible for disaster response and business continuity, the actions of Wal-Mart during the Katrina event displayed more than these tactical reactions, there was a move to be proactive and strategically focussed. For Wal-Mart the need to manage 126 stores in the impact area forced the need to employ an adaptive leadership model, with the real prospect of stores being forced to fend for themselves for days due to the severe risk of flooding, closed roads, damaged infrastructure and crippled communication networks.

6 days prior to landfall, Wal-Mart’s own weather analysts noticed the possible storm track and began advising managers in the region to prepare for bad weather. In contrast to the information sent out by the NWS at the time, Wal-mart’s weather team identified that Katrina was going to landfall and issued warning to stores, a full 12 hrs before the National Weather Service.

By utilising previous research into what people had bought during recent storm events and evacuations, Wal-mart was able to front load vital goods and supplies to the “at risk” stores, helping the community prepare for the inevitable. Bottled water, dried food, chainsaws and generators were all mobilised to supply depots just outside the impact area. Once Katrina had passed, the company sought to ensure that the flow of aid and support to its stores was maintained, without impacting on the already devastated community. Avoidance of price increases on key goods and the CEO directing that $3 million of supplies were to be shipped to the affected area, support arrived days before the FEMA response. A further $17 million was contributed to the aid effort.[7] As the picture unfolded and the devastation became clear, Wal-Mart increased the flow of aid, support and at times found themselves running their own relief efforts. The co-ordination, resources and direction given by the leadership team prior to the hurricane strike enabled the Wal-Mart stores to react accordingly, understanding the strategic vision and the CEO’s intent. By enabling an adaptive leadership approach and trusting store managers to react according to the situation on their patch, Wal-Mart managed to react for more effectively than the national professionals. The company was widely praised for their response, arriving in New Orleans with much needed supplies of water and basic necessities,[8] obtaining widespread thanks from the beleaguered city.

Over the next three weeks Wal-Mart moved almost 2500 truckloads of aid to the affected area while initiating a strategic recovery process simultaneously to re-open 126 stores and 2 distribution centres that had been affected by Katrina. Yet within 10 days all but 15 stores were open and those that remained closed were so badly damaged it was assumed they were lost. Wal-Mart was also very aware of public opinion and how one mistake during this major disaster would destroy the good work done to date. It allowed the public to use its Photo Centre internet facility to post messages and images for the missing. As the recovery began, Wal-Mart pledged and initial $17 million, though it eventually donated approximately $32 million to the various Katrina relief efforts.[9]

The management of information and the willingness to share it during the response phase of an emergency is critical in developing a coherent and integrated multi-agency approach.[10] Coupled with this, the understanding of the organisation’s intent, strategic aim and critical tasks to enable a successful response enables tactical level managers to respond to the situation. Adaptive organisations understand that the way to build resilience is to identify and prepare for possible risks through the training, education and contingency planning. Wal-Mart demonstrated this through identifying threats to the stores in the impact area and extracting money, though at the same time researching what people would be buying prior to the impact, and post impact. By giving the key direction to store managers and the CEO’s intent post Katrina landfall, managers were able to rapidly respond, delivering aid and support to the shattered community. The rapid response of the truckers to get supplies in and the self managed co-ordinated relief efforts of Wal-Mart staff put the poorly managed FEMA efforts to shame.

In a post Katrina review, the management of the Federal response, command and control architecture and control mechanisms did not serve the government well.[11] The post mortem of the disaster identified a number of failings within the governmental response and preparation, with Frances Townsend identifying issues around planning, resource management, situational awareness, communications and co-ordination. These issues were known before Katrina had hit and few were surprised by her findings. Uncoordinated leadership from the official agencies on the ground, caused by a poor incident command system and a lack of understanding of unified command, caused significant issues to the response capability[12]. Furthermore, the disastrous failings of the levees, built by the US Corp of Engineers[13], resulted in a loss of faith in the administration and the federal capability to bring aid to the community. This was further reinforced in the days to come by the poorly co-ordinated efforts of FEMA, resulting in the officials of a number of districts stating that the government could learn a thing or two from Wal-Mart[14].

From an institution that was under fire for a number of reputational damaging issues, Wal-Mart’s preparation, response and continued support to the beleaguered city of New Orleans increased its reputation across the country. The co-ordination of the relief efforts, the support given to the frontline managers to maintain the service, supported by an adaptive leadership approach ensured that the company was able to respond at a strategic level to one of the worst natural disasters that the US had experienced in recent years. Through market analysis, strong decision making and strategic planning, Wal-Mart displayed another critical element of organisational resilience; the ability to adapt and thrive in a crisis, seeking to launch forward, rather than bounce back.

[1] Erb, M., (2006) A Case Study of Hurricane Katrina: Rapid Intensification in the Gulf of Mexico, University of North Carolina.

[2] AW Page Society (2006) Did Wal-mart Wake Up? A case study on How Strategic Management Handled Wal-Mart’s Reputation, downloaded from https://www.awpagesociety.com/wp-content/uploads/2011/09/Wal-Mart_CaseStudy.pdf p.8

[3] AW Page Society (2006) Did Wal-mart Wake Up? A case study on How Strategic Management Handled Wal-Mart’s Reputation, downloaded from https://www.awpagesociety.com/wp-content/uploads/2011/09/Wal-Mart_CaseStudy.pdf p.9

[4] AW Page Society (2006) Did Wal-mart Wake Up? A case study on How Strategic Management Handled Wal-Mart’s Reputation, downloaded from https://www.awpagesociety.com/wp-content/uploads/2011/09/Wal-Mart_CaseStudy.pdf p.10

[5] Leonard D., (2005), The Only Lifeline Was The Wal-Mart, downloaded from https://archive.fortune.com/magazines/fortune/fortune_archive/2005/10/03/8356743/index.htm

[6] Horwitz, S.,(2009), Doing The Right Thing: The Private Sector Response to Hurricane Katrina: A Case Study in the Bourgeois Virtues, Mercatus Center, George Mason University.

[7] Leonard D., (2005), The Only Lifeline Was The Wal-Mart, downloaded from https://archive.fortune.com/magazines/fortune/fortune_archive/2005/10/03/8356743/index.htm

[8] Horwitz, S.,(2009), Doing The Right Thing: The Private Sector Response to Hurricane Katrina: A Case Study in the Bourgeois Virtues, Mercatus Center, George Mason University.

[9] Horwitz, S.,(2009), Doing The Right Thing: The Private Sector Response to Hurricane Katrina: A Case Study in the Bourgeois Virtues, Mercatus Center, George Mason University, p.13.

[10] Coles E., (2014) Learning the Lessons From Major Incidents: A Short Review of the Literature, Emergency Planning College Occasional Paper No. 10.

[11] Donahue and Tuohy (2006) Lessons We Don’t Learn: A Study of Lessons of Disasters, Why We Repeat then and How We Can Learn Them, downloaded from https://faculty.nps.edu/dl/HFN/documents/DisasterLessons.pdf

[12] [12] Donahue and Tuohy (2006) Lessons We Don’t Learn: A Study of Lessons of Disasters, Why We Repeat then and How We Can Learn Them, downloaded from https://faculty.nps.edu/dl/HFN/documents/DisasterLessons.pdf

[13] Levee Investigation Team (2006) Investigation of the Performance of the New Orleans Flood Protection Systems in Hurricane Katrina, downloaded from www.ce.berkeley.edu/~new_orleans/report/

[14] Leonard D., (2005), The Only Lifeline Was The Wal-Mart, downloaded from https://archive.fortune.com/magazines/fortune/fortune_archive/2005/10/03/8356743/index.htm