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Here We Go Again: Leading in Tough Times - Part 1
By Lee J. Colan, Ph.D.
Truism: No trend goes on forever. This truism prevents complacency during good times and instills hope during tough times. I wrote this article in 2001 to address how to lead in an economic downturn. Well, 2009 seems to be singing the same song to leaders. I hope you find some timely and timeless leadership nuggets in this reprised report...
Have you been wishing for the good old days lately? Or at least to rewind the economic clock 12 months? Leading a company during a slowing economy has plenty of challenges:
What should you change, stop or continue doing?
No graph goes up (or down) forever. The path to sustained growth is like a roller coaster ride. Your personal assumptions about change and tough times will dictate how your company will experience the roller coaster ride. In fact, the greatest opportunity for your company to create a sustainable competitive advantage is during a tough economy.
LEADERSHIP PRACTICES: IMPACT ON MARKET POSITION
Let's focus on how your leadership behavior can affect two of these quadrants. Quadrant 2 illustrates that it is easy to be a good leader during good times - high revenue growth forgives many sins. It is harder to create a sustainable advantage because if an economy is forgiving, anyone can ride that wave, even companies with less effective leadership. In Quadrant 1, effective leadership and poor economic times offer the best opportunity for you to create sustainable distinction in the marketplace.
PERSONAL RESPONSES TO CHANGE
There are three common responses to change with corresponding effective responses for each one:
- Survival vs. Opportunity
- Control vs. Involvement
- Panic vs. Focus
Survival vs. Opportunity
The survival response uses as its operating assumption, "We just need to stay afloat." The resulting leadership behaviors include: reducing headcount, decreasing employee development and controlling expenses. The organizational impacts of these leadership behaviors are employee cynicism and sacrificing the company's long-term capacity to sustain growth.
These are fear-based, defensive responses that reflect the "change = loss" paradigm. It is true that cash is king during bad times (and good times!) but avoid "majoring on the minors" by eliminating important rituals, reducing training or saving paper clips.
The more effective alternative to the survival response is the opportunity response. The assumption that underlies the opportunity response is, "Here is an opportunity to improve our business". This results in leadership behavior like upgrading the workforce and strategic cost cutting. Greater employee commitment and a strengthened ability to sustain growth are the outcomes.
The realities of your business may require you to reduce headcount. If so, make sure that you do the right thing - from a legal, employee relations and market perception standpoint. Resist the convenience of an across-the-board cut and use this opportunity to get rid of your 'C' and 'D' performers. Even if you are closing a location, try to re-deploy your best performers elsewhere.
The best run companies always behave like they are losing money. All of your employees should understand the most basic unit of profitability (e.g., the airlines use revenue/passenger mile). If your employees understand the drivers of your cost and revenues they can act more like owners of the business. During tough times, shift your focus from the top line to the bottom line with a close eye on inventory control, receivables and cash flow.
Look for next month’s newsletter where we will feature the next two sets of common vs. effective responses to managing in tough times.
2. Control vs. Involvement
3. Panic vs. Focus
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