How bad is the economy and how should those of us running a business ride it out?
— Name withheld, New York
Wave goodbye to the last holdouts. Until very recently, we knew that food and energy prices were exerting strong downward pressure on the economy, but we still believed the system could weather the storm. The complexity and global scope of the credit crisis have changed our thinking. Even with the massive restructuring of the US Federal Reserve, we anticipate an extremely tough fourth quarter of 2008 and perhaps an even tougher first half of 2009.
But enough about that. The second part of your question is what counts right now. Because no matter how dire the economy becomes, managers everywhere still need to wake up every morning, go to work and pave a path to the other side—a better future.
Photo: Malay Karmakar
How? There are probably dozens of answers to that question; think of all the management advice promulgated when the going was good. But when the going is bad, four leadership strategies strike us as essential.
1. Plan as if the downturn will be longer and harsher than you think:
Look, it’s natural to want to exert as little pain on your organization as possible, cutting back incrementally to protect jobs and projects while you hope for the best. But in a rocky environment, timidity can be risky. By contrast, if you take an aggressive approach to costs, there’s almost no downside. If the economy really tanks, you’ll be one of the few prepared firms. If it’s better than predicted, you’ll be positioned to leverage a bigger upside.
So steel yourself. Cut costs deeper than you’d like, fixate on operational details to wring out all excess, and focus on cash as if your life depends on it. It might.
2. Do not stop talking:
The fact that crises call for constant, candid communication should go without saying, shouldn’t it? But too often, managers react to downturns by locking themselves in their offices, where they’re free to panic themselves into paralysis in private or with a few close associates. What a morale killer. Your people are scared, and their imaginations are taking them into very dark places.
Now more than ever, you need to alleviate that fear and uncertainty, not with rosy, unrealistic platitudes, but with hard information. Tell them which plants or offices will be cut back or closed, for instance, and describe in vivid detail what the competition is doing to deal with the downturn. And tell them too, again as vividly as possible, what the future will look like if everybody hunkers down and works towards the same goal: endurance and renewal. Then tell them again and again. It will never be enough.
3. Energize your people with a second-half “anti-towel” bonus plan:
In any firm with financial incentives for “hitting the numbers”, a sharp or sudden downturn can sometimes launch an unfortunate phenomenon. As soon as it becomes obvious to people that they won’t be able to make their goals in the second half, they throw in the towel. They basically give up on the fiscal year, and start planning for the next, or worse, looking outside for career options. On a personal level, perhaps, such behaviour is understandable. But for an organization that needs every sale and dollar of productivity it can get, it can be damaging.
That’s why you need to develop and announce a revised compensation programme that rewards second-half performance. Further, and just as important, make sure your top performers know that you will reward their efforts in this period, not just their numbers. Their commitment is critical right now. Show them yours.
4. Finally, do everything you can to buy or bury your competition:
If you’re aggressively cutting costs and keeping your people engaged with over-communication and anti-towel compensation plans, your balance sheet will likely allow you to take advantage of a downturn’s one benefit: the opportunity to make bold competitive moves. Like JPMorgan Chase and Co. which has made aggressive moves in the midst of the financial industry mess, you can look to your own adjacent markets for fire-sale acquisitions. You can gain market share from weakened competitors by extending generous credit terms to customers you’ve never been able to reach before or you can lure away your competition’s best talent, to name just two “bury” tactics.
In times of crisis, managers must go on the defence. But you need to unleash your offence now too. This downturn may have just begun, but it will end. Don’t just survive; seize the day.
Write to Jack & Suzy
Jack and Suzy are eager to hear about your career dilemmas and challenges at work, and look forward to answering some of your questions in future columns. Jack and Suzy Welch are the authors of the international best-seller, Winning.
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©2008 / BY NYT Syndicate