Leading In Tough Times

No trend goes on forever

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.

Organisational change is just a concept. Organisations do not change - individuals change. If enough individuals change, then you start to reap the benefits of organisational change.

Therefore, this article addresses common versus effective responses to tough times.

Power of assumptions model

The most important conversation you will ever have is the one with yourself. This self-talk reflects your underlying assumptions (about people, the market, your own capabilities).

As an example, if market conditions require your company to change, you have three choices: stop, start or do something differently. Since most people assume that "change = loss", leaders reflexively stop spending, hiring, training, etc.

These assumptions dictate your personal response to tough times. Personal responses predispose you to certain behaviours or practices. Ultimately, your behaviour has a significant and lasting impact on the organisation. The employees observe your behaviour and start to create their own assumptions of you and the company, and then they start a similar cycle of their own. For better or for worse, this is how your culture is perpetuated.

Let's take a look at how the current economy and our leadership practices interact in this matrix:

Focus on how your leadership behaviour 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.

1. Survival versus Opportunity
   
   
2. Control versus Involvement
   
   
3. Panic versus Focus
   
   

Let's examine each of these separately.

Survival versus Opportunity

The survival response uses as its operating assumption, "We just need to stay afloat". The resulting leadership behaviours include: reducing headcount, decreasing employee development and controlling expenses. The organisational impacts of these leadership behaviours 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 behaviour 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 (for example, 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.

Control versus Involvement 

The second common response to tough times is control. This response assumes, "We know what is best for employees. They will just worry". Resulting behaviours include leaders work in the business rather than on the business and tight-lipped management. These kind of behaviours create distrust in company leadership and an expanded organisational blind spot (weaknesses that everyone - except you - are aware of).

Many companies that have grown over the past several years are now responding with control. Controlling management practices set them back to old ways of managing when they were a smaller company. When the leader shifts back to working in the business, rather than on the business, it predictably squelches any type of ownership behaviour by employees.

Studies on organisational change show that most employees do not resist change itself. Rather, they resist that unknown place between where we are now and where we will be - the abyss.

The effective alternative to control is involvement. The involvement response assumes, "We must harness all of our ideas to manage these conditions most effectively". Leaders who take this more effective approach work on the business and solicit employee input for solutions. Naturally, these behaviours result in greater ownership behaviour (what every leader wants more of) and a reduced organisational blind spot.

It is important to not just make employees feel like they are involved - a common, mechanical substitute for real involvement. Remember, those who underestimate their employee's intelligence overestimate their own.

Analysis of cumulative employee attitude research shows that the biggest concern for employees is communication. However, leaders are continually frustrated that their communication efforts do not improve employees' perceptions of company communication. Further analysis of historical data reveals what employees want to know. It boils down to four simple questions leaders must address:

1. Where are we going? (Strategy)
   
   
2. What are we doing to get there? (Plans)
   
   
3. How can I contribute? (Roles)
   
   
4. What's in it for me? (Rewards)
   
   

Your answers to these "fundamental four" questions create a bridge that connects today's possibilities to tomorrow's results. Without this bridge you are dead in the water. With it, you have the necessary platform to fully engage your team.

In today's information-rich, time-poor world, it can be quite challenging to decide what to communicate to employees and what to withhold. It's easy to say (usually to ourselves), "They don't really need to know all that" or "my team won't really understand" or "I don't think they can handle that news right now".

But the truth is that when employees don't get answers to the fundamental four, they tend to fill in the blanks with their own assumptions ... and their assumptions are often worst-case scenarios. This is not a reflection on the leader. It's human nature. Therefore, beware: Unanswered questions start the silence spiral:

• Silence leads to doubt
  
  
• Doubt leads to fear
  
  
• Fear leads to panic
  
  
• Panic leads to worst-case thinking
  
  

This spiral can take five minutes or five weeks to develop and play out, but in most cases, it happens more rapidly than we would imagine. Fill in the silence for your team by answering the fundamental four.

For instance, if you learn about a new project in another department that won't affect your team for a few months, tell them about it. They can start preparing or, at minimum, they won't be caught off guard or perpetuate rumors.

Panic versus Focus

The third and final common response to tough times is panic. The panic response assumes that "We better do something different to get through this". This assumption leads to a continuous eye on the next deal and an obsession with creating new initiatives. This results in eroding customer service and the "ship is adrift" syndrome.

This is a classic entrepreneurial response. Look for a new deal or create another business model. The problem is, that it's five times more expensive to obtain business for a new customer than it is from an existing customer. Also, employees really want clear direction - not a plethora of new initiatives during tough times.

Leaders that respond with focus reinforce customer service and existing customer relationships, and they sustain their marketing efforts. This results in improved perception of market position and stronger, more profitable customer relationships (again, what every leader wants more of).

Put your resources where you are strongest (core competency). It is tempting to try to shore up your weak areas during tough times. However, unless those areas are strategic, you will just be throwing good money after bad. Think about this: since some approximation of the 80/20 rule exists in almost all systems, we can safely infer that it also exists in your business.

This means that the most profitable 1/5 of your company is 16 times more profitable than the remaining 4/5. Needless to say, you should regularly look at your most / least profitable salespeople, products, service lines, divisions, etc.

Focus on the "vital few" - the 20 percent that has the greatest impact. Do not only rely on your instincts to identify your vital few - use data to determine the truth about your team's performance.

Look at customers, services, products, processes and people to find the 20 percent that drive the majority of your productivity, activity, waste, conflict or down time.

In good times and in bad, many of the leadership practices that we suggest under "effective responses" should be done all of the time. For example, watching your expenses is like cleaning your house - you always have to do it. Regardless of where your company is on the economic roller coaster, you should consider the organisational impact of your own personal assumptions and leadership behaviour.

Following is a table that summarises each personal response to change:

Author Credits