Leadership in an economic downturn
CEOs & entrepreneurs have little recession-related experience and this clearly shows up the difference between leaders and managers.
Leaders focus on effectiveness whilst letting their managers work on efficiency. Doing the right things in a recessionary environment becomes even more critical than doing things right. Obviously you need both, but it is the real leaders who do not lose perspective and concentrate even harder on staying effective.
Whilst weak companies are struggling to keep their heads above water, strong, well managed and well led companies actually do not lose focus on growth. They realize that even in a recession it is possible to be confident, stay positive and energize their people to not lose the belief that they can find opportunities to increase revenues and profits.
Strategic leadership in a recession requires decision making that will not only address the firm’s current situation but also help management get in shape for the upturn that is bound to come. In a slow growth environment there is an urgent need to shift the focus of strategy from just growth in market share to growth in profitable market share. There is a world of difference between the two and often requires serious realignment of company culture and operating structure. As CEOs focus on reducing costs they cannot give up the drive to grow the top line profitably. The market is still full of opportunities and leaders need to have the confidence to make selective investments to find ways to help the organization achieve profitable revenue growth.
The past is never a good guide to understanding your business and the industry in which you are operating. In fact in a recession it is necessary to invest more time and money to develop insights – that from which strategy (the ability to offer greater customer value in a unique way that others cannot) can emerge. Competing based on superior insights can make the difference between winning and losing.
What does winning mean for a business? Whilst there are many possible responses, there is one response that we call all accept, viz. the achievement of their desired future state. Every business has a current state (where they are now) and a desired future state (where they want to be). Quite obviously, if they have already achieved everything they want, they would no longer have any goals and such a business can only go in one direction- down! But the moment they set goals, they have to recognize that they face challenges, roadblocks that have to be dismantled, before the progress towards the desired future state can continue.
One of the biggest roadblocks that C level executives face is the inability to make timely and superior decisions based on insights for the simple reason that they are working in a highly complex and fast changing environment that fosters fear of failure driven by the lack of clear thinking. Clarity of thought and action can deliver competitive advantage. I will come back to this subject a little later.
Most companies grappling with the economic downturn and the abrupt slowing of growth do reasonably well on two very critical initiatives viz. the focus on Financial Performance including improvements in cash flow, earnings, and capital. They also tend to do well on improving Operational Performance including cost reduction and leveraging technology. Two other critical areas where both CEOs and Entrepreneurs alike do not do so well are continuing the Focus on Growth with strategic investments and the Management of Human Capital in terms of retaining key talent while managing potential workforce reductions.
“Beyond the obvious” thinking
Both these challenges need business leaders to think innovatively and find ways to overcome the knee jerk response that invariably overemphasizes one critical dimension like cost reduction whilst ignoring another vital one like growing the business. Some CEOs I have talked to have thrown in the towel and are reconciled to the fact that there is no solution and that it is not possible to improve their Sales Program Effectiveness. The obsession with cost reduction makes them throw the baby out with the bath water. There is a blinding almost to all interesting and novel approaches that could well be the answer to reversing their slow growth. It involves helping their senior management with the resources they need to generate demand in creative ways that will allow them to retain their customers and in fact do so even more profitably than before. The Big Four Accounting firms are a case in point. There is a strong desire to crawl into the trenches and revert back to their core business where the focus is entirely internal and ignores the fundamental issue of helping their clients to overcome their challenges and roadblocks. Then there are the consumer and industrial product companies who cannot think beyond offering huge discounts to reduce inventory and shrink production. Sure, consumer spending does decrease in a slowdown, but it also changes significantly in terms of product choices driven by fast evolving needs. (I am sure ice cream consumption does actually go up!!). Changing the product mix and creating value for customers based on evolving needs can seriously increase both revenue and profitability. Going back to the basics in terms of Customer Relationship Management and implementing creative demand drivers will once again stimulate demand and ensure continued spending.
Very much aligned to the process of driving growth is the motivation of employees and the retention of talent. I was approached by a senior executive of a reasonably large MNC who reports directly to the Asia Pacific CEO in the regional office. His boss had been under considerable pressure from head office to reduce costs and so upon the urging of his CFO had finally succumbed and sent out a circular informing everyone of a 20% pay cut. The HR head was also supportive because this was a better remedy than making people redundant. My client was the head of a business division and a star in the company driving 30% of revenues and 40% of profits. He and his team secured 90% of their sales in China. His competitor (a much larger MNC) had been headhunting him for two years with a promise of 25% raise for him and his team because they had not yet started business in China and this would give them a jump start. Since he was clearly the best performer in his company he was very distressed with the 20% pay-cut and so was his team- in fact they were urging him to take the other offer immediately. But because he had been with the company for nine years he was not sure and wanted me to help him think this through.
What he finally decided to do is not the issue, but what is important is the decision making process of the CEO. Little did he realize that the future of his company rested in the hands of an external resource that could very well have been internal? I had mentioned earlier that I would comment on the need for clarity of thought and action. Most CEOs and Business Leaders do not realize that they need the help of an external coach. Coaches can help you see beyond the obvious, to extract meaning from the knowledge you already have, and help you see above and beyond the basic situation to uncover business insights that can help you take better informed decisions to beat the competition. They can do this because they invest time to understand you, your values, your business, your desired future state, and your chosen strategies. More importantly, they have lots of experience in helping leaders realize their unfulfilled potential.
When the process of strategic thinking is combined with coaching it has a very powerful impact. One of the greatest challenges of leaders is how to keep up with so much change, in relation to themselves, their team members and their clients. Through a better understanding of the strategic shift particularly in an economic downturn, experienced executive coaches can help leaders identify their knowledge\skills gaps, make them more self aware in a non judgmental way and give them the confidence to do what is right.
A Leader needs to be able to address his\her inner fears and anxieties that can cloud thinking and become a hindrance to achieving the long term goals of the organization. Coaching can be a tactical and short term intervention after a 360 degree feedback. Or it can be strategic where the focus is on long term development of the leader to achieve the desired results. In either case leaders need to recognize that clear thinking is what leads to changes in behavior that produces the desired outcomes.
Clear thoughts act as catalysts for action whilst muddled thinking invariably leads to diffidence and inaction or serious mistakes that can throw away years of hard work and investment. ‘You are where your thoughts have brought you; you will be where your thoughts will take you’- James Allen.
Even Tiger Woods and Roger Federer in sport, or CEOs of large corporations who have enjoyed a great deal of success need to work with a coach because they are looking for consistent and greater degrees of success. Leaders can shrink their time to success (desired future state) when they and their senior management are consistently thinking clearly and as a consequence making better decisions than their competition.
Chief Executive Officer, Thought Perfect Pte Ltd
Tags: Leadership, Strategic Management