Leading Through an Economic Downturn

In certain respects, leading during an economic downturn shares common ground with leading in less challenging times. The ultimate objective remains the same, namely, to ensure the survival and maximize the prosperity of the organization. However, in other very important ways, leading during economic uncertainty poses unique challenges and requires distinctly different approaches from leaders.

In our experience, at least seven such practices separate the leaders who guide their organizations to gain competitive advantage during an economic downturn and those who do not. Nearly all organizations cut costs during such periods, so this factor distinguishes few.  Leaders who do achieve competitive advantage start by making the strengthening of the organization an explicit and resolute objective.  While this may seem like common sense, it is by no means common practice. 

Leading exclusively for survival versus leading for prosperity involves different actions. During periods of relative optimism when “survival” appears to be a given, a focus on gaining competitive advantage holds center stage. But when the economy shifts, uncertainty quickly leads to fear and overtakes the agenda. Cost cutting, layoffs, facilities consolidation, and so on, drives the illusion of good leadership.  A bunker mentality, however, is the antithesis of creativity and courage; it often masks opportunities to drive performance breakthroughs and to gain new ground as other competitors wait.

Shoulder-to-Shoulder Senior Team Alignment

Misalignment amongst senior team members is commonplace and is especially damaging during times of economic uncertainty. It is important that employees throughout the organization are rowing in the same direction, and in unison. This is nearly impossible when the senior team is operating with differing definitions of “winning” and different strategies for doing so.

In particular, senior teams that lead effectively through economic downturns are aligned in notable ways, including:

• Clear intent to build competitive advantage during the downturn, and agreement on how this differs from a more conservative survival-only orientation
• Specific objectives and strategic actions for achieving them (e.g., aggressively hiring away top talent when candidates are likely to be more receptive and more affordable)
• Agreement on how to rally and mobilize the organization
• A roadmap that coordinates multiple milestones and stakeholder actions

Focusing on the New Behaviors That Drive New Results

Although most leaders would agree with the statement that new results typically require new behavior, few actually take the time to ensure that the organization is crystal clear on the few high impact behaviors, area by area, that will make the biggest difference in gaining ground during a downturn.  Managers and employees are often told what they can no longer do, but are frequently left to follow their own assumptions about what they can do to help.

CLG’s experience is that building focus and new habits around a small set of high impact behaviors can yield substantial benefits that otherwise go unrealized.

Heads (and Hearts) in the Game

Economic uncertainty for the organization usually translates to emotional and financial uncertainty for employees.  That is, unless leaders intentionally commit to breaking this pattern. Fear and “paralysis” can be replaced with clear purpose, acceptance,  hope, and high discretionary effort when the right leadership practices are demonstrated (even for those employees who lose their positions as a result of the downturn).  Such practices are concrete, adoptable by most if not all leaders, and reliably improve the morale and performance of the organization during times of turmoil.

Accurate Forecasts

One of the CEOs with whom we work recently remarked that, “Our ability to predict is as important as our ability to perform, especially during an economic downturn.”  He is not alone in this perspective.  For most organizations, whether public or private, forecast accuracy is an imperative and worrisome aspect of the ongoing business.

While many organizations seek to improve forecast accuracy by improving planning policies and systems, our experience is that many organizations overlook the fact that forecast inaccuracy is usually the result of what people in the organization either do or don’t do. That is, new behavior (including practices that relate directly to decision quality) is required, and is often the single most important driver of reliable forecast accuracy.

Leveraging (Rather than Suspending) Improvement Initiatives

During economic downturns, organizations are quick to suspend initiatives that entail ongoing investment without immediate returns. Doing so can be a practical way to conserve and redeploy limited resources.  But, such actions can also be ill-considered, and create “stranded initiatives” that could be part of the solution rather than part of the problem.

In our experience, the wise route is to:

• Prioritize initiatives in terms of (a) critical to gaining new ground; (b) can be re-focused to be critical to gaining new ground; (c) “nice to haves” that can no longer be afforded
• Explicitly clear the way for faster completion
• Ensure that related implementation approaches will drive intended new behaviors quickly and consistently

Alignment of Consequences

There is tremendous power in mobilizing the talent and energy of the entire organization when success requires members to work closely together toward a specific and common objective.  Fostering this atmosphere, however, requires that leaders align consequences, both formal and informal, to encourage the new habits that are needed (and to discourage behaviors that undermine focus and unity).  In addition to reviewing, and modifying where appropriate, organizational processes such as performance metrics, performance management processes, and so on, day to day leadership practices at all levels can be powerful (and immediate and inexpensive) sources of reinforcement.

Preparation for Leaders

The leadership challenges that are associated with an economic downturn, particularly with strengthening the organization during such times, are new to a sizable percentage of managers in many organizations. The new generation of managers that has entered leadership ranks in recent years simply has not had the exposure to such conditions, and many other leaders lack past experiences that truly enable them to build high performance during conditions of uncertainty. There are practical ways to develop these skills, and to do so by embedding a common framework that is shared across managers and leaders. Such shared capability is one key success factor in building competitive advantage during the downturn

Times of uncertainty are full of challenges—but also opportunities. Opportunities to take the organization to the next level of performance. Opportunities to step up to the next level of leadership. CLG has worked with many organizations and leaders during such adverse times to help provide the extra focus and support that enables caring and talented people to execute flawlessly.