How bad is the economy, and how should those of us running a business ride it out?
Wave good-bye to the last holdouts. Until very recently, we knew 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 a huge Fed restructuring, we anticipate an extremely tough fourth quarter and perhaps an even tougher first half of '09.
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—and a better future.
How? There are probably dozens of answers to that question; think of all the management advice promulgated when the going was good. As for leadership strategies when the going is bad, four tactics strike us as essential:
• Plan as if the downturn will be longer and harsher than you think. Look, it's natural to want to inflict 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 very risky. By contrast, if you take a more aggressive approach to costs, there's almost no downside. If the economy really tanks, you'll be one of the few prepared companies. 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.
• Don't stop talking. The fact that crises call for constant, candid communication should go without saying, shouldn't it? But too often managers react by locking themselves in their offices, where they can 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 dark places. Now more than ever you need to alleviate that fear and uncertainty, not with rosy, unrealistic platitudes but with facts. Tell them which plants or offices will be cut back or closed, for instance, and describe in vivid detail what the competition is up to. And tell them, again as vividly as possible, what the future will look like if everybody hunkers down for the same goal: endurance and renewal. Then tell them again and again. It will never be enough.
• Energize your people with a second-half hang-on-to-your-towel bonus plan. In any company with financial incentives for "hitting the numbers," a sharp downturn can trigger a bad reaction. As it becomes obvious that annual goals are beyond reach, people throw in the towel. They give up on the fiscal year and start planning for the next, or worse, look outside for career options. This might make sense on a personal level, but for an organization that needs every sale and dollar of productivity, it can be very damaging.
That's why you need to develop and announce a revised compensation program that rewards second-half performance. Further, and as important, make sure your top performers know you will reward their efforts in this period, not just their numbers. Their commitment is critical right now. Show them yours.
• Do everything you can to buy or bury your competition. If you're aggressively cutting costs and keeping your people engaged with a communication assault and a hang-on-to-your-towel compensation plan, your balance sheet will likely allow you to take advantage of a downturn's one benefit: the opportunity to make bold moves. As JPMorgan Chase (JPM) has done all year, you can look for fire-sale acquisitions. To gain share against weakened competitors, you can extend generous credit terms to customers you've never been able to reach before or lure your rivals' best talent, to name just two "bury" tactics.
In a crisis, managers must go on defense. But you need to unleash your offense, too. This downturn may have just begun, but it will end. Don't just think survive; think seize the day.