Crucial Conversations for Financial AgilityJoseph Grenny
The ups and downs of our economy are enough to make any executive dizzy. Just look at U.S. Steel (X). In the second quarter of 2008, the company achieved record profits, yet in November executives laid off 675 workers and postponed the construction of a new $450 million plant.
When the economy weakens, leaders are forced to bolt expenses to revenues. To accomplish this, they instinctively impose top-down, across-the-board solutions. Unfortunately, our latest research shows this common strategy results in a 50-50 chance of damaging the company's long-term ability to thrive.
Nevertheless, there are organizations that shine in changing financial conditions. The most agile respond faster, find millions of dollars in savings, and often emerge stronger. How?
Seeds of Success
During the last quarter or 2008, in the thick of the financial downturn, my colleagues and I studied more than 2,000 managers and executives from more than 400 different companies. The results were remarkable. In every organization we found four destructive behaviors that, if prevalent, will almost certainly lead to delayed and destructive actions.
However, our research shows that when leaders candidly and effectively confront or preempt these behaviors, the company responds up to 5 times faster and is 10 times more likely to position itself for future success. The four destructive behaviors are:1. Denial. Often, when a crisis breaks, denial ensues about the severity of the situation. People debate about the data and unknowns while their corporate ship slowly sinks. On the other hand, teams that discuss doubts are twice as likely to act within days and nine times more likely to resolve the crises. And yet, according to our research, only 40% of teams are able to effectively discuss disagreements about the urgency of financial issues.2. Going to Silence. After deciding what adjustments to make, the next crucial moment happens when people fail to hold teammates accountable for deviating from agreed-upon plans. Teams that confront violated commitments are six and a half times more likely to take effective action within days. Remarkably, every one of the 109 accountable teams in our sample resolved their financial crisis. But only 11% of teams hold each other accountable.3. Protecting Pet Projects. In most organizations, individuals conclude that necessary budget cuts are politically unwise to bring up. Ideas are withheld because people don't know how to suggest cuts to the boss's pet project. Teams that aren't mired in these kinds of "undiscussables" are four and a half times more likely to act on the financial crisis within days, and are nearly five times more likely to resolve it. But fewer than half confront these pet projects head on.4. Irrational Slashing. Most leaders address the above problems by preempting involvement of staff in dicey decisions. Rather than deal with denial, silence, or undiscussables, they simply impose across-the-board cuts. Leaders who exclude the team are nearly three times more likely to undermine their own purpose because they failed to create an effective and tailored approach.
What Leaders Can Do
Each of these behaviors represents a pivot point between agility and a tar pit. Teams that confront these behaviors through crucial conversations are 250% more likely to survive. Less agile teams are 360% more likely to miss millions of dollars in lost opportunities. Here's how leaders can take control:1. Model and Teach Dialogue Skills. As leaders foster the dialogue skills required to hold these crucial conversations, every one of the positive results described above is enabled as teams reach consensus, not conflict.2. Schedule Regular Financial Workouts. The era of fixed budgets is over. Agile firms replace fixed budgets with financial workouts that pit a wide range of initiatives against clear criteria, revenue, and strategy to guide their spending. These workouts are led by the C-suite and scheduled quarterly or in response to unforeseen shocks.3. Publicly Sacrifice a Sacred Cow. Sacrifice breathes life into new values. When leaders openly demonstrate that fiscal stewardship is more important than pet projects or personal ego, cynical team members begin to "doubt their doubts."4. Support Decisions that Favor Timeliness over Perfection. Most managers believe their leaders expect perfection. However, fiscally agile leaders accept that urgent financial decisions are made under conditions of uncertainty. Good leaders encourage managers to tailor decisions to the information they have.5. Create Safe "Sub-Dialogues." Leaders who break fiscal challenges into discrete problems and assign small cross-functional groups to work in a time-bound way are more likely to generate solutions. They will see intelligent cuts proposed rapidly by those who truly understood and embraced the goals of the reduction.
The greatest barrier to financial agility is not a lack of intelligence or a lack of time but a lack of focused, unified dialogue. Leaders who invest in the skills, time, and support to help their people hold crucial conversations will generate both profoundly wise and surprisingly rapid solutions to their financial challenges. And while the need for financial agility is paramount in today's economy, the capacity to engage in candid, timely and wise deliberation pays returns in any season.