October 2008 

Leadership in a Downturn - Reassure, reconnect, re-engage       

Just as households change their behaviours during economic hard times, so do businesses. But whilst it might make sense to cut back on luxuries when your wallet is empty, the same is not necessarily true in business. Working with my colleague, Sharon Charlton-Thomson, we have researched what successful leaders do when the going gets tough and found some unexpected behaviours. Companies who act in these counter-intuitive ways not only survive but thrive in such conditions.

Reassure

One behaviour typical of leaders facing a recession is avoidance. Executives do not want to risk causing panic so they repeat the mantra that their company is in safe hands. All companies believe they are better run than their competitors. However, this kind of empty reassurance does not fill staff with confidence. Employees read the newspapers and watch the bulletins. They know that their company is in no better state to weather the storm than anyone else. They need reassurance, but it needs to be based on fact.

Counter-intuitive companies prepare themselves for the worst. In fact, they build contingency planning in to their business so that at any time, not just during recessions, they are aware of threats to their business, and opportunities for growth. They are able to effectively communicate and genuinely reassure staff because they have proven their system of looking ahead works in the good times and in the bad. 

Of course, for companies who do not regularly anticipate and plan for future worst-case scenarios, it can seem risky to start during a recession. It may cause panic but there is little alternative. Sugar-coating the truth means trying to prove that everything is fine by aiming for increasingly impossible targets. Forecasts are not met and company value plummets in any case.  Hoping the recession will go away leaves a company completely unprepared and aiming for results which cannot be achieved. Bad for morale and bad for market value. Facing the reality, no matter how frightening for the leadership and the rest of the staff, is more likely to protect the business.

Reconnect

Another common behaviour during an economic downturn is that leaders focus even more closely on numbers in a shorter timeframe. In other words, they don’t just want to see quarterly or monthly figures, they want to see weekly or even daily figures.

They base their decisions on short term results, changing direction and adapting policies more regularly and making quick-fix decisions in order to save money wherever they can. This generally includes cutting staff numbers and seeking savings from suppliers.

In fact, suddenly firing staff and squeezing suppliers doesn’t make sense in the long or even medium term. Given that the average recession lasts only 11 months, the cost of rehiring and retraining employees is often greater than the saving of cutting numbers initially. It has also been shown that even where redundancies are necessary, how they are handled makes all the difference. In organisations where leaders make the announcement and then head for the safety of their offices for the duration, there are more claims of unfair dismissal than when they make themselves available to answer questions about job losses and the reasons behind them. In addition, the staff left behind remain more positive and productive where redundancies have been managed effectively. 

Trying to mend damaged supplier relationships once the bad times have passed is also expensive and, sometimes, impossible. Companies which develop closer relationships with suppliers during difficult times ensure they will continue to receive preferential rates, better terms and conditions and access to innovations before their competitors when markets start to rise again.

During the recession of 1990/91 Chrysler told suppliers that if they suggested ways to cut costs by 10% they would get half of the savings. The company was the only one of the Big Three car manufacturers in the United States to turn a profit during that recession. 

Some companies work harder during economic slumps on their relationships with their customers, ensuring greater loyalty and retention. Tesco recently launched a new “Discounters” range in an attempt to keep customers coming to their stores rather than defecting to Netto or Lidl.

Reconnecting with your customers, suppliers and staff gives your company the edge.

Re-engage

A downturn is a great time to focus on staff development. Employees need to feel appreciated and secure. Investing in training, offsites and team building can bring a sense of ownership which remains even once the economic climate returns to normal. Given that there may be less to do (fewer sales, reduced production levels, fewer deadlines) there is more time to hone skills and “think” away from the office.

At times like this, re-engaging staff behind the bigger vision for the company, helping them to manage their stress levels and, at the same time, learn skills which will be vital to the continued growth of the business takes courage. Most competitors will be hunkering down, cutting spending on people development. 

But by remaining visionary, innovative and brave and by going against the conventional approaches your competitors are taking, you stand a chance of not only weathering the storm but coming out of it stronger and more capable. 

Moving Upward in a Downturn programme

Keeping leaders in the right state of mind during difficult circumstances is vital to your business success. Call us to find out more about our Moving Upward programmes for leaders - 08707 66 16 26 or email blaire@blairepalmer.com

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Blaire Palmer is one of the UK’s leading Executive Coaches and Creative Thinking Partners. Clients include some of the world's biggest companies such as GlaxoSmithKline, Airbus, HSBC and BT.

Blaire brings her decade of experience as a BBC journalist, her years of coaching experience, her insight honed over thousands of hours of brainstorming and creative thinking with clients, her natural vivacity, energy, creativity and enthusiasm and her solid credentials in to your company to uncover ideas that could make or save your company thousands of pounds.

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