Tue, Nov

Don't turn a crisis into a drama

Don't turn a crisis into a drama

How to make the recession less painful for your business? By Walter Hale
Good leaders are effective in good times and bad. The fundamentals that define leadership don't change just because the bottom has fallen out of the market. But the stakeholders that a managing director has to deal with - customers, employees, investors - are all in a state of heightened alert, anxiously awaiting any false step and likely to make a melodrama out of every minor crisis. In bad times, many businesses adopt a strategy that has hailed in a thousand Westerns: circle the wagons, hunker down and focus on survival. But in turbulent times, the need is to communicate more, not less. Building trust with those key stakeholders is one of the core tasks for any managing director who wants their business to survive in good shape. That said, there are a lot of small things businesses can do to make their life a bit easier.


You think you know your markets pretty well, look again. Research by McKinsey and Alchemy Growth Partners found that the weakest contributor to a business's performance was market share - the yardstick that many most commonly use. Growth is driven, this research suggests, by the vitality of the markets in which a company operates. The research also found that often companies don't understand those markets, defining them, for convenience, geographically or by the generic product. By looking at those markets more closely - identifying the revenue growth in specific niches and breaking down the data in different ways (e.g looking at product sectors and geographical markets) - businesses often found pockets of growth that weren't apparent from the headline figures. By investing in these areas, they managed to grow the business more effectively.

Managing by numbers is always risky. Managing your business so that it meets a single performance indicator is like looking at the world with one eye closed. The truth is that the emphasis on any single indicator will distort the business, leading people to do things they know are stupid and possibly bad for the business just because that's the way the system works. A better approach would be to encourage all levels of staff to help you fix the system. Building a culture that does that is one way to ensure a healthy business.

From 1930 to 1932, American president Herbert Hoover did nothing to stimulate the US economy even though the world was in the grip of the Great Depression. Instead, he continually insisted that the worst was over, and that things were just about to get better.
After two years of this, American voters were so fed up they deserted Hoover and the Republican party and elected Franklin D Roosevelt. Hoover was not a stupid man but by trying to reassure people, on the basis of very limited evidence, he alienated millions of Americans who lost faith in him and the system. In difficult times, leaders like to offer reassurance. But false reassurance is worse than no reassurance. So be realistic. Don't tell staff the big contract that is at risk is certain to come in if it isn't. Management consultants say the two worst states of mind for a leader in a tough economy are denial and hope - refusing to face reality or looking at it and then carrying on as before in the hope that some unspecified force will change reality.

The bookshops are groaning with bestsellers, memoirs and autobiographies that promise to make you a better manager, a more effective leader and transform your business. Learn from them all but don't copy anyone and don't be too dogmatic in pursuit of any particular theory. Most management is so situation specific that the latest theory may not help. Indeed, it is questionable whether management is actually a genuine transferable skill. The business leaders who become cover stars are normally associated with one company - Jack Welch at General Electric, Richard Branson at Virgin - and few tycoons have proven they could manage different sizes of business in different sectors. Would Branson's style be as effective if he was managing a wide-format printing company? Besides, staff, investors, colleagues can distinguish authentic leaders who have the confidence to be themselves from those who are trying to be someone else or robotically applying tenets from the latest business bestseller.

The only upside of recessions is that they give you, as a leader, a clear, understandable mandate for change. So take the opportunity to get back to basics. Look at the core of the business, see what you can improve, do more efficiently, sweat the details - are your processes as streamlined as they can be? - but make this a team effort. And resist the temptation to micromanage. You have to ask the awkward questions and encourage others to do the same - but it's astonishing how quickly an imposed, micro-managed approach to cutting costs will kill your team's enthusiasm for the whole enterprise. Just sending an email to a head of department telling them they need to find ?50,000 in savings - regardless of the effect that has on their operations - isn't going to help you or the company.

Circle the wagons style secrecy is a natural response to recession. But one of the key factors non-executive directors and investors look for when they assess a new business is: how open is it? And when talking to staff, don't deal in lazy generalities. Statements like "Our job is to maximise shareholder value" or "We need to increase the quality of our customer service" don't really inspire or motivate staff or colleagues. Chip and Dan Heath, authors of the phenomenally successful book Made To Stick, say that specific stories or details are more effective. So explaining how a particular employee went beyond the norm for a customer will get the message across more than general exhortations.


Cutting prices may be a tactical necessity but as a policy it is fraught with danger. In a weak market, bundling services together can
help maintain margins. The suggestion of greater value - that the customer is effectively getting something for nothing - may be
enough to tempt buyers and avoid precedent-setting price cuts.


If sales staff are rewarded only for every sale they make, where is the incentive for them to help you manage customer payments? The Harvard Business Review cites the example of a metal refining firm which directed sales staff to help manage payment. The percentage of overdue or bad payments fell from 12% to less than 0.5% of the total. Managing payment doesn't have to be a heavy, send in the bailiffs routine. In many cases, a simple reminder will speed up payment.


It's easy to fall into a trap where your frame of reference becomes the industry you're in. But could a direct mail company teach you about customer service? And could a commodities company teach you a thing or three about managing costs in a market where prices are fluctuating? The best new ideas for your business may come from companies that seem utterly irrelevant.


An American software company saved 15% on the cost of 150 workstations just by buying them secondhand. There is a huge market for secondhand office furniture, why not take advantage of it?

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