May 11 2010
Having survived four major recessions in my international career including the regional crisis in Asia during the SARS epidemic, the currency collapse in Argentina, significant subsidy reductions in the Indian Ocean Islands and now the latest recession gripping the US in 2008-2009 there remains one common thread across them all – the critical need to ensure corporate alignment from top to bottom through these economic tough times.
As companies head into recessionary periods the same type of corporate behavior typically takes place:
- Not quite denial, but a belief that the situation is more of a speed-bump than an extended period of change.
- Forecasts continually get revised downward but the “hope” of a rebound remains.
- Targets are missed, backlogs decline, economic data continues to worsen.
- Repeatedly burned by trying to catch the falling knife, the leadership team faces reality and rebases the forecast to reflect the current operating environment.
The speed at which companies move through this process is a factor of both the maturity of the company and management team. The point at which companies move to the point of “realization and acknowledgment” is vital to preparing to set the company on a path of survival mode through the downturn. Of course when forecasts which are significantly below targets get communicated there is the inevitable negative feedback – either from shareholders or key stakeholders such as parent companies – and stock prices and valuations are impacted accordingly.
While this is bad news in of itself this is also the point at which comes acceptance that performance based incentives will not be in the cards. In companies where these bonuses have become the norm, getting the leadership team to come to a consensus that it is not going to happen this year can be a major hurdle to overcome.
Once this milestone is achieved the focus will turn to getting through the storm and positioning the company to be ready to emerge from the recession and return to acceptable levels of performance. What happens next is critical to how quickly and effectively the company implements a revised strategy to best survive the conditions and gets its people aligned to the new environment.
The two key components which must be undertaken:
- Development of the “survival” strategy – this should comprise short term tactics to maximize the company’s position through the recession without jeopardizing the long term initiatives which may already be underway.
- Communicating and aligning the organization to the new strategy.
The new strategy may include any number of things including new pricing strategies, specific channel focus, delaying projects & capital expenditure and of course cost cutting. Normally, these strategies are not brilliant new ideas but rather adjustments based on the strengths and experience of the company. In most cases a leadership team can hash out the core elements of this strategy in a relatively short amount of time and an average strategy well executed will vastly outperform a brilliant strategy poorly executed. Whatever the strategy, the differentiator is what comes next and what separates the high performing companies from the rest.
The challenge is getting your organization to understand the new focus of the company, why it has happened and how each employee with be impacted going forward. Whether the organization is global, national or a single location $25M company, the barrier to success remains the same – clear communication and buy-in to the revised strategy and changing the underlying forces of inertia i.e., internal processes which tend to be more embedded and difficult to restructure quickly.
One of the biggest mistakes made when dealing with rapidly changing conditions and revised strategies is under-communicating what is happening in the macro sense and what specifically the company’s reaction is to the situation. Too many companies cascade changes through the company via PowerPoint presentations with talking points, subject to individual communication styles and interpretations. This is a critical mistake made all too often by companies that come up with the new direction but then hand it off without keeping ownership of the changes.
Comm3 – Communication at Three Angles
This is my own basic principle that individuals must be given consistent corporate messages from three different angles in order for there to be strong buy-in to what the company is trying to accomplish:
- The most vital and impactful communication method comes directly from those in command of leading the organization; C-Suite senior executives such as the President, CEO or CFO. A presentation of the current situation and changes ahead should be delivered in person with Q&A opportunities to ensure there is no ambiguity.
- This is reinforced by performance measures and incentives which reflect the changes communicated.
- Finally, a feedback loop should be in place to inform employees at all levels how the company and business units are performing against these news measures.
The point is that executives in senior management positions must invest significant time to get in front of its management teams and as many employees as possible to personally communicate what the company is trying to achieve and why. There can be no better Internal Rate of Return (IRR) on senior management time than that spent one on one with the people that make the difference to the company i.e., the second and third levels of management.
A Greater Flexibility: Annual Targets and Performance
The performance measurement aspect is very important especially if the organization is asking individual executives to do different activities or change focus. The problem is that all too often the corporate infrastructure is so entrenched that making course corrections can be difficult. Believe it or not annual performance targets can be revised in May or even August if it makes sense.
For example, a sales strategy may have a key initiative strategy focused on launching a new high-end product which given the new economic reality has to be scaled back or postponed. This being the case, it is not very motivational to have this project as a key performance measure for the year with your senior management. Assuming the metrics are consistent through the organization it would be much better to replace this with a market share target on a key critical mass product which is now a focal point under the new survival strategy.
The thought of this approach will give most HR managers cold sweats. However, high performing companies have this circuit breaker capability to say “the world has changed, here is the new plan and here is what we are asking you to do”.
Once the company has successfully communicated the new game plan and changed what we are asking people to focus on it is vital to give feedback as to how things are going under the new strategy. This should be on a regular basis at least on a monthly basis and as much coming directly from the top team as possible.
The key to Comm3 is that if a company can combine the three elements the results will be exponentially move effective than a traditional top down approach.
A Strong Communication Policy is the Key to Success
When faced with drastically changing economic and business conditions leadership teams must react quickly and decisively will increase the odds of outperforming the company’s peers through this period and beyond. Having an excellent strategy to deal with these conditions is important, but cascading it correctly it at least as important to having a successful outcome. Both of these supported by a clear and consistent feedback loop on how things are progressing will solidify the process and ensure that the organization is aligned to the new operating environment.
The acid test for any senior manager is to approach a member of the company at any level and ask them if they understand the basic change in focus and how they are a part of the challenge. If that person can tell you they are aware of the challenge and can articulate a couple of the key initiatives in any detail you know you are well on your way to keeping your organization on track.
BlueSteps Executive Guest Writer - Senior Executives learn more about BlueSteps now.
Jim McCormick has over 20 years of global consumer goods & manufacturing experience, including CEO and CFO roles across Europe, Asia, Africa and South America. He has extensive experience in strategic planning, brand related initiatives, business optimization and corporate & regulatory affairs. Jim specializes in turnaround situations where new strategy development, corporate alignment and creating a sense of urgency are the critical success factors. Contact via E-Mail: email@example.com or LinkedIn.
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