Posted on Harvard Management Update: February 11, 2009 1:14 PM
Renowned business adviser Ram Charan's latest book is Leadership in the Era of Economic Uncertainty: The New Rules for Getting the Right Things Done in Difficult Times (McGraw-Hill, 2008). He recently spoke with Christina Bielaszka-DuVernay, a HarvardBusiness.org editor, about the challenges—and opportunities—this downturn presents to companies and their leaders. In this edited record of their conversation, Charan gives leaders at all levels advice on guiding their organizations and people through this crisis and coming out stronger on the other side.
What's most important for leaders—not just CEOs and senior executives but leaders throughout the ranks—to focus on right now?
In these times more than other times, first and foremost is demonstrating personal integrity and maintaining your personal credibility. They are so important in tough times, yet many leaders lose their integrity and destroy their credibility by giving into the temptation to cut corners when they have to do unpleasant tasks like downsizing. For example, a business-unit head, instead of being transparent about why he needs to cut 10 jobs, gives a partial truth or makes an excuse. That's a way of cutting corners, and it's destructive. In the Google era, people will find out the truth and that leader will lose credibility, making his job even more difficult.
Tell people the truth. Gather information—from customers, from your customer-facing employees, from sources outside the firm. Talk to employees throughout the company; listen to their viewpoints and engage them. When you have a firm picture of reality, share it. Tell people the reality—if the company doesn't take action now and cut some jobs, even more good people will lose jobs later. In this environment, the entire company could fail as a result of a leader failing to make hard decisions when they're needed.
If you have to make layoffs, make them in a fair, open way. Be frank; explain what's happening on the outside and why layoffs are necessary to protect good people and good jobs.
Authenticity is always important but now it's absolutely critical. Leaders, wherever they sit in the organization, have to demonstrate rock-solid integrity, honesty, and the ability to confront reality. The way to inspire courage and optimism in your employees is by mapping a credible path forward. If you soft-pedal bad news, they won't trust you. Worse, they'll miss the urgency of the situation and won't follow you.
In your book you advise leaders to practice "management intensity." What is this and why is it so important now?
I define management intensity as a deep immersion in the business's operational details and the day-to-day competitive climate the business is facing, along with hands-on involvement and follow-through.
It's so important now because of the accelerating speed at which things are changing. Surviving a volatile environment requires frequent operational adjustments. You hear every day about new layoffs and downward projections. Keeping up with news like that and tracking its effects is crucial, because a cut today will initiate cuts elsewhere tomorrow. It's not enough to sit in your office and read reports and issue directives. You've got to know what's happening daily, and adjust plans and processes accordingly.
Big-picture strategic thinking is still important, but it must take a back seat to this operational immersion—leaders need to be involved and visible, and communicating all the time. As I explain in the book, your guiding principle should be this: Head in, hands on. Only in this way will you be able to anticipate what's coming next and respond quickly and appropriately.
Does management intensity place a greater emphasis on execution than what's called for in more flush times?
Yes—management intensity calls for a sharper and more frequent focus on execution. The DuPont story I tell in my book is a good example of what I mean. When Chad Holliday [then DuPont's CEO; now its chairman] determined that the global banking crisis had spread beyond the financial sector and could seriously affect his company, he called a meeting of DuPont's crisis teams. Over four days, they put together a plan to deal with the growing economic downturn. Conserving cash was the top priority.
Within two weeks, every one of DuPont's 60,000 employees had had a face-to-face meeting with a manager who explained the plan for keeping DuPont viable. Each employee was asked to name three things he could do immediately to save money and conserve cash. Then a few days later, the company polled employees to assess their understanding of the crisis, their psychological response to it, and their follow-through on conserving cash.
After this first round of communication with DuPont employees, you report in your book, Holliday had the sense that people hadn't grasped the urgency of the situation. You quote him as saying that "maybe we were too good at giving [employees] the reassurance and confidence that we could come through this." What balance should leaders strike right now between realism and optimism?
Realism is not negotiable. It's absolutely essential to anyone who leads. You need to have a clear picture of how bad things are and how bad things could get, then put that reality in front of people.
Realism also includes determining under what conditions the business will improve, and communicating those scenarios. That's optimism grounded in solid realism.
People through the centuries have gone through some very difficult times. Those who succeeded despite challenging conditions did so because they were tough and tenacious. You have tough and tenacious people working for you; engage them by putting the hard issues right in front of them. They will be motivated to overcome the challenges.
Isn't there a danger that people will become demoralized by the enormity of the challenges? How does a leader prevent that from happening?
Give them the problems in bite sizes. Put a challenge in front of them that's specific and concrete enough to deal with. For instance, if your competitor has a 20% win ratio, challenge them to get 30%. Even though the total market is declining, even though your company's revenues will be smaller, you and your employees still have a chance to compete and to beat somebody.
These are anxious times. How should leaders manage their own emotions?
Actually, in a crisis most leaders tend to be too optimistic rather than the contrary. They overestimate how well their company will fare because they want to believe everything will turn out well. This misplaced optimism allows them to think that they don't have to make painful decisions or take drastic action.
To guard against this, I advise all leaders to map out worst-case scenarios. If you deliberately plan for the worst, you'll probably encounter something less dire and come out ahead when it's all over.
In your book you say that surviving this downturn requires intense coordination across the company. What can the CEO do to pull down silos and foster companywide coordination? What can midlevel leaders do?
Any leader at any level can figure out what key decisions must be made and what coordination is required to implement them. Say your unit aims to launch a new product by July. You know what decisions you will have to make around that goal. So move swiftly to get the best information you can, then make the best decisions you can.
You know there will be three or four silos involved. Check in with people from those areas frequently, asking questions and exploring issues with an open, informal tone. Remind them of your shared purpose: to win with customers. Human beings like to win, and in companies, no one wins alone.
It might help to think that the situation you and your colleagues face is akin to a basketball game. Players make judgments constantly about the game as it's in progress, instinctively passing the ball to a teammate to counter the defense, without worrying about who's going to get the credit. Basketball is a sport of speed, flexibility, and synchronization. The same qualities are demanded of cross-functional teams in this recession. What department or function teammates come from doesn't matter; what matters is that they're united against the competition.
You teach a class at Wharton for high potentials. What's your advice to high potentials in this downturn?
If you're a high potential, act like one and keep building your capabilities; this recession doesn't have to slow you down. In fact, it offers you opportunities that normal times don't. Wherever you work, it's likely that there is a shortage of really talented, motivated people with the flexibility and resilience to weather these tough times. So step forward and get noticed. Get on cross-functional teams. Learn and lead. Build social networks. Set benchmarks for yourself—use the next two years to double your capacity and triple your capabilities.
What will the best companies do during this recession?
They'll get ahead the curve and conserve their cash. They'll take out frills and focus on the core. And then they'll think of how the market will have changed in two or three years and what innovation they will need to have done to compete successfully, and they'll do that innovation now.
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