Be realistic. Confront the issues directly and talk candidly with your employees about the future. Everyone reads the paper, watches the news, surfs the Internet, and listens to office gossip. We all realize that the economy is in serious trouble and that businesses are finding themselves in uncharted territory. These are fears and uncertainties we all face, and you need to address them. Be clear about what your company is doing to survive the downturn. And make yourself visible: have lunch in the cafeteria instead of in your office. When there is bad news to deliver, don’t mince words. Let people ask questions, and make sure everyone understands what is going to happen. Consider adopting a rule of thumb followed by many organizations: a message must be repeated at least nine times before it is fully understood by its intended audience. No one ever regrets communicating too often.
Create a detailed cash-flow statement. To survive a downturn, you must work with your CFO to forecast cash flow over the coming months. This is an important action because businesses will generate considerably less cash, especially if the depth and length of the economic downturn are greater than originally estimated. There will also be less credit available: tighter credit markets and higher qualifying standards will limit liquidity. Furthermore, companies’ varying capabilities to generate free cash flow might significantly change market dynamics, such as competitors’ relative strengths and ability to seize opportunities. Interestingly, most managers are not used to managing for cash. Their focus over the past decade has been all about what to do with excess cash, not how to forecast and manage all elements of the balance sheet. Enforcing and providing incentives for this discipline, therefore, will be critical to survival.
Help your employees navigate the uncertainties of the economy by presenting a vision for the next year and beyond, not just for the next three months. Times may be tough, but that doesn’t mean you should abandon your aspirations. Organizations need long-term goals and even rallying cries. One CEO remarked that he was aiming for “one euro of growth in 2009.” The phrase has caught on inside his organization and become a mantra of optimism.
Hug your stars. Your best performers may be more insecure than you think. Don’t spend so much of your time focusing on work force reduction that you neglect the core group of people who drive your company’s success. Those stalwarts deserve and need personal attention. Letting them know how much you value their performance will not only improve productivity in the current crisis, it will also ensure their loyalty when the economy rebounds.
Use the downturn as an opportunity to initiate changes that would be tough to sell in a better economic environment. In good times, many CEOs don’t like to rock the boat. But a downturn offers a rare chance to fix such lingering problems as underperforming employees, inefficient processes, or expensive, over-the-top sales meetings. In this environment, employees rarely question major changes, especially changes that don’t directly affect head count. So take an inventory of poor practices that have established themselves while no one was looking, and start working down the list.
Pressure-test your operating plans. Assume that profits could fall lower than ever. It is absolutely critical to have a realistic business case for a downside scenario—one that projects business dropping to at least the seventy-fifth percentile of historic performance—so that appropriate actions can be taken ahead of time, if possible. But bear in mind that we are in an unprecedented economic situation. Most empirical ranges from past downturns—and the models that were built around them—are largely invalid. So too are the traditional ways of thinking about year-to-year objectives and targets. Business cases for downside scenarios should be recast on the basis of new, forward-looking information. Many CEOs are working on them now.
Prepare a “Plan B.” Consider the worst-case scenario, and devise a contingency plan: “What are we going to do if X happens?” Make sure everyone understands the steps you will take if your worst-case scenario is about to be realized. There are several good reasons to do this. It will help you act quicker; it will force you to think through next steps before the crisis is upon you; and it will raise the questions that need to be answered to ensure that business units are ready to run Plans B, C, or D—if the worst happens.
Continue to support your best customers. Understand that partnerships that are strengthened during this period will lead to even more fruitful relationships in the future. The next months will be challenging: longer times for receivables, more disputes, more requests for support. When it comes to your best customers, we encourage you to treat them as you would in good times. Odds are that other vendors may lose their focus or ability to serve them well. To forge stronger bonds, have your senior people meet with your customers’ senior people. Find out how your customers feel about your current performance, business trajectories, and any indirect competition that may be out there. Filling a void left by your competition and strengthening customer relationships will increase the likelihood of your future success.
Be on the lookout for unique opportunities to benefit from the economic climate. Every crisis produces winners as well as losers. Positioning your company for immediate (and midterm) moves that will change industry dynamics is critically important. Areas of opportunity may include exploiting industry consolidation, enticing the competition’s poorly served customers, or locking up struggling vendors with long-term deals.
Protect—and even enhance—your company’s culture. Just as a person’s character is often revealed in a crisis, we believe that a company’s true culture becomes much more visible to others in a downturn. The actions you take—and, just as important, how you take them—will be associated with your company’s culture through the next generation. If you must release employees, do it respectfully. And be aware that everyone will remember how you let people go: both the employees who had to leave as well as those who stayed.
Whether it’s fair or not, leaders of companies (and countries) are closely scrutinized during their first 100 days in office—especially in times of crisis. A well-planned approach to leading out of the downturn can help galvanize an organization and set the tone for years to come. It can also help incumbent leaders as they enter a year that promises much turbulence.
We will be continuing our discussions with company leaders over the next several months. If you have comments to add, or if you’d like to discuss some of the recommendations we have made here, we’d like to hear from you.