This too shall pass.

This truism prevents complacency during good times and instills hope during tough times.

Have you been wishing for the good old days lately? Or at least to rewind the economic clock a few months when it wasn't so inexpensive to fill up your car with gas.

Leading a company during a slowing economy has plenty of challenges: What should you change, stop or continue doing?

No trend goes up (or down) forever. The path to sustained growth is like a roller coaster ride. Your personal assumptions about change and tough times will dictate how your business will experience the ride. In fact, the greatest opportunity for your business to create a sustainable competitive advantage is during a tough economy.

There are three common leadership responses to change with corresponding effective responses for each one:

  1. Survival vs. Opportunity
  2. Control vs. Involvement
  3. Panic vs. Focus

Survival vs. Opportunity

The survival response uses as its operating assumption, "We just need to stay afloat." The resulting leadership behaviors include: reducing headcount, decreasing employee development and controlling expenses. The impacts of these behaviors are employee cynicism and sacrificing the company's long-term capacity to sustain growth.

These are fear-based, defensive responses that reflect the "change = loss" paradigm. It is true that cash is king during bad times (and good times, for that matter) but avoid "majoring on the minors" by eliminating important rituals, reducing training or saving paper clips.

The more effective alternative to the survival response is the opportunity response. The assumption that underlies the opportunity response is, "Here is an opportunity to improve our business". This results in leadership behavior like upgrading the workforce and strategic cost cutting. Greater employee commitment and a strengthened ability to sustain growth are the outcomes.

The realities of your business may require you to reduce headcount. If so, make sure that you do the right thing - from a legal, employee relations and market perception standpoint. Resist the convenience of an across-the-board cut and use this opportunity to get rid of your 'C' and 'D' performers. Even if you are closing a location, try to re-deploy your best performers elsewhere.

The best run companies always behave like they are losing money. Tour employees should understand the most basic unit of profitability (e.g., the airlines use revenue/passenger mile). If your employees understand the drivers of your costs and revenues, they can act more like owners of the business. During tough times, shift your focus from the top line to the bottom line with a close eye on inventory control, receivables and cash flow.

Control vs. Involvement

The second common response to tough times is control. This response assumes "We know what is best for employees. They will just worry". Resulting behaviors include leaders working in the business rather than on the business and TLM (tight-lipped management). These create distrust in leadership and an expanded organizational blind spot - weaknesses that everyone is aware of, except you.

Many companies that have previously grown over the past several years, are now responding with control. Controlling management practices set them back to old ways of managing when they were a smaller company. When leaders shift back to working in the business rather than on the business it predictably squelches of ownership behavior.

Studies on organizational change show that most employees do not resist change itself; rather, they resist that unknown place between where we are now and where we will be - the abyss.

The effective alternative to control is involvement. The involvement response assumes, "We must harness all of our ideas to manage these conditions most effectively". Leaders who take this more effective approach work on the business and solicit employee input for solutions. Naturally, these behaviors result in greater ownership behavior (what every leader wants more of) and a reduced organizational blind spot (what every leader wants less of).

It is important to not just make employees feel like they are involved - a common, mechanical substitute for real involvement. Remember, those who underestimate their employee's intelligence overestimate their own.

Analysis of cumulative employee attitude research shows that the biggest concern for employees is communication. Further analysis of these historical data reveal what employees want to know. It boils down to four simple questions leaders must address:

  • Where are we going? (Strategy)
  • What are we doing to get there? (Plans)
  • How can I contribute? (Roles)
  • What's in it for me? (Rewards)

Panic vs. Focus

The third common response to tough times is panic. The panic response assumes that "We better do something different to get through this". This assumption leads to a continuous eye on the next deal and an obsession with creating new initiatives. This results in eroding customer service and the "ship is adrift" syndrome.

This is a classic entrepreneurial response. Look for a new deal or create another business model. The problem is that it's five times more expensive to obtain business for a new customer than it is from an existing customer. Also, employees really want clear direction, not a plethora of new initiatives, during tough times.

Focus is the effective alternative to panic. Focus assumes, "Let's keep doing what we do best".

Leaders that respond with focus reinforce customer service and existing customer relationships, and they sustain their marketing efforts. This results in improved perception of market position and stronger, more profitable customer relationships. Put your resources where you are strongest. It is tempting to try to shore up your weak areas during tough times. However, unless those areas are strategic, you will just be throwing good money after bad. Think about this - since some approximation of the 80/20 Rule exists in virtually every system, we can safely infer that it also exists in your business. This means that the most profitable 1/5 of your company is 16 times more profitable than the remaining 4/5. Needless to say, you should regularly look at your most/least profitable sales people, products, service lines, divisions etc.

In Good Times and in Bad

Many of the leadership practices that I suggest under "Effective Responses" should be done all of the time. For example, watching your expenses is like cleaning your house - you cannot do it once and be done. Regardless of where your business is on the economic roller coaster, consider the impact of your own personal assumptions and leadership behavior.