Stephen H Baum Leadership

Last summer, about seven months ago, several of the business owners and CEOs in my Vistage peer advisory group and a couple of my private practice clients began to see the signs of recession. Businesses driven by their clients’ hiring saw growth in hiring slow. Businesses dependent on credit began to see longer approval cycles and closer scrutiny. The volatility and downward angle of the stock market made for worrying context. By September, these leaders began to develop contingency plans for a tough time.

Conversations which followed, including a group brainstorming session, stimulated three different thought processes and behaviors: 

A. Being more “extro-spective” (paying more attention to the marketplace and environment, outside-in instead of inside out)

B. A closer look at, and challenge to long-held assumptions

C. A search for more aggressive, more creative approaches

And what emerged from the discussions? They first focused on short term cost reduction and cash flow improvement:

– What I call “the usual suspects” in cost-focused ideas

i. Communication to entire workforce re situation (do not take economic literacy or understanding of recession for granted)

ii. Forced ranking of employee performance and “decimation” of the underperforming employees

iii. Hiring freeze, using temps for low-skill jobs

iv. Cutting less essential spending

v. Slowing capital projects

vi. Paying some suppliers more slowly

vii. Better collections of receivables, decreased aging and backbilling

viii. Reclassify inventory by turnover and criticality (is inventory really tied to sales?)

ix. Ensure that bids for new business have no low-ball assumptions or hidden costs to serve

x. Consolidate list of commodity suppliers for lower administrative cost, greater leverage and re-negotiate

xi. Shut down underperforming business unit

– What I call “Harder Work for Bright Boys and Girls”

xii. Push team to find alternatives to current suppliers, esp. if concentrated

xiii. Give selected suppliers an incentive to reduce costs (greater share? longer term commitment?)

xiv. Revisit outsourcing (esp. local where there may be leverage)

xv. Improve daily/weekly dashboard and prepare new contingency plans if volume drops below trigger points; communicate your intent

xvi. Re-organize to reflect real priorities and be closer to the customer

xvii. (before the credit crunch worsened) Revisit with bank what your track record is worth in terms of any renegotiating opportunity and expansion of credit facilities before it is urgent

xviii. Identify and motivate the most valuable players (retention saves money) 

xix. Experiment with new-to-company forms of communication (pop quiz on Top Ten things to tell customers, town hall meetings cascaded down the organization, internal webcasts, incentives and fast action for suggestions)

xx. Find better ways to get ideas for cash flow improvement from front line back, bottom up

xxi. Demand more discipline in financial management (and make it visible to lenders and investors) to help lower cost of capital when others can not

xxii. Cease providing costly elements of service or product of lesser importance to clients/customer (what does the customer pay for that he doesn’t value highly? What wont the customer pay for that you provide for free? How critical to retention are these?)

xxiii. Open the books to one more level of executives to engage them

xxiv. Revisit all tax calculations for reduction opportunities

xxv. Revisit processes (e.g., approvals, change orders) for reality checks, removal of bureaucracy and delay in execution and revenue generation (cycle time costs real money – cash flow)

xxvi. Find the biggest cost drain from sticking to outmoded policies and procedures

xxvii. Get help from insiders and outsiders with the right expertise even if not officially in charge or previously associated with these issues

All of the above ideas focus on cost awareness and cost management. The discussion then focused on short-term opportunities to grow revenue or protect from loss of it.

– The usual suspects

xxviii. Price increase to selected sets of accounts

xxix. Re-direct prospecting by “feet on street” away from current high concentrations 

– Harder work for bright boys and girls 

xxx. Re-segment target clients and prospects (who will feel less pain in a recession and be better able to pay – health care? Defense? )

xxxi. How to add value disproportionate to cost to most valuable customers

xxxii. Prune the client list by profitability and reference value

xxxiii. Hire more salespeople now

xxxiv. Target weakest competitors and devise stratagems/tactics to take away share

xxxv. Convert selected clients to long term contracts with incentives now

xxxvi. Selectively hire people good at account retention

xxxvii. Revisit with sensitivity analysis all assumptions, all assumptions and revise functional and departmental and unit plans and budgets accordingly 

xxxviii. “Touch” and reward the best customers

xxxix. Find the revenue leakage from sticking to outmoded policies

xl. Again, getting selected help from people not already on the case

Finally, the focus shifted to opportunities with benefit further out

xli. Hire critical talent from firms where their retention is challenged (options under water?)

xlii. Acquire company at depressed prices or one which otherwise would not sell

xliii. Look for currency advantages of using local suppliers

xliv. Strategic plan for best customers (what will they need?)

What Did It Take To Execute Some of These Difficult Actions? What did it take to overcome hesitancy, fear of failure, a distaste for firing people, a loss in pride from the fact that this is all necessary? What did it take to instill urgency and acceptance among the many who have not lived through deep recessions? How were decisions made in a way that did not de-motivate those who perform well? Here is my view of lessons for those who lead at all levels: the boss, the functional chiefs, unit heads and team leaders. 

Appetite to Lead:

These men and women became leaders by choice. They believe the outcome of taking charge is better for the group and themselves. And once in charge, they know they must have a vision, a plan and a way of enlisting the rest of the company. No matter that they are frustrated or pained by the circumstances, they are glad they have the position and power to do what it takes to protect and prosper the company. 

Character:

Recession requires sacrifice and extraordinary effort by everyone. And often results in an unhappy outcome for people they care about. Morale of the “survivors”  of a workforce reduction is crucial to future success of the company. If the boss is long known to be tough but fair, open and thoughtful, acts with good purpose for the enterprise and the people it touches, followers will follow. 

Confidence to embrace risk:

These bosses think: this isn’t about what I myself can and can’t do. It is about the ability of the company.They have a detachment when others are volatile; a resilience when set back. The ability to adapt and change an approach when it isn’t working. 

There is a revenue risk to raising prices in a recession. Some might be daunted by that. Recently acquired large accounts may not have ramped up yet. Some might panic and lose patience. Many of the ideas above involve some risk. These bosses ask: “Is it worth taking?” 

Capacity to Be Decisive (Critical thinking):

None of these bosses crafted their plan alone. They all knew when and from whom to get help.

They understand how they really make money and are able to distill down to a critical few leverage points. They have amazing memories for detail and an ability to connect the dots. And once they have a handle on the risk and reward for each action, they decide and move on. 

Engaging and inspiring others: 

These leaders are generally good listeners. And their “listening systems” help them know what people do or do not “get,” what beliefs are widely held, where there is ignorance, what motivates the best and the rest. Words, delivery and timing all matter. And some must come from the boss, some can come from an empowered senior leadership team. 

If you are a small business owner, these are the times that will test what you are made of, how you have been shaped. Tailor whatever you learn from these real-life stories to your own situation and execute. And remember, that those you lead will be shaped by experience over the next year or two. So be sure to bear that in mind as you enlist them in the cause, give them assignments and “parent” them at work. 

If you are an employee, this is your chance both to learn and to shine. Contribute as much as you can and learn from the experience. Those who perform, those who play well with others, those who contribute to the overall success of the firm have more job security and more options.