As dramatic changes in financialand energy markets work their waythrough the economy, seniorleaders face difficult choices inconfronting higher expenses andnews of a global downturn: Shouldwe cut prices to maintain marketshare? How deeply can we cutcosts? What about layoffs? As aleader, how can I mobilize myemployees to address thelooming threats in theeconomic environment forthe good of myorganization? How can Idiscourage defensiveinternal politics that protectothers’ narrow interests?How can I lead my companyto emerge from the end ofthe downturn on an upturn?

Leadership tests can besevere during downturns,and there are no easyanswers. Past recessionshave taught leaders to: � Narrow the Focus to

provide the greatest value forkey customers by ensuring thatresources and capabilities areefficiently deployed

� Bring People Together tocounter the internalcompetitiveness anddefensiveness that oftenaccompany belt-tighteningefforts

� Manage the Temperature toestablish a climate in whichemployees address difficultissues that may have beenhidden in easier days

Applying these lessons promises atremendous upside: uncoveringnew competitive opportunities thatresult in a stronger business whenthe economy improves.

Narrow the FocusRelaxation in good times anddesperation in bad times can leadto losing focus. Taking a disciplinedapproach clearly makes a positivedifference. Research on pastrecessions confirms thatbusinesses that move quickly toreduce costs and control spending

weather a downturn moreeffectively.1 Winners in a downturnnarrow their business portfolios,focusing in areas where they candevelop a clear lead. They also walkaway from bad business—whilelosers chase unprofitable sales inan attempt to hold market share.2

Forum’s research has discoveredthat leaders in highly profitable

growth organizations oftensuggest focusing on the“critical few priorities.”3

Set Priorities Based on Customer Needs

In tough times, leadersknow they need to cutcosts, and they often do soaggressively. Trimmingcosts is important, andselecting what to cut iscritical. Some businessescut voraciously, only torealize months later theyhave cut the very capabilityrequired to sell and delivertheir business. For

example, in 2007 electronicsretailer Circuit City cut the jobs of3,400 of its top-paid salesassociates just prior to undertakingan effort to transform its customerexperience and revive sales. Butlacking the knowledge andexperience of these key employees,the transformation fell flat. A yearlater, Circuit City’s sales were

Authored by

Kim Slack, Methodology Consultant

Leading During a Recession

When the Economy Improves,Will Your Business Be on Top?

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Positive Visionand

Engaging Climate

Bring People TogetherManage the Temperature

Narrow the Focus

– Involve others in decision making

– Communicate authentically– Use conflict to drive change

– Build relationships between departments

– Make it safe to raise questions and ideas

– Learn from key customers how to add greater value

– Identify and develop key talent

suffering, its stock had declinedmore than 75 percent in value, andit was looking for a buyer.4 Bycontrast, a Circuit City competitor,Best Buy, added specially trainedstaff during this period andincreased its profits 52 percent.5

Successful businesses develop acollective understanding of howtheir organization creates value fortheir customers—and they setoperational and budget prioritiesbased on this understanding.Winning organizations also reachout to their customers to betterunderstand their challenges andimprove their value propositions.6

Acquiring this type of knowledgecan help streamline operations andincrease differentiation in themarket.

How might a leader focus prioritieson customer needs? A senior leaderin a large bank realized that, torevitalize her department, she mustcreate a sense of urgency. Shequickly deployed her staff to collectdata about the department’scustomers—market data as well ascustomer satisfaction data. Byexamining the gaps in the datawith her staff, the leaderproactively targeted a few areas inwhich improvements would makethe greatest difference to thedepartment’s customers. Thedepartment’s performance andprofits improved dramatically andquickly.7

Invest Carefully

While it is prudent to trim costs,simply hunkering down and notinvesting until the downturn isover usually isn’t successful.8 Adownturn is a good time forbargain hunting. With downwardpressure on costs, businesses can

pick up assets for less. Good talentmay also be available, since someother businesses are likely overlyaggressive in cutting theirworkforces. But do invest carefully.A study that looked at investmentsof many businesses in recessionsfrom the 1970s to the 1990s foundthat investing in R&D, marketing,and customer-perceived qualityindeed paid off, while investing inworking capital, manufacturing,and administration did not.9

Plan for Workforce Capability

As Circuit City’s issues illustrate, itis important to plan how to manageyour workforce capability. A topconcern among employers has been“ensuring that the most talentedemployees in high-impact roleswere retained and not susceptibleto being recruited by competitors.”10

Identifying and developing high-potential talent and leveragingemployee engagement efforts (seebelow) can help. Developing high-potential talent by encouragingrotational assignments andproviding select developmentexperiences has been shown toincrease retention of key players bymore than 15 percent.11

Whether or not to lay off staff isoften the hardest question leadersface in a downturn. They need tobalance the positive and negativeaspects of downsizing theirworkforce. Benefits of downsizinginclude a short-term spike in thebottom line, as it reducescompensation paid, increasesefficiency in operations, andrealigns resources who can improveproducts and services. One studyshows the majority of corporationsthat downsize are “badly” off or“not well prepared,” and are notanticipating the kinds of problems

that can develop afterwards.12 Onthe other hand, unexpectedworkforce repercussions includeincreased distraction, burnout,health problems, and additionalattrition of “survivors.” While manybusinesses experience animmediate boost in their stockprice after announcing layoffs,more than two thirds of them thenfail to meet their profit andproduction goals.13

Many businesses find successfulstrategic alternatives to makinglayoffs, such as cuttingmanagement bonuses, freezingsalaries, and reducingcompensation options. Companiescan increase employee engagementby providing clear informationabout their strategy, includingfinancial and customer data, andhow the strategy will impact workprocesses and performanceexpectations.14 They make a planand communicate it effectively.

Bring People TogetherWhen budgets are tighter, it is notuncommon that employees becomedefensive, territorial, andcompetitive. Negative politicsintensify at all levels, sappingvaluable energy and focus.Employees begin seeing internalgroups as threats, and so fail tomeet the challenge of facinglooming external threats fromcompetitors, customers, andsuppliers.15 The “keep your headdown and keep your boss happy”mentality only serves to feed therumor mill; it doesn’t allow forincreased learning about theworkings of the company, itscustomers, or the issues it faces indelivering quality—learning thatcould provide significantadvantage.

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Align for Efficiency andDifferentiation

One way to streamline operationsand increase differentiation is toimprove the coordination andalignment of departments. A designchange in a product might result inincreased customer satisfactionand reduced production costs—butonly if the change and the expectedcosts are coordinated in thedepartments involved.16 Leadersneed to orchestrate the process byframing an agenda and meetingwith key stakeholders to gainsupport and build commitment tooverarching goals and values.Studies in strategy executionindicate that, when alignment onkey goals is absent, there is ahigher probability of lowerperformance.17

Make It Safe to Raise Questionsand Ideas

If leaders are to access the bestthinking in the organization, theirpeople must feel safe to askquestions and share ideas. Leaderswho are genuinely curious andopen to seeing things differentlymodel their openness to learning,demonstrating their interest intheir people’s input as they striveto arrive at the best decision. Byadmitting that they don’t have allthe answers, and by asking fortheir people’s thoughts before theyshare their own, leaders canempower their people to contributetheir best ideas.18

In one of the earliest texts onleadership, Xenophon, a Greekmilitary leader in 400 BC describedthe value of making himselfaccessible to even the lowest ranksof his men: With the Athenian army

in danger of imminent attack—andits back to a raging river, two ofXenophon’s foot soldiers managedto locate a river crossing that wouldallow the army to escape. Theywent directly to Xenophon withtheir reconnaissance. Because ofthe trust between the leader andhis followers, Xenophon tookimmediate action, and the armysucceeded in escaping.19

Manage the Temperature In times of crisis, followers oftenexpect “strong leaders” to make thetough decisions necessary toprotect them and the organization.Leaders are tempted to take thingsinto their own hands and beginlegislating change themselves. Thisdoes lower the “heat” temporarily,making everyone feel morecomfortable.20

But it is often a mistake: Leadersrequired to make a strategicdecision rarely get a completepicture if they lack a supportinganalysis of the situation. Neither dothey make the decision alone21; toenable wiser decisions andincreased buy-in, it is necessarythat leaders secure the cooperationand support of many others.Building coalitions to move thingsforward has indeed been found toimprove organizationalperformance.22

Organizations can sometimes coolthings off too much, and suppressconflicts and challenges they oughtto work through in order to moveahead.23 As a senior leader, yousometimes do need to heat thingsup, drawing people’s attention toan issue that may indeed generatestrong emotions—but one that also

needs to be addressed, in order tocreate alignment. Effective leaderschoose their actions.

Communicate Authentically

A turbulent environment creates aclimate of uncertainty and stress.While it is important that leadersmanage their own stress,acknowledging the challenges theystruggle with is ironically not a signof weakness. In fact, acknowledgingthem builds trust among followersand provides an outlet for thefollowers’ own feelings as theystruggle with the same challenges.

Use Conflict to Drive Change

Forum’s research shows thatleaders in high-growth businessesare more likely to identify“challenging the status quo” as anattribute of their success.24 BillGeorge, former CEO of Medtronic,states, “If you want good decision-making, contention is essential.You must acknowledge and thankthose who disagree by telling themthat they made the discussion—and hence the ultimate decision—much better. You try to createtension inside because the outsidechallenge is so great.”25

Effective leaders observe andmonitor conflict, to ensure that itdoesn’t get too hot. Pacing thetension that people can realisticallyhandle is a valuable action thatleaders can take. They must listencarefully, watch for signs ofdistress, and know when topersevere and when to back off; inessence they need to be activelearners. Effective leaders get clearearly on about the process they’lluse to make a decision—taking thisstep alone can increase buy-in.26

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Coming Out on TopForum’s research shows thatmotivation and performanceimprove in the right climate—onein which employees are engaged inaddressing significant challengesthat face the organization.27

Leaders who monitor and enhancethe climate in their groups retainand motivate talent, even whencompensation options are reduced.But perhaps the most importantthing leaders can do in a downturnis creating a positive vision andattitude—while acknowledging thereal challenges. Indeed, downturnspresent opportunities fororganizations to gain groundagainst their competition.Businesses at the top of theirmarkets often fall, while “sleeper”companies jump to the top in arecession.28 When leaders exercisediscipline and focus by mobilizingemployees to respond to customers’interests and values, they increasethe chance that, when thedownturn ends, their company willcome out on top.

Endnotes1 Savi Baveja, Geert Postma, and Rudolf

Pritzl, “How to Bounce out of aRecession,” European Business Journal,December 1, 2002.

2 Jane C. Linder and Brian McCarthy,“What Did the Winners in the LastRecession Do Right?” Accenture Outlook,January 2003.

3 The Forum Corporation, “One SizeDoesn’t Fit All,” research report, 2006, p.15.

4 Pallavi Gogoi, “Circuit City Gives Up theFight,” BusinessWeek, May 9, 2008.

5 James Covert, “Earnings Outage HitsCircuit City Shares,” New York Post,December 22, 2007.

6 Alec R. Levenson, “Leveraging Adversityfor Strategic Advantage,” OrganizationalDynamics, vol. 31, no. 2, November 2002.

7 The Forum Corporation, “One SizeDoesn’t Fit All,” research report, 2006, p. 19.

8 Savi Baveja et. al. 9 Keith Roberts, “What Strategic

Investments Should You Make During aRecession to Gain Competitive Advantagein the Recovery?” Strategy andLeadership, vol. 31, no. 4, 2003.

10 Hay Group, “Slowing Economy Study,”April 2008.

11 Corporate Executive Board, “Realizing theFull Potential of Rising Talent,” 2005, p. 107.

12 Steven H. Appelbaum, Suzanne Lavigne-Schmidt, Mihail Peytchev, and BarbaraShapiro, “Downsizing: Measuring theCosts of Failure,” Journal of ManagementDevelopment,vol. 18, no. 5, 1999, p. 446.

13 Ibid., p. 445.14 Ibid., p. 456.15 Larry Hirschhorn, Reworking Authority,

MIT Press, Cambridge (Massachusetts),1999.

16 Michael Porter, Competitive Strategy, FreePress, New York, 1985.

17 John Sterling, “Translating Strategy intoEffective Implementation,” Strategy andLeadership, vol. 31, no. 3, 2003, p.7.

18 Michael Roberto, When Great LeadersDon’t Take Yes for an Answer, WhartonSchool Publishing, Philadelphia, 2005, p. 231.

19 David Sears, “Xenophon’s Anabasis:Lessons in Leadership,” navalpostgraduate school thesis, May 2007, p. 37.

20 Ronald A. Heifetz and Marty Linsky,Leadership on the Line, Harvard BusinessSchool Press, Cambridge(Massachusetts), 2002, p. 110.

21 Michael Roberto, When Great LeadersDon’t Take Yes for an Answer, WhartonSchool Publishing, Philadelphia, 2005, p. 9.

22 Rosabeth Kanter, “Change Masters,”Simon & Shuster, New York, 1983.

23 Heifetz and Linsky, p. 110.24 The Forum Corporation, “One Size

Doesn’t Fit All,” research report, 2006, p. 11.

25 Garry Emmons, “Encouraging Dissent inDecision-Making,” Working Knowledge,Harvard Business School Press, October1, 2007.

26 Michael Roberto, “Strategic decision-making processes: Moving beyond theefficiency-consensus tradeoff,” Group andOrganization Management, vol. 29, no. 6,p. 625.

27 The Forum Corporation, “ClimateResearch Validation Study,” 2008.

28 Sarabjit Singh Baveja, Steve Ellis, andDarrel Rigby, “Taking Advantage of aDownturn,” Harvard Management Update,March 1, 2008.

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Forum is a world leader in helping organizations achieve the results of their growth strategies faster,more effectively, and more completely. We focus on the essential driver of growth strategies: people.

We help organizations transform their sales force, refocus on the customer, shift to a performanceculture, and develop people at all levels. Our work has contributed to increased profitability, as well asincreased market share, revenue growth, and customer and employee loyalty for our clients.

We combine experience and research-based insights in learning design, consulting, and facilitation tobring about changes in attitudes, beliefs, and behaviors that enable employees to achieve and exceedthe desired benefits of a strategic change, to reduce time to improved performance, and to sustain thechange over the long term.

For 35 years clients have trusted Forum to bring their most important growth initiatives to life. We’reagile and quick to respond to your global needs, and we create value for you, your leaders, yourorganization, and your customers.

For more information contact us:Forum North America 800.FORUM.11Forum EMEA 44 (0) 20.7017.7150Forum Australia 61.2.9955.4877Forum Hong Kong 852.3966.7288Forum Singapore 65.6505.2050www.forum.com forum@forum.com

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