Execution Challenge

MANAGING IN A DOWN ECONOMY

As I speak to CEO peer groups and work with clients, something has struck me over the past year or so: there is an entire generation of leaders who have never managed during or through an economic downturn. Through no fault of their own, many of today’s leaders have experienced only a growth economy; the last real recession was probably 1990-91, so anyone who has become a leader since then has never really seen the conditions we are faced with today.

THE CEO’S JOB IN A DOWN ECONOMY

While I have seen at least four economic downturns, I have never seen one as deep or widespread as this one. One of the most critical roles a CEO has in this kind of economy is to reassure leaders and employees alike, and to put this downcycle into perspective for them. The single thing that causes employees the most angst and fear is not believing that their management has a plan. It is helpful if they know something about the plan (long-term goals and projections, as well as short-term focus areas and priorities), but it is more important that they believe that the leaders of their company have a plan and process to execute it. This is why companies that have adopted some process to create a vision and then execute it are so far ahead in managing through the current downturn. The companies that I work with and speak to that have adopted some process like The CEO Advantage, are in much better shape and have more control over their destiny than those who only started to plan when times got tough.

For younger leaders, it is especially critical that CEOs help put this downturn in perspective. Leaders are paid to lead in bad times as well as good times. Leadership isn’t rocket science; it depends on putting the right people in place (we can never have enough “A” players), the right alignment around goals and what is truly important, and a culture of accountability to achieve results.

Great leaders are always asking “What things could we stop doing that would help us maintain positive cash flow?” This should be the primary focus for any company today; maintaining positive cash flow through the current economic times. And secondarily, companies should be looking for opportunities to grow market share and business by adding more value and staying intensely focused on customers. In a true consultative manner, we should be thinking about what products and services we can bring to our customers to help them in turn with their customers.

Smart CEOs will spend even more time meeting with and talking to employees and leaders to reassure them – and not with pie-in-the-sky optimism, because people will see right through that. The message needs to be that strong companies will not only survive but prosper during tough times, and that leaders get paid to lead through any economic conditions.

After all, if a leader sticks around long enough, he will see at least two and probably more economic downturns. This experience will be a great education for the next one!

My friend Otto Siegel (www.geniuscompanies.com) is a nationally known expert on genius and innovative thinking, and author of Yes You Are a Genius Whether You Know It or Not. During a recent catchup session, he asked me: “What is the ONE challenge that you hear from CEO’s over and over again?” My response was: “How to make innovative thinking real. Virtually every leader knows that his/her company must evolve in new areas to succeed in this “new normal” economy. CEOs acknowledge the benefits of innovative thinking on creating a vision and then executing it with new products and services. But then reality sets in regarding how to teach very intelligent but risk-averse leaders and managers to fundamentally change their thinking habits to accelerate execution and results. After all, most companies have a culture of minimizing exposure and mistakes, and a focus on cost control and efficiency. How does a leader maintain a focus on those areas and create an environment with innovative thinking? YOU PROBABLY CAN’T!”

New Normal Requires Innovative Thinking

Often I find that executive teams do not have a member who brings innovative thinking as a natural attribute. Executives are often strong in strategic thinking, control, cost control, efficiency, financial planning and the like, but often are light in innovative skills. MRG, one of the leading providers of 360 degree leadership assessment tools (www.mrg.com) defines innovative as, “Feeling comfortable in fast-changing environments; being willing to take risks and to consider new and untested approaches.”

Promoting Innovation and Creativity

Otto commented to me that, “Innovation and creativity are the competitive edge of each company. Leaders inspire innovation and creativity in their employees by leveraging their talents and strengths. They learn how to ask powerful questions and inspire top performance. They encourage their team to be creative and to go beyond the existing norm. They evaluate and implement new ideas with a common sense approach, while benefiting from open communication and the diversity of each individual team member.”

Finally, in a culture that inspires and promotes innovative thinking (and action!), how leaders deal with failures is critical. Innovative thinking means taking risks that may not turn out with solid ROIs or even sustainability. If a company’s culture is that mistakes are not tolerated, leaders and managers will quickly learn that the rewards from successful innovation may not be significant or frequent enough to outweigh the penalties for failure, thus killing the desired behavior and culture. Great leaders promote “intelligent risk” and celebrate failure.

A recent story about Google recounted a Vice President in discussion with one of the founders. At the end of the conversation, she haltingly changed subjects and admitted that a new initiative she had started would not materialize, and would cost the company several million dollars. Expecting a very strong reaction, she was floored when the founder congratulated her on the failure, because (sic) if they weren’t making those kind of errors they wouldn’t be trying to innovate enough.

How are you teaching and promoting innovative thinking in your company?

 

One of the key differences between good and great companies is that the great ones are very good at managing problems and bad news. Many entrepreneurial companies get “stuck” because they never create a culture of surfacing and dealing with bad news.

Bad News is not Like Wine; It Doesn’t Get Better with Age!

CEOs and executives play a critically important role in creating the culture of a company. Often entrepreneurs are so eager and driven that people quickly begin to realize the way to make the CEO happy is to give him some good news. This usually makes the CEO feel good, as well as the people in his or her company, but fluff is not what great companies are about.

As Jim Collins says in “Good to Great”, CEOs need to routinely confront the “brutal facts” and keep their finger on the real pulse of their company. Letting people only talk about the successes may hide some very dangerous trends or leading indicators. The CEO’s real job is to have a healthy dose of paranoia, and to look out for those “worst case scenarios,” not to scare people but to insert realism into running and growing the business.

I once had a regional Vice President on the opposite coast who I spoke to for 30 minutes every other day. It took me about two weeks to realize that the first 25 minutes were all the positive things that were happening, and only the last 5 minutes contained the really important issues and problems we needed to discuss and deal with — usually in a rushed fashion. I quickly reversed his process: the first 25 minutes were about the really tough issues and problems so we had time to discuss them; the last 5 minutes were about the good stuff.

Employees and managers need to learn and understand that problems are part of any growing business, and that the only sin of a mistake is not surfacing it quickly, so it can be dealt with. People should get fired for hiding problems, and “no surprises” should often be a core value. Leaders should get into the habit of asking about subordinates’ plans “What’s the worst thing that could happen – and what will you do about it?”

Not too long ago, a Vice President at Google was talking to one of the company co-founders, and at the end of the conversation said she had one more thing she wanted to mention. She then admitted that a recent decision she had made turned out poorly and was going to cost the company about $2 million. She was distraught, and waited for the proverbial axe to fall. Instead, the co-founder thanked her and indicated that he was glad she had made that decision, because if people weren’t making mistakes (and learning from them), the company was not being innovative enough. Do you think that message went around the entire company like wildfire? Again, $2 million for Google is not material, so this wasn’t a “bet the company” kind of error.

Leaders who “shoot the messenger” and only want pleasing news rarely create great companies. The bad news and tough issues are the ones that deserve the most attention and discussion! How does your company handle problems and bad news?

 

JOBS WILL ALWAYS OUTGROW PEOPLE – This may be the only guarantee in an entrepreneurial business

It is a guarantee that over time jobs will outgrow the people who do them, but you can also be certain this will always be one of the toughest issues a CEO has to deal with. Unless the business model dictates no growth (which of course has its own risks), as a company gets larger and more complex, the jobs evolve accordingly. Then over time, the individual who was totally capable and perhaps an “A” or “B” player is now a “C” – and struggles to keep up with requirements. This issue affects not only employees, but managers and yes, even executives. And the last group makes this probably the toughest issue any CEO has to deal with, in order to lead and grow a healthy organization.

LOYALTY: A GREAT TRAIT – BUT ALSO A HUGE DANGER

Who doesn’t want loyal managers and employees? It is part of building a stable, experienced team that can help take a company to the next level. The problem arises when this sense of loyalty clouds pure objectivity about an individual. As John Hamm said in his outstanding Harvard Business Review article, “Why Entrepreneurs Don’t Scale” the single largest reason why they don’t is a false and extended sense of loyalty towards people who helped the owner start and grow the business. John points out: “But when leaders fail to see and respond to a team member’s weaknesses, they place the company at risk.”

I was once on the Board of a service company, where the CEO was the founder and his Father was in charge of sales. The Father was struggling with attracting, managing and developing the sales organization and accountability was a real problem. After much Board discussion with the CEO, he fired his Father about six weeks before Thanksgiving. Can you imagine what that Thanksgiving dinner was like for the family? But the CEO had realized that putting the welfare of ANY individual above that of the entire company was irresponsible.

As the story above identifies, when jobs outgrow executives, the challenge often becomes even greater for three reasons:

• The executive was there at the beginning of the company and helped the Founder/CEO start and grow it, or
• The executive is a business partner who owns part of the business, or
• The executive is a relative.

As Jim Collins often asks when CEOs express reservations about an executive on their team: “Knowing what you know today, would you hire that executive tomorrow for the same job?” If the CEO can’t immediately and without hesitation say “yes”, then he probably already knows the answer. And admitting the answer means needing a plan to deal with the situation. It doesn’t mean putting the company at risk, firing the individual on the spot or being disrespectful, because the executive usually didn’t do anything wrong. They are just a victim of being mismatched with the current requirements of the job. As Collins would say, “They are in the wrong seat on the bus.”

A key job of any CEO is making sure that when a job has outgrown an executive, three things happen:

• That executive is told that they will not be successful in that job,
• That a career is too precious to waste doing something where you cannot be successful, and
• That you are so appreciative of their contributions that you want to help them find the right seat on the bus, even if it means another company’s bus.

CEOs need to always remember that jobs will outgrow people, including executives, and they must stay vigilant in watching for the signs (failing to meet goals, not handling multiple balls in the air, late and stressed out on assignments, a change in behavior toward employees and other executives, having to make excuses, etc.) and continuously challenging himself with the Collins question.

John Hamm’s HBR article “Why Entrepreneurs Don’t Scale”

IT ISN’T WHETHER A JOB WILL OUTGROW AN EXECUTIVE; IT IS WHEN IT WILL OCCUR.

 

RIGHTSIZING IN A DOWNTURN

As companies face the stark realities of the current economic environment, many are having to consider the need to “rightsize” and the best reaction to this need. There are numerous potential solutions and each has pros and cons. The actions a company takes right now will become part of the company history; employees, ex-employees, suppliers and customers will remember how a company dealt with adversity. And the actions taken will clearly demonstrate whether the company stuck to its core values in tough times or abandoned them.

TAKE CARE OF YOUR “A’s” AND “B’s” IN A DOWNTURN

Every CEO faces alternatives regarding rightsizing his organization, and the typical options include:

• Reduce staff, e.g. a 10% reduction
• Reduce pay rates, e.g. a 10% reduction
• Reduce hours, e.g. a 32 hour week

But the real question is not what to do, but how to do it. Do we take action across the board, i.e. all departments and levels? Or are we selective? If we cut heads, what happens to the remaining employees’ workloads? What tasks or functions can we stop doing?

The typical thinking is that to be fair, everyone and all departments should share equally in the pain. The problem with that thinking is that if we have differentiated our employees per Bradford Smart’s business classic, “Topgrading”, we know we have “A” player stars and “C” players who cannot be successful in their current jobs. What message do we send our stars if we lump them in with everyone else? And what will happen when times improve and “A” players remember how they were treated? “A” players can always find new positions, and with their exodus comes the potential challenge of trying to lead a company with an over-heavy concentration of “C” players.

Classic management of human resources has often theorized that, “everyone is in this together and we want to be fair.” There are leaders who truly believe that differentiating among people (topgrading) is unfair, but read Chapter 3 of Jack Welch’s latest book “Winning” for one of the best articulations of why it is not only fair but critical in organizations.

There is a contemporary stream of thought that makes a strong case for unequal pay and perks, based on sustained, demonstrated performance as companies rightsize. All positions in a company do not have equal importance to achieving the mission, and all people do not perform at the same level. The idea that our best people should suffer the same pain as our poorest performers may seem fair, but it is illogical in terms of the people who are most important to achieving results. As Richard W. Beatty, who teaches human resources management at Rutgers University observes, “Look, there are an awful lot of long-term employees who are poor performers who have locked-in high salaries through cost-of-living increases.”

As companies develop plans for reacting to the current economy, individual employee performance and topgrading become critical decision points for how to apply actions in the right way. Actions taken now must not only consider the realities of today, but also preserve the company core, ready for profitable growth coming out of this economic downturn.

Some good reading includes:

Making the Case for Unequal Pay and Perks, Michele Conlin in BusinessWeek, March 12, 2009

A New Game Plan for C Players (HBR OnPoint Enhanced Edition)

“A Players” or “A Positions”? The Strategic Logic of Workforce Management

 

I hear more questions and confusion about 360s than almost any other kind of assessment tool. So being a passionate advocate of the right kind of 360 degree assessment done for the right reasons, let me try and clear up some of the fog surrounding these, from a CEO’s perspective.

The right kind of 360 degree leadership assessment is a developmental tool that will help leaders identify leadership areas in which they could benefit from some focus and work. Since none of us are born perfect leaders, it is virtually always helpful to know how we are doing – not from our own, often rose-tinted self assessment, but in the eyes of the people around us who see us leading every day. In order to ensure that honesty drives the result, 360 degree leadership assessments should be anonymous from the participant standpoint, and from a recipient’s point of view, they should be seen as developmental and never tied to bonuses, salary increases or used in a punitive manner (i.e. to try and document a case for a termination).

360 degree leadership assessments demonstrate the message that “perception is reality.” A leader can choose to be defensive and argue with the results, but since these assessments are the composite view from an individual’s boss, peers and direct reports, regardless of what a leader thinks, their observers’ perception of observable leadership behavior is the reality. But perhaps more importantly, 360 degree leadership assessments should tie to business results for a company or organization – i.e. what are the critical leadership behaviors that senior leaders (and subordinate leaders to an increasing degree as they move up) need to be strong at, if the company is to achieve its strategic business objectives? 360s should not be done to “feel good”, to substitute for or to complement annual performance assessments.

There are many 360 degree leadership assessments available in the market, and most require a trained and licensed consultant to administer them. The instrument itself is critical, since many use a simple rating (Likert) scale, for participants to score the person being assessed on a number of leadership behaviors. The problem with these type of instruments is that it is very easy to “game” the questionnaire. If an observer just had a difficult interaction with the leader being assessed, it is very easy to just provide low scores, whether intentionally or subconsciously. For this reason, the best 360 instruments use a forced-choice question format, which takes the “gaming” out of the process. The observer has no idea which behaviors their answers go to, and they aren’t entering scores in any case, so the accuracy of the assessment is increased as well.

The last element of successful 360 degree leadership assessment is taking action. There is no point in doing 360s if there isn’t a clear path to taking action to improve one or two behaviors that could use some work. The best instruments provide documentation that walks leaders through a process of identifying behaviors they feel they should work on, and then sharing their plans with their observers, so there is some accountability to actually improve. The best side benefit of good 360 processes is to make discussions about leadership skills “safe”, i.e. since none of us is a perfect leader, we can all improve. With the feedback from my observers and the development of a personal action plan, I can also solicit help, and at the same time, if any of my observers see being sliding backwards, they can remind me of the commitment I made. Think of the power of an organization where talking about leadership skills isn’t done only behind closed doors and in whispers, but is part of a healthy dialogue about how leaders can be even better, to achieve even better business results. Where junior leaders clearly understand the behaviors that they will have to work on, in order to be considered for greater responsibility and to be part of the company’s succession plan.

The instrument I have used in all three public companies I led (and which I am now licensed to administer) is from a Portland, ME company called MRG. It is simply the best 360 instrument I have ever found, and below I have attached a link to their website. I have also included a link to an excellent whitepaper they have produced, that discusses why 360 degree leadership assessment must connect to business results and the bottom line.

When you are ready to identify critical leadership behaviors that are required to execute and achieve your strategic business objectives, consider a good 360 degree leadership assessment process as the path to follow.