Last Updated May 15, 2009 10:57 AM EDT
In the most unpredictable business conditions most managers have
seen, it's harder than ever to plan for three months out —
never mind a year. Despite the chaos, there are well-established tools that can
be used to navigate a murky business environment. "Even in the most
uncertain times, you don't have to just wing it," says Hugh
Courtney, associate dean of executive programs at the University of Maryland's
Robert H. Smith School of Business. "There are systematic ways to
deal with even the most uncertain environment."
Use these techniques to get a better handle on a rapidly
changing environment and prepare for what's coming next —
whatever that might be.
Study Your Business Environment
Goal: Compile information to understand what you know
about your situation — and what you don’t.
Now is the time to connect deeply with both the big picture and
the nitty-gritty details of your business. Don’t let your data
gathering be influenced by old beliefs or wishful thinking.
- Track data in real time. In his book Leadership in the Era of
Economic Uncertainty, Ram Charan, who has advised companies such as Bank of
America, DuPont, and General Electric, says to track cash flow daily and track
inventory, receivables, and margins weekly. He tells managers to shred annual
budgets and instead use quarterly or monthly targets. To stay on top of change,
many managers should also be meeting daily instead of weekly, says David Axson,
president of the Sonax Group, a strategic consultancy.
Identify trends. Market data can help you draft a basic picture
of where a market is moving and how your competitors are responding. Whose
sales are up? Whose are down? What’s selling at your company and what
isn’t? In late 2006, facing up to the negative trends in its
costs and market share — as well as declining sales industrywide —
Ford mortgaged its best assets to borrow as much as $18 billion. The goal: to
restructure its cost structure and product line and to ensure it had enough
cash in the event of a recession. Today, Ford is the only one of Detroit’s
Big Three still standing on its own feet.
Explore the what-ifs. It’s human nature to concentrate
on things we already know “and time and time again fail to take into
consideration what we don’t know,” says Nassim Nicholas
Taleb, author of The Black Swan: The Impact of the Highly Improbable. As a
result, people often overlook opportunities or oversimplify complex problems.
In uncertain times, the advantage goes to those who can imagine the “impossible.”
Know what you don’t know. All bets are off in an
uncertain business environment, so it’s essential to understand all
the variables that could affect your management strategy. Potential wrenches in
the works, like new regulations that could cripple a division’s business
or a new software package that might underperform when installed, are the kinds
of surprises you want to know about in advance.
Danger! Danger! Danger!
Don’t Think You
Know What to Think
When studying data or trends, watch out for confirmation bias.
Simply put, managers are often drawn to theories or data that confirm what they
already think. “Managers delight in new data that confirms their
preconceptions,” says Rita Gunther McGrath, associate professor of
management at Columbia Business School. To avoid that trap, ask questions like,
Could my answer be wrong? Could another answer be right? If so, why?
In-the-moment decisions are also hazardous, so slow down, says Carl Spetzler,
director of the Strategic Decision and Risk Management program at Stanford
University. About 90 percent of the time, managers rely on an internal model
that’s based on their own experience, which can get them into
trouble. “You learn these patterns in your fast mind, and you apply
them whether they are appropriate or not,” Spetzler says. To remedy
the problem, train yourself methodically to kick things from the “fast
brain” into the deliberate mind, where you can mull them over more
Build a Plan
Goal: Create a flexible short-term strategy.
Once you have a handle on the facts that can influence your
business, it’s time to commit to a management plan and implement it.
Think about “readying the response.” Just as armies conduct
simulations to prepare for a yet-unseen conflict, so can business managers,
says Russell Walker, assistant director of the Zell Center for Risk Research at
Northwestern University’s Kellogg School of Management.
- Review responses to likely and unlikely scenarios with your team.
Don’t be too rigid about your approach to meeting new challenges.
Sticking to only one plan or solution path can lead to “dangerous
escalation of commitment to a failing operation,” McGrath says. If
what you’re doing isn’t working, make changes quickly.
Hoard your cash. Many companies that are doing well now adopted a
conservative attitude about spending before the recession. Within two weeks of
the global banking crisis, all 60,000 DuPont employees met face-to-face with a
manager who explained the plan for keeping DuPont on track. Each employee was
asked to name three things he could do immediately to save money and conserve
cash. A few days later, the company polled employees to assess their
understanding of the crisis and their follow-through on the cash conservation
effort. Travel was curtailed sharply, internal meetings were canceled, and
consultants and contractors were eliminated where possible.
Be an Intense Leader
Goal: Hone the skills you need to be effective during
To lead in
this economy, managers need to be part-time psychologists, says Cheryl
Leitschuh, head of href="http://career-future.com/portal/index.php?feedid=11&option=com_newsfeeds&task=view">Leitschuh
Leadership Consulting. “We’re
in survival mode,” she says. “Everyone is scared, including
you.” More than ever, take time to talk to your workers, to show them
that you are supportive, decisive, and sincere.
Be honest. Share your own concerns — about the economy,
job losses, and the future — to build trust among your team. Your
employees are worried about the same things you are, so tell them as much as
you can about what is going to happen. “If you have to lay people
off, tell your employees why you had to do it,” advises Mitchell
Marks, assistant professor of management at San Francisco State University.
Share the vision. Providing a concise plan for navigating
short-term difficulties helps workers focus on the immediate future. Tell the
team what your next step is: “If we want to avoid layoffs, here’s
what we need to do.”
Communicate shrewdly. Get out from behind your desk and walk
around. Now more than ever, employees need to see you around the office. But
not everyone interacts the same way. Understand how your staff prefers to
communicate. Engineers might prefer instant messaging, while salespeople need
face time. E-mailing a salesperson about an important decision may only
increase anxiety. Just be sure to communicate in the way that will best get
your message across to whomever you want to reach.
Stay involved in the nitty-gritty. Ram Charan calls this “managing
with intensity,” noting that “deep personal involvement”
provides the ground-level information you need to act quickly in a volatile
environment. Listen, ask questions, take a conversation to the next level, and
repeat, Charan advises. “Go out of the office; see customers to get a
personal feel of what’s happening,” he says. “Visit
your people on the front lines. What information are they getting?”
Lean organizations are more effective in uncertain
environments. Don’t behave like a king during a crisis, and fight the
urge to build a stronger management hierarchy. Actively solicit advice from
those around you. Be sure you can count on two or three people to tell you the
truth about morale and how your team responds to your decisions. Pick a few
people who will tell you the things you need to hear, and some who will let you
know what your employees are saying about you when you leave the room.
Strengthen the Team
Goal: Develop the skills you need to succeed in
Teams go one of two ways during a recession: Either they band
together and rise to the challenge or their pre-existing divisiveness worsens.
In a down economy, an effective team will spend more time collaborating, not
Cross-train when possible. On his href="http://www.blogs.marriott.com/">blog, Marriott International CEO Bill
Marriott credits one of the hotel chain’s general managers, who
cross-trained hotel employees before Hurricane Wilma clobbered Cancún in 2005,
with the company’s ability to keep its hotels running after the
storm. In any business, cross-training some workers prepares them to take over
essential tasks if you have to downsize.
Focus on specific challenges. In a volatile economy, only
top-priority projects make economic sense. Monte Zweban, chairman of startup
SeeSaw Networks, which coordinates brand messaging on billboards and LCD
displays for clients, says his 20-person team is laying the groundwork to
expand into China. Though it’s a gamble, Zweban hopes an investment
in a new market will rally the team and position the company for future growth.
Identify your top players and recruit new ones. Provide new
opportunities to key workers with the most potential. Push them out of their
comfort zones. If you can afford it, a down economy is also a great opportunity
to hire talent from flailing rivals.
Encourage assertiveness. In an environment where there’s
little margin for error, workers need to feel confident about bringing problems
to light. In his book Outliers, Malcolm Gladwell explored why Korean Air
had a troubled safety record a decade ago. Korean culture, with its emphasis on
hierarchy and respect for superiors, encouraged co-pilots and engineers to stay
silent about mistakes or glitches during flights — a tendency that contributed
to Korean Air’s high crash rate between 1988 and 1998. Real
consequences stemmed from the reluctance of Korean subordinates to speak to
their superiors in the cockpit. In 2000, Korean Air brought in Delta Air Lines
consultants to correct the problem. The process included getting Korean pilots
to confront the parts of their heritage that are problematic in the context of
Airline flight officers are trained to use assertive
statements that encourage directness with their captain in a nonthreatening way
when facing a possible problem in the cockpit. The same techniques can apply to
anyone who wants to be more direct with a superior. Here’s how to do
- Address the individual: “Hey, Bob, do you have a
- State your concern. Explain what you see in a direct
manner while minimizing your related emotions: “I need to know
if we should move ahead with the changes to the new software project.”
- Describe the problem as you see it: “I don’t
think we have the help we need to make a quality product right now.”
- Suggest a solution: “How about we assign Karen
to temporarily help me with product development?”
- Obtain a buy-in: “What do you think? Should we
Get Close to Your Network
Goal: Understand the changing needs of customers,
suppliers, and business partners.
No business operates in a vacuum, so success (or failure) is
closely tied to what happens within the firm’s network of customers
and partners. It’s no exaggeration to say that you all rise or fall
together, so now is the time to strengthen those networks and improve lines of
Be proactive. There’s a tendency to communicate with
partners only after decisions are made, but that doesn’t work well in
a downturn — especially when a partner can help you ride out the
storm. Pick up the phone or send an e-mail before you figure out what you need,
says Danny Ertel, a director at Vantage Partners. “They’re
grappling with uncertainty and challenges too. By putting your heads together,
you might come up with ideas that work.”
Be resourceful. When you’re trying to hold on to as
much cash as possible, it’s tempting to ask for discounts from
partners and suppliers. A better idea? Figure out how you can make yourself
less expensive to serve, Ertel says. Ask the people in your network what you
can do to get more value for less money.
Be discerning. Focus on customers, suppliers, and partners that
are in the best positions to weather the downturn. Use their strength to
bolster your own. For example, the team at SeeSaw Networks has targeted
vertical markets that make the most sense in this economy, bypassing the
troubled financial and auto industries, which are curtailing their advertising
strategies, in favor of creative and new media-driven customers in the
quick-service restaurant industry.
Further Reading on Managing Uncertainty
in a Downturn,” PricewaterhouseCoopers
Business Review on Managing Uncertainty
- Ian MacMillan and Rita Gunther McGrath, “
Discovery-Driven Planning in Business Building”
Evolution of Crew Resource Management in Commercial Aviation,”
University of Texas at Austin
Quality in Organizations course, Stanford University
in the Fog,” The Economist
in a Downturn,” Financial Times