How to Decide in a Time of Confusion

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
analytically.


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
a crisis.


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?”

    Hot Tip

    Stay Flat

    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
    uncertain times.


    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
    less.


    • 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
      aviation.

    Nitty Gritty

    Cockpit Wisdom

    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
    it.

    1. Address the individual: “Hey, Bob, do you have a
      minute?”
    2. 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.”
    3. Describe the problem as you see it: “I don’t
      think we have the help we need to make a quality product right now.”
    4. Suggest a solution: “How about we assign Karen
      to temporarily help me with product development?”
    5. Obtain a buy-in: “What do you think? Should we
      move ahead?”


    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
    communication.


    • 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.

    Other Resources

    Further Reading on Managing Uncertainty


    • href="http://www.pwccn.com/home/eng/managinginadownturn.html">Managing
      in a Downturn,” PricewaterhouseCoopers
    • href="http://www.amazon.com/Harvard-Business-Managing-Uncertainty-Paperback/dp/0875849083">Harvard
      Business Review on Managing Uncertainty
    • Ian MacMillan and Rita Gunther McGrath, “ href="http://executiveeducation.wharton.upenn.edu/ebuzz/0210/classroomll.html">Using
      Discovery-Driven Planning in Business Building”
    • href="http://homepage.psy.utexas.edu/homepage/group/HelmreichLAB/Publications/pubfiles/Pub235.pdf">The
      Evolution of Crew Resource Management in Commercial Aviation,”
      University of Texas at Austin
    • href="http://scpd.stanford.edu/search/publicCourseSearchDetails.do?method=load&courseId=1282009">Decision
      Quality in Organizations course, Stanford University
    • href="http://www.economist.com/business/displaystory.cfm?story_id=13184837">Managing
      in the Fog,” The Economist
    • href="http://www.ft.com/cms/s/0/752d1908-ecd4-11dd-a534-0000779fd2ac,dwp_uuid=af1c5354-e0d1-11dd-b0e8-000077b07658.html">Managing
      in a Downturn,” Financial Times

    • Kim Girard

      Kim Girard has written about business and technology for more than a decade, as an editor at CNET News.com, senior writer at Business 2.0 magazine and online writer at Red Herring. As a freelancer, she's written for publications including Fast Company, CIO and Berkeley's Haas School of Business. She also assisted Business Week's Peter Burrows with his 2003 book Backfire, which covered the travails of controversial Hewlett-Packard CEO Carly Fiorina. An avid cook, she's blogged about the joy of cheap wine and thinks about food most days in ways some find obsessive.