You may have heard in the news (about a million times) that we are in a recession. It reminds me of an old commercial of a doctor promoting his services to help you with an alcohol addiction, "It's not your fault but it is your problem." Recessions are not your fault, but they are your problem -- as a leader.

"Your problem" might mean lower revenue because demand for your products/services is down. It might mean that your suppliers are cutting costs which is causing an increase in turnaround/lead time that negatively impacts your turnaround time or service to your customer. It might mean that there is less capital available to fund investments in equipment or future revenue streams.

Lack of growth in revenue or other recessionary impacts cause a leader to put more focus on executing effectively to maximize profit. A leader often has to change his/her focus so the organization and its teams ensure that:

  • customers are satisfied as they can be -- so they can be retained and they continue to buy
  • costs are minimized by improving efficiency, turnaround and quality of the products/services
  • the company takes advantage of buying opportunities from the recession - acquisitions, equipment, systems, etc.

There are always more constraints on business decisions during a recession. For example, lack of available capital is often an obstacle to funding investments in customer satisfaction, efficiencies, future business lines and purchases of business equipment. Although monetary capital may be constrained, human capital can always be limitless if the right working environment and focus is in place.

The following describes some recommended tools for the leader in his/her toolbox. With each of these tools, I recommend that you maximize the utilization of your human capital in the process of using the tools.

The Leader's Recession Toolbox

Tool #1 - Cut Expenses

Reducing expenses should be a priority in a downturn.

Many organizations issue enterprise-wide declarations to reduce/eliminate expenses associated with travel, offsites, hiring, capital spending, etc. These declarations help in moving the organization quickly to a change in behavior about reducing expenditures. Unfortunately, declarations like this sometimes have some unintended consequences -- such as eliminating all expenses of a certain type, not just the expenses with lower value-add. There might be more value in a recessionary environment to have a leadership offsite to focus on retaining customers even if it means reducing the employee bonuses.

Management and executives are responsible for making changes to the budget to cut expenses. But your employees can help in reducing expenses also. Employees see the high value and low value expenditures in ways that management and executives can't. More importantly, your cost reduction programs will be more successful if your employees are committed to this effort by "volunteering" their ideas and discipline in cost control. You could get a cross-section of employees together for a brainstorming session about how to reduce recruitment costs by X dollars (without any significant increase in other recruitment costs). You may just get some different ideas than you had considered and you may just have a more willing group of people willing to have the discipline required to control those costs more effectively. As Ralph Waldo Emerson said, "There is no strong performance (cost reduction in this example) without a little fanaticism in the performer."

Tool #2 - Reduce Headcount

Although most leaders try to avoid this strategy, many turn to this when they see that cutting expenses will not be enough. I know I'm sounding like a crotchety old man but in my days, I have heard this called many things - from reorganization to deselection. The words may be pretty innocuous at first but people figure out what these words mean when their co-worker is packing up his/her belongings.

Headcount reductions are difficult on the people that leave and the people that stay. Being professional and exercising care with the departing employees is the right thing to do. It is also hard emotionally on those who stay. Headcount cuts tend to be more effective when they are accompanied by reductions in the scope/volume of work or when the cuts are accompanied by process improvements. Consider engaging your employees to look at opportunities to reduce the scope of work based on capacity limits and priorities. Unfortunately, after many headcount reductions, the same work volume is required to be completed within the same time frames by fewer people. This often can cause slower turnarounds, quality/service issues, retention issues of higher performers, etc.

Tool #3 - Clarify the Business Strategy

I was recently working with a retail operation that is having financial difficulties in this downturn. In meeting with the leaders, it became apparent that there was not a common view of the company's business strategy and growth model. A strategy should uniquely differentiate the value that the company provides from its competition. The annual planning process (see Tool #4 below) can derive much more value when the strategy is clear. With this client, I recommended that we ensure there was a good strategic foundation first. The foundational elements of any strategy is the company's Mission, Vision and Values. The development of the Mission met with the usual resistance -- about this being a waste of time, that the company needed to become more profitable and developing a Mission statement wouldn't impact profits.

The leaders developed a more robust Mission that defined why they existed in a clear way. From the discussion, it was clear that some had been putting so much focus on innovation, they were not considering the negative impact on the customer of the process variations that occur when you innovate. They immediately began to identify actions they needed to do more of as well as actions they needed to do less of (eliminate) -- better defining expectations of what excellent service was to be, becoming more demanding of people executing according to service standards and increasing consistency of the customer experience.

Having a clear Mission, Vision and Values as well as a Strategy that effectively differentiates the company from its competitors will provide a clearer focus and lead to a more aligned set of priorities for execution/performance.

Tool #4 - The Annual Plan

Many organizations waste money and opportunities because of poor tactical alignment i.e. planning, execution and service. What about a $10 million plant expansion managed by a project manager that does not include the input of Operations management at the earliest stages? What about a process improvement through a $1 million investment in a new technology without the users providing input on what will be lost from the current process?

What is the cost of this poor alignment? What opportunities are not realized? How could those funds have been used where value could have been realized immediately?

The Annual Plan is a tool for aligning people on key goals/priorities as well as the mobilization of resources to achieve those goals. It is not just a collection of individual goals/priorities by unit but rather a process to align the priorities/goals of each department/unit with the overall organization goals/priorities/strategy. I once worked with a custom manufacturing company that was profitable but was struggling during a down period. The leader set annual goals with the management team's input. The company was very successful that year achieving improvements in operational goals around on-time performance, turnaround and reduction of scrap. Sales increased a modest 16% in a down market but the profit-to-sales ratio doubled -- from 10% to 20%. One of the biggest changes they made was in the coordination of priorities in a multi-step manufacturing process where order priorities were being set by the supervisor of each step rather than in a coordinated approach. The setting of organizational goals caused the managers to collectively look for ways to improve their operational alignment.

I recommend a planning process for companies, business units and functions that avoids the complexity which slows the process down. Goals for the year can be both projects/initiatives as well as goals for current operating processes (volume, turnaround, quality, cost, etc.). Concrete, specific commitments/actions need to be included in the plan -- with estimates of timing, resources, costs and accountabilities. The plan should be a guidance document that is regularly and easily updated. Regular progress check-ins need to be part of any planning process to ensure that plans are well-executed to achieve expected outcomes.

Tool #5 - Leverage the Team

Too many leaders mistakenly allocate too much focus on individual performance and not enough on team achievements in recessionary times. The leader may believe that he/she can influence individual performance improvement but they may not know how to overcome dysfunctional team dynamics.

I believe Leveraging the Team in a recessionary time is an investment where you can get the greatest return. First, in times of crisis, most teams come together (and bust through "silo walls) around a common goal pretty quickly -- for survival purposes. Teams often perform the best when their collective backs are against the wall. The cost of turning the team around is relatively low and some of the breakthrough successes achieved can only be realized when a team works together effectively -- so the return on investment can be very high.

Some leaders see the value, when revenue is flat or declining, in utilizing someone like me to intervene or help solve teamwork problems. During growth periods, teams can improve their results despite not working well as a team. But during difficult times, an effective team can unlock the hidden value from the unlimited creativity of human minds working together.

My alma mater's football coach (Joe Paterno) states it well, "When a team outgrows individual performance and learns team confidence, excellence becomes a reality."

Tool #6 - Improve Processes

Improving processes in a recessionary period is beneficial in two ways:

  • Improving efficiencies and quality immediately
  • Improving capabilities to handle a higher volume more effectively when growth resumes

A disciplined approach to process improvement (e.g. Six Sigma) is the best way to achieve sustainable improvements in the process. A method like Six Sigma will focus you on documenting, analyzing, measuring the process to establish more control and consistency over the expected performance of the process.

There is nothing wrong with the "low-tech" way either. Select a process and get the key people together -- those involved in executing the process and those impacted by the process. Put some flipchart paper on the wall and start drawing the flowchart "as is." Then either keep it posted on the wall where people can see or put it into a Microsoft Visio diagram and post it. Any stakeholders of the process should then be encouraged to use post-it notes to identify nonconformances/process problems or suggestions for improving the process. Then the leader and some selected others can consider which improvements need to be implemented/measured.

As Michael Hammer and James Champy stated in their book, Reengineering the Corporation, "Companies don't reengineer processes. People do."

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Recessions can be an opportunity to emerge stronger when the cycle turns upward again. Those companies that perform well will be the winners in this economy. Those that improve their execution will not only improve their performance but also will help them take advantage of good buys in a down market - acquisition, market expansion, major equipment purchase, etc.

So if you're a leader, take some of these tools out of your toolbox, maximize how you use the capabilities of your people and set goals to perform better. Your company needs a responsible leader right now, one who is willing to take on the challenge of achieving more with less.

© Michael R. Goodfriend, Goodfriend & Associates, Inc., 2008

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