Leadership is tested and proven in trying times. And, a blinding insight into the obvious as this may be, these are trying times! What may not be an obvious insight, is that regardless of the current situation, organizational resiliency always depends on the ability of its leaders to balance making short-term tactical decisions within the context of long-term strategies and their ability to communicate with their teams. Cost Control and Communications Coverage are both critical to long-term survival. And if you are a CEO or a Board member of a company, now is the time to be even more vigilant against knee-jerk cost cutting reactions or reducing communications and retreating to the safety of your executive cocoon! I’ve survived previous downturns, even managed some beyond survival once the downturn was over, and this is what I learned.
Over communicate! Now is not the time to hide in your closet to focus on managing the application process for the various government programs. That is important, but recognize your people are scared, concerned, and need leadership not just management. Your message needs to be clear, concise, and compassionate. People will process you message about management and numbers later; only after they feel your leadership now! Listen to people express their fears and concerns and deliver empathy and support.
Manage costs, recognizing there is a difference between cost cutting and cost management. Cutting off one’s head, arm or leg will result in significant weight loss, but is not a viable long-term survival strategy.
The basic survival tactics are almost always the same, reduce costs and build balance sheet reserves and the playbook is the same for all, Lay off people, Manage cash through AR/AP controls/delays, Re-negotiate supplier contracts, Ask for price concessions from vendors, etc., etc., etc. Every business leader should be able to understand and manage that at a basic level, and for larger organizations, a decent CFO can manage that at an advanced level.
But, from the CEO’s chair, there is a huge difference between cutting costs and managing costs. Cutting can be done with a broad sword by any number-cruncher but managing requires a scalpel and a skilled executive wielding it.
Here are two examples to consider in today’s environment.
Managing marketing and advertising expenses is always part of a cost cutting initiative, as it should be. But as catastrophic as the current situation may appear, things will eventually return to some sense of normalcy. When they do, if you have not maintained at least some marketing presence and messaging, your customers will not have you in a top of mind position. And, if you are competing with larger market players, your customers may even assume you are out of business, or not a viable supplier and will default to the larger players. So rather than putting the entire marketing budget on the chopping block, consider a more nuanced approach. For example, if you think the current down-cycle will last six months, and new business development will slow down, regardless of your marketing efforts, perhaps completely terminating demand generation initiatives with a six month result horizon is the right thing to do. But if you have a long-term campaign in play that has a one to two-year horizon, the smart approach, would be to reassess and adjust how that investment will be managed through the current crisis.
Or consider how you assess critical personnel and retention plans. One of the worst moves I saw during the last financial crisis was a decision by a board to go along with the CFO’s plan to terminate anyone within the sales force who made over a certain amount of base salary, and to retain only the salespeople who got paid mostly on commissions. Rather than invest time to understand the players and situations involved, the plan was approved and executed within a week after the board meeting. On the face of it, it made sense and the plan worked for about six months! But, once the downturn was over, it backfired spectacularly. Which of the salespeople you think got paid the highest base salaries? With a few notable exceptions, who should have been part of the cost management plan regardless, they were the highest performers who a couple of years earlier had agreed to a new compensation plan that gave them a higher base salary for a lower commission. And what do you think happened, once the crisis was over? Many of those sales executives were recruited by a competitor who offered them a slightly reduced base salary and higher commission options, and, on my advice, hired most of them almost as soon as the company let them go. In the middle of their own cost management initiatives, that competitor chose to make a smart investment for a few months. Once the market became active again, those same sales people were the reason the first company’s sales never recovered and I eventually helped my client acquire them at a significant discount two years later.
Cost cutting is a mathematical exercise, cost management is a leadership test.
But then again, what do I know?