Optimists have a bright future

Peter Lorange

There is much doomsday talk amid the global economic slowdown, but managers should look at turbulent times for what they are: opportunities. There needs to be a fundamental change of mindset in how business leaders approach tumultuous times. Semantics do matter, so let’s begin by eliminating the term “crisis management” and replacing it with “unexpected opportunity management.”

Leading in turbulent times requires optimism. The world is constantly changing during good and bad economic times and managers need to have an appetite for rapid change. Managers who lack this mindset should be doing something other than leading a business unit within an organization.

Both good and bad economic times are short-lived, but many leaders fail to understand business cycles. Markets always swing, so being comfortable with “in/out,” “long/short,” and “turning point” decisions is essential to leadership. It is important to keep in mind, particularly during a downturn, that markets will always come back. It is when the markets are down that undervalued assets can, and should, be picked up. To “play on the market movements” requires high focus on free cash flows — particularly critical in turbulent times.

Stay positive

Numerous investors made their fortunes by strategically investing during a downturn. Warren Buffett once famously said: “Be fearful when others are greedy and greedy only when others are fearful.” This attitude requires a positive mindset.

A leader must never talk about damages, but should instead focus on opportunities. A realistic but optimistic approach will be far more beneficial for an organization than one that is realistic and pessimistic. Anxiety and fear do not move an organization forward when the going gets tough. Risks need to be looked at with optimism.

Perhaps no one exemplifies this better than Carlos Ghosn. He joined Nissan in 1999 as chief operating officer, became president in 2000, and was named chief executive a year later. At the time, Nissan was in dire straits, with ballooning debt and financial losses. While many were convinced of the company’s ultimate demise, Mr. Ghosn was so confident that his business strategy would succeed that he vowed to resign if certain objectives were not met within a determined time frame. This approach was so successful that it helped lead Nissan to improbable profitability.‍

Think pragmatically

No manager can predict future economic conditions with 100 percent accuracy, but a smart leader can prepare his or her team for difficult times ahead. The number one way they can do this is by ensuring that the team is able to think pragmatically. If this is in place, the organization will be able to react.

This implies a shift away from extensive systematic prior analysis, testing, and planning towards earlier implementation followed by subsequent adjustment. Learning through doing is a key part of this. Plans and budgets need to be much less deterministic and much less extensive. Instead, the emphasis is to get it right through “trial and error” while avoiding analysis to paralysis. 

This means understanding the relevant underlying critical success factors, effective human resource management, respecting competitive limits, and focusing on a smaller set of key strategies. The result is a clear tendency towards simplifying things — to gain more in-depth focus — and thus higher speed. Leaders have to reckon more with their own cognitive limits and realize that strategy is a choice.

One might assume, for example, that Singapore Airlines was in dire straits in the late 1990s, given that much of Asia was in the grip of a major economic crisis. However, the management team at Singapore Airlines was flexible and quick in meeting the demands of the time. Consequently, the airline further established itself as one of the most profitable in the world and as one of Asia’s biggest brands.

Management teams must find a meeting place — preferably away from the main office — where they can freely debate and generate new ideas. This allows managers to share competencies, implement coordinated change more rapidly, and develop or renew strategies and/or prepare execution plans for implementation. Business schools can be effective in this capacity by focusing on “action learning,” which blends academic expertise and relevant research with practical discussions among executives, who return to work with execution plans.

During periods of stability, the tendency is to focus on serving the interests of one particular stakeholder group: the shareholders. A finance-driven focus often prevails.

One major dilemma facing business leaders during periods of extreme turbulence is how to maintain credibility with owners and investors (internal) while focusing on external stakeholders. All major stakeholder groups must back the strategy, from the employees of the organization (including upper/top management), to banks, suppliers, and stockholders. Thus, management stability is essential in order to avoid friction among non-cooperating stakeholder groups.

With the recent excesses in management bonus packages based on companies’ financial performance, this bias in stakeholder focus has become highlighted. Huge pay differences between workers and top management also indicate imbalances. This creates unnecessary friction. In times of crisis, stakeholders need to be aligned to avoid a finger-pointing, me-versus-you attitude. Organizations must work more than ever with labor unions to create harmony. For example, it will be difficult for the US auto bail-out to work unless the automakers, unions, and government are all on the same page. Swiss Air suffered because of its inability to collaborate in an effective manner with the pilots’ union.

Last but not least, leaders must demonstrate integrity in their actions. They must maintain trust while offering direction. One of the major reasons for the current financial crisis is that bankers stopped trusting each other, the inter-bank money flows dried up, and default became prevalent. Consequently, trade slowed, resulting in tumbling stock markets, a reduction in manufacturing output, bankruptcies, government interventions, and the cutting of interest rates.

The fact that executives have cashed in on lucrative bonuses while ordinary people have lost their homes has only worsened the image of banks. Hopefully, this will serve as a lesson that will lead to a new form of responsible leadership that focuses on getting positive results in the right way. Leaders must find the right balance between short- and long-term demands and focus on businesses that they truly understand.

The above described leadership qualities of optimism, speed, alignment, and integrity are the recipe for succeeding in these turbulent times. The leaders of organizations which establish these attributes as best practice will no doubt seize opportunities and come out as the winners. A very different fate awaits the negative, slow, unaligned, and irresponsible.

Peter Lorange is founder and chairman of Lorange Network and honorary president of CEIBS Zurich.