Crisis Leadership

Let’s face it, a crisis is inevitable in the history of a company even with the best of times and management. There is little solace in lamenting the market, competition or internal factors. The first step is to recognize a crisis and to acknowledge that you have a crisis. And this is the time to show your leadership.

Crisis comes in many forms. It could be a liquidity crunch threatening your operations, or it could be your product-mix hurting profitability. It might even be a senior manager suddenly quitting, or a trusted customer going bankrupt. Crisis come, but a good manager ensures that he is prepared to accept it and take quick action to limit the damage and keep the wheels rolling.

We have had a few crisis over the years and we were able to tide over it thanks to a few tips I picked up from a McKinsey article by Doug Yakola. He wrote about his experience running a recovery program and after reading the article, a few of the things in the article made sense enough to implement them.

Leading Indicators
Periodically review your business plan and whether its a one-year or three-year plan, ensure that you have leading indicators which would foretell an impending crisis. Something as simple as missing revenue targets three months in a row. Or acquiring new talent by a particular date.

The trigger points must be oriented to both operations and markets as also to cash flows and financial metrics. Keep a benchmark vis-a-vis competition to know how you are doing, and when to declare a crisis.

I have often seen companies tracking lagging indicators, which are more like reactive. Leading indicators keep you proactive.

2. Cash is King

Eventually a lot of crisis boil down to liquidity, so focus on Cash is essential at the time of a crisis. You need to bring the business back in the black in terms of cash flows. Keep asking the question, am I burning cash or generating cash. And keep a careful watch in projects and investments that seem to be burning the cash. Lack of cash will kill faster than slowdown in profitability.

3. Spell it out

When you have a crisis it is important that everyone in the company understands the exact nature of the crisis and the steps to be taken. A clear communication reduces the initial confusion, calms anxieties and redirects the energies in combating the circumstances. People need to get out of their comfort zone into a war zone, with a plan of action.

4. Get Quick Wins

A crisis may be short or may last longer than a quarter and you have to keep the team moving towards the goal even if the goal-post seems to be afar and moving. Try to create smaller milestones that can be quickly achieved to keep the momentum going and hope alive.

5. Watch your Talent

In a crisis people some rise from the slumber, while some feel threatened and yet others see an opportune moment to jump the ship. You need good talent to ride over the storm, and the last thing you need is your best manager looking out to change boats. This may reinforce despondency and bring the end closer.

Spend sufficient time with your talented people, and make them an integral part of the crisis team with enough carrots to make them see you through. (The flip-side is that a crisis reveals the better manager, so you may discover some hidden talent. At the same time it exposes some managers with limited loyalty).

E-Movers Group, that I co-founded, has weathered many crisis, and while we did have some economic losses, I think it brought our team together and today we are stronger and better equipped to face future crisis.

It would be naive to wish that you never get into a crisis, but I do hope that a few things I share here are helpful, and that you only become stronger after each crisis.