Archive for the ‘Crisis Management’ category

The Financial Crisis — One Leading Economist’s Perspective

May 12, 2009

Earlier this week, I had the opportunity to hear nationally acclaimed economic expert Joel L. Naroff, Ph.D. Naroff is a well decorated economist.  He was selected for having the most accurate economic forecast among the Blue Chip Economics Indicators survey participants for the years 2004 to 2007. Bloomberg Business News also named Naroff Top Forecaster in America for 2008 and he has been quoted in most of the major business publications and appeared on many of the major business news networks.

I was therefore very interested in what he had to say about the economy. Because I found his perspective unique, I thought to share my understanding of what he said with you.

Generally speaking, he presented an optimistic view of the immediate economic future, although he had some concerns about the long term picture.

Naroff first explained that the most important responsibility of an economist is to tell when things change. In fact, this is the same major role of a business leader. S/he too must know when conditions change. He views his job as looking at turning points.

So here was his take on what got us into this mess…

Naroff believes the villain in all of this is the dot coms. (The dot coms? Yes, that was what he said…read on) The dot coms taught us all a very valuable lesson and that was not to invest in vapor. Companies needed to have value and be tangible.

Learning this lesson paved the way for what we are experiencing today.

The byproduct of this lesson is that our next investment choice would be something that is the antithesis of vapor and something that always appreciates. And so we targeted real estate.

As you may recall, in order to get a mortgage, one needed to place 20% down, have a credit rating of 720 and show several years of meaningful income as evidenced by your tax returns. This was a good way of determining who was willing to put “skin in the game” (the downpayment part) and who could afford to make payments on a mortgage.

So the real estate market gets hot, and the finance industry sells to this target segment that has these credentials to purchase real estate.

Eventually, though they exhaust this target segment, and therefore a new target segment is needed. The financial community then lowers the standards by which one could be deemed worthy of receiving a loan in order to increase the size of the segment. In 2003, the standards are lowered and then, they are lowered again in 2004.

Before long, the requirement of putting money down disappears, people with less than stellar credit ratings are considered appropriate and all one had to do was spell the word “j-o-b.”

People began to flip houses because it is easy to do. Real estate prices increase 40% in one year and then 30% in the next.

And so, we experience a dot com boom all over again. People are “investing” in real estate without placing any money down. As Naroff explained, when you place no money down on a house, it is not a mortgage – it is a lease.

This bubble had to burst.

Construction starts to collapse and its collapse ripples to all supporting businesses including electrical, woodworking and manufacturing.

Meanwhile, Wall Street discovers that it can bundle all of these distressed mortgages and have them rated as securities. And with no money down, these bundles get AAA ratings.

Housing starts to devalue and once the mortgage exceeds the value of the property, people decide not to pay their mortgage. With no money down, it is easy to walk away.

The problem began to mushroom when many of the banks keep these securities on their books. This was a huge mistake. When people walk away from their obligations,  the housing values plummet and when they plummet, so do the values of these securities.

The decelerating cycle was now underway.

In September, Lehman Bros goes under. A bank actually sends several million marks to Lehman twelve minutes before Lehman marched into Federal Court. When a bank learns it can’t lend to another bank and, because everything in our economy operates on credit, this is tantamount to a kiss of death.

A crisis of confidence emerges as we listen each weekend for news that another major financial institution is about to go bankrupt.

In October, we get TARP, the first financial bailout program. It is partly designed to mask the problem before the national election – and even though we wasted money, the financial system was stabilized.

So in 2005 – 2006 – everyone got credit

And in 2007 – 2008, no one gets credit.

In our next post, we’ll share what Joel Naroff explains about how and when he thinks we will get out from this crisis.

Staffing Appropriately During a Recession

March 2, 2009

With each passing day, we learn of more layoffs and furloughed employees. Today, more than ever, service and professional organizations need to determine the resources needed to complete projects so that they are staffed appropriately. Not surprisingly, there is a method by which one can accomplish this goal.

To do so, one begins by looking outward and assessing the projects that one wishes to address over a discrete period of time. Evaluate what is a priority or even an emergency project. These are the projects that absolutely must be accomplished for the well-being or growth of the business. Consider how long each project will take to complete.

Then segment the remaining projects into ones that would be nice to complete as they would add some value and then ones that are critical to the growth of the company. Your focus should be to address the priority projects, then the long term growth ones and then the “nice to haves.” By organizing the projects in this manner, the ability to address some of the longer term projects will present themselves as well.

From there, one should assess the type of staff required to complete the project. Do not think of terms of names of individuals within your company; rather, think in terms of roles. This is important because when one thinks of individuals, there is a tendency to not recognize that a particular person lacks a necessary skill or to minimize the importance of that person missing the skill. Make certain that you understand the skills required within each role.

Out of this exercise, a pattern will emerge. You will begin to discover that certain skills are required over the long term and certain skills are needed temporarily. You will also learn, based on the lengths of the projects, whether you need more than one individual with certain skills.

Once the roles have been identified, it is time to inventory the skills of your team. Do you have the right people and the right mix of professionals to complete the tasks at hand? Are their skills mature or do the lack the appropriate experience?

After completing this analysis, you will be in a better position to determine if you wish to recruit or buy additional talent, rent or have a consultant supplement your team to address a short term need, or provide additional training so that members of your team can acquire the skills.

Each of these alternatives has their place within the solution set. A short-term need or the immediate requirement for expertise and depth may necessitate that the most appropriate and economical alternative is using a consultant (the “rent” approach). A longer term or less pressing need may allow for an investment in training and augmenting the skills of your staff.  A need that you believe will be required for years to come may result in your organization pursing the recruitment or buying talent option.

In our next post, we’ll contemplate whether to recruit talent that has less experience and may be less costly or talent that has more experience and a higher price tag.

Courageous Leadership? On the Line at GM

February 23, 2009

After a recent session that I presented on success measures, I was asked by one of the participants about the fiscal crisis plaguing our three major United States automakers, Ford, General Motors and Chrysler. The person was wondered why these three manufacturers, with all of the many intelligent and professional leaders in their employ, continued to build cars that the American public did not want to buy.

I responded by explaining that the automakers knew what they were doing and how their cars were being received.  In fact, the problems plaguing the car manufacturers were not one of knowledge but rather of courage.

Paul Ingrassia, Wall Street Journal writer and bureau chief, articulated this issue as it relates to GM beautifully in his Journal opinion column on February 19th.

According to Ingrassia, there are several issues that have created this predicament. Here are two.

(1)   The car manufacturers agreed to let auto workers retire with full pension and benefits after 30 years, This means that it is very conceivable for an employee to be paid for thirty plus years and not contribute to the end product. Couple this scenario with greater life spans and rising costs in health care and the cost structure take a painful hit. Add in the nation’s desire to have smaller cars with smaller price tags and competitive margins and the problem is exacerbated. One can only surmise that new and fresh ideas and the investment in R&D was limited because of these cost factors.

(2)   GM continued to keep two losing brands alive – Saab and Saturn – even though it was costing them money to do so. This was done because the company had spent $1.3 billion dollars to shut down its Oldsmobile brand in a way that allowed them to comply with state-dealer franchise laws.

Could this crisis have been averted? Very possibly but it would have required courageous leadership to take on the unions early on and absorb the short-term losses inherent with shutting down a failing brand early on.

Some weeks ago, we spoke about the concept of false kindness and the consequences of putting off uncomfortable decision s regarding staff. The car crisis today is yet another example of the need of leaders to be willing to do unpopular things, when they need to be done.

Keeping Your Balance

February 16, 2009

As I mentioned in an earlier post, it appears that President Obama is getting quite an education from both the Democrats and the Republicans. This type of education will hopefully result in the President learning how to keep his balance.

The life of a leader is always a balancing act but never more so than during a transition. Uncertainty and ambiguity can be crippling. One does not know what one does not know. Keeping one’s balance is a key transition challenge.

It is essential that the new leader avoid these seven traps.

1)      Riding off in all directions. You must focus yourself on what is important.

2)      Undefended Boundaries. It is important to establish boundaries around what you are willing and not willing to do. Otherwise bosses, peers, and direct reports will take all that you have to give.

3)      Brittleness. The uncertainty inherent in transitions breeds rigidity and defensiveness, especially in new leaders with a high need for control. The likely result will be over commitment to a failing course of action.

4)      Isolation. Isolation can occur because you do not take the time to make the right connections, perhaps by relying on a few people, on “official” information or, by discouraging people from sharing bad news with you.

5)      Biased Judgment. This difficulty manifests itself as over commitment to a failing course of action because of ego and credibility issues, confirmation bias (the tendency to focus on information that confirms your beliefs and filter out that which does not), self-serving illusions (a tendency for your personal stake in a situation to cloud your judgment), and optimistic overconfidence or underestimation of the difficulties associated with your preferred course of action. Vulnerability to these biases increases in high stakes, uncertain, ambiguous situations in which emotions can run high.

6)      Work Avoidance. The leader avoids making a tough call by choosing to bury him or herself in other work. This causes tougher problems to become even tougher.

7)      Going over the top. All these traps can generate dangerous levels of stress. When stress is too high it becomes counterproductive.

To avoid these traps the author recommends following the leadership transition program outlined in this document, creating and enforcing personal disciplines, and building support systems at home and at work that help you maintain balance.

Personal disciplines that should be considered are

  • Planning to Plan
  • Deferring Commitments until you are certain that you have time to fulfill the commitment
  • Setting aside time for hard work by prioritizing and eliminating distractions so as to concentrate on what needs to be done
  • “Going to the balcony” and allowing yourself to step out and distance yourself so that the problem may be perceived in a different light
  • Focusing on the process of influencing others through consultation
  • Checking in with yourself to privately reflect on the situation.
  • Recognizing when to take a break in order to reenergize yourself.

Building your Support Systems means getting your personal office set-up, stabilizing the home front as your spouse and family are transitioning too, and building your advice and counsel network. This network should include people who can guide you on technical issues, such as expert analysis of technologies, markets and strategies; cultural interpreters who will help you understand the culture; and political counselors who will help you deal with political relationships.

Creating Coalitions

February 11, 2009

Anyone who has been observing the stimulus bill negotiations surely has become much more cognizant of President Obama’s need to build coalitions and the early lessons he is learning. To paraphrase his comments last evening, “old habits die hard.”

In order to exert influence without authority to require that people take certain actions, one needs to create coalitions to get things done. Influence networks – informal bonds among colleagues – can help you marshal backing for your ideas among colleagues. However, to do so, one needs to create an influence strategy. This means figuring out whom you must influence, pinpointing who is likely to support and resist your key initiatives, and persuading “swing voters.” .

Many new leaders make the mistake of focusing on the vertical dimension of influence, i.e., direct reports and supervisors, and not enough to the horizontal dimension, namely peers and external constituencies.  Think about who might be critical to your success and whether you have engaged and enrolled them.

Start by identifying the key interfaces between your group and others. Customers and suppliers, within the business and outside, are natural focal points for relationship building. Another strategy is to get your boss to connect you. Request a list of ten key people outside your group whom s/he thinks you should get to know. Then set up  meetings with them. (This strategy should be employed for your direct reports as well. Create priority relationship lists for them and help them to make contact.)

Another productive approach is to diagnose informal networks of influence. Observe the interactions at meetings including who defers to whom on crucial issues. Identify who is sought after for advice, who shares what information and news, and who is owed favors.

Identify the sources of power that give people influence such as expertise, access to information, status, control of resources (such as budgets and rewards), and personal loyalty. Talk to former employees and people who did business with the organization in the past. Seek out the natural historians.

Eventually, you will identify the opinion leaders. If these vital individuals align behind your A-item priorities, broader acceptance of your ideas is likely to follow.

There is a diagramming tool known as an influence map that will help you identify who influences whom. An influence map will help you identify supporters, opponents, and “convinceables,” people who can be persuaded.

Potential supporters typically share your vision of the future, are quietly working for change on a small scale, or are new to the company and have not yet become acculturated to its mode of operation. You must solidify and nurture this support. It is not a given.

Opponents will oppose you no matter what you do. They may believe that you are wrong. They may be comfortable with the status quo, have a fear of looking incompetent, see you as a threat to a value that they hold dear or to their power, or that your arrival will have negative consequences for people that they care about.

When you meet resistance, try to grasp the reason behind it. This will allow you to counter arguments and you may be able to convert some early opponents.

“Convinceables” are the swing voters who are either indifferent to change, undecided, or may be appealed to based on their interests. Take the time to try to figure out what their interests may be. Ask them or engage them in dialogue about the situation. Ask if there are competing forces that prevent these people from listening to you.

Now you are ready to think about persuasion strategies. People tend to weigh status quo vs. change. People will more likely gravitate to the status quo unless remaining with the status quo is perceived as a future threat or if there is a reward for change. If the leader has earned sufficient credibility, merely asking people to try something new is sufficient. These persuasive appeals can be based on logic and data or on values and the emotions that values elicit, or some combination of both.

There are action-forcing events that require change. Review meetings in which people must discuss progress publicly are one such event. These meetings encourage action and enforce accountability.

If people are unable to move at once, a leader may employ strategies to allow people to make incremental steps towards change called “entanglement strategies.” For example, getting people to participate in an initial meeting may cause them to participate later on. Entanglement works because each step creates a new psychological reference point for deciding whether to take the next small step.

Another way to do this is to get people to participate in data gathering. Once the person recognizes the problem, have them participate in refining the problem definition. From there it is a small step to solution planning and then, to implementation.

Finally, if you get people to change behaviors, right attitudes often follow. This is because people look for consistency between their behaviors and beliefs.

This all leads to a concept called “sequencing strategy.” By getting individual influencer’s alignment and support, group actions follow. If you approach the right people first, you can set in motion a virtuous cycle. Approach people in the following sequence:

  • Individuals with whom you have supportive relationships first
  • People whose interests are strongly compatible with yours
  • People who have the critical resources to make your agenda succeed
  • People with important connections who can recruit more supporters

Negotiating Success

January 30, 2009

According to Professor Watkins, to succeed with a new boss (the American People?)  or  for that matter, a new Congress, it is critical to invest the time in the relationship up front. Your new “boss” (and here you can substitute the word “Americans” to relate to President Obama’s situation) sets your benchmarks, interprets your actions for other key players, and controls access to the resources that you need. This person will have more impact than any other individual on your eventual success or failure.

Negotiating with the boss is about determining the shape of the game so that you have a fighting chance of success in achieving your desired goals. It is here that realistic expectations are established, consensus is reached, and resources secured.

If you are in realignment, you need the boss to help you make the case for change. In a sustaining success situation, you need help to learn about the business and avoid early mistakes that threaten the core assets. In start-ups, you need resources and protection from too much higher-level interference. In turnarounds, you may need to be pushed to cut back the business to the defendable core more quickly.

There are certain dos and don’ts concerning how to build a productive relationship with one’s boss.

Don’ts

Dos

  • Don’t trash the past. Understand it instead — and concentrate on assessing current behavior and results and making the changes necessary to improve performance.
  • Take 100% responsibility for making the relationship with your boss work. The responsibility rests with you.
  • Don’t stay away. Get on your boss’ calendar regularly. Be sure that your boss is aware of the issues that you face and that you are aware of the boss’ expectations and how they are shifting
  • Clarify mutual expectations early and often. Begin managing expectations right away.
  • Don’t surprise your boss. Report emerging problems early enough. The worst scenario is for your boss to learn about a problem from someone else. Give him or her a heads-up as soon as you become aware of a developing problem.
  • Negotiate timelines for diagnosis and actual planning. Do not let yourself get caught up immediately in firefighting. Buy yourself some time to understand the organization and come up with an action plan.
  • Don’t approach your boss with only problems. Bring along a plan as well. This does not mean that you need full blown solutions every time. The key is to give some thought to how you plan to address the problem, to your role, and the help that you will need.
  • Aim for early wins in areas important to your boss. Figure out what the boss cares about the most. One way to do this is to focus on three things that are important to your boss and discuss what you are doing about them every time you interact. However, do not take actions that you think are misguided.
  • Don’t run down your checklist. Running through a checklist of what you have been doing is inappropriate. However, updating on what is being attempted and how the boss can help is appropriate.
  • Pursue good marks from those whose opinions your boss respects. Be alert to the multiple channels through which information about you reaches your boss.
  • Don’t try to change the boss. Adapt to his or her style and idiosyncrasies.

There are five conversations that should be held on an ongoing basis.

1)      Situational Analysis Conversation. It is important to understand how your new boss sees the business situation. How did the organization reach this point? What are the challenges? What resources can be drawn upon?

2)      Expectations Conversation. What does your boss need you to do in the short-term and medium-term? What will constitute success? How will performance be measured? When? Are there any areas that are untouchable? Learning the answers to these questions will allow you to reset expectations. If you are operating from different perspectives, it is critical that you have a conversation that creates alignment. Be conservative in what you promise and focus on over-delivering. If you have multiple bosses, it makes sense to bias your efforts to the one who has substantially more power early on, as long as you redress the balance, to the extent possible later on. If you cannot get agreement working with your bosses one-on-one, it is appropriate to bring them to the table together to avoid getting pulled to pieces.

3)      Style Conversation. This is about how you and your boss can best interact on an ongoing basis, i.e., in writing, face-to-face, voice-mail, and/or email? How often? On what kind of decisions does s/he want to be consulted and where can you make the call yourself? How are your styles different and what are the implications of those differences?

4) Resources Conversation. This conversation is essentially a negotiation for critical resources and should be had once you have agreed upon the diagnosis. The first step is to identify what resources are needed given the state of the business. In turnarounds and realignments, the need for resources is far greater because different skills and experiences are required. A menu approach that reflects different results based on different levels of commitment may be appropriate. Focus on the underlying interests of your boss and tailor resource requests accordingly. Look for mutually beneficial exchanges that support both of your agendas.

5) Personal Development Conversation. This conversation should only be held once your relationship has matured. In what areas do you need improvements? What actions or courses could you take? Discipline yourself to be open to learning about new skills that are required for the new role.

A Blueprint for the New Leader to Effect Change

January 18, 2009

The transition from one presidential administration to another is nearly complete and the country is visibly excited.

There is no doubt that part of this excitement stems from public’s sense that Mr. Obama has demonstrated extraordinary effort in planning his presidency. He certainly seems to be working diligently to avoid the consequences of the aphorism, “Failing to plan is planning to fail.” Our country seems to appreciate the efforts of the President-elect and this is reflected in his approval ratings which are remarkably high.

There have been numerous books written on how a new leader should take charge and this seems like a great time to look at how Mr. Obama should be approaching this important initial period. One of my favorite books on this topic is The First 90 Days by Harvard Professor Michael Watkins.

Watkins’ work is instructive for all of us, but in the context of this “new beginning” one can see the areas that Mr. Obama has been addressing and which ones he will likely be focusing on in the days ahead.

Here’s the short list.

1)     Promote Yourself. Psychologically break from your previous role in order to take charge of your new role. You are likely to need new skills to be successful at this new level.

2)     Accelerate Your Learning. Focus on understanding markets, products, technologies, systems, and structures as well as its culture and polities. Do this systematically.

3)     Match Strategy to Solution. Diagnose whether you are in a start-up, turnaround, realignment, or sustaining success situation. Each requires a different strategy. You may have different parts of your organization in different situations.

4)     Secure Early Wins. Early wins build credibility and create momentum.

5)     Negotiate Success. Figure out how to build a productive relationship with your boss and manage his or her expectations. This means critical conversations about the situation, expectations, style, resources, and personal development. Gain consensus on your 90 day plan.

6)     Achieve Alignment. This is a strategic role. The higher that you rise within the organization, the more that you have to play the role of strategic architect. This means evaluating strategy, developing appropriate organizational structures, and developing the systems and skills necessary to realize your strategic intent.

7)     Build Your Team. Inheriting a team frequently means restructuring it to better meet the demands of the situation.

8)     Create Coalitions. Develop supportive alliances, both internal and external. Identify them now as well as ways to line them up on your side.

9)     Keep Your Balance. Develop a network that can advise and counsel you so that you do not lose perspective. It can be difficult to look out from the inside.

10)  Expedite Everyone. Help everyone accelerate their own transitions to their new roles.

This week, we’ll talk more about the bottom half of this list.

* * *

Now some thoughts about President Bush as he leaves office…

Without a doubt, the Bush Administration left us with far too many challenges. We should, however, also acknowledge that there were no further attacks on American soil after 9/11. At that time, we were shaken and disheartened and scared and whether by intention or good fortune, the Bush Administration did keep us safe at home and helped us to reclaim our sense of balance.

We likely will never know if we were safe by design or by the Good Lord watching over us (or, of course, both) nor will we probably ever know how many plots to hurt our fellow citizens were thwarted.

Still, if we choose to discredit this Administration for the financial situation we find ourselves in today and the war in Iran, for our safety after 9/11, we should express our appreciation. The Bush administration also looks to have worked diligently during this transition period and that will, without a doubt, help the new president in moving us forward. Thank you, President Bush.

Let us also take a moment to remember that we are still blessed to live in a country that has the greatest opportunities and the most remarkable freedoms.

And now on to new beginnings and may the best be yet to come.