October 13, 2021 – Reading time: 10 minutes
Four leadership practices can help to respond effectively during a crisis
Within the last decades, we all got shaken up by crises like the dotcom bubble in 2000, the subprime crisis in 2008 and the corona virus which we’ve been facing since 2019. During these times, we are searching for leaders, who guide us through the fog of uncertainty and give us hope and confidence.
Unfortunately, experience shows that many leadership and management mistakes are made again and again during these times. Apparently, we don’t learn enough from the past.
Peter F. Drucker, one of the management gurus of the last century, already gave us a blueprint in 1980 with his book „Managing in Turbulent Times“, which is just as appropriate for the present day as it was then.
In the following, I condensed his key ideas to make them more memorable for us. Here are four leadership practices that can help us to respond crisis times effectively
1) Ambidexterity and leadership opportunities
„Offense wins games, defense wins championships“ is commonly known in sport – but it is never one without the other. The same rule applies for organizations. Unfortunately, especially in times of uncertainty, cost cutting, which is playing defense, is currently on the main agenda. Investing into the future with new products and services, so playing offense, is often on hold.
All quotes and insights are taken from the book: Peter F. Drucker (1980) Managing in Turbulent Times (1).
„We cannot assume that tomorrow will be an extension of today.”
To master turbulent times (1):
- “Managers therefore always have to manage both today – the fundamentals – and tomorrow.” We “cannot assume that tomorrow will be an extension of today. On the contrary,” we “must manage for change; change alike as an opportunity and a threat.”
- “The enterprise has to be kept lean and muscular, capable of taking strain but capable also of moving fast and availing itself of opportunity.”
- “Unless challenged, every organization tends to become slack, easygoing, diffuse. It tends to allocate resources by inertia and tradition rather than by results. ‚Feed the opportunities and starve the problems‘ is the rule. And resources can be productive only if they are concentrated; fragmentation inhibits results.”
- “But a time of turbulence is also one of great opportunity for those who can understand, accept, and exploit the new realities. It is above all a time of opportunity for leadership.”
- “The need for the decision maker in the individual enterprise to face up to reality and to resist the temptation of “what everybody knows,” the temptation of the certainties of yesterday, which are about to become the deleterious superstitions of tomorrow.”
- “[…] an enterprise has to be managed both to withstand sudden blows and to avail itself of sudden unexpected opportunities.”
A crisis is always the time for strong leaders, who show us the direction, give us courage, and hope as well as purpose. Unfortunately, we see this far too seldom in our organizations. Instead, employees often feel left alone. One has the feeling that the worries and needs are not heard or do not want to be heard. Currently, fear rules in our companies. It is time to change that and it is not only the responsibility of the top management. Everyone can be a leader because it is an active choice and not a birth right or position within a company. It is your choice to take over a leadership role and stand out to give your peers hope. What are you waiting for?
2) Playing Defense: Make sure your company survives
Cost-cutting measures in companies are never fun but sometimes necessary. You must prepare for the worst-case scenarios, even if they may not come true. You can also see these as an opportunity to question the current products, services, and orientation of your company. Would we invest in this business area again, or is it time to cut off old roots?
“Protect your cash flow, customers, supply chain and employees”
To master turbulent times (1):
- “The first task of management is to make sure of the institution’s capacity for survival, to make sure of its structural strength and soundness.”
- “Protect your cash flow, customers, supply chain and employees.”
- “[…] begin with a discussion of the new and different demands affecting the fundamentals of survival and success in the existing business. These are: liquidity, productivities, and the costs of the future.”
- “A business […] can survive long periods of low earnings or low revenues if it has adequate cash flow and financial strength.”
- “[…] the need for capital formation is bound to go up, if only because turbulent times mean greater uncertainty and a higher risk premium on the committal of present and certain resources to the future. But we know that the times ahead are times of great change and innovation, socially and technologically – and this again means higher risks in the future.”
Will you exit the crisis as a stronger organization fit for the future or will you survive it but exit it depleted?
3) Playing Offense: New growth and digitalization
Accordingly, to some online memes, not the CEO or the CTO are the main driver of digital transformations. COVID-19 is the winner. Suddenly, investment in IT infrastructure and new ways of working like home office are possible.
“Every activity needs to be put on trial every few years.”
To master turbulent times (1):
- “One way to exercise assignment control and to concentrate is to have two budgets: an operational budget for the things that are already being done, and an opportunities budget for proposed new and different ventures.”
- “Any enterprise needs such a systematic abandonment policy at all times […]. Every product, every service—external and internal—every process, every activity needs to be put on trial every few years, with the question: “If we weren’t in this already, would we go into it knowing what we now know?”
- “Every business needs to manage growth. And to do so, it needs a growth strategy.”
- “Every one of these “go-go” periods was followed by a massive hangover, during which everybody believed that growth had stopped for good. It never did, and there is no reason to believe that it has stopped now.”
- “In every such period, obsolescence speeds up, […] an organized sloughing off of the past combined with a systematic concentration of resources are the first requirements of any growth policy.”
The next challenge will affect us as managers and leaders. We must learn to trust our colleagues, even if we don’t see them in the office every day. We have all proven over the last 18 months that home office works in most cases and we cannot take this flexibility back from our colleagues.
Trust me, they will do their jobs. We must adopt our leadership style and fear of missing out.
4) Linear Strategic Planning is dead, Strategic Foresight (and Scenarios) is the new king
The outbreak of Sars-CoV-2/COVID-19 and the resulting political measures lead to an unprecedented break in our society and the global economy. In these turbulent times, there is enormous uncertainty about the survival of many companies, the development of the various industries, and for each of us. The current pandemic has the potential to change the global economy significantly in the long term and even the immediate short-term effects are unclear to many of us. Nevertheless, companies must find answers to many questions and remain capable of action.
“Unique events cannot, by definition, be planned. But they can often be foreseen.”
To master turbulent times (1):
- “During the last […] years, the concept of ‚planning‘ proved highly productive. One could assume a continuation of trends within fairly narrow ranges, rather than sudden sharp shifts. One could start out with today and project it into the future—which is what businessmen, politicians, and economists alike usually mean by ‚planning‘.”
- “Planning starts out, as a rule, with the trends of yesterday and projects them into the future—using a different “mix” perhaps, but with very much the same elements and the same configuration. This is no longer going to work.”
- “In a period of turbulence is the unique event that changes the configuration—and unique events cannot, by definition, be planned. But they can often be foreseen.”
- “Predicting the future can only get you into trouble. The task is to manage what there is and to work to create what could and should be.”
- “While we cannot foretell the future, we can identify important developments that already have happened and will have major—and predictable—future impacts.”
- “This requires strategies for tomorrow, strategies that anticipate where the greatest changes are likely to occur and what they are likely to be, strategies that enable a business— to take advantage of new realities and to convert turbulence into opportunity.”
- “Planning tries to optimize tomorrow the trends of today. Strategy aims to exploit the new and different opportunities of tomorrow.”
- “Performance in management, therefore, means in large measure doing a good job of preparing today’s business for the future.”
In times of great uncertainty such as the current crisis, linear business planning is not enough to remain capable of action. Entrepreneurs need to make fast, appropriate, and practical decisions that will significantly influence the future of a company.
Scenario-based approaches can help to quickly gain an overview of the situation and thus make informed decisions. Not only can supplier and demand shortfalls, production and liquidity bottlenecks be avoided, but short-term opportunities can be identified and seized.
Call to action
In every crisis there are winner and losers. Just look at the automotive or aerospace industry and compare their results against e-commerce or IT services. Or compare the impact on sales between BMW, VW and Daimler against Tesla, which increased their sales during the pandemic. Every crisis also offers an opportunity. Is it your responsibility as a leader to prepare your organization for the “new normal” afterwards? Did you play more offence or defense? Did you use methods like scenarios and STORMS to understand the impact of the crisis on our organizations? What are you going to change the next time? How will you improve your organization for the next hit? I am happy to discuss the next “unseen” event and the impact on your organization with you.
- Peter F. Drucker, 2014, The Peter Drucker Collection on Managing in Turbulent Times: Management: Revised Edition, Management Challenges for the 21st Century, Managing in Turbulent and The Practice of Management, Kindle Edition, Harper Collins Publishers, New York