Despite the lack of available information, business leaders charged with responding to the current economic climate can make critical decisions based on more than just gut instinct or best guesses. By constructing a recession playbook, running back-of-the-napkin simulations, and putting intense focus on revenue-driving operations, business leaders can find ways to manage through the current VUCA environment.
What does VUCA mean? First developed by leadership theorists in 1987, VUCA is an acronym used by corporate strategists and the U.S. military to define and categorize situations as “volatile, uncertain, complex or ambiguous.” Distinct from other crises where issues are clearly defined, VUCA situations demand that leaders make decisions without having enough information, forcing them instead to rely on assumptions, precedent, and instincts.
Responding to the VUCA Recession
In better times, a senior executive at a high-tech company approached us in the hopes of building out a recession plan for the firm, as he had realized 80% of his leaders had never led a business through an economic slump. We outlined two approaches for getting his business through this recession:
Build a recession playbook. This executive needed to capture the wisdom of senior leaders who had navigated at least two past recessions. He found 10 leaders who met this criterion and interviewed them to compile a recession playbook, which combined 200 years of the company’s best insights on navigating a downturn.
Crucially, it also included a set of “defensive” and “offensive” plays. The defensive plays dealt with cost reduction, balance sheet optimization and risk mitigation. The offensive plays focused on decisions that drive profitable growth, defend price and expand share.
Practice and pressure-test through business simulations. This executive knew handing out a playbook to his teams wouldn’t be enough — he also needed a forum where leaders could practice and build capability. Military leaders believe the best way to improve performance in VUCA environments is to allow teams to practice execution. This is essential: A recession simulation would enable leaders to pressure-test decision-making skills and evaluate their impact.
Smaller businesses without the resources to run a full-flight simulation can still apply some of key principles to reveal critical strengths and weaknesses. A simple hour-long sit-down with the strategy team to map out a what 25% or 50% of normal revenue situation looks like can go a long way in helping your leadership team understand where they’ll need to focus their energy if either reality ever materializes.
By pushing their teams to truly take stock of evolving customer needs throughout a downturn, these leaders identify shifts in customers’ voices and expand their lens to look at trends driving the industry.
- Dan Parisi And Darshan Shrestha, Executive Vice President and Principal, BTS
Leading Through a Downturn: 3 Key Principles
The playbook introduced a list of 15 offensive and defensive business, finance and leadership categories, each with ideal “plays” for navigating recessions. The principles below illustrate how the plays spurred dialogue across management teams. Ultimately, managers used the playbook as inspiration for plays they could make within their team, function or business unit, and everyone left the simulation with two individual plays he or she would launch to make a measurable impact.
Not every business is lucky enough to have a recession playbook handy before an economic downturn. Luckily, there are a few leadership tactics that can ensure additional stability during trying times.
1. Adopt a commander’s intent.
In VUCA situations, the best leaders are inspired by commander’s intent — which begins with visualization and involves what commanders (our business leaders) see at the end of the tunnel. They envision success while still remembering the flurry of variables that could undermine their current plans (unknown enemy movements, for instance). The overarching role of commanders is to encourage the leaders under them to improvise as they adapt to changing battle conditions.
In a business context, these leaders rally their teams around what success looks like. They focus on the who, what and why of their organization’s goals and objectives, all while empowering their teams to execute on the how.
Idea in action: Commander’s intent is the opposite of a “command and control” top-down approach. The playbook did not attempt to define every play for every manager or function. Instead, it empowered teams to personalize their own plays. When managers who are closer to the customer and to the front lines design their own plays, their impact is more positive.
2. Reassess your entire value chain.
Leading through a downturn requires a cross-disciplinary, distinctive approach. On the one hand, leaders need greater empathy, resilience and reassurance while simultaneously increasing communication, inclusiveness and transparency.
On the other hand, they also need to balance their people leadership by doubling down on business leadership. This can be challenging for leaders who constantly focus on growth, but start by assessing and testing vulnerabilities, stress-testing scenarios and mitigating the biggest risks first.
Idea in action: The recession playbook process helps teams break down their free cash flow and outline their value chain to identify, quantify and refine their recession plays. In the above case, some teams used this exercise to go back to the drawing board of their operating models and use the downturn to finally prioritize investments in information technology, automation and analytics. This kind of action can improve margins while transforming a business for the better.
3. Get even more customer-obsessed.
Great leaders use customer centricity as well as their organization’s purpose to unite teams.
By pushing their teams to truly take stock of evolving customer needs throughout a downturn, these leaders identify shifts in customers’ voices and expand their lens to look at trends driving the industry. This helps teams stay agile in serving customers and execute beyond the short-term stability of the business.
Idea in action: By asking teams to obsess about customers’ needs by using tools such as empathy mapping, leaders strengthen relationships with customers. They also become more flexible with the right aspects of their value proposition (such as offering temporary bundled pricing options) to protect or increase revenue.
Furthermore, before cutting back on long-term research and development investments, some of the teams mentioned above redirected efforts toward targeted product features by revisiting assumptions surrounding industry trends and evolving technologies—think cloud computing or self-directed purchasing.
All in all, responding to any economic crisis means leveraging best practices for navigating VUCA environments. A playbook provides guidance and inspiration for teams to create their own plays, take action and drive results. Likewise, a practice-friendly environment is necessary so teams can experiment with cause and effect, pressure-test decision-making, manage surprises and build new skills. And even for business leaders who don’t have a playbook in hand before an economic crisis, the three leadership principles above should ensure greater stability during a downturn.
Photo: Getty Images
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