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You Can’t Manage Your Way Out Of A Crisis—You Have To Lead

The worldwide containment effort to halt the spread of COVID-19 has had far-reaching impacts on both the world economy and local communities.

Our lives have been significantly altered and the economy has been severely impacted, as reflected in the Dow Jones Industrial Average, which was down nearly 30 percent before partially recovering recently. In addition to our 401ks quickly shrinking, job losses have accelerated over the last two months with real unemployment now over 20%, levels not seen since the Great Depression.

There is no doubt that the coronavirus pandemic qualifies as a crisis, and that it has and will cause many hardships for people. But a crisis also creates opportunities for leaders. President John F. Kennedy said in a speech in 1959, “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger—but recognize the opportunity.” While Chinese language scholars have since explained that this interpretation might not be completely accurate, his point has never been more relevant: a crisis is an opportunity to lead.

Leaders vs. managers

Functionally, managers and leaders apply different approaches in pursuit of different outcomes. Managers get people to follow rules and procedures in an effort to reduce risk and deliver predictable outcomes. Managers view variability as a threat to be reduced as much as possible. A crisis creates change that often overwhelms most management systems.

Leaders, on the other hand, rouse others to take risks and challenge the status quo in an effort to achieve something new and better. Leaders view variability as an opportunity to achieve results that others think are impossible. A crisis is an incredible leadership opportunity.

Companies are filled with managers who have good intentions but are often unable to convince themselves to take a risk. They’re part of a culture that rewards hitting your goal, not taking on challenges that might be hard to solve. They accept boundary conditions for what they are—limits on what’s possible. While this structure works well when the objective is to maintain some semblance of the status quo, it often fails in times of crisis. Since crises don’t resolve themselves, somebody has to step up and find a solution to the new set of circumstances.

During times of uncertainty, a simple truth reveals itself: You can’t manage your way out of a crisis; you have to lead.

Crisis creates leaders

In the early 2000s, William Clay Ford Jr. was the CEO of Ford Motor Company and great-grandson of company founder Henry Ford. During his tenure as CEO, he tried to focus the company on making great cars instead of remaining mired in internal politics and infighting, but without much success. Then the Great Recession hit in 2007. Ford had to convince his family members, who controlled almost 40 percent of the company voting shares, to allow him to pledge the trademarked blue Ford oval as collateral for a financing package to help the company survive the downturn.

Saving the family legacy became more important than the internal politicking that had plagued the company in the past. This gambit created a renewed sense of focus and willingness to take risks that allowed the company to break through the decades-old management barriers and enabled the incoming CEO Alan Mullaly to make real changes.

Ford is an excellent example of how a crisis creates incredible opportunities for business leaders. It creates an environment that, under normal circumstances, is nearly impossible to replicate. A crisis shifts the organizational mindset in three important ways.

1. An increased appetite for risk. During normal times, business decisions are based on some type of risk/reward analysis. Is the potential gain enough to outweigh the risk of failure? In practice, the fear of failure almost always overrules the argument for change. As a result, most organizations are inherently risk averse.

But in a crisis, the dynamic shifts dramatically. When everything stops working as expected, risk becomes less risky. Change becomes not something to be feared, but rather a strategy to possibly make things better. These new ideas may not work, but they become much better options when the status quo is failing. When an organization realizes that there’s almost no downside to taking a chance, then everything starts to become possible and the real risk becomes doing nothing.

A crisis creates an opportunity for leaders to convince others that it’s in their best interest to embrace change and take risk.

2. A renewed focus on what really matters. Most organizations evolve over time to become good at managing competing, and sometimes conflicting, priorities. For a variety of reasons, once something makes the list as important to do, it becomes almost impossible to stop doing it. As a result, organizations allocate resources across a range of priorities, even though some are clearly far more important than others. By default, this reduces the focus on the best ideas.

However, a crisis fundamentally shifts this balance. When your back is up against the wall, the only priority becomes survival. You have no choice but to direct all of your attention to the problem that really matters. This focus is an extremely powerful tool that can give ordinary people the ability to do the extraordinary — especially when people’s jobs are at stake.

A crisis enables leaders to focus everyone on what really matters and to eliminate distractions that might otherwise get in the way of the goal.

3. A reevaluation of mindset. According to the consulting firm McKinsey, 84 percent of executives agree that innovation is critical for their business, but only 6 percent are satisfied with their performance. It seems that the more people try to implement processes to be more innovative, the less they actually do it. The problem is not the process, but the people following it — and more specifically, their mindset. But someone’s mindset does not easily change on its own.

When an organization faces a crisis, the people inside it are forced to reevaluate how they think about their work. This opens the door to shifting the entire mindset of the organization. Values may change from collegiality to brutal candor, from compliance to rewarding initiative, from valuing learning more than being right. If you’re satisfied with how things are, you will never motivate others to overcome a crisis — because innovation requires a mindset to pursue the impossible, and that mindset starts with the leader.

A crisis forces leaders to reevaluate their mindset and create an environment where success is the only option.

Perspective is a choice

You have a choice in how you view this crisis. In fact, the opportunity actually lies in your perspective. As John Wooden, the legendary UCLA basketball coach who won 10 national championships in a 12-year period once said, “Things turn out best for the people who make the best of the way things turn out.”

A crisis is the perfect time for people to take more risks, focus on what really matters and embrace the opportunity to lead.

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CEO Optimism Surges in February, But So Do Election Worries

For more than a year, CEOs have told CE that stalled trade negotiations and fear of a recession have cast a shadow over what they perceived to be an otherwise buoyant economy.

Not anymore.

Chief Executive’s February survey of CEOs finds optimism in future business conditions at the highest level recorded since 2018, when a then-new corporate tax plan and robust fundamentals boosted business morale. In poll of 230 CEOs fielded in early February, the Index hit 7 out of 10, up 4 percent compared to the prior month and 3 percent year over year. So far this year, CEO confidence has increased 6 percent, putting the Index on track for its best performance since the third quarter of 2018.

Note: Chief Executive’s CEO Confidence Index is measured on a scale of 1-10. February poll had 230 responses.

CEOs in our latest poll cite low unemployment, low interest rates, lessened regulatory burdens, strong consumer spending, low energy prices, new trade deals, business-friendly policies, a strong dollar, plenty of liquidity and the end of impeachment proceedings as factors supporting their positive outlook for the year ahead.

“Markets seem to be steady, and I don’t foresee any major international trade disputes,” says the chair of a global transportation company with operations across the United States, who adds that the Fed has an accommodating interest policy in place to support growth.

The Sanders Scenario

But he—like 52 percent of other CEOs—says the only potential worry out there right now which would significantly change their view would be a far-left candidate like Vermont Senator Bernie Sanders winning the 2020 presidential election.

“Everything involved with the economy is dependent upon who is elected POTUS in November,” says the CEO and chair of a large financial services firm, who believes conditions will remain positive through the next 12 months.

The president of a healthcare organization agrees with the forecast. “Pro-business political agenda, low interest rates, generally stable geopolitical environment,” he lists to explain his 8 out of 10 rating (“very good” according to our 1-10 scale) of the 2020 conditions, adding that the “presidential election in November is the wild card that could be disastrous if a socialistic agenda wins.”

“Historically speaking,” says the president of a global industrial manufacturer, “economic performance has not been influenced by who is in the oval office. That being said, I am very concerned by Sanders or Warren being elected.”

Fear of a self-proclaimed “democratic socialist” taking over the presidency is shared by many of the CEOs we surveyed.

“If Trump repeats or Biden or Bloomberg wins, we’re in good shape. Sanders or Warren, it would not look good,” says the chair of a large wholesale/distribution business.

“Business conditions will be excellent if there is a continued occupant in the White House who favors capitalism and not socialism. If the latter is in the White House, business conditions will be ‘poor’ and will deteriorate from there,” says a tech CEO.

“A Sanders win will offset all good done and drive country into recession,” says the CEO of a pharmaceutical company who rates the 2020 environment as near-perfect with a 9 out of 10, although he warns of a decline in profitability if a Democrat is elected, “especially Sanders,” he says.

Beyond the White House

Other factors outside of Washington could also pressure corporate profitability in 2020, CEOs say, with 51 percent citing rising labor costs as their top issue.

“Skilled personnel are the largest challenge to growth,” says the president of a tech company who intends to increase his workforce by up to 10 percent in the months ahead.

“Everyone has all the work they can handle; labor is the main constraint,” agrees the CEO of an upper-mid-market distribution company, who plans to increase his workforce between 10 to 20% in 2020.

And the story is familiar to many others, including the president of a boutique financial services firm who says “there is not enough skilled labor” to fill demand.

“Engineering, technical and entrepreneurial skills available to manufacturers is still scarce,” says one CEO in the industrial manufacturing space.

Downturn Potential

One CEO—who does not view the 2020 business landscape positively, rating it as “weak” with a 4 out of 10—says there is too much uncertainty and volatility to feel confident in near-term conditions.

“With all the volatility globally, politically and economically, I do predict that some unexpected trigger event will happen that will have a domino effect on many/most businesses,” he says. “We have [an] absurd federal deficit that will haunt us at some point. Wages are not keeping up with cost of living. Recession is long overdue and showing signs of weakening economy. Escalating homelessness. Skewed statistics on unemployment rate. Many sectors of population have over 10 percent unemployment and even high ‘under-employment.’”

Despite being part of the minority in our poll—only 22 percent of respondents ranked 2020 business conditions a 5 out of 10 or lower—he’s not alone in this view.

An industrial manufacturing CEO says the “long-sustained market climb suggests higher volatility to come and higher probability of downturn affecting business investment and spending.” For that reason, he rates his outlook a 5 out of 10.

The fear of a potential economic downturn does, indeed, remain somewhat of a concern for some of our respondents, primarily due to the length of the current expansion—not due to any particular indicator.

“The length of the cycle, the exceptional strength of the consumer, all seem vulnerable to exogenous events, as we are currently beginning to experience with the coronavirus,” says the chair of a large hospitality business.

But 60 percent of CEOs say trade negotiations such as the USMCA will contribute positively to the U.S. economy going forward, offsetting the aches and pains of the several rounds of tariffs placed against China in 2019.

“Trade issues are now fixed,” says the chair of a mid-size marketing firm, expecting business to improve over the coming months.

“A return to more normal trade relations globally,” says an industrial manufacturer chair when asked to explain his 9 out of 10 outlook for 2020.

“Rising wages and a receding trade war,” are the reasons behind the 8 out of 10 rating of the CEO of a large financial company.

Overall, CEOs seem to be looking at the start of this new decade through a positive lens. The proportion of those with improving revenue and profit forecasts bounced 12 percent month over month to its highest level since the spring of 2019. Similarly, the number of CEOs planning to add to their workforce in 2020 is also on the rise, along with those expecting to increase capex.

Slicing Down the Data

CEO confidence is often affected by a company’s industry and regional footprint, and once again in February, CEOs with West Coast operations remain less optimistic than the rest of their peers when thinking about 2020 business conditions—with many blaming the high cost of living in the region.

“In California, we see many challenges,” says a professional services CEO, “including an exodus of companies finding the California economy to be pushing companies and individuals out of the state to lower cost states,” he says, adding that policies to house the homeless “will take a financial toll on the state and country.”

“As the State of Oregon continues to burden small businesses with ever increasing tax burdens, business conditions in Oregon will get worse and worse,” says the president of a consumer manufacturing company, who says the cost of healthcare and corporate taxes are the two factors that will put the most pressure on corporate profitability in 2020.

In contrast, Northeastern CEOs are the most confident this month, adding 3 percent to their Index this month and outpacing their Midwestern cohorts—the most optimistic in recent years—in the process.

On the industry front, pharma CEOs reported a 12 percent jump in confidence this month, now ranking as the most confident sector on the basis of, they say, strong order flow, robust new product development and increased investment in R&D. Their healthcare peers are also among the most confident in the future, with a ranking of 7.7. out of 10—up 7 percent since the month prior for similar reasons, including R&D, renewed volume and new efficiencies.

New trade deals, such as the USMCA, are boosting confidence in the construction, engineering and mining sectors, where CEOs say a strong dollar, increased demand and low interest rates are all reasons behind their 11 percent jump in confidence.

The only sectors showing a decline in confidence this month are advertising/marketing (down 10 percent) and financial services (down 1 percent). Uncertainty and instability on the international scene is the main factor behind these numbers, according to surveyed CEOs.

Looking at the data by company size (in terms of annual revenues), we observe that the larger the organization, the greater the confidence. While small company CEOs have not lost optimism for 2020, they say they remain very prudent due to the uncertainty that the upcoming election brings. They say a slowdown will be more difficult for them to absorb than for their large counterparts. For that reason, their confidence is down nearly 6 percent since the same time last year, while all other size groups are either flat or up.

About the CEO Confidence Index

The CEO Confidence Index is America’s largest monthly survey of chief executives. Each month, Chief Executive surveys CEOs across America, at organizations of all types and sizes, to compile our CEO Confidence Index data. The Index tracks confidence in current and future business environments, based on CEOs’ observations of various economic and business components.

Source: ChiefExecutive.net

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CEO Roundtable: Sustaining Growth In A Disruptive World

When Dave Osh took over as CEO of QNET 10 years ago, the multinational e-commerce company was in seemingly excellent shape: zero debt, $80 million in reserves and solid sales growth. “I expected a walk in the park,” Osh told CEOs gathered for a roundtable at the 2019 Leadership Conference in Dallas.

But in his first quarter as CEO, sales took a nosedive, from $120 million to $100 million. “At my first board meeting, I had to explain, after 10 years of growth, why I was killing this company in my first quarter,” he recalled. “It was a disaster.”

Initially, Osh blamed the markets, the economy— everything other than himself. Then the board had him work with a coach who challenged him to question his view of the failure. “Ultimately, I learned that I was the problem,” Osh said. My leadership didn’t scale with the accelerated pace of growth cycles and the higher complexity that was waiting for me at the next growth level.”

Varlinx’s Dave Osh credits a leadership effectiveness initiative with delivering 34 percent year-over-year growth for his company.

Disruption and the hyper-acceleration of change has shortened cycles in every industry, putting all CEOs under pressure not only to create cultures that are dynamic and nimble enough to evolve quickly, but to be ever more flexible and adaptable themselves. If a company’s products and services are scalable, but the CEO’s leadership ability is not, said Osh, that’s a big problem. “As CEOs, every time we go to the next level, higher complexity awaits us.”

Osh embarked on a personal transformation that led him to make leadership the top strategic agenda of the company. As a result of that effort, the company was able to get back on a growth path, turning a 20 percent decline into consistent 34 percent year-over-year growth from $100 million to $431 million over the following five years. Osh then sought to make that duplicable for other companies, but it wasn’t until 2016 that the pieces fell into place, after he read a study in the Leadership Circle that found leadership effectiveness to be a strong predictor of business performance. “Finally, I had a system to work with,” he said. “For me, that was life-changing.”

Becoming a Better Leader

In discussing the challenges of sustaining growth in a disruptive world, many roundtable participants identified themselves as one of the key problems. Robert Alvarado, CEO of CourtCall, estimated that only about half of his leadership team is aligned with his vision at any one time “and that’s only because I haven’t shared consistently and effectively with them,” he said. “I know the first thing I have to solve is my poor communication.” A year ago, Alvarado began working with a coach to try to address that and subsequently found that part of the problem was the company’s hierarchical structure. “I was the hub, so everything had to come through me to then go back out to the rest of the field. We changed the structure and flattened it out so that all the managers now communicate directly, and then I get reports from them. We had a structural flaw, and we’re working through it, but I wasn’t communicating, and I think that probably happens a lot around this table.”

Matt Shem, EVP at Hill & Wilkinson General Contractors, agreed, noting that business leaders with many tasks to accomplish forget to take the time to communicate and help people newer to the operation get their sea legs. “That’s something I struggle with, for sure—slowing down,” he said. “It’s so easy with so much across your desk just to go, go, go.”

One benefit to moderating the pace is a greater degree of clarity. “You have people with very different paradigms and expectations and understandings and backgrounds” trying to communicate, said Russell Jordan, director of business development at Micropac Industries, which builds electronics for mission-critical applications for satellites and military applications. “Clarity is very powerful.”

One of the biggest challenges is unlearning counterproductive belief systems and behaviors ingrained over decades of experience, Osh noted. And it can be tough to get a CEO to change behavior if those same behaviors got him or her to the corner office, added Steve Myers, a CEO coach in the aerospace and defense industries. “We’ve all become, basically, the victims of our own success, right? Because if it worked for us before, why would we want to change?” The key, he added, is a willingness to change and adapt. “That’s where the breakthrough has to come—in ourselves.”

That inertia can be harder to overcome in some industries than others, said Lee Bond, CEO of Singing River Health System, a two-hospital system on the Mississippi Gulf Coast. “If I had a nickel for every time somebody said, ‘Well, this is the way it’s been done in healthcare. You come from a different industry,’” said Bond, whose experience was in gaming and hospitality before moving into healthcare. “But we’ve proven them wrong. It was kind of a shocker to healthcare people that someone would actually think about healthcare as a business.” One of the changes Bond sought to implement in the hospitals was to call clients “guests” instead of “patients,” he said. “And boy, there was a lot of resistance to that in the beginning.”

Fixing Leadership Down Below

CEOs must focus not only on themselves and potential communication issues within the C-suite, but also identify leadership problems lower down in the organization. “There’s something I’ve called ‘SPD,’ or ‘the solution prevention department’ where every new idea is squashed,” said Jim Bielak, president of ACT Test Panels in Hillsdale, MI, which supplies test panel substrates to the global coatings industry.

Shem noted that language can make all the difference between shutting down new ideas and allowing them to flourish. For example, “yes, but,” can effectively shut down a new idea; however, “yes, and” can get the same message across, but in a way that validates the idea generator, said Shem, who added that Hill & Wilkinson has been working on getting managers to adopt the new language. “It’s something small, but language matters. It’s creating little differences that have really matured quickly.”

Andrew Warrington, president of environmental solutions company United Conveyor, agreed the little differences can go a long way. “There was a question I always used to ask, which I realized was the wrong question: ‘Why don’t we do…’ When you say that, people start to list the reasons why you shouldn’t,” he said. “Now I try to catch myself and say, ‘How can we make this happen?’”

While getting everyone on the same page is critical to success, encouraging dissenting views is equally important for companies seeking to innovate through times of disruption. Myers recalled his experience as director on the board of a biosciences company, where he learned the value of speaking up. “What I know about biosciences you could put on the head of a pin,” he joked, adding that the boardroom was filled with medical experts. “So I started asking questions, and I was sure I was going to get thrown off this board because I had to be an idiot, right? But after a few years of being willing at every board meeting to challenge the status quo, they greatly appreciated anyone willing to challenge their assumptions.” You can’t let groupthink infect the organization, he added. “It’s hard to challenge your boss, hard to challenge your peers, but that’s the only thing that will cause change to occur.”

Building a Winning Culture

To inspire the sort of trust that breeds healthy debate, the CEO often has to fade into the background, said Michael Kotubey, president of Dallas-based construction company TD Industries, who realized that his presence was potentially stifling input from other team members. “I was the vocal guy, I wanted to share my 40-plus years of experience with the team and prevent them from going through what I went through,” he recalled. “As I was coached to withdraw and sit more in the background, it was incredible to watch how the group grew as the trust in the room [grew].” Today, Kotubey takes a lower profile and seeks to prompt rather than control discussion. “So instead of the answer man, now I’m the question man.”

Taking a seat in the background also allows CEOs to observe group dynamics. If one or two voices tend to dominate the discussion, it’s best to nip it in the bud—even if those appear to be your best and brightest, said Warrington. He had to make a tough decision with a team member who was creating a toxic environment. “He was, for sure, the smartest person on the team,” he said. “But it stifled the rest of the team’s creativity and their ability to operate the business.” Ultimately, they had to let the star employee go.

One way to curb that problem is to make sure that leaders are not promoted solely on intellectual or technical skills, said Shem. “You get so far up the ladder, and then you’re kind of exposed because you don’t have the emotional intelligence.” In construction, especially, companies tend to promote based on technical skill, which can mean those who wind up in leadership positions aren’t necessarily good at it. “There may be a bridge between intelligence and ineffective leaders,” he said.

Ultimately, if you have ineffective leaders in the organization, “everybody knows it,” said Myers. “So if you’re the CEO and you’re not doing something about that, that’s a reflection on you. That’s showing your weakness as a leader.”

On the contrary, weak leadership must be dealt with immediately, before problems fester and spread. Kotubey recalled a previous experience with a turnaround, when he inherited a leadership team that was experiencing a lot of infighting. “Egos were in the way and it was always ‘my people,’ not ‘our people,’” he said. “I tried to coach through it. But five years later, every leader had to be replaced. With the same core group beyond leadership, we did double the volume, five times the profit over a six-year period.”

Perhaps the best way to cultivate leadership within the organization is simply by letting people be themselves and by creating opportunities for them to discover those talents, said Levi Burkholder, president of Loader Parts Source. “Give them a challenge and get out of the way.”

Businesses eager to embrace the potential of exponential technologies such as AI, robotics, biotech and nanotech would do well to devote the same level of enthusiasm to exploring the potential of a scientifically validated leadership development framework able to deliver as much as 38 percent of business growth, sums up Osh. “This new leadership framework evolves leaders to a higher level of consciousness that helps companies create a ripple effect in their markets, communities and society,” he says.”This vision is worth fighting. So make Leadership Effectiveness your strategic priority, and you will inspire the next generation leaders.”

Source: ChiefExecutive.net