Just when we thought we had the pandemic under control and the economy was roaring back with tight employment, we must face a new reality: it isn’t over yet.
Back to Basics
Financial markets are close to bear territory; anyone driving a large truck is seeing $100 fill-ups, and interest rates are up – as you know if you are purchasing a home.
In the past 12 months, news was filled with the Great Resignation, with people finding new meaning for their life and others taking a sabbatical, confident opportunities would abound when coming back.
Could we have forgotten Maslow’s pyramid of needs? Higher purpose needs can be satisfied only when basic needs are fulfilled: having shelter, food on the table, and safety. As the economy slows down and opportunities for employees and for businesses become scarcer, we’ll all go back to basics – focusing on basic needs for individuals and for companies.
The Third Front
Things got undoubtedly challenging during the pandemic. Millions of employees lost their jobs and opportunities, others fought on the frontline of the pandemic in dire conditions. Businesses shut down.
Yet through it all, economic fundamentals remained robust: consumer demand, which is about 70% of the US GDP, stayed strong (and shifted to new patterns), low interest rates provided easy access to financing, and the stock market delivered higher-than-normal returns.
This environment meant that executives could focus on two war fronts only: strategy (how to take advantage of demand shifts) and people (how to retain employees).
Now, the economy is opening a third front: how to maintain business performance when the underlying economy floor falls off: when demand slows down, and financing dries up.
We are convinced that the next few months will require CEOs to take a different approach to execution:
- Protecting the bottom line
- Keeping employees focused
- Aiming for what’s essential
It’s the Execution, Stupid (That Protects the Bottom Line)
In our firm, we help business owners and SMB executives run smooth operations and execute their strategy well.
Yet even the better run companies pay an “execution tax”: that tax is the profit leakage due to misalignment in their value chain: employees may not really understand the strategy and may make individual decisions at odds with company goals; poorly designed metrics may encourage the wrong behaviors; or complicated processes may be needlessly costly to run.
In the past 18 months, companies tolerated that leakage because leaders’ attention was focused on keeping employees engaged and on retooling their operations to adapt to new supply chains or new logistic patterns.
In a recession, stopping the leakage must become priority #1, because the bottom line must be protected at all costs as revenue growth stalls and other sources of financing dry up.
You stop profit leakage by focusing on execution.
Keeping Employees Focused
During the pandemic, employees were distracted by health risks and by massive disruptions to their life; as the crisis dragged on, the initial discomfort became a pervasive anxiety and for many, a depressed state.
On the plus side, it led many to re-assess their priorities and to move on to other jobs that fulfilled them more, or at least promised to do so.
In our conversations with executives, many are still unsure about how to strike a balance between a more caring, humane management that prioritizes employee well-being and retaining focus on individual performance and productivity expectations.
As we head into a recession, that balance will be even harder to achieve, because the pressure for productivity and efficiency will go up, while employees’ anxiety will remain high, if not higher, fed by concerns about their job security.
And because alternative jobs will dry up, employees won’t have the relief valve of the Great Resignation. Companies will feel like pressure cookers again.
For CEOs, the most effective lever of action towards employees will be focus: keeping employees’ eyes on the ball by being crystal-clear about strategy and making sure the strategy is used to make choices and daily decisions. Focus will feed a greater sense of purpose.
Aim for What’s Essential
For business owners and executives, providing focus to employees requires clarity about their strategy and market discipline. What is the basis for competitiveness? Why do clients buy from us? How do we know we’re succeeding? What is it we should not be doing even if it looks like an attractive opportunity?
Strategic clarity brings many benefits beyond giving a sense of focus and purpose to employees:
- It allows the leadership to engage frequently and repeatedly with employees to relentlessly articulate the strategy as a guide to their daily decisions.
- It simplifies executives’ lives, by shedding the superfluous.
- It cuts through the fog of uncertainty, by giving the company a bedrock of confidence about what matters.
5 Keys to Executing in A Recession
We work with business owners and executives to constantly measure how disciplined their execution is. We typically use the Line-of-Sight platform to measure the organization’s capabilities based on employees’ input in 5 areas:
- How is the leadership perceived to lead execution?
- How relevant are metrics for guiding people in their daily decisions?
- How related are daily activities to the strategy, and does the structure makes it easy to perform them?
- How well is talent recruited and developed to directly support the strategy?
- What do they think is the reason as to why customers buy from their company?
We call these dimensions the 5 Keys to Strategic Execution, KSEs. They can be scored based on aggregate ratings provided by employee responses. A score of 80 to 100 indicates strong capabilities; a score of 40 or less requires immediate attention from the leadership.
At time of writing in May 2022, we are already fielding requests from executives who see clouds on the horizon and wonder how to get ready for increasingly adverse conditions. We advise them to assess their current execution capabilities and spot the places where poor execution leads to leaked profits.
These are the areas of their operations that should be addressed now while the storm gathers.
Where to start If you want to evaluate the execution health of your own organization and get ready for the recession, give us a call. We can discuss how other companies have eliminated their “execution tax” and how you can do it too.