Economic downturns are inevitable. They make companies more competitive and create sustainable business growth. But only if leaders proactively take steps to prepare. Bain & Company found that 47% more S&P 500 businesses moved from the bottom quartile to the top half, and 89% more dropped from the top quartile to the bottom half during economic downturns compared to periods of strong economic growth. It is easy to find out what doesn't work. Reactive workforce reductions, burn-the-furniture cost-cutting, and spray-and-pray strategies out of desperation have historically led to considerable losses. If you immerse yourself in the daily news, the future appears dire – supply chain constraints, geopolitical conflict, inflation, and historic labor shortages are projected to persist. Even the World Bank is suggesting that stagflation is a real possibility. So, what can leaders and companies do now to emerge stronger? Here are three proven tactics to accelerate company performance despite an economic downturn.
Performance Accelerator 1: Scenario Planning
Only operating in the short term or taking too much risk and gambling on one specific future are frequent traps leaders fall into when facing economic uncertainty. Scenario planning enhances the focus on likely and critical external factors. The benefits of scenario planning include:
Informed narratives or stories about possible or plausible futures
Improved decision-making about the future
Enhanced human and organizational learning and imagination
Rather than predicting the future, scenarios help organizations plan for various likely futures, such as economic predictions of stagflation and persistent labor shortages. Wind tunnel testing is the term for the basic concept embedded with scenario planning that allows an organization to be tested in a variety of different turbulent times.
There are five fundamental phases of a scenario planning project:
Identification of a focal question
Scenario exploration of external perspectives and forces with the potential to dramatically change your business
Scenario development of multiple potential stories about what the future might look like
Scenario implementation of options and priorities. Implementation typically involves experimentation, analyzing the existing strategies, and creative experiential learning exercises.
Ongoing project assessment of changes taken with defined early indicators
"The most threatening competitor leadership teams face is themself." Tibbs
Without a good implementation strategy and effective implementation, scenario planning is nothing more than an intellectual exercise. Change management should be presented in a way that leads to different ways of thinking and acting.
Organizational Development can support the implementation workshops with change models and activities for the workshops.
In the following video, Dr. Chermack provides an overview of the process using a small business case study. This video provides some practical insights into scenario planning.
Performance Accelerator 2: Organizational Change Resiliency
Organizational change resilience is responding productively to significant disruptive change and transforming challenges into opportunities. One theme with organizations that are resilient amid change is sharing data with decision-makers openly.
The International Organization for Standardization (ISO) suggests that organizational resilience (ISO 22316:2017) is dependent on knowledge and information that is:
accessible, understandable, and adequate to support the organization's objectives
effectively shared to enable decision-making
recognized as a critical resource for the organization
created, retained, and applied through established systems and processes
shared promptly with all relevant interested parties
applied in organizational learning
“In God we trust, others must have data.” — Ronald D. Snee
Evidence suggests that big data holds a key for helping organizations detect and respond to disruption. Descriptive data analytics improve sensing, and predictive data analytics enhance a company's ability to change and seize new opportunities.
Descriptive Data Analytics: The interpretation of historical data to better understand business changes. Examples include social media usage and engagement, organizing survey results, and operational efficiency data trends.
Predictive Data Analytics: uses historical data, statistical algorithms, and machine learning to identify the likelihood of future outcomes. Examples include predicting customer preferences based on past purchasing behaviors, predicting employee retention risk based on assessment data, and predicting workforce staffing levels based on seasonal trends.
Improving your company's organizational change resilience is also connected to company culture. Culture mediates the knowledge and information-sharing capability. When building organizational change resilience, investing in culture change makes a difference in adoption and utilization.
Performance Accelerator 3: Strategic Leadership
Ambiguity creates confusion and limits a leader's influence. Businesses are collections of individuals, and an organization's competitive advantage comes from capitalizing on a collective benefit from individual behaviors.
Strategy can unify people within an organization toward an organization's purpose. Effective leaders win the hearts and minds of employees, and an organization's survival is tied to optimizing the head-heart balance.
Strategies must instill confidence within people during times of turmoil in organizations, creating a sense of ownership. A shared vision that creates benefits for the group is essential to guiding an organization during value conflicts created by organizational changes. A practical approach to strategy leads to employee engagement through participation, communication, and leadership behaviors.
“Leadership is the capacity to translate vision into reality” — William Bennis
There are five competencies often underdeveloped in leaders and connected to the challenges of strategic leadership:
Scanning. Looking for weak signals that may not immediately affect the business.
Visioning. Clarifying the organization's shared purpose and dreams with group benefit.
Reframing. Challenging current assumptions and fresh thinking about future possibilities.
Making sense. An intellectual process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and evaluating data.
Systems thinking. A holistic way to investigate how different parts interrelate and contribute to specific potential outcomes.
Interestingly, in addition to competence in these areas, strategic leaders need a conscience focused on helping others for the greater good. The character of the leader plays a vital role in unifying a team. During times of complexity and uncertainty like today, when leaders create a vision focused on group benefit, it allows employees to navigate conflicts created by change.
Developing strategic leadership requires a leader's motivation and deliberate practice to shape habits, experience-rich learning opportunities to provide challenges, time for self-reflection, and coaching. Self-assessments and 360-degree surveys can help leaders and leadership teams observe their strategic leadership capabilities and better focus development investments. Combined with leadership development, assessments can create a sense of urgency and motivation for change.
So what is your real challenge in preparing now for an economic downturn?
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Beerel, A. (1997). The strategic planner as prophet and leader: a case study concerning a leading seminary illustrates the new planning skills required. Leadership & Organization Development Journal. 18 (3) pp. 136 -144.
Bennis, W. (2008). Leadership is the capacity to translate vision into reality. Journal of Property Management, 73(5), 13.
Chermack, T. (2011). Scenario planning in organizations: How to create, use, and assess scenarios. Berrett-Koehler Publishers, Inc.
Douglas, R. (2019, September 12) How AI and machine learning are transforming business planning. Adaptive InsightsBlog.
Gallup. (2022). State of the global workplace 2022 report. Gallup.
Hughes, R. L., Beatty, K. M., & Dinwoodie, D. (2014). Becoming a strategic leader: Your role in your organization's enduring success. John Wiley & Sons, Incorporated.
Knowledge@Wharton. (2009, July 22). Eyes Wide Open: Embracing Uncertainty through Scenario Planning.
Tibbs, H. (2000). Making the future visible: Psychology, scenarios, and strategy. Global Business Network.
Witmer, H., Mellinger, M. S., Faculty of Culture and Society, Urban Studies (US), Malmö University, & Centre for Work-Life and Evaluation Studies (CTA). (2016).