How to Lead In Tough Times

As we face one of the toughest markets in decades, leaders must lift people's spirits and foster new entrepreneurial ideas. Only with a cool head can a leader enlist the aid of key employees (both management and front line) to subject each idea to the necessary risk/reward analysis it deserves. Included in these brainstorming discussions should be a consideration of both financial and cultural impacts,

As we face one of the toughest markets in decades, leaders must lift people's spirits and foster new entrepreneurial ideas.

Only with a cool head can a leader enlist the aid of key employees (both management and front line) to subject each idea to the necessary risk/reward analysis it deserves.

Included in these brainstorming discussions should be a consideration of both financial and cultural impacts, short and long term.

It's important to ask: “If we do not take certain steps to increase revenues or cut expenses or both, is it possible we may risk the company's sustainability?”

Equally important is the culture question: “Does a given action actually risk costing the company more by damaging employee satisfaction, depressing morale, lowering productivity, increasing accidents, shrinkage and absenteeism, losing good people who feel personally disrespected and making it harder to recruit good people when things turn for the better?”

It is natural enough for people to panic when things turn dark, especially if the leaders themselves are young and haven't seen a major market crisis before.

The talent is in coming to work each day as a leader, balanced in disposition and determined to mobilize the best thinking in the organization.

Here is what to consider in such times:

  1. Do a detailed analysis with department managers to spot potential for real improvement. Too many business owners move revenues and expenses from this account to that to feel better. We need real numbers. Ordering a 10% cut across the board (a favorite tactic) may be high for one department and low for another.
  2. Increase profit through small price increases in areas of high-volume sales (parts, service hours), or through efficient, targeted marketing and advertising. There are often untapped opportunities, even in a down market.
  3. Increase efficiency and reduce staff needed in a given area of operation, through restructuring or process-improvement, including improvements in inventory management for both vehicle and parts sales. Do everything to reduce obsolescence and get special-order parts installed and paid for.
  4. Suspend some activities that may aid customer satisfaction but may not be productive at this time. If things are explained properly to your customers, they're likely to remain loyal until you can restore the extra services.
  5. Move “non-productive” people to productive positions when possible.
  6. Reduce work time of hourly workers. Cut back hours of operation. A lot of dealerships stay open until 9 p.m. with no justification.
  7. Reduce variable expense such as advertising, compensation percentages for commissioned workers (or raise the bar for bonuses, effectively the same result).
  8. Postpone new expenditures even though they may be for assets. You may need to protect your cash position more than you need the new stuff. Yet, some technology purchases might actually increase efficiency and productivity.
  9. Ask for more employee cost sharing in some benefits.
  10. Reduce pay of groups of workers. For instance, ask managers from mid-level on up, to take a 10% cut in pay. Since these tend to be the highest-paid people, your savings could be equivalent to asking others to take a 15% or 20% cut. When any group of people is asked to take a pay reduction, they should be clearly told why; under what conditions full pay be restored; and that the owner is taking a cut, too. Consider a partially deferred compensation. For example, when the company turns three months of consecutive profits at or above a given number, pay will be returned to 100%. When the company's profits exceed a certain level for a 6- or 12-month period, deferred pay will be returned as a bonus.
  11. Manage cash flow. A company can survive negative months if it manages its accounts payable and accounts receivable effectively. If it doesn't, even if it is showing a monthly profit, it may be in danger.
  12. Secure a low-interest loan to bridge the downturn. Such a loan is available if you have assets with equity and corporate and personal credit.
  13. Sell off some assets to generate the necessary bridge cash.
  14. Wait. Sometimes the wisest and hardest thing to do is nothing.
  15. Plan for the next downturn and stick to it. In 1992, as we came out of a recession, I hosted a workshop at the National Automobile Dealers Assn. convention. I asked attendees if they thought there would be another recession in eight to 12 years. Every hand went up. But when I asked how many had a plan to get through that next downturn, only about 10 hands went up.

Regardless of our choices, communication with our people is critical. Whenever possible, people who will be directly affected by a decision should be involved in it in some way.

We may reserve to ourselves the right to make the final decision, but when we include people in the discussion, they feel respected and informed.

What's more, if people are going to be asked to sacrifice in order to keep their jobs, they should be addressed in a direct and transparent manner in town hall-like meetings.

They should hear their leader say: “Sharing the pain and spreading the sacrifice is the fairest thing to do and best serves the company's survival, and I, too, am going to sacrifice.”

There is no more powerful way to rally your people around you.

Bob Kamm, president of Kamm Consulting, is a 33 year veteran of the auto retail business and the author of three books. He is at [email protected].

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