This article originally appeared on Forbes.com.
Perhaps because it has been over a decade since the last recession, end-of-cycle predictions abound. Most seem to say that an economic downturn is just around the corner. Three-quarters of business leaders in the Fast Company Impact Council, for example, predict one within the next two years.
Because we are in one of the longest macroeconomic bull cycles in modern history, many managers are uncertain about how they can prepare for this future. For anyone who joined the workforce within the last 12 years, growth is king and the only way is up. Those people have never experienced a downturn, and they risk somewhat naively repeating the mistakes of the past. Even those who have managed through a recession may find that their muscles for leading through hard times have atrophied.
It may be difficult to know exactly when the downturn will hit, but it isn’t hard to know how business leaders can best prepare.
Take the good example being set by one global, diversified industrial company. This organization is highly correlated with the business cycle, so executives are not waiting for the start of the downturn to force their hand. They are working now to dramatically lower their costs of operation. They began by carefully scoping their program to examine all components of their spending, from manufacturing to procurement to selling, general and administrative expenses (SG&A).
Perhaps no surprise, when executives began to execute their strategy they quickly encountered serious resistance at multiple levels. Their carefully constructed analytical plan needed a heavy injection of change leadership.
Their history wasn’t helping. Over the past decade a series of attempts to reduce complexity and rein in costs had fallen short. As a result, now faced with yet another round of cost cutting, the organization’s response ranged from skeptical at best to defeatist at worst. In order to achieve their cost ambition, the management team knew they would have to change some behaviors, starting with their own.
They decided to emphasize five points that can be instructive to any business leader in such a situation.
- Maintain granite-rock alignment on hitting targets. Company executives were not giving consistent guidance. This was causing confusion and creating a perception of misalignment that became an excuse to not push forward. Management resolved to avoid language like “maybe,” “we’ll see,” and “we’ll do as much as we can” when outside of the boardroom, and to consistently focus on the targets they had all set.
- Hold the course, but also convey empathy, especially to the line operators going through the change. From the start, executives felt blowback from frontline managers who resented bureaucrats from corporate telling them what they needed to do without listening to their concerns about what it would actually take to achieve their targets in the real world. Executives resolved to listen to and acknowledge the voices on the front line, but recognize that doing so didn’t mean that they needed to soften their targets. Their talk track shifted to something along the lines of: “It may not be easy, but we can do it, we will do it, and we’ll be stronger as a result.”
- Communicate with simplicity and clarity. During times of stress like economic downturns, people process information differently. Many can process only 20% of the information they normally would. They begin to care much more about the messenger delivering the information than the message itself, looking for cues as to whether their empathy is authentic. We know from behavioral science that perceptions can mold into beliefs quickly if not corrected. So this management team resolved to communicate and engage with greater frequency, brevity and clarity.
- Respect the chain of command. Like many organizations in transformation, this company is simultaneously juggling multiple initiatives. In addition to pursuing an aggressive cost-cutting plan, they are also changing their operating model. One result was that despite good intentions, messages were being communicated outside of direct reporting relationships, leading to inconsistency and confusion at the front line. To address this, executives resolved to adhere to the chain of command, always keeping line supervisors in the loop.
- Maintain perspective. Cost programs are hard, and this executive team quickly found itself working longer hours and experiencing higher stress. It was important for all the executives to recognize that their own energy levels—good or bad—were contagious to the rest of the organization. They resolved to reflect personally on how to maintain and convey confidence both in the process and in the organization’s ability to deliver results.
When preparing for the next downturn, keeping a close eye on costs is critical. But the success or failure of any cost reduction program often comes down to changes in leadership posture and behavior.
Are you ready to lead through the downturn?
David Michels is a partner and director in Bain’s Zurich office and the leader of the firm’s global Results Delivery® practice.