CEOs Shift Leadership Approach in Tough Times

By Kathy Gurchiek Aug 13, 2008
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As CEOs ​ponder how deeply to cut costs during tough economic times, many are fine-tuning their internal operations, says a recent survey.

They are bolstering customer service, internal communications and the quality of the company culture, according to the 2008 Management Action Programs Inc. (MAP) Quarterly CEO Survey.

Managing internal change—any kind of change process that ties directly back to an organization’s goals—also is increasing in importance; it’s one of the top five greatest challenges CEOs face, according to survey results.

Findings are from the responses of 239 CEOs, company presidents and general managers from across the nation responding to a MAP invitation to participate in its May 2008 online survey.

Having completed most major business moves such as cost containment and reducing their workforces—a large number said they won’t be changing their organization’s headcount in the next 12 months—CEOs are more involved in reassuring and supporting their employees, according to the findings.

Internal communication is important for creating strategic alignment, observed John Manning, vice president of sales and marketing for MAP, but “in some cases they underestimate the value of those messages. … and if you’re a company leader you assume [those messages] are getting filtered down through your executive team.”

HR professionals, he told SHRM Online, can “create a strategic partnership with the C-level people in their organization,” discuss the overall strategy and coach leaders about the proper methods and timing for communicating with employees, he said.

“Just be straight with the employees,” advised Allan Hauptfeld, principal of Vantage Research & Consulting, who ran the survey for MAP. “I think that carries a lot of weight when it comes from the top of the pyramid.”

Hauptfeld thinks the emphasis now on internal communication is that CEOs likely are “realizing in the absence of communication, employees kind of fill the vacuum in by themselves. Employees want to hear the poop straight from the CEO, good and bad,” he said.

Communication is one of the significant keys to success and is tied to sponsors of internal change, Manning said.

“People make up information in the absence of real communication, and I think that’s why a lot of change projects fail.”

Strengthening communication is the most important ingredient in a business leader’s success, says Lee Froschheiser, president and CEO of MAP, in a press release.

“This means that to properly manage and grow a business through tough times,” and 73 percent of CEOs predicted the economy won’t improve for at least 12 months, “you must be an effective, compelling communicator,” Froschheiser said.

“Great CEOs are doing this by implementing regular meetings, adopting a transparent leadership style and creating a very candid workplace culture.”

Almost 30 percent of CEOs are providing weekly updates at least once a week, and one-fourth are meeting more often with employees than they did one year ago to talk about company financials, results and strategies, MAP found.

Face-to-face meetings work best, with most CEOs preferring to do this at least once a month. They are spending this time to reassure employees that the economic downturn will pass—slightly more in May 2008 thought the economy will recover in 2009 than when they were asked this in January 2008—and that their organization is stable.

CEOs also are focusing on providing better customer service. Half of CEOs surveyed say customers have reduced purchases an average 10 percent to 30 percent, making customer retention vital.

All of these changes make for an open working environment that Froschheiser says “is the necessary breeding ground for establishing successful strategies and achieving a company’s goals.”

Transformational Approach

Among Fortune 500 companies, there is an intense focus on making cost improvement on an ongoing basis, according to a Deloitte 2008 survey.

While most companies have adopted this as an ongoing discipline, their current approach may not be sufficient for the challenges ahead, Deloitte found while conducting in-depth interviews from October through December 2007 with executives from 70 companies.

Only about one-third are taking a strategic “transformational” approach to making improvements to their cost structure.

Unlike incremental initiatives that seek improvements to individual processes or other areas as a reaction to a problem, transformational initiatives are more proactive and strategic, according to Deloitte.

More than half (58 percent) of transformational initiatives were driven by a desire to reinvest in growth, it found.

“Over the past decade, studies have shown that shortsighted remedies such as major layoffs and across-the-board cost reductions do not produce sustainable results,” Deloitte says in its report, In fighting shape?

Instead, it recommends revisiting your organization’s approach to cost improvement—incremental vs. transformational—tracking cost savings, offering formal incentives for achieving cost improvement, aligning stakeholders from the top down, and communicating and managing the company culture.

Achieving cost improvement, though, requires a change in corporate culture, Deloitte says in its report. And half of its respondents “reported that they underestimated the effort needed to address cultural issues.”

In a finding similar to Manning’s above, nearly one-third underestimated the effort to communicate, which Deloitte says “is critical to winning stakeholder support and changing employee behavior.”

10 Steps To Take

Organizational leaders and managers looking to forge the waters of the economic downturn also may want to consider 10 steps that human capital and consulting firm The Forum Group advocate:

  • Move quickly to reduce costs and control spending by narrowing your focus; don’t chase unprofitable sales.
  • Refrain from across-the-board cutbacks and preserve areas that customers value most. Ask your customers what they value most and act on it.
  • Consider alternatives to layoffs, such as cutting management bonuses, freezing salaries and reducing compensation options. Clearly communicate the rationale and impact of your decisions to employees.
  • Invest in opportunity—research and development, marketing, customer-perceived quality.
  • Retain and develop top talent by providing developmental experiences and rotating assignments.
  • Make sure you have alignment and support with stakeholders on key goals.
  • Encourage questions and new ideas by making it safe for employees to raise them. Ask for their input.
  • Manage the heat instead of being tempted to make tough, unilateral decisions.
  • Acknowledge challenges. It’s a sign of strength and builds trust.
  • Mobilize employees to respond to customers’ interests and values. This creates a positive vision and attitude.

Some of the actions The Forum Group suggest are simply good management practices “that take on added importance in a down economy,” while others are unique to a tough economy, said CEO Ed Boswell in a press release.

However, he added, “as business leaders struggle to figure out what to do, knowing these steps could be the difference between success and failure.”

Kathy Gurchiek is associate editor for HR News. She can be reached at kathy.gurchiek@shrm.org.

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