13 Oct 2009  Research & Ideas

7 Lessons for Navigating the Storm

Leading in crisis requires a combination of skills and behaviors—personal and professional—that can be mastered, says HBS professor Bill George. A crisis, difficult as it is, also presents an opportunity to develop and grow. Q&A and excerpt from 7 Lessons for Leading in Crisis. Key concepts include:

  • In a crisis, remember your internal compass of values: When one strikes leaders often look for an "at-any-cost" quick fix in attempting to save face, says George.
  • To ensure that economic recovery is long-lasting and that future business is sustainable, leaders must practice a clear set of principles.
  • It's OK, even necessary, for leaders to be open with others, admit mistakes, and look to trusted friends and associates for advice and support.
  • Use a crisis as an opportunity to reshape the market.

 

It is tough to think positively in a crisis. Yet one overarching lesson in a new book by HBS professor Bill George, 7 Lessons for Leading in Crisis (Jossey-Bass), is exactly that: See crisis as a chance to develop and enhance your leadership skills.

"Optimistic, forward-thinking leaders are sitting on a rare opportunity, and they must be systematic in how they take advantage of it if they want to make positive changes," says George, a Professor of Management Practice at HBS and the former chairman and CEO of Medtronic, which develops medical technologies to treat chronic diseases.

"Crises offer rare opportunities to make major changes in an organization because they lessen the resistance that exists in good times."

"Leaders must be willing to ask for help," he continues. "They should rely on a mentor, an internal management team, and an external support group. No one can be an effective leader in a crisis by attempting to go it alone. Leaders must be the first to recognize this reality and plan accordingly."

The seven leadership lessons include:

  1. Face reality, starting with yourself.
  2. Don't be Atlas; get the world off your shoulders.
  3. Dig deep for the root cause.
  4. Get ready for the long haul.
  5. Never waste a good crisis.
  6. You're in the spotlight: follow your True North.
  7. Go on offense: focus on winning now.

"Leaders must also remember that they are in the spotlight during a crisis," adds George, whose previous books include True North and Authentic Leadership. "Everyone inside and outside the company is watching what they do. It is imperative that they stay focused on their True North as it sets a standard internally for principled business behavior and will make their companies stronger over time."

George explained more in an e-mail Q&A with HBS Working Knowledge. (An excerpt follows from his new book, 7 Lessons for Leading in Crisis.)

Martha Lagace: What leadership gaps do you see today in business and society?

Bill George: I wrote 7 Lessons for Leading in Crisis to explore why so many leaders fail to step up and lead during a crisis such as the global economic crisis of 2008-09. I found that many failed to follow seven universal lessons for leading in crisis. I believe the root cause of the recent financial crisis was leaders who practiced short-termism. Many business leaders focused primarily on short-term results—the next quarterly report and the rewards that come from short-term success—while ignoring their responsibilities to sustaining and building the company's long-term fiscal health.

Ironically, it was the Wall Street leaders who put so much pressure on corporate America to play the short-term game who got hit with their own boomerang. As a result, many of these leaders have departed the scene, just as numerous corporate CEOs did in the wake of the Enron debacle earlier in the decade.

Some of these leaders failed to follow their True North, the internal compass of their beliefs, values, and principles that guide them through life. Breaking away from one's True North becomes particularly prevalent when a crisis strikes because leaders often look for an "at-any-cost" quick fix in attempting to save face. These leaders either could not handle the pressures of the crisis, or got caught up in the seductions of instant gratification that offered them money, status, and power. In either case, they failed to face the reality of the crisis and admit their mistakes.

There is a noticeable void today of principle-driven leadership in business and society. In the depths of a major crisis—much like the one we're in now—is where a principled approach to leadership and decision-making is most needed. The leaders who successfully navigate their organizations through crises are ones who focused on their leadership principles and stayed true to their values. Only by practicing a clear set of principles can we ensure that the recovery is long-lasting and that future business is sustainable. As a society, we need to get back to practicing values-centered leadership. That's the only way we can restore integrity to leadership.

We need fresh ideas to incentivize principled-centered leadership. How can we create a corporate atmosphere where principles are honored along with long-term, sustainable results? How do we prepare new leaders to abide by their True North, even in the most severe crises? What changes does a leader need to make internally to ensure that the company's values extend throughout the entire organization? These are the questions that need answering, and it's up to the emerging generation of leaders to answer them.

Q: It is a paradox that leaders must inspire confidence in others, yet to be effective they should also be self-reflective and recognize their own weaknesses. Please elaborate; you write in your book that "learning how to express your vulnerabilities on appropriate occasions is an emerging leadership skill."

A: One of the great myths of leadership in recent years is that leaders have to appear strong and invulnerable to mistakes and pressures. All of us without exception make mistakes and will capitulate under enough pressure. The key is being open with others, taking them into your confidence, admitting your mistakes, and looking to them for advice and support. Rarely does anyone turn down a leader who genuinely asks for help.

Yet we're exposed regularly by the media to the stereotype of the flawless leader who always has an answer and is never left questioning a decision. While most leaders know this is a fantasy, they still struggle with admitting their own vulnerability when a situation goes awry and crisis strikes. It's as if doing so is tantamount to admitting failure as a leader.

This tension is not necessarily surprising. Fortune 500 CEOs are some of the most driven, results-oriented people on the planet. Because their jobs compel them to demand a great deal from their employees, their companies, and their products, most demand the same from themselves. In so doing, they are at risk of letting their egos take over and letting their protective shells harden. When things go wrong—which they inevitably do—they assume the fault lies elsewhere. Yet in most cases the leaders bear a high degree of responsibility for the problems, often as a result of the direct or indirect pressures they put on their people.

Authentic leaders find ways to resolve this struggle. Expressing humility is a great skill because it not only brings leaders closer to their management teams and employees, but also encourages similar candidness and humility in others. By taking the first step in revealing their vulnerabilities, leaders encourage an atmosphere where concerns and doubts are voiced. Potentially unforeseen problems can be addressed sooner, and with a team focus. It's difficult to do, but expressing vulnerabilities appropriately will make leaders more effective.

Q: For emerging or future leaders, what lessons from your book would make them most effective in a crisis? Which most apply to seasoned leaders? Which lessons are most challenging or require the most practice and reinforcement?

A: Leaders are neither made nor born. Like great musicians and athletes, they are born with certain gifts that give them the potential to lead, but they have to develop their gifts in order to become effective leaders. There is no better way to do so than leading others through a crisis. I wrote 7 Lessons to help leaders learn about leading through a crisis. There they will develop much faster than they will in leading through good times, or studying how other leaders behaved in crises. As the military learned long ago, there is simply no substitute for being in the thick of a crisis and testing yourself.

"It's difficult to do, but expressing vulnerabilities appropriately will make leaders more effective."

In the midst of a crisis, Lessons #3 ("Dig deep for the root cause") and #4 ("Get ready for the long haul") can be especially useful for emerging leaders. Under the pressures of a crisis, there is a temptation for less experienced leaders to jump to quick-fix solutions that may mask the real problems. The only way to solve these problems is to understand their root cause and implement permanent solutions. Furthermore, when confronting significant problems, many leaders' first reaction may be that things can't really be that bad. As we learned in the financial crisis, things will likely get a lot worse. To survive the crisis, emerging leaders need to prepare for a long struggle to defend against the worst conditions so they will be prepared to pass through the eye of the storm.

For seasoned leaders, the most applicable are Lessons #5 and #7, "Never waste a good crisis" and "Go on offense: focus on winning now." So often the go-to strategy for veteran leaders when a crisis strikes is to buckle down and ride out the storm. They don't make any major changes. Instead, they wait until the climate is right to resume normal operations.

Crises offer rare opportunities to make major changes in an organization because they lessen the resistance that exists in good times. Leaders should move aggressively to take actions necessary to strengthen their organizations as they emerge from the crisis. Coming out of a crisis, the market never looks the same as it did going in. Leaders should see this as an opportunity to reshape the market to play to their strengths, while shedding their weaknesses. While others are licking their wounds, successful companies focus on winning now. These are often difficult lessons for veteran leaders to heed.

For many leaders, going on offense when they are in the depth of a crisis is most counter-intuitive, yet it is the winning strategy. Like the Chinese character for crisis that contains two symbols, danger and opportunity, crisis represents the best opportunity to transform your business and to win in the marketplace.

Q: What are you working on next?

A:I'm enjoying a new year of teaching at Harvard Business School. My Authentic Leadership Development (ALD) class has been phenomenal to work with so far. We now have four experienced faculty members teaching four sections with 240 students, yet there is still a long waiting list for the course.

I'm especially enjoying mentoring the next generation of leaders and having them mentor me. These young leaders are amazing people. I have great hope for the positive ways they will make a difference in the world as they step into important leadership roles. The financial crisis has a silver lining for them: Many are rethinking what they want to do with their lives and their leadership, rather than just "following the herd" into high-paying jobs that do not nourish or fulfill them. As painful as these adjustments are, this will be a healthy thing in the end.

I continue to sit on the boards of Goldman Sachs and ExxonMobil. Both boards require a considerable time commitment, but I am pleased to report that Goldman has grown stronger through the financial crisis, and Exxon has done the same in the precipitous drop in oil prices from $147 to $33 per barrel.

I have spent a lot of time recently with leadership groups and the media discussing the "7 Lessons" and applying them to the current economic environment. Most recently, I have immersed myself into social media, thanks to an amazing team I'm working with in Raleigh, NC, that is led by Zach Clayton (HBS MBA 2009). I'm learning how to actively use Twitter as well as Facebook and LinkedIn. I enjoy the interaction and dialogue that is sparked there. While I'm an old dog learning new tricks, I believe that new media is reshaping the way that human beings communicate, so I'm eager to spend more time engaging with people online.

Lastly, I look forward to spending even more time with my family. Penny and I just celebrated our 40th wedding anniversary with a four-day trip to Bermuda, and we're coming off a great summer in Colorado with our two sons, daughters-in-law, and two grandchildren, who live in Munich and San Francisco. There is nothing more fun or rewarding than the time we spend together.

Excerpt: 7 Lessons for Leading in Crisis
By Bill George

How do you take the global economic crisis, or any other crisis, and turn it into an opportunity to transform your markets and your company? Here are 7 steps to keep your organization focused on winning the depth of the crisis:

  • Step 1: Rethink your industry strategy. To figure out what your markets will look like after the crisis requires a keen understanding of the changing needs of your customers. One example from the current crisis is the extent to which consumers have shifted from expensive luxury goods to more practical items. That's why high-end department stores like Neiman Marcus and Saks have fared poorly. Even fashion-forward discounters like Target have not done well. This doesn't necessarily mean consumers have lost their interest in upscale merchandise. Rather than returning to these same stores after the crisis, are consumers more likely to be attracted to chic low-cost items and trendy value-oriented merchandise? If this turns out to be the case, how can your company take advantage of shifts like these?
  • Step 2: Shed your weaknesses. A crisis presents the opening to eliminate your organization's weaknesses, especially if it is too bureaucratic or too slow-moving to be competitive. That's what CEO Anne Mulcahy did in cutting 28,000 jobs to enable Xerox to be competitive once again. Now she is refocusing Xerox, long known as the plain paper copier company, on the paperless, all-digital office. How can you use your crisis to shed your organization's weaknesses to prepare for future competition? You will never have a better opportunity.
  • Step 3: Reshape the industry to play to your strengths. The bold strategy coming out of a crisis is to move your entire industry to make your strengths the basis for competition while exposing your competitors' weaknesses. That's what IBM, Apple, and Medtronic did. What strategies can you deploy to expose your competitor's weaknesses? How can you shift the market to value your strengths? In recent years, we have learned that using size to be all things to all people doesn't work. To win in the emerging market, you need a highly focused strategy that builds off your unique strengths.
  • Step 4: Make vital investments during the downturn. Intel and Exxon offer evidence that you cannot wait to make vital investments you need to win in the emerging market. When it appeared growth was slowing in the pharmaceutical industry, Novartis CEO Dan Vasella made counterintuitive moves by expanding Novartis's generic drug, vaccines, and consumer health businesses in spending heavily on acquisitions to offer alternatives to patented drugs. Meanwhile, he focused Novartis's pharmaceutical businesses more on targeted specialty drugs. What investments must you make at the depths of the downturn to emerge as the leader? Can you think the unthinkable and invest in a new strategic thrust when you're on your knees? It takes courage to defy conventional thinking and launch a bold new strategy when business is bad.
  • Step 5: Keep key people focused on winning. During a crisis there's a risk that your entire organization gets so focused on keeping the ship afloat that no one is planning ahead. Therefore, you should assign a small team of highly talented people to devise the post-crisis strategy. It may seem risky to pull key people out of crisis management to plan for the future, but this is required to win. How will you reshape your organization's strategy to emerge from the crisis as the winner?
  • Step 6: Create your company's image as the industry leader. With public criticism of Wall Street mounting and the industry defending itself, emerging financial service leaders are envisioning changes needed in capital markets. In a major policy address in April 2009, Goldman's Lloyd Blankfein outlined industry-wide changes required to restore sound risk taking, provide appropriate regulation, focus accounting on marking-to-market, and establish long-term compensation practices that reward sustainable gains. How can you recreate your company's image to be the emerging leader that understands customer needs in the new environment?
  • Step 7: Develop rigorous execution plans. This final step is often overlooked by visionary leaders who devise new strategies but fail to underpin them with detailed plans for marketplace execution. Emergent strategies are only as good as their execution. Sound execution requires not only attention to detailed planning, but adaptability to changing market conditions to alter tactics to meet customer needs. How effective is your organization in executing its plans? Do you assign your best people to this task and measure them in minute detail? Are your plans flexible enough to adapt to changing market conditions, while still maintaining discipline? If the answer to all three questions is affirmative, then you are well positioned to come out of this crisis as the winner in your market.

Following these 7 steps with clarity and rigor will enable your organization to emerge from the crises you face as a leader in your field. By going on the offense, you can gain competitive advantage and build your market position to sustain your future growth and success.

About the authors

Bill George is a Professor of Management Practice at Harvard Business School and author of 7 Lessons for Leading in Crisis, (with Peter Sims) True North: Discover Your Authentic Leadership, and Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value. The former chair and CEO of Medtronic, he currently serves on the boards of ExxonMobil and Goldman Sachs and previously, Novartis, and Target. Read more at www.BillGeorge.org, or follow him on Twitter @Bill_George.

Martha Lagace is the senior editor of HBS Working Knowledge.

Excerpted with permission from 7 Lessons for Leading in Crisis. Copyright 2009 by Bill George. Jossey-Bass, 2009.