As business leaders, now is the time to hold our nerve...

Do you ever feel as a leader you are walking a tightrope? 

You can see the other side, but getting there is less than straightforward with many wobbles along the way as you tentatively take one step at a time towards your goal.

If you didn’t before I suspect you may do now!

If you don’t - are you really leading?

Leading right now is tough, isn’t it? Having a great ‘why’ definitely helps guide us, but equally there is no blueprint for what we need to do now so more than ever we are trusting our experience and instincts as well as listening to others and learning as much as we can each day. 

Way, way back in August (in ‘covid-time’ that’s probably the equivalent of at least 2 years, right?!) I wrote an article entitled ‘Leading through crisis; do we now need to END with why?’ 

It seems to me just a few months on that we are about to really put personal resilience and the courage of our convictions to the test over a predictably difficult winter. We must hold our nerve as leaders ensuring our businesses transcend the short term and emerge better than before, but without losing sight of where we need to invest to deliver the longer term outcomes.

Now is the time to hold our nerve with future plans rather than simply battening down the hatches…

Earlier this week I read an article in the FT suggesting government were wrong to stop some of their planned activity to focus on the here and now and that a longer term fiscal response was needed. I agree. But this doesn’t just apply to the public sector. 

Many segments of the private sector were already under threat either from new business models driven by new entrants, shifting consumer demand, tech driven efficiency and innovation, oversupply, or indeed Brexit self-inflicted international trade and supply chain challenges …. The pandemic has accelerated these changes by several years requiring both a short-term but also highly strategic response for business to survive beyond this initial phase and the armbands of the government support packages.

The pandemic has accelerated change requiring both a short-term but also highly strategic response.

As a CEO I feel the job more than ever requires the ability to focus simultaneously and equally on the short and the long term; like trying to pat your head whilst rubbing your tummy (whilst blindfolded and with lead weights of your wrists)… constantly!

And we can’t even take a steer from the last financial crisis. This isn’t a problem of access to finance like 2008 and a weakened financial sector. Indeed UK banks have lent over ￡75bn since the start of the crisis (albeit heavily underwritten by the Treasury) and are scoring well above the minimum levels set to demonstrate resilience. 

So here are the ingredients we have been given in 2020’s episode of Ready, Steady, Cook: 

-      Artificially switch off of the supply of goods and services to an unparalleled level just as confidence and demand was starting to pick up

-      Then combine this with severely dented and highly volatile business confidence linked also to the prospect of a no deal Brexit looming

-      Add in pending tax increases, long term historic debt burden and latent surge in unemployment; currently masked by government intervention

-      Now consider society being even more polarised by a virus which is both literally and economically dis-proportionately attacking those in less privileged parts of our communities  

-      Take GDP in August at 9.2% lower than it was in February and with further local and possible national lockdowns making predictions for recovery range anywhere from end ‘21 to end ‘23

-      For some extra intrigue by the year end, consider making interest rates negative for the first time in UK history and therefore borrowing costs at an all-time low but with realistic chance of end of free banking

-      And finish off with a workforce now rethinking their priorities in the context of a confused and fearful deluge of ever changing and complex messages, coming from a government allowing itself to be constrained by the considerations of partisan politics.

It’s not a recipe which any of us have cooked before! But it’s clear as business leaders we must play an active role to help shape a better, more clear and consistent response.

This is a time where leaders need to create pockets of realistic certainty, not false hope

This is a time where leaders need to create pockets of realistic certainty, not false hope given through naive rhetoric and statements like ‘we will be back to normal by Christmas’! Far better to be honest, realistic and consistent than take ourselves and those around us on an unnecessary roller coaster. Better to manage expectations and exceed them. If our best realistic guesses turn out to be too cautious then great! That doesn’t mean though we need to be negative and batten down the hatches. Intelligent investment and cost control may be harder, but will deliver better results in the medium term than driving an indiscriminate steamroller through your cost base. There is still plenty we can be grateful for, and find positives in, with a bit of creativity and taking values back to basics. 

Think of this as piloting a glider rather than riding a rollercoaster or worse driving a steamroller!

But how … in its simplest sense; manage cash and liquidity for the short term and profit for the long term. Make small simple adjustments and find the 'thermals' of opportunity to get behind.

(Of course those of us operating in a partnership business model have our own additional challenges in this respect - we don’t have the ability as limited companies do to make a loss and (easily) still pay our members. The model and the way we, as a sector, still focus on annual PEP ahead of the better indicator of EBITDA and value creation over time can encourage short-termism. Our approach is to find more strategic and balanced measures that tell us we are delivering on strategy and give these as much weight as the short term financial measures when it comes to reward.)

Measure the right things; link them to reward.

In more detail then. here's a suggested blueprint to balancing the short and long term and holding our nerve though this next stage;

?      Cash is King. Manage it first and foremost. Full stop. If this is a real challenge stay focused on it and don’t get distracted by longer term opportunities until the danger has passed

?      Clarify your business ‘north-star’. You may have set this before covid - make sure it’s still relevant

?      Build agility to make decisions and implement changes quickly so you can ‘tac’ towards it. Don’t be stubborn if you need to change course. This is not a time for linear thinking and straight-line implementation. Seek out the opportunities in unexpected places. Keep an open mind

?      Plan for medium term liquidity. Create a ‘war-chest’ for the unplanned opportunities. Make the most of access to finance at low rates but;

?      Set your limits before expansion opportunities come. Create ‘internal’ covenants to keep this on track and ensure you don't over-extend no matter how great the opportunities are.

?      Foster adaptability – have the courage to switch lanes if needed and crucially if you were wrong, or made a mistake, be brave enough to say so

?      Ensure brand clarity and resonance; stay relevant 

?      Value loyalty of both your clients and you people – how you treat them matters constantly but even more so in times of crisis. Treat all as individuals

?      Look after talent – attraction, retention but most importantly liberation. Stay ruthlessly honest and unashamedly transparent.

?      Keep innovating using tech but not forgetting other types of human innovation and marginal gains 

?      Challenge old paradigms. Challenge previous timescales. We moved mountains in a matter of weeks at the start of the pandemic; how can we keep that momentum when it’s needed?

?      Keep investing (wisely) even through the difficult times. Manage as a portfolio - mix certainty with risk. In terms of talent, keep capacity ready in the starting blocks for future activity as a form of investment, even if not fully utilised short term 

?      Don’t treat all overheads the same and be tempted to set percentage reduction targets across the board. Be tough on managing out non-value added cost and waste but spend more if you can see other efficiency benefits generated in other areas of the business 

?      Strengthen networks and affiliations by adopting an abundance mentality and finding win:win situations

?      Look ahead 'up the mountain' rather than back down having learnt from the past.

Look up the mountain, reload the catapult. 

And don’t forget the need to be human. We still need to be commercial. We still need to be strategic. And we must not shy away from the tough decisions. But we are entering a new phase of ‘human capitalism’ which should influence how we do successful and ‘good’ business. Still not convinced - read ‘Humanocracy’ the latest book from Gary Hamel and Michele Zanini.

Be brave, be kind, be purposeful. Be in it together. Be in it for the long term. 

As business leaders we have a duty to create certainty where we can but without being reckless or naive; creating a positive mindset which facilitates the return of confidence. We also need to balance our focus on both the short and longer term. And above all stay strong and hold our nerve. If we don't who will?

Let’s not make a deeper recession a self-fulfilling prophecy.

References

-https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/august2020

-      https://tradingeconomics.com/united-kingdom/business-confidence

-      https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever#

-      https://www.ifs.org.uk/publications/15078

-      https://www.pwc.co.uk/premium/covid-19/uk-economic-update-covid-19.pdf

-      https://data.oecd.org/leadind/business-confidence-index-bci.htm

-      https://www.bankofengland.co.uk/financial-policy-summary-and-record/2020/october-2020

-      https://www.ft.com/content/14a62562-a0d6-4d85-939b-3b92cc85a3fd

-      Humanocracy: Creating Organizations as Amazing as the People Inside them - Gary Hamel & Michele Zanini (2020)