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Four Crucial Conversations for Uncertain Economic Times
June 02, 2009
By Joseph Grenny
As 2008 came to a close, the CEO of one insurance company saw his organization's pool of investable capital dry up. In an emergency meeting, he announced that each division's budget would be cut by 15 percent. After the announcement, dejected VPs shuffled out of the room. As they did, Sharon, a division VP, spoke up, "Look, 15 percent across the board doesn't make sense. We all know the big growth opportunities are not in my division—they're in Mark's. I'll shift some of my capital to him so we can leverage the market that's working."
For the first time, the executive team made enterprise-based decisions about capital deployment rather than arguing for their functions. Their understanding of which cuts would cost, and which would not, enabled them to develop a rapid and effective solution.
Sharon's chance comment turned out to be a crucial moment. It was a moment when a small change in behavior led to a far more effective plan. It turned a dictum into dialog and engaged far more intelligence in the response than the CEO was capable of applying.
And yet, Sharon's response is an anomaly. In most financial crises, senior leaders' instincts are to impose top-down solutions and leave it at that. Unfortunately, our research shows this common response has a 50-50 chance of damaging the company's long-term ability to thrive. Such plans are also two-and-a-half times more likely to cost the firm millions of dollars in potential savings.
Behavior and Reaction Time
VitalSmarts researchers wanted to identify the crucial moments leaders face in fiscal challenges that profoundly predict the quality and speed of an organization's response, so we asked more than 2,000 managers and executives from more than 400 different companies to reflect on their experiences with major financial retrenchments. Our hypothesis was that major financial adjustments didn't rely as much on the quality of data, processes, or policies as on they did on behavior.
The results were remarkable. We found four moments that happen in every organization that predict with incredible precision how well and how fast an organization responds to economic threats. Those who handled these four moments well were more than five times more likely to respond within days or weeks and more than 10 times more likely to respond in a way that positioned the company for future success.
If leaders invest in their team's willingness and ability to step up to these four crucial conversations, their companies will react with agility that produces remarkable benefits in lean times.
1. Denial: Often, when a crisis breaks, denial ensues about the severity of the situation. People debate about the data and unknowns while their corporate ship slowly sinks. On the other hand, teams that discuss doubts are twice as likely to act within days and nine times more likely to resolve the crises. And yet, according to our research, only 40 percent of teams are able to effectively discuss disagreements about the urgency of financial issues.
2. Going to Silence: After deciding what adjustments to make, the next crucial moment happens when people fail to hold teammates accountable for deviating from agreed-upon plans. Teams that confront violated commitments are six-and-a-half times more likely to take effective action within days. Remarkably, every one of the 109 accountable teams in our sample resolved their financial crisis. But only 11 percent of teams hold each other accountable.
3. Protecting Pet Projects: In most organizations, individuals conclude that necessary budget cuts are politically unwise to bring up. Ideas are withheld because people don't know how to suggest cuts to the boss' pet project. Teams that aren't mired in these kinds of "undiscussables" are four-and-a-half times more likely to act on the financial crisis within days, and are nearly five times more likely to resolve it. But fewer than half confront these pet projects head on.
4. Irrational Slashing: Most leaders address the above problems by preempting involvement of staff in dicey decisions. Rather than deal with denial, silence, or undiscussables, they simply impose across-the-board cuts. Leaders who exclude the team are nearly three times more likely to undermine their own purpose because they failed to create an effective and tailored approach.
What Leaders Can Do
Each of these behaviors represents a pivot point between agility and a tar pit. Teams that confront these behaviors through crucial conversations are 250 percent more likely to survive. Less agile teams are 360 percent more likely to miss millions of dollars in lost opportunities. Here's how leaders can take control:
1. Model and Teach Dialog Skills: As leaders foster the dialog skills required to hold these crucial conversations, every one of the positive results described above is enabled as teams reach consensus, not conflict.
2. Schedule Regular Financial Workouts: The era of fixed budgets is over. Agile firms replace fixed budgets with financial workouts that pit a wide range of initiatives against clear criteria, revenue, and strategy to guide their spending. These workouts are led by the C-suite and scheduled quarterly or in response to unforeseen shocks.
3. Publicly Sacrifice a Sacred Cow: Sacrifice breathes life into new values. When leaders openly demonstrate that fiscal stewardship is more important than pet projects or personal ego, cynical team members begin to "doubt their doubts."
4. Support Decisions that Favor Timeliness Over Perfection: Most managers believe their leaders expect perfection. However, fiscally agile leaders accept that urgent financial decisions are made under conditions of uncertainty. Good leaders encourage managers to tailor decisions to the information they have.
5. Create Safe "Sub-Dialogs:" Leaders who break fiscal challenges into discrete problems and assign small cross-functional groups to work in a time-bound way are more likely to generate solutions. They will see intelligent cuts proposed rapidly by those who truly understood and embraced the goals of the reduction. The greatest barrier to financial agility is not a lack of intelligence or a lack of time but a lack of focused, unified dialog. Leaders who invest in the skills, time, and support to help their people hold crucial conversations will generate both profoundly wise and surprisingly rapid solutions to their financial challenges. And while the need for financial agility is paramount in today's economy, the capacity to engage in candid, timely, and wise deliberation pays returns in any season.
Joseph Grenny is the co-author of three immediate New York Times bestsellers, including "Crucial Conversations." He is a consultant to the Fortune 500. Grenny is co-founder of VitalSmarts, a provider of corporate training and organizational performance.
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