Core Values and Human Capital: Keys to Success in an Era of Turbulence

Welcome to the “new normal.” That’s part of what management guru Jim Collins recently said in an interview with Fortune magazine senior writer Jennifer Reingold. And by the “new normal,” Collins, author of business classics “Built to Last” and “Good to Great,” suggested that the current volatility and instability in the marketplace is not an aberration. In fact, he opined that the stability we enjoyed from 1952 to 2000 was an anomaly. Simply put, economic turbulence is here to stay. So get used to it.

If that’s the case, though, what should business organizations do about it? To answer that question, Collins cited practices of some of the past century’s most-enduring companies, specifically, Procter & Gamble, General Electric, Johnson & Johnson, and IBM. For Collins, two particular aspects of those companies’ strategic approach have made them successful in the face of crisis.

1. Strong core values: Because crises naturally challenge an organization’s capabilities, it’s crucial for managers to maintain a consistent focus on the organization’s central ideals. This entails continually reinforcing how you do business, in addition to what your business does. For example, Collins cited Procter & Gamble’s persistent focus on product quality as an enduring feature that has helped it succeed despite adversity.
   
2. A continual focus on human capital: Quite simply, people matter. If managers choose to sacrifice attention to their human capital, their organizations will fail. Retaining—and yes, even hiring—good people during economic downturns should continue to be a top priority. Why? According to Collins, it’s high-performing employees that pull organizations toward success during crises. Additionally, in a labor market flush with talent, the time is ripe for organizations to bolster their human-capital advantage.

Finally, Collins proposed that executives should remember that “turbulence is your friend.” Despite current economic uncertainty, organizations with leaders who seek and exploit new opportunities will emerge from this crisis with a renewed strategic focus enabling them to succeed.

The worst action for executives, Collins contended, is inaction. Referencing his hobby of rock climbing, he said, “You don't just sit on the mountain. You either go up or go down, but don't just sit and wait to get clobbered. If you go down and survive, you can come back another day. You have to ask the question, ‘What can we do not just to survive but to turn this into a defining point in history?’” The place to start, as Collins suggested, just might be (a) reinforcing your core values and (b) focusing on your human capital. Because, after all, values and people do make a difference.

Crisis Leadership Lessons from the "Miracle on the Hudson"

Captain Chesley “Sully” Sullenberger, who brought his planeload of 150 passengers down safely in the Hudson river after losing both engines, has been celebrated for his performance and his character.

A blog post, How to Pilot Through a Financial Crisis Like Captain Chesley “Sully” Sullenberger, distills some of the characteristics Captain Sully displayed:

Stay Calm: Sully didn’t panic. Think about that. He was the Captain of a large commercial airliner with more than 150 lives depending on his every move. If there was ever a time to panic, it was when both engines lost thrust over New York City.

Be prepared: January 15, 2009 was not Captain Sullenberger’s first day on the job. He had spent a lifetime preparing for that very moment. In addition to his experience as an Air Force pilot and hang-glider (some say sailplane) enthusiast, he undoubtedly spent countless hours in flight simulator training.

Get help: Captain Sullenberger didn’t save that plane and its passengers all by himself. He had a co-pilot and crew there to help. (We might add that many passengers also rose to the occassion to help others to safety.)

Stay focused:The tapes of Captain Sullenberger’s communications with ground control are quite telling. Sully was focused, as you might imagine, on what was important. His communications with ground control were very brief and to the point. He communicated what he needed to, and then stayed focused on the problem at hand.

Be hopeful: Emergency landings, like life, do not always have a happy ending. That’s just reality, and no matter how much we may wish it weren’t so, sometimes bad things happen to good people. But hope, above all else, gives us the desire and drive to keep trying.

The Captain's exemplary performance has undoubtedly gained much greater attention as we seek role models in a time of crisis. In an essay in Newsweek, Sully reflects on this:

It's been a month since the airplane I piloted, US Airways Flight 1549, made an emergency landing in the Hudson River.

Since then, the attention given to me and my crew—I'm trying to resist, somewhat unsuccessfully, everyone's attempt to make this about fewer than five people—has obviously been immense. But I still don't think of myself as a celebrity. It's been a difficult adjustment, initially because of the "hero" mantle that was pushed in my direction. I felt for a long time that that wasn't an appropriate word. As my wife, Lorrie, pointed out on "60 Minutes," a hero is someone who decides to run into a burning building. This was different—this was a situation that was thrust upon us. I didn't choose to do what I did. That was why initially I decided that if someone offered me the gift of their thankfulness, I should accept it gratefully—but then not take it on as my own.

As time went by, though, I was better able to put everything in perspective and realize how this event had touched people's lives, how ready they were for good news, how much they wanted to feel hopeful again. Partly it's because this occurred as the U.S. presidency was changing hands. We've had a worldwide economic downturn, and people were confused, fearful and just so ready for good news. They wanted to feel reassured, I think, that all the things we value, all our ideals, still exist—that they're still there, even if they're not always evident.

The Captain offers his own lessons on crisis:

We valued every life on that airplane and knew it was our responsibility to try to save each one, in spite of the sudden and complete failure of our aircraft. We never gave up. Having a plan enabled us to keep our hope alive. Perhaps in a similar fashion, people who are in their own personal crises—a pink slip, a foreclosure—can be reminded that no matter how dire the circumstance, or how little time you have to deal with it, further action is always possible. There's always a way out of even the tightest spot. You can survive.

Managing Expectations to Manage the Unexpected

Crises inherently involve people dealing with unanticipated events. And one way that leaders often shape how people around them think about crises is by talking about expectations. For example, much of the recent talk initiated and perpetuated by leaders within the U.S. government incorporates aspects of expectation management.

Take, for instance, President Barack Obama’s Feb. 24 address before a joint session of Congress. In his speech, which dealt largely with his plans to bolster the economy, Mr. Obama incorporated several elements of expectation management. Specifically, after discussing his immediate plans for economic recovery, Mr. Obama’s rhetoric shifted to describe plans with a decidedly futuristic orientation. To illustrate with a simple example, let’s consider the president’s use of two phrases: “short term” and “long term.”

For starters, Mr. Obama used the phrase “short term” twice while mentioning “long term” six times. But what is compelling from an expectation-management perspective is that both times that he said “short term,” he immediately juxtaposed “short term” with “long term.” Early in the speech, Mr. Obama compared the two, saying, “Short-term gains were prized over long-term prosperity.” Later, he said, “The recovery plan and the financial stability plan are the immediate steps we’re taking to revive our economy in the short-term. But the only way to fully restore America’s economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world.”

In his recent column on Forbes.com, Shaun Rein describes Mr. Obama’s expectation-management strategy as one that business leaders should adopt in difficult times. Rein wrote, “President Obama has continually lowered expectations about his ability to right the economy quickly. This has given him time to maneuver and allowed for more upside potential … Managing the expectations of investors and employees is critical now. One of the biggest mistakes senior executives make is trying to put too positive a spin on a situation.” Indeed, business bloggers are also picking up on the importance of expectation management in the face of crises.

Bloomberg News columnist Caroline Baum focused instead on Mr. Obama’s optimism. In her Feb. 26 column, she wrote, “Chicago is home to, among other things, rational expectations theory, the idea that outcomes depend to some extent on what people expect to happen. It would have been hard to spend that much time in Hyde Park without some of Chicago rubbing off on Obama … If we expect the future to be better, rational expectations dictate that it will be.”

Taking a scholarly perspective, organizational theorists argue that people’s expectations regarding what constitutes the ordinary shape how they make sense of and ascribe meaning to the world around them. So in terms of leadership, it behooves leaders to manage expectations carefully, keeping in mind the power of suggestion and using talk to frame how others regard their environments. At the same time, however, it’s crucial to manage expectations in such a way that people are more likely—not less—to notice and publicize the weak signals and small deviations from normality that are all too often beacons warning of impending disaster.

One of three ‘inevitables’. Crisis leadership in practice

By Kinga A Komorowska
MBA Student at the University of Strathclyde

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Common wisdom and many research studies have proved there are three inevitable things in life: death, taxes and crises. Having no capacity to deliberate death & tax issues, I would like to share a few reflections on leading under storms. These are based on the survey (N=141) I have conducted for my MBA project (Strathclyde Business School) in January 2009.

To the point: on the basis of the extensive literature review, I identified six hypotheses to be tested by the survey:

Hypothesis 1. Transformational leadership is the highly correlated with company performance during the crisis. I expected the transformational leaders to be the kind of leaders described by Klann (2003): being ready for anything, being keen on crisis to test their effectiveness and, finally, being able to ‘turn the chaos of a crisis into the promise of opportunity’. The finding that transformational leaders are able to influence only their performance and, practically, have no impact on company performance under crisis was highly disappointing.

As ‘charismatic attributes are at the heart of the transformational leader’ (Merolla et al. 2007), I expected by charismatic leaders to have even stronger impact on company performance than transformational leaders. Therefore, my Hypothesis 4 was that the charismatic leaders can increase company performance during a crisis. I found the only charisma that is important in crisis is the one presented during through time. If the leader was charismatic on a day-to-day basis but for some reasons, for example due to high stress level and inability to cope with it, changed his leadership style, the benefit of his charm would disperse.

Hypothesis 2. Leadership style does not change during crisis – it just become more expressive. I would say this was confirmed by my research although the results of validity tests were mixed. The direction of the shift was the biggest astonishment for me. I expected the number of transformational leaders to increase. Yet, the move towards more firm and less partnering style of leadership is visible during crisis.

Hypothesis 3. Leaders who perceived themselves charismatic would prefer ‘mental toughness’ as a major stress copying mechanism. I classified the following behaviours as the mental toughness: self-confidence, being optimistic, never-give-up approach, ‘take one day at time’, you-can-do-it approach, determination to succeed and ‘I always win’ strategy. This hypothesis was confirmed in my survey but work-related solutions (working even harder than during non-crisis time, crisis plan preparation, motivation from previous crisis-experience) were just slightly less popular among respondents.

Hypothesis 5. Performance depends on the stress level: the higher crisis level, the lower assessment of participants’ performance, as well as their company performance. My research proved the usefulness of the Yerkes Dodson model of arousal tension (Halverson et al. 2004): low levels of arousal stress can be beneficial for personal performance. As far as company performance is concerned, the relation is more linear: the stronger the stress, the lesser the performance.

Hypothesis 6. Stress coping mechanisms are not related to the leadership style expressed by leaders in crisis. Overall, there are no correlations with the mental toughness being the only exception. On the more detail (stress-mitigating behaviour) level, seeking external (but not professional) support was by far the most popular activity if under stress.

To sum up, the most general observation I have is the literature is so diverse and the opinions are so wide-ranging and at variance with each other that anyone can find both supporting and contradicting citations for any single issues related to crisis leadership. Any new research can bring evidences to defend some earlier findings but also to oppose them.

On the other hand, my MBA project has clarified my point of view on the debate on leaders being born or made: the crisis leaders are made! No doubts you have to have certain traits but this research proved the more experience in crisis, the better performance. You have to go through this hell to become a crisis leader!