May 12, 2020 6 min read
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“The art of life lies in a constant readjustment to our surroundings.” — Kakuzo Okakura, Japanese author
Panic. We’ve all felt it. It’s the lizard part of our brain activating in response to danger.
The world as we know it is changing, and it makes sense for leaders to react by going into crisis mode. But according to Harvard Business Review contributors, Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen, when our fear goes into overdrive, it can sabotage our capacity to be forward-thinking. They write:
“CEOs, like generals in the heat of battle, are so busy tackling short-term priorities that the future is obscured by the fog of war.”
“Their priority, when they get a moment’s respite,” the co-authors write, “must be to remake their organizations to cope with the ‘new normal.’” The problem is that the survival part of our brains have been hardwired with a negativity bias that can make us linger on negative events and experiences.
As the founder of JotForm, a company with over 140 employees and 5.3 million users worldwide, I can’t afford to become paralyzed or make reckless decisions when a crisis hits. To face a challenge like the one we’re in, it’s necessary to be cautious yet proactive with our decision-making. As Farnam Street explains, “equilibrium is a balance between one or more opposing forces.”
Simply put, we have to find the middle way. Being flexible and ready to adjust is essential for leaders to successfully navigate crises — and to not only survive in the moment, but to thrive afterward.
For some companies, this might mean pivoting, while for others it could simply mean not reacting impulsively— and instead slowing down to make calmer, healthier decisions.
Related: Successful Leadership Tactics in a Time of Crisis
Why swinging into crisis mode clouds our vision
“Human beings are hedonistic,” explains Columbia University psychologist, Tory Higgins. “We avoid pain and seek pleasure—but they differ in how they try to achieve those aims.”
In moments of upheaval, we’re psychologically susceptible to making a whole range of mental errors. Uncertainty shrinks our field of vision. We might try to cut down on costs faster or make bolder investments before thinking it through. But when we swing into this form of crisis mode, we also have the lowest probability of faring well after a downturn.
Many of these choices will reflect our loss aversion — a bias that makes us resistant to change because we’re more concerned by what we may lose than what we might gain. It’s also the reason we tend to laser in on avoiding bad outcomes rather than focusing on progress.
Being too defensive by quickly cutting operating costs, for example, or lowering your headcount, and eliminating investment can cause a host of problems down the line.
You see this in a loss of innovation, a drop in customer satisfaction, and an overall culture of disempowerment among your team. As Amy Edmondson, a Harvard Professor and author of the book The Fearless Organization, tells us: “If you do not feel safe in a group, you are likely to keep ideas to yourself and avoid speaking up, even about risks.”
Similarly, responding too aggressively in the face of adversity — by doubling down on pursuing every opportunity available — can lead you to ignore early warning signs like customers’ budget cuts.
“Promotion-focused CEOs sometimes increase expenditures rather than cutting back, believing that this will push them ahead,” write co-authors Gulati, Nohria, and Wohlgezogen. “If investments take longer than expected to generate paybacks, or innovations don’t resonate with customers, these companies run headlong into trouble.”
Either of the above approaches can eventually blindside you with poor financial results.
Opting for a combination strategy of defense and offense, on the other hand, is what allows us to remain both cautious and forward-thinking.
Related: What Leaders Can Learn From Governor Cuomo About How to …
The middle way: a progressive approach
“Everyone experiences tough times; it is a measure of your determination and dedication how you deal with them and how you can come through them.” — Lakshmi Mittal, Chairman and CEO
I’ve never been an extremist by nature. I don’t believe you have to take large risks to build a successful business, and I apply this same logic in moments of crisis — choosing “the middle way” over applying drastic changes.
Regardless of how you initially respond to calamity, here is a two-pronged approach that has been helpful to me in staying focused on playing the long-game.
1. Be calculating with cost-cutting measures.
Despite good intentions, when it comes to cutting costs, many founders can become short-sighted due to their anxiety about the future. Especially when it comes to layoffs. Yet, research has shown that “companies that rely solely on cutting the workforce have only an 11% probability of achieving breakaway performance after a downturn.”
Take the 2000 recession, for example. The company Staples was able to come out stronger, bigger, and more profitable than it had been in 1999. Why?
Because instead of taking a survival-at-all-costs approach and significantly reducing their number of employees, they sought to improve their operational efficiency. They did this by introducing new high-end products and services while reducing their operating costs.
Keep in mind, a progressive approach doesn’t mean you’ll never have layoffs — but that you’ll rely on this measure a lot less.
2. Invest strategically.
While many entrepreneurs might be reluctant to spend during a downturn, not acting can end up limiting your growth when the economy recovers.
Once you’ve identified your company’s weaknesses, you can determine ways to improve productivity and look out for opportunities like finding cheaper prices on equipment and technology, or investing in marketing. More importantly, when making any kind of investment decision, you should pay attention to how your customer’s needs have changed, and act accordingly.
Gulati, Nohria, and Wohlgezogen write :
“Progressive companies stay closely connected to customer needs—a powerful filter through which to make investment decisions.”
Few of us have a master plan when it comes to managing events beyond our control. But making smart choices involves slowing down and seeing opportunities where everyone else sees disaster.
By harnessing our anxiety in service of the greater good, we can keep one eye fixed on survival and the other on growth. Both are necessary to move forward.
Related: 8 Powerful Phrases Leaders Need to Say in a Time of Crisis
This article is from Entrepreneur.com
