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how to lead in
UNCERTAIN TIMES
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How to Lead in
Uncertain Times
In this Special Article Collection:
1What Great Managers Do
by Marcus Buckingham
17 How to Thrive in Turbulent Markets
by Donald Sull
33 The Hard Side of Change Management
by Harold L. Sirkin, Perry Keenan, and Alan Jackson
49Sieze Advantage in a Downturn
by David Rhodes and Daniel Stelter
61 How to Protect Your Job in a Recession
by Janet Banks and Diane Coutou
© 2010 Harvard Business School Publishing. All rights reserved.
www.hbrreprints.org
Great leaders tap into the
needs and fears we all share.
Great managers, by contrast,
perform their magic by
discovering, developing, and
celebrating what’s different
about each person who works
for them. Here’s how they do
it.
What Great
Managers Do
by Marcus Buckingham
Included with this full-text Harvard Business Review article:
3 Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
5 What Great Managers Do
15 Further Reading
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
Reprint R0503D
page 1
What Great Managers Do
The Idea in Brief
The Idea in Practice
You’ve spent months coaching that employee to treat customers better, work
more independently, or get organized—
all to no avail.
A closer look at the three tactics:
How to make better use of your precious
time? Do what great managers do: Instead
of trying to change your employees, identify their unique abilities (and even their
eccentricities)—then help them use those
qualities to excel in their own way.
You’ll need these three tactics:
• Continuously tweak roles to capitalize
on individual strengths. One Walgreens
store manager put a laconic but highly
organized employee in charge of restocking aisles—freeing up more sociable employees to serve customers.
COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
• Pull the triggers that activate employees’ strengths. Offer incentives such as
time spent with you, opportunities to
work independently, and recognition in
forms each employee values most.
• Tailor coaching to unique learning
styles. Give “analyzers” the information
they need before starting a task. Start
“doers” off with simple tasks, then
gradually raise the bar. Let “watchers”
ride shotgun with your most experienced performers.
The payoff for capitalizing on employees’
unique strengths? You save time. Your people take ownership for improving their
skills. And you teach employees to value
differences—building a powerful sense of
team.
CAPITALIZE ON EMPLOYEES’ STRENGTHS
First identify each employee’s unique strengths: Walk around, observing people’s reactions to
events. Note activities each employee is drawn to. Ask “What was the best day at work you’ve
had in the past three months?” Listen for activities people find intrinsically satisfying.
Watch for weaknesses, too, but downplay them in your communications with employees. Offer
training to help employees overcome shortcomings stemming from lack of skills or knowledge.
Otherwise, apply these strategies:
• Find the employee a partner with complementary talents. A merchandising manager who
couldn’t start tasks without exhaustive information performed superbly once her supervisor
(the VP) began acting as her “information partner.” The VP committed to leaving the manager
a brief voicemail update daily and arranging two “touch base” conversations weekly.
• Reconfigure work to neutralize weaknesses. Use your creativity to envision more effective
work arrangements, and be courageous about adopting unconventional job designs.
ACTIVATE EMPLOYEES’ STRENGTHS
The ultimate trigger for activating an employee’s strengths is recognition. But each employee
plays to a different audience. So tailor your praise accordingly.
IF AN EMPLOYEE VALUES
RECOGNITION FROM. . .
PRAISE HIM BY. . .
His peers
Publicly celebrating his achievement in front of coworkers
You
Telling him privately but vividly why he’s such a valuable team
member
Others with similar expertise
Giving him a professional or technical award
Customers
Posting a photo of him and his best customer in the office
TAILOR COACHING TO LEARNING STYLE
Adapt your coaching efforts to each employee’s unique learning style:
IF AN EMPLOYEE IS . . .
COACH HIM BY. . .
An “analyzer”—he requires extensive information before taking on a
task, and he hates making mistakes
• Giving him ample classroom time
• Role-playing with him
• Giving him time to prepare for challenges
A “doer”—he uses trial and error to
enhance his skills while grappling
with tasks
• Assigning him a simple task, explaining the desired outcomes,
and getting out of his way
• Gradually increasing a task’s complexity until he masters his role
A “watcher”—he hones his skills by
watching other people in action
• Having him “shadow” top performers.
page 3
Great leaders tap into the needs and fears we all share. Great managers,
by contrast, perform their magic by discovering, developing, and
celebrating what’s different about each person who works for them.
Here’s how they do it.
What Great
Managers Do
by Marcus Buckingham
COPYRIGHT © 2005 ONE THING PRODUCTIONS, INC. ALL RIGHTS RESERVED.
“The best boss I ever had.” That’s a phrase
most of us have said or heard at some point,
but what does it mean? What sets the great
boss apart from the average boss? The literature is rife with provocative writing about the
qualities of managers and leaders and
whether the two differ, but little has been
said about what happens in the thousands of
daily interactions and decisions that allows
managers to get the best out of their people
and win their devotion. What do great managers actually do?
In my research, beginning with a survey
of 80,000 managers conducted by the Gallup
Organization and continuing during the past
two years with in-depth studies of a few top
performers, I’ve found that while there are
as many styles of management as there are
managers, there is one quality that sets truly
great managers apart from the rest: They discover what is unique about each person and
then capitalize on it. Average managers play
checkers, while great managers play chess.
The difference? In checkers, all the pieces
harvard business review • march 2005
are uniform and move in the same way; they
are interchangeable. You need to plan and
coordinate their movements, certainly, but
they all move at the same pace, on parallel
paths. In chess, each type of piece moves in a
different way, and you can’t play if you don’t
know how each piece moves. More important, you won’t win if you don’t think carefully about how you move the pieces. Great
managers know and value the unique abilities and even the eccentricities of their employees, and they learn how best to integrate
them into a coordinated plan of attack.
This is the exact opposite of what great leaders do. Great leaders discover what is universal
and capitalize on it. Their job is to rally people
toward a better future. Leaders can succeed in
this only when they can cut through differences of race, sex, age, nationality, and personality and, using stories and celebrating heroes,
tap into those very few needs we all share. The
job of a manager, meanwhile, is to turn one
person’s particular talent into performance.
Managers will succeed only when they can
page 5
What Great Managers Do
identify and deploy the differences among people, challenging each employee to excel in his
or her own way. This doesn’t mean a leader
can’t be a manager or vice versa. But to excel at
one or both, you must be aware of the very different skills each role requires.
The Game of Chess
Marcus Buckingham (info@
onethinginc.com) is a consultant and
speaker on leadership and management practices. He is the coauthor of
First, Break All the Rules (Simon &
Schuster, 1999) and Now, Discover
Your Strengths (Free Press, 2001). This
article is copyright 2005 by One Thing
Productions and has been adapted
with permission from Buckingham’s
new book, The One Thing You Need to
Know (Free Press, March 2005).
page 6
What does the chess game look like in action?
When I visited Michelle Miller, the manager
who opened Walgreens’ 4,000th store, I found
the wall of her back ofﬁce papered with work
schedules. Michelle’s store in Redondo Beach,
California, employs people with sharply different skills and potentially disruptive differences in personality. A critical part of her job,
therefore, is to put people into roles and shifts
that will allow them to shine—and to avoid
putting clashing personalities together. At the
same time, she needs to ﬁnd ways for individuals to grow.
There’s Jeffrey, for example, a “goth rocker”
whose hair is shaved on one side and long
enough on the other side to cover his face.
Michelle almost didn’t hire him because he
couldn’t quite look her in the eye during his interview, but he wanted the hard-to-cover night
shift, so she decided to give him a chance.
After a couple of months, she noticed that
when she gave Jeffrey a vague assignment,
such as “Straighten up the merchandise in
every aisle,” what should have been a two-hour
job would take him all night—and wouldn’t be
done very well. But if she gave him a more speciﬁc task, such as “Put up all the risers for
Christmas,” all the risers would be symmetrical, with the right merchandise on each one,
perfectly priced, labeled, and “faced” (turned
toward the customer). Give Jeffrey a generic
task, and he would struggle. Give him one that
forced him to be accurate and analytical, and
he would excel. This, Michelle concluded, was
Jeffrey’s forte. So, as any good manager would
do, she told him what she had deduced about
him and praised him for his good work.
And a good manager would have left it at
that. But Michelle knew she could get more
out Jeffrey. So she devised a scheme to reassign
responsibilities across the entire store to capitalize on his unique strengths. In every Walgreens, there is a responsibility called “resets
and revisions.” A reset involves stocking an
aisle with new merchandise, a task that usually
coincides with a predictable change in cus-
tomer buying patterns (at the end of summer,
for example, the stores will replace sun creams
and lip balms with allergy medicines). A revision is a less time-consuming but more frequent version of the same thing: Replace these
cartons of toothpaste with this new and improved variety. Display this new line of detergent at this end of the row. Each aisle requires
some form of revision at least once a week.
In most Walgreens stores, each employee
“owns” one aisle, where she is responsible not
only for serving customers but also for facing
the merchandise, keeping the aisle clean and
orderly, tagging items with a Telxon gun, and
conducting all resets and revisions. This arrangement is simple and efﬁcient, and it affords each employee a sense of personal responsibility. But Michelle decided that since
Jeffrey was so good at resets and revisions—
and didn’t enjoy interacting with customers—
this should be his full-time job, in every single
aisle.
It was a challenge. One week’s worth of revisions requires a binder three inches thick. But
Michelle reasoned that not only would Jeffrey
be excited by the challenge and get better and
better with practice, but other employees
would be freed from what they considered a
chore and have more time to greet and serve
customers. The store’s performance proved her
right. After the reorganization, Michelle saw
not only increases in sales and proﬁt but also in
that most critical performance metric, customer satisfaction. In the subsequent four
months, her store netted perfect scores in Walgreens’ mystery shopper program.
So far, so very good. Sadly, it didn’t last. This
“perfect” arrangement depended on Jeffrey remaining content, and he didn’t. With his success at doing resets and revisions, his conﬁdence grew, and six months into the job, he
wanted to move into management. Michelle
wasn’t disappointed by this, however; she was
intrigued. She had watched Jeffrey’s progress
closely and had already decided that he might
do well as a manager, though he wouldn’t be a
particularly emotive one. Besides, like any
good chess player, she had been thinking a
couple of moves ahead.
Over in the cosmetics aisle worked an employee named Genoa. Michelle saw Genoa as
something of a double threat. Not only was
she adept at putting customers at ease—she remembered their names, asked good questions,
harvard business review • march 2005
What Great Managers Do
was welcoming yet professional when answering the phone—but she was also a neatnik.
The cosmetics department was always perfectly faced, every product remained aligned,
and everything was arranged just so. Her aisle
was sexy: It made you want to reach out and
touch the merchandise.
To capitalize on these twin talents, and to
accommodate Jeffrey’s desire for promotion,
Michelle shufﬂed the roles within the store
once again. She split Jeffrey’s reset and revision
job in two and gave the “revision” part of it to
Genoa so that the whole store could now beneﬁt from her ability to arrange merchandise attractively. But Michelle didn’t want the store to
miss out on Genoa’s gift for customer service,
so Michelle asked her to focus on the revision
role only between 8:30 AM and 11 AM, and after
that, when the store began to ﬁll with customers on their lunch breaks, Genoa should shift
her focus over to them.
She kept the reset role with Jeffrey. Assistant managers don’t usually have an ongoing
responsibility in the store, but, Michelle reasoned, he was now so good and so fast at tearing an aisle apart and rebuilding it that he
could easily ﬁnish a major reset during a ﬁvehour stint, so he could handle resets along with
his managerial responsibilities.
By the time you read this, the Jeffrey–
Genoa conﬁguration has probably outlived its
usefulness, and Michelle has moved on to design other effective and inventive conﬁgurations. The ability to keep tweaking roles to capitalize on the uniqueness of each person is the
essence of great management.
A manager’s approach to capitalizing on differences can vary tremendously from place to
place. Walk into the back ofﬁce at another Walgreens, this one in San Jose, California, managed by Jim Kawashima, and you won’t see a
single work schedule. Instead, the walls are
covered with sales ﬁgures and statistics, the
best of them circled with red felt-tip pen, and
dozens of photographs of sales contest winners, most featuring a customer service representative named Manjit.
Manjit outperforms her peers consistently.
When I ﬁrst heard about her, she had just won
a competition in Walgreens’ suggestive selling
program to sell the most units of Gillette deodorant in a month. The national average was
300; Manjit had sold 1,600. Disposable cameras, toothpaste, batteries—you name it, she
could sell it. And Manjit won contest after contest despite working the graveyard shift, from
12:30 AM to 8:30 AM, during which she met signiﬁcantly fewer customers than did her peers.
Manjit hadn’t always been such an exceptional performer. She became stunningly suc-
The Research
To gather the raw material for my book The
One Thing You Need to Know: About Great Managing, Great Leading, and Sustained Individual
Success, from which this article has been
adapted, I chose an approach that is rather
different from the one I used for my previous
books. For 17 years, I had the good fortune to
work with the Gallup Organization, one of
the most respected research ﬁrms in the
world. During that time, I was given the opportunity to interview some of the world’s
best leaders, managers, teachers, salespeople, stockbrokers, lawyers, and public servants. These interviews were a part of largescale studies that involved surveying groups
of people in the hopes of ﬁnding broad patterns in the data. For my book, I used this
foundation as the jumping-off point for
deeper, more individualized research.
In each of the three areas targeted in the
harvard business review • march 2005
book—managing, leading, and sustained individual success—I ﬁrst identiﬁed one or two
people in various roles and ﬁelds who had
measurably, consistently, and dramatically
outperformed their peers. These individuals
included Myrtle Potter, president of commercial operations for Genentech, who transformed a failing drug into the highest selling
prescription drug in the world; Sir Terry
Leahy, the president of the European retailing giant Tesco; Manjit, the customer service
representative from Jim Kawashima’s topperforming Walgreens store in San Jose, California, who sold more than 1,600 units of
Gillette deodorant in one month; and David
Koepp, the proliﬁc screenwriter who penned
such blockbusters as Jurassic Park, Mission:
Impossible, and Spider-Man.
What interested me about these high
achievers was the practical, seemingly banal
details of their actions and their choices. Why
did Myrtle Potter repeatedly turn down promotions before taking on the challenge of
turning around that failing drug? Why did
Terry Leahy rely more on the memories of his
working-class upbringing to deﬁne his company’s strategy than on the results of customer surveys or focus groups? Manjit works
the night shift, and one of her hobbies is
weight lifting. Are those factors relevant to
her performance? What were these special
people doing that made them so very good at
their roles?
Once these many details were duly noted
and recorded, they slowly came together to
reveal the “one thing” at the core of great
managing, great leading, and sustained individual success.
page 7
What Great Managers Do
cessful only when Jim, who has made a habit
of resuscitating troubled stores, came on
board. What did Jim do to initiate the change
in Manjit? He quickly picked up on her idiosyncrasies and ﬁgured out how to translate
them into outstanding performance. For example, back in India, Manjit was an athlete—a
runner and a weight lifter—and had always
thrilled to the challenge of measured performance. When I interviewed her, one of the ﬁrst
things out of her mouth was, “On Saturday, I
sold 343 low-carb candy bars. On Sunday, I sold
367. Yesterday, 110, and today, 105.” I asked if
she always knows how well she’s doing. “Oh
yes,” she replied. “Every day I check Mr. K’s
charts. Even on my day off, I make a point to
come in and check my numbers.”
Manjit loves to win and revels in public recognition. Hence, Jim’s walls are covered with
charts and ﬁgures, Manjit’s scores are always
highlighted in red, and there are photos documenting her success. Another manager might
have asked Manjit to curb her enthusiasm for
the limelight and give someone else a chance.
Jim found a way to capitalize on it.
But what about Jim’s other staff members?
Instead of being resentful of Manjit’s public
recognition, the other employees came to understand that Jim took the time to see them as
individuals and evaluate them based on their
personal strengths. They also knew that Manjit’s success spoke well of the entire store, so
her success galvanized the team. In fact, before
long, the pictures of Manjit began to include
other employees from the store, too. After a
few months, the San Jose location was ranked
number one out of 4,000 in Walgreens’ suggestive selling program.
Great Managers Are Romantics
Think back to Michelle. Her creative choreography may sound like a last resort, an attempt
to make the best of a bad hire. It’s not. Jeffrey
and Genoa are not mediocre employees, and
capitalizing on each person’s uniqueness is a
tremendously powerful tool.
First, identifying and capitalizing on each
person’s uniqueness saves time. No employee,
however talented, is perfectly well-rounded.
Michelle could have spent untold hours coaching Jeffrey and cajoling him into smiling at,
making friends with, and remembering the
names of customers, but she probably would
have seen little result for her efforts. Her time
was much better spent carving out a role that
took advantage of Jeffrey’s natural abilities.
Second, capitalizing on uniqueness makes
each person more accountable. Michelle didn’t
just praise Jeffrey for his ability to execute speciﬁc assignments. She challenged him to make
this ability the cornerstone of his contribution
to the store, to take ownership for this ability,
to practice it, and to reﬁne it.
Third, capitalizing on what is unique about
each person builds a stronger sense of team,
because it creates interdependency. It helps
The Elusive “One Thing”
It’s bold to characterize anything as the explanation or solution, so it’s a risky move to
make such deﬁnitive assertions as “this is the
one thing all great managers do.” But with
enough research and focus, it is possible to
identify that elusive “one thing.”
I like to think of the concept of “one thing”
as a “controlling insight.” Controlling insights
don’t explain all outcomes or events; they
serve as the best explanation of the greatest
number of events. Such insights help you
know which of your actions will have the
most far-reaching inﬂuence in virtually every
situation.
For a concept to emerge as the single controlling insight, it must pass three tests. First,
it must be applicable across a wide range of
page 8
situations. Take leadership as an example.
Lately, much has been made of the notion
that there is no one best way to lead and that
instead, the most effective leadership style
depends on the circumstance. While there is
no doubt that different situations require different actions from a leader, that doesn’t
mean the most insightful thing you can say
about leadership is that it’s situational. With
enough focus, you can identify the one thing
that underpins successful leadership across
all situations and all styles.
Second, a controlling insight must serve as
a multiplier. In any equation, some factors
will have only an additive value: When you
focus your actions on these factors, you see
some incremental improvement. The control-
ling insight should be more powerful. It
should show you how to get exponential improvement. For example, good managing is
the result of a combination of many actions—selecting talented employees, setting
clear expectations, catching people doing
things right, and so on—but none of these
factors qualiﬁes as the “one thing” that great
managers do, because even when done well,
these actions merely prevent managers from
chasing their best employees away.
Finally, the controlling insight must guide
action. It must point to precise things that
can be done to create better outcomes more
consistently. Insights that managers can act
on—rather than simply ruminate over—are
the ones that can make all the difference.
harvard business review • march 2005
What Great Managers Do
people appreciate one anothers’ particular
skills and learn that their coworkers can ﬁll in
where they are lacking. In short, it makes people need one another. The old cliché is that
there’s no “I” in “team.” But as Michael Jordan
once said, “There may be no ‘I’ in ‘team,’ but
there is in ‘win.’”
Finally, when you capitalize on what is
unique about each person, you introduce a
healthy degree of disruption into your world.
You shufﬂe existing hierarchies: If Jeffrey is in
charge of all resets and revisions in the store,
should he now command more or less respect
than an assistant manager? You also shufﬂe existing assumptions about who is allowed to do
what: If Jeffrey devises new methods of resetting an aisle, does he have to ask permission to
try these out, or can he experiment on his
own? And you shufﬂe existing beliefs about
where the true expertise lies: If Genoa comes
up with a way of arranging new merchandise
that she thinks is more appealing than the
method suggested by the “planogram” sent
down from Walgreens headquarters, does her
expertise trump the planners back at corporate? These questions will challenge Walgreens’ orthodoxies and thus will help the
company become more inquisitive, more intelligent, more vital, and, despite its size, more
able to duck and weave into the future.
All that said, the reason great managers
focus on uniqueness isn’t just because it
makes good business sense. They do it because
they can’t help it. Like Shelley and Keats, the
nineteenth-century Romantic poets, great
managers are fascinated with individuality for
its own sake. Fine shadings of personality,
though they may be invisible to some and frustrating to others, are crystal clear to and highly
valued by great managers. They could no more
ignore these subtleties than ignore their own
needs and desires. Figuring out what makes
people tick is simply in their nature.
The Three Levers
Although the Romantics were mesmerized by
differences, at some point, managers need to
rein in their inquisitiveness, gather up what
they know about a person, and put the employee’s idiosyncrasies to use. To that end,
there are three things you must know about
someone to manage her well: her strengths,
the triggers that activate those strengths, and
how she learns.
harvard business review • march 2005
Make the most of strengths. It takes time
and effort to gain a full appreciation of an employee’s strengths and weaknesses. The great
manager spends a good deal of time outside
the ofﬁce walking around, watching each person’s reactions to events, listening, and taking
mental notes about what each individual is
drawn to and what each person struggles with.
There’s no substitute for this kind of observation, but you can obtain a lot of information
about a person by asking a few simple, openended questions and listening carefully to the
answers. Two queries in particular have
proven most revealing when it comes to identifying strengths and weaknesses, and I recommend asking them of all new hires—and revisiting the questions periodically.
To identify a person’s strengths, ﬁrst ask,
“What was the best day at work you’ve had in
the past three months?” Find out what the person was doing and why he enjoyed it so much.
Remember: A strength is not merely something you are good at. In fact, it might be
something you aren’t good at yet. It might be
just a predilection, something you ﬁnd so intrinsically satisfying that you look forward to
doing it again and again and getting better at it
over time. This question will prompt your employee to start thinking about his interests and
abilities from this perspective.
To identify a person’s weaknesses, just invert the question: “What was the worst day
you’ve had at work in the past three months?”
And then probe for details about what he was
doing and why it grated on him so much. As
with a strength, a weakness is not merely
something you are bad at (in fact, you might
be quite competent at it). It is something that
drains you of energy, an activity that you never
What You Need to Know
About Each of Your Direct Reports
What are his or her strengths?
What are the triggers that activate
those strengths?
What is his or her learning style?
page 9
What Great Managers Do
Fine shadings of
personality, though they
may be invisible to some
and frustrating to others,
are crystal clear to and
highly valued by great
managers.
page 10
look forward to doing and that when you are
doing it, all you can think about is stopping.
Although you’re keeping an eye out for
both the strengths and weaknesses of your employees, your focus should be on their
strengths. Conventional wisdom holds that
self-awareness is a good thing and that it’s the
job of the manager to identify weaknesses and
create a plan for overcoming them. But research by Albert Bandura, the father of social
learning theory, has shown that self-assurance
(labeled “self-efﬁcacy” by cognitive psychologists), not self-awareness, is the strongest predictor of a person’s ability to set high goals, to
persist in the face of obstacles, to bounce back
when reversals occur, and, ultimately, to
achieve the goals they set. By contrast, selfawareness has not been shown to be a predictor of any of these outcomes, and in some
cases, it appears to retard them.
Great managers seem to understand this instinctively. They know that their job is not to
arm each employee with a dispassionately accurate understanding of the limits of her
strengths and the liabilities of her weaknesses
but to reinforce her self-assurance. That’s why
great managers focus on strengths. When a
person succeeds, the great manager doesn’t
praise her hard work. Even if there’s some exaggeration in the statement, he tells her that
she succeeded because she has become so good
at deploying her speciﬁc strengths. This, the
manager knows, will strengthen the employee’s self-assurance and make her more optimistic and more resilient in the face of challenges to come.
The focus-on-strengths approach might create in the employee a modicum of overconﬁdence, but great managers mitigate this by emphasizing the size and the difﬁculty of the
employee’s goals. They know that their primary objective is to create in each employee a
speciﬁc state of mind: one that includes a realistic assessment of the difﬁculty of the obstacle
ahead but an unrealistically optimistic belief in
her ability to overcome it.
And what if the employee fails? Assuming
the failure is not attributable to factors beyond
her control, always explain failure as a lack of
effort, even if this is only partially accurate.
This will obscure self-doubt and give her something to work on as she faces up to the next
challenge.
Repeated failure, of course, may indicate
weakness where a role requires strength. In
such cases, there are four approaches for overcoming weaknesses. If the problem amounts to
a lack of skill or knowledge, that’s easy to solve:
Simply offer the relevant training, allow some
time for the employee to incorporate the new
skills, and look for signs of improvement. If her
performance doesn’t get better, you’ll know
that the reason she’s struggling is because she
is missing certain talents, a deﬁcit no amount
of skill or knowledge training is likely to ﬁx.
You’ll have to ﬁnd a way to manage around
this weakness and neutralize it.
Which brings us to the second strategy for
overcoming an employee weakness. Can you
ﬁnd her a partner, someone whose talents are
strong in precisely the areas where hers are
weak? Here’s how this strategy can look in action. As vice president of merchandising for
the women’s clothing retailer Ann Taylor, Judi
Langley found that tensions were rising between her and one of her merchandising managers, Claudia (not her real name), whose analytical mind and intense nature created an
overpowering “need to know.” If Claudia
learned of something before Judi had a chance
to review it with her, she would become deeply
frustrated. Given the speed with which decisions were made, and given Judi’s busy schedule, this happened frequently. Judi was concerned that Claudia’s irritation was unsettling
the whole product team, not to mention earning the employee a reputation as a malcontent.
An average manager might have identiﬁed
this behavior as a weakness and lectured Claudia on how to control her need for information. Judi, however, realized that this “weakness” was an aspect of Claudia’s greatest
strength: her analytical mind. Claudia would
never be able to rein it in, at least not for long.
So Judi looked for a strategy that would honor
and support Claudia’s need to know, while
channeling it more productively. Judi decided
to act as Claudia’s information partner, and
she committed to leaving Claudia a voice mail
at the end of each day with a brief update. To
make sure nothing fell through the cracks, they
set up two live “touch base” conversations per
week. This solution managed Claudia’s expectations and assured her that she would get the
information she needed, if not exactly when
she wanted it, then at least at frequent and
predictable intervals. Giving Claudia a partner
neutralized the negative manifestations of her
harvard business review • march 2005
What Great Managers Do
strength, allowing her to focus her analytical
mind on her work. (Of course, in most cases,
the partner would need to be someone other
than a manager.)
Should the perfect partner prove hard to
ﬁnd, try this third strategy: Insert into the employee’s world a technique that helps accomplish through discipline what the person can’t
accomplish through instinct. I met one very
successful screenwriter and director who had
struggled with telling other professionals, such
as composers and directors of photography,
that their work was not up to snuff. So he devised a mental trick: He now imagines what
the “god of art” would want and uses this imaginary entity as a source of strength. In his
mind, he no longer imposes his own opinion
on his colleagues but rather tells himself (and
them) that an authoritative third party has
weighed in.
If training produces no improvement, if
complementary partnering proves impractical, and if no nifty discipline technique can be
found, you are going to have to try the fourth
and ﬁnal strategy, which is to rearrange the
employee’s working world to render his weakness irrelevant, as Michelle Miller did with Jeffrey. This strategy will require of you, ﬁrst, the
creativity to envision a more effective arrangement and, second, the courage to make that arrangement work. But as Michelle’s experience
revealed, the payoff that may come in the form
of increased employee productivity and engagement is well worth it.
Trigger good performance. A person’s
strengths aren’t always on display. Sometimes
they require precise triggering to turn them
on. Squeeze the right trigger, and a person
will push himself harder and persevere in the
face of resistance. Squeeze the wrong one,
and the person may well shut down. This can
be tricky because triggers come in myriad and
mysterious forms. One employee’s trigger
might be tied to the time of day (he is a night
owl, and his strengths only kick in after 3 PM).
Another employee’s trigger might be tied to
time with you, the boss (even though he’s
worked with you for more than ﬁve years, he
still needs you to check in with him every
day, or he feels he’s being ignored). Another
worker’s trigger might be just the opposite—
independence (she’s only worked for you for
six months, but if you check in with her even
once a week, she feels micromanaged).
harvard business review • march 2005
The most powerful trigger by far is recognition, not money. If you’re not convinced of
this, start ignoring one of your highly paid
stars, and watch what happens. Most managers
are aware that employees respond well to recognition. Great managers reﬁne and extend
this insight. They realize that each employee
plays to a slightly different audience. To excel
as a manager, you must be able to match the
employee to the audience he values most. One
employee’s audience might be his peers; the
best way to praise him would be to stand him
up in front of his coworkers and publicly celebrate his achievement. Another’s favorite audience might be you; the most powerful recognition would be a one-on-one conversation
where you tell him quietly but vividly why he
is such a valuable member of the team. Still
another employee might deﬁne himself by his
expertise; his most prized form of recognition
would be some type of professional or technical award. Yet another might value feedback
only from customers, in which case a picture of
the employee with her best customer or a letter to her from the customer would be the best
form of recognition.
Given how much personal attention it requires, tailoring praise to ﬁt the person is
mostly a manager’s responsibility. But organizations can take a cue from this, too. There’s
no reason why a large company can’t take this
individualized approach to recognition and
apply it to every employee. Of all the companies I’ve encountered, the North American division of HSBC, a London-based bank, has
done the best job of this. Each year it presents
its top individual consumer-lending performers with its Dream Awards. Each winner receives a unique prize. During the year, managers ask employees to identify what they would
like to receive should they win. The prize value
is capped at $10,000, and it cannot be redeemed as cash, but beyond those two restrictions, each employee is free to pick the prize
he wants. At the end of the year, the company
holds a Dream Awards gala, during which it
shows a video about the winning employee
and why he selected his particular prize.
You can imagine the impact these personalized prizes have on HSBC employees. It’s one
thing to be brought up on stage and given yet
another plaque. It’s another thing when, in addition to public recognition of your performance, you receive a college tuition fund for
page 11
What Great Managers Do
your child, or the Harley-Davidson motorcycle
you’ve always dreamed of, or—the prize everyone at the company still talks about—the airline tickets to ﬂy you and your family back to
Mexico to visit the grandmother you haven’t
seen in ten years.
Tailor to learning styles. Although there
are many learning styles, a careful review of
adult learning theory reveals that three styles
predominate. These three are not mutually exclusive; certain employees may rely on a combination of two or perhaps all three. Nonetheless, staying attuned to each employee’s style
or styles will help focus your coaching.
First, there’s analyzing. Claudia from Ann
Taylor is an analyzer. She understands a task
by taking it apart, examining its elements, and
reconstructing it piece by piece. Because every
single component of a task is important in her
eyes, she craves information. She needs to absorb all there is to know about a subject before
she can begin to feel comfortable with it. If she
doesn’t feel she has enough information, she
will dig and push until she gets it. She will read
the assigned reading. She will attend the required classes. She will take good notes. She
will study. And she will still want more.
The best way to teach an analyzer is to give
her ample time in the classroom. Role-play
with her. Do postmortem exercises with her.
Break her performance down into its component parts so she can carefully build it back up.
Always allow her time to prepare. The analyzer hates mistakes. A commonly held view is
that mistakes fuel learning, but for the analyzer, this just isn’t true. In fact, the reason she
prepares so diligently is to minimize the possibility of mistakes. So don’t expect to teach her
much by throwing her into a new situation and
telling her to wing it.
The opposite is true for the second dominant learning style, doing. While the most
powerful learning moments for the analyzer
occur prior to the performance, the doer’s
most powerful moments occur during the
performance. Trial and error are integral to
this learning process. Jeffrey, from Michelle
Miller’s store, is a doer. He learns the most
while he’s in the act of ﬁguring things out for
himself. For him, preparation is a dry, uninspiring activity. So rather than role-play with
someone like Jeffrey, pick a speciﬁc task within
his role that is simple but real, give him a brief
overview of the outcomes you want, and get
page 12
out of his way. Then gradually increase the degree of each task’s complexity until he has mastered every aspect of his role. He may make a
few mistakes along the way, but for the doer,
mistakes are the raw material for learning.
Finally, there’s watching. Watchers won’t
learn much through role-playing. They won’t
learn by doing, either. Since most formal training programs incorporate both of these elements, watchers are often viewed as rather
poor students. That may be true, but they
aren’t necessarily poor learners.
Watchers can learn a great deal when they
are given the chance to see the total performance. Studying the individual parts of a task
is about as meaningful for them as studying
the individual pixels of a digital photograph.
What’s important for this type of learner is the
content of each pixel, its position relative to all
the others. Watchers are only able to see this
when they view the complete picture.
As it happens, this is the way I learn. Years
ago, when I ﬁrst began interviewing, I struggled to learn the skill of creating a report on a
person after I had interviewed him. I understood all the required steps, but I couldn’t
seem to put them together. Some of my colleagues could knock out a report in an hour;
for me, it would take the better part of a day.
Then one afternoon, as I was staring morosely
into my Dictaphone, I overheard the voice of
the analyst next door. He was talking so rapidly
that I initially thought he was on the phone.
Only after a few minutes did I realize that he
was dictating a report. This was the ﬁrst time I
had heard someone “in the act.” I’d seen the
ﬁnished results countless times, since reading
the reports of others was the way we were supposed to learn, but I’d never actually heard another analyst in the act of creation. It was a
revelation. I ﬁnally saw how everything should
come together into a coherent whole. I remember picking up my Dictaphone, mimicking the cadence and even the accent of my
neighbor, and feeling the words begin to ﬂow.
If you’re trying to teach a watcher, by far
the most effective technique is to get her out
of the classroom. Take her away from the manuals, and make her ride shotgun with one of
your most experienced performers.
•••
We’ve seen, in the stories of great managers
like Michelle Miller and Judi Langley, that at
the very heart of their success lies an apprecia-
harvard business review • march 2005
What Great Managers Do
tion for individuality. This is not to say that
managers don’t need other skills. They need to
be able to hire well, to set expectations, and to
interact productively with their own bosses,
just to name a few. But what they do—instinctively—is play chess. Mediocre managers assume (or hope) that their employees will all be
motivated by the same things and driven by
the same goals, that they will desire the same
kinds of relationships and learn in roughly the
same way. They deﬁne the behaviors they expect from people and tell them to work on behaviors that don’t come naturally. They praise
those who can overcome their natural styles to
conform to preset ideas. In short, they believe
the manager’s job is to mold, or transform,
each employee into the perfect version of the
role.
Great managers don’t try to change a person’s style. They never try to push a knight to
move in the same way as a bishop. They know
that their employees will differ in how they
think, how they build relationships, how altruistic they are, how patient they can be, how
much of an expert they need to be, how prepared they need to feel, what drives them,
what challenges them, and what their goals
harvard business review • march 2005
are. These differences of trait and talent are
like blood types: They cut across the superﬁcial
variations of race, sex, and age and capture the
essential uniqueness of each individual.
Like blood types, the majority of these differences are enduring and resistant to change.
A manager’s most precious resource is time,
and great managers know that the most effective way to invest their time is to identify exactly how each employee is different and then
to ﬁgure out how best to incorporate those enduring idiosyncrasies into the overall plan.
To excel at managing others, you must bring
that insight to your actions and interactions.
Always remember that great managing is
about release, not transformation. It’s about
constantly tweaking your environment so that
the unique contribution, the unique needs,
and the unique style of each employee can be
given free rein. Your success as a manager will
depend almost entirely on your ability to do
this.
Differences of trait and
talent are like blood
types: They cut across the
superficial variations of
race, sex, and age and
capture each person’s
uniqueness.
Reprint R0503D
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page 13
What Great Managers Do
Further Reading
ARTICLES
How to Motivate Your Problem People
by Nigel Nicholson
Harvard Business Review
January 2003
Product no. R0301D
Nicholson provides additional guidelines for
identifying the activities your people find intrinsically satisfying and unleashing employees’ internal drive: 1) Through informal conversations, discern what drives an employee,
what’s blocking those drives, and what could
happen if blockages were removed. 2) Consider how you or the organizational situation
(a tough restructuring, for example) might be
inadvertently blocking the person’s motivation. 3) Affirm the employee’s value to your
company. 4) Test hunches about ways to coopt the person’s passion for productive ends.
One manager found that a talented but reticent and angry employee was strongly motivated by his peers’ respect. The manager
asked him to consider becoming an adviser
and technical coach for his unit—then asked
him for ideas on how the new arrangement
might work.
One More Time: How Do You Motivate
Employees?
by Frederick Herzberg
Harvard Business Review
January 2003
Product no. R0301F
To Order
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617-783-7500. Go to www.hbrreprints.org
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people’s batteries again and again, you’ll enable them to activate their own internal generators. Your employees’ enthusiasm and
commitment will rise—along with your company’s overall performance.
Managing Away Bad Habits
by James Waldroop and Timothy Butler
Harvard Business Review
September–October 2000
Product no. R00512
Waldroop and Butler further examine strategies for helping employees overcome weaknesses that can’t be addressed through skills
training. The authors identify common “bad
habits” and offer antidotes. For example, with
“Heroes”—employees who drive themselves
too hard and focus too much on the short
term—point out the costs of burnout and encourage them to assess themselves for symptoms of overload. For “Bulldozers”—those who
run roughshod over others but who get a lot
done—point out how many enemies they’ve
made and role-play conciliatory conversations
with their victims. For “Pessimists”—people
who emphasize the downside of change—
teach them to objectively evaluate the pros
and cons of proposed ideas and the risks of
doing nothing.
In this classic article, originally published in
1968, Herzberg focuses on the importance of
tweaking job roles to capitalize on individual
employees’ strengths. To boost motivation,
consider giving people responsibility for a
complete process or unit of work. Enable people to take on new, more difficult tasks they
haven’t handled before. And assign individuals specialized tasks that allow them to become experts. Your reward? You’ll have more
time to spend on your real job: developing
your staff rather than simply checking their
work. Rather than trying to recharge your
page 15
www.hbr.org
A classic boxing match offers
useful lessons for seizing
opportunities during a
downturn: True champions
have the capacity for both
agility and absorption.
How to Thrive in
Turbulent Markets
by Donald Sull
Included with this full-text Harvard Business Review article:
19 Article Summary
The Idea in Brief— the core idea
The Idea in Practice— putting the idea to work
21 How to Thrive in Turbulent Markets
31 Further Reading
A list of related materials, with annotations to guide further exploration of the article’s ideas and applications
Reprint R0902F
How to Thrive in Turbulent Markets
The Idea in Brief
The Idea in Practice
In today’s volatile world, doing business
feels like competing in a heavyweight boxing ring. To prevail, should your company
rely on agility (nimbleness) to quickly spot
and exploit market changes? For instance,
shifting resources from struggling divisions
to more promising ones can spur revenues.
SOURCES OF AGILITY
Or should you rely on absorption (toughness) to withstand punches? For example,
keeping a lot of cash on hand might enable
your firm to weather unexpected threats.
Sull recommends agile absorption: deploying both capabilities in various combinations as needed. Through agile absorption, you consistently identify and seize
opportunities while also retaining the structural heft your company needs to thrive.
COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
Toyota, for example, maintains absorption by
employing a large workforce, but unlike U.S.
automakers, enhances agility with a combination of flexible work rules, variable job assignments, and employee involvement.
Source
Deﬁnition
Characteristics
Operational Ability to improve operations and
• Shared, detailed, and reliable real-time
processes; for example, by introducing
market and process-performance data
new oﬀerings, cutting costs, or
• Clear performance goals
enhancing quality faster than rivals
• Mechanisms for holding people
accountable for goals
Portfolio
Ability to quickly reallocate resources
(cash, talent, managerial attention)
from less-promising business units to
more attractive ones
• Diversiﬁed portfolio of independent units
• General managers who can be transferred
across units
• Centralized control of key resources
• Willingness to make unpopular resourcereallocation calls
Strategic
Ability to seize game-changing
opportunities; for instance, by rapidly
scaling up a new business, entering
a new market, or betting on a new
technology
• Large war chest to ﬁnance big bets
• Patience to wait for the right opportunities
• Mechanisms for mitigating downside risk
on big bets
SOURCES OF ABSORPTION
Source
Purpose
Low ﬁxed costs
To weather challenges such as price wars or rising raw-material costs
War chest of cash
To deploy against unexpected opportunities and threats
Diversiﬁed cash ﬂows
To withstand downturns in speciﬁc units that can serve as stores of potential
wealth you’ll sell later
Vast size
To enable downsizing of operations and staﬀ during crises
Tangible resources
To generate proﬁts later (may include raw material deposits and real estate)
Intangible resources
To insulate your ﬁrm against short and mid-term market shifts (may include
brand, expertise, and technologies)
Customer lock-in
To buy time when competitive dynamics shift (high switching costs, for
instance, can discourage your customers from jumping ship)
Protected core
market
To bar competitors and provide safe cash streams to survive storms
Powerful patron
To provide extra resources or buﬀer from market shifts during volatile times
(may include a powerful government, regulator, customer, or investor vested
in your ﬁrm’s success)
ACHIEVING AGILE ABSORPTION
Tactic
Example
Build absorption without
hurting agility.
Low ﬁxed costs enable your ﬁrm to weather diverse threats without
impeding its ability to seize game-changing opportunities.
Manage the trade-oﬀs.
To promote agility, break your large company into independent proﬁtand-loss units. Each can quickly and continually probe diﬀerent markets
and spot opportunities to ﬁll gaps. But to preserve overall absorptive
capacity, you’ll need to promote cooperation among them.
Maintain a culture of agility.
Agility can deteriorate as companies mature and acquire sources
of absorption; for instance, a protected core market can lull ﬁrms
into complacency. Nurture agility by focusing everyone on its
deﬁning values; for example, eliminate status symbols to signal that
performance trumps titles or tenure.
page 19
A classic boxing match offers useful lessons for seizing opportunities
during a downturn: True champions have the capacity for both agility
and absorption.
How to Thrive in
Turbulent Markets
COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
by Donald Sull
In the dressing room before the ﬁght, the
reigning heavyweight champion, George Foreman, bowed his head in prayer. In a few minutes he would defend his title against Muhammad Ali in a bout dubbed the Rumble in the
Jungle, held in Kinshasa, Zaire, and broadcast
around the world. The stakes were high for
both ﬁghters. They would split a $10 million
purse—the largest to date—and the winner
would hoist the championship belt. Foreman
and his corner men did not pray for victory;
they took that for granted. Rather, they prayed
that the champion would not seriously injure
his opponent. Muhammad Ali, despite his
vaunted ability to ﬂoat like a butterﬂy and
sting like a bee, entered the match as the
three-to-one underdog.
Uncertainty is the deﬁning characteristic of
any boxing match. Fighters and trainers can
study the tapes of past ﬁghts or select sparring
partners who simulate an opponent’s style, but
they cannot predict a blow-by-blow chronology
of a ﬁght, foresee spikes in conﬁdence, foretell
the errant punch that splits an eyebrow, or an-
harvard business review • february 2009
ticipate a wily foe’s deliberate shift in tactics.
Uncertainty is also the deﬁning characteristic of business competition today. Competing
in volatile markets can feel a lot like entering
the ring against George Foreman in his
prime—or, even worse, like stumbling into a
barroom brawl. The punches come from all directions, include a steady barrage of body
blows and periodic haymakers, and are thrown
by a rotating cast of characters who swing bottles and bar stools as well as ﬁsts.
Many managers consider the recent global
credit crunch and resulting economic meltdown to be a one-off—that right hook they
never could have seen coming. Nothing could
be further from the truth. In a report, the accounting ﬁrm PricewaterhouseCoopers even
summarized the decade ending in 2006 as “10
years of high-speed change” characterized by
“unsettling twists and turns,” recounting a series of events that confounded executives’
plans. Those included Enron’s implosion, the
popping of the dot-com bubble, the September
11 terrorist attacks, the Gulf War, a sharp jump
page 21
How to Thrive in Turbulent Markets
in commodity prices, the rise of emerging market economies, and growing concerns about
global warming.
As they ﬁght their way through the turbulence, business leaders can learn much from
the Rumble in the Jungle. The two opponents
vividly illustrate two distinct approaches to
mastering the brute uncertainty of the ring. Ali
was alert to ﬂeeting opportunities and nimble
at seizing them. Foreman lacked Ali’s agility,
but because of his sheer bulk, physical
strength, and toughness, he could absorb all
the punishment his opponent could dish out,
all the while waiting for a chance to unleash
his own powerful blows when his adversary
tired.
Companies can, like the contender Ali, employ agility to spot and exploit changes in the
market. Alternatively, they can rely on their
powers of absorption to withstand market
shifts. Some, however, combine both approaches and display “agile absorption”—the
ability to consistently identify and seize opportunities while retaining the structural characteristics to weather changes. In unstable times,
cultivating and using both capabilities in combination can help companies not only survive
but emerge as true market leaders.
Agility: Float Like a Butterﬂy, Sting
Like a Bee
Donald Sull ([email protected]) is a
professor of strategic and international
management at London Business
School in England. His next book, The
Upside of Turbulence, will be published
in September by HarperBusiness.
page 22
In his prime, Muhammad Ali embodied agility. He could spot a ﬂeeting opportunity—the
hint of a sagging glove or an upturned chin—
and shoot off a well-placed blow before the
moment passed. Many executives aspire to
comparable nimbleness. A recent McKinsey &
Company survey found that nine out of 10 executives ranked organizational agility as both
critical to business success and growing in importance over time. Respondents expected
agility to confer multiple beneﬁts, including
higher revenues, greater customer satisfaction, increased market share, and faster time
to market.
Organizational agility is a company’s ability
to consistently identify and capture business
opportunities more quickly than its rivals do.
In a decade-long study of dozens of ﬁrms
around the world that thrived in volatile markets, I have identiﬁed three distinct forms of
agility: operational, portfolio, and strategic.
(For an overview of each type, see the exhibit
“Three Ways to Be Agile.”)
Operational agility. The ﬁrst kind of agility
is a company’s capacity, within a focused business model, to ﬁnd and seize opportunities to
improve operations and processes. These opportunities need not be sexy. Cost reductions,
quality improvements, or reﬁnements to distribution processes can be just as valuable as
introducing new products and services—as
the success of Toyota, FedEx, and Southwest
Airlines illustrates.
The crucial factors here are speed and execution—central tenets in the case of Companhia
Cervejaria Brahma. In less than two decades,
the company rose from the struggling numbertwo brewer in Brazil to drive the creation of
the world’s largest brewer, by merging ﬁrst
with its domestic rival, Antarctica Paulista,
then with Belgium’s Interbrew, and ﬁnally
with Anheuser-Busch.
Much of Brahma’s rise to global leadership is
the result of its operational agility, honed in
the harsh climate of Brazil’s volatile market.
Marcel Telles, who joined Brahma as CEO in
1989, had spent the preceding two decades as a
trader in Brazil, a job in which he learned the
value of real-time market data. On taking
charge, he revamped the brewer’s information
systems, providing executives with daily sales
data by individual retail outlet at a time when
competitors relied on dodgy numbers aggregated by region at month’s end. To help his
management team develop a shared understanding of the market situation, Telles literally knocked down the walls and created an
open ofﬁce reminiscent of a traders’ room. The
space encouraged collaboration among managers, who constantly swapped insights on the
changing business landscape and ideas for new
ways to seize market share or improve efﬁciency.
Brahma’s managers moved quickly from insight to action. The company’s top management team selected and prioritized three opportunities each year—such as targeting 20something consumers, reducing the cost of
goods sold, and strengthening the distribution
network—each based on current market realities. The company’s focused business model—
nearly all its proﬁts were earned in Brazilian
beverages at that time—allowed executives to
choose opportunities that made sense for the
business as a whole. The team translated the
corporate priorities into clear performance objectives and communicated them throughout
harvard business review • february 2009
How to Thrive in Turbulent Markets
the organization. Those few objectives channeled the company’s efforts, prevented managers from wasting resources on peripheral activities, and clariﬁed who was accountable for
what.
Telles and his team kept up the pressure to
execute by offering high-powered incentives,
including a compensation scheme that rewarded the top 14% of managers with bonuses
equal to 18 months of their base pay, while the
bottom 40% received no bonuses at all. Managers’ objectives, moreover, were posted publicly in the ofﬁce and coded: Green dots denoted that they were on track, yellow dots
meant objectives were at risk, and red dots
ﬂagged initiatives that were off track.
Brahma’s largest rival, Antarctica, attempted
to seize the same opportunities but consistently started a year or two later, took longer
to execute, and trailed well behind Brahma.
When budget brewers depressed prices across
the industry, for example, Brahma’s management moved quickly to reduce its ﬁxed costs,
shedding more than half the company’s work-
force between 1991 and 1994. Meanwhile, Antarctica began its staff reductions in 1995 and
took another three years to complete the job.
With cost cuts behind them, Brahma’s executives could turn their attention to exploiting
the market gap in serving young adults, while
the company’s competitor was still mired in
cost cutting.
Portfolio agility. The second type of agility is
the ability to quickly and effectively shift resources, including cash, talent, and managerial
attention, out of less-promising units and into
more-attractive ones. A recent study of more
than 200 large enterprises by McKinsey found
that the reallocation of resources to fastergrowing segments within a company’s portfolio
of businesses was the largest single driver of
revenue growth. Although the conventional
wisdom holds that diversiﬁed conglomerates—
think Daewoo and Tyco—destroy shareholder
value, recent research by economists qualiﬁes
this generalization, ﬁnding that diversiﬁcation
does not necessarily destroy value. Rather,
managers often diversify in a desperate bid to
Three Ways to Be Agile
Organizations can achieve agility in three distinct ways. Here are some of the factors associated with each.
1: Operational
2: Portfolio
3: Strategic
Within a focused business model, consistently identify and seize opportunities
more quickly than rivals do
Quickly shift resources out of
less-promising businesses and into
more-attractive opportunities
Identify and seize game-changing
opportunities when they arise
Examples
Examples
Banco Santander, Emirates Airline, Oracle
Southwest Airlines, Toyota, Tesco
General Electric, Samsung Electronics,
Procter & Gamble
Must-haves
Must-haves
Must-haves
Examples
A strong balance sheet and a large war
chest to ﬁnance big bets
Shared real-time market data that is
detailed and reliable
A diversiﬁed portfolio of independent units
A small number of corporate priorities
to focus efforts
A cadre of general managers who can be
transferred across units
A governance structure that permits
companies to seize opportunities more
quickly than rivals do
Clear performance goals for teams
and individuals
Central corporate control over key resources,
such as talent and cash
Long-term perspective from owners
and executives
Mechanisms to hold people accountable
and to reward them
Structured processes for decreasing
investments or selling off units
Leaders need to
Leaders need to
Leaders need to
Mitigate downside risk on big bets
Stay in the ﬂow of information
Make unpopular calls on resource
reallocation
Wait for the right opportunities
Sustain a sense of urgency
Maintain focus on critical objectives
Recruit entrepreneurial staff
Maintain the owners’ conﬁdence
Base decisions on rational rather than
emotional or political criteria
Invest heavily in promising opportunities
harvard business review • february 2009
page 23
How to Thrive in Turbulent Markets
Agility: Ali could spot a
fleeting opportunity—
the hint of a sagging
glove or an upturned
chin—and shoot off a
well-placed blow before
the moment passed.
page 24
escape problems in their core businesses—
which is the real underlying source of weak
earnings. In contrast, diversiﬁed ﬁrms such as
Johnson & Johnson, Procter & Gamble, and
Samsung Electronics have used their portfolio
agility to succeed over long periods, while private equity groups, such as Blackstone, KKR,
Carlyle, and TPG, have earned high returns for
their investors by actively managing portfolios
of businesses.
A varied set of business units doesn’t guarantee portfolio agility, however. Portfolio agility
requires disciplined processes for evaluating individual units and reallocating key resources.
Since those resources include talent, companies also must cultivate general managers who
are versatile enough to move from business to
business. General Electric, a pioneer in active
portfolio management, invests heavily to develop a cadre of such managers. In addition to
offering them leadership training, it gives
them P&L responsibility early on and rotates
them through jobs and units.
It is equally critical that the corporate ofﬁce
control a central pool of resources. Consider
the experience of one large North American
bank, which paid a management consulting
ﬁrm millions of dollars to proﬁle its diverse
business units in painstaking detail. The research provided a compelling case for shifting
resources from two established businesses into
promising new ones. Unfortunately, the bank
operated as a loose federation of units and
lacked the precedent or processes to reallocate
resources across ﬁefdoms. As a result, the cash
cows continued to jealously hoard their
money, their claims on the IT budget, and their
best people.
As this example suggests, portfolio agility demands that leaders make difﬁcult and often
unpopular choices. The late Reginald H. Jones,
Jack Welch’s predecessor at GE, had the formal
tools to classify the company’s strategic business units, but he shied away from some difﬁcult decisions, such as exiting the Utah International mining company deal, which he himself
had pushed. Welch excelled at reversing Jones’s
mistakes, cleaning out GE’s portfolio in his
early years on the job. More impressive, he was
willing to reverse his own mistakes, such as
selling Kidder, Peabody & Company in 1994
when the acquisition, engulfed in trading scandals, did not live up to expectations. Welch was
also great at allocating resources based on logic
rather than emotion. He was willing, for instance, to invest heavily in GE Capital, although he did not always see eye-to-eye with
the leadership of that business. But he ﬁred the
head of Kidder, even though that executive
was an old friend.
Strategic agility. Business opportunities are
not distributed evenly over time. Rather, ﬁrms
typically face a steady ﬂow of small opportunities, intermittent midsize ones, and periodic
golden opportunities to create signiﬁcant
value quickly. The ability to spot and decisively seize the last kind of opportunity, the
game changers, is the essence of strategic agility. Such opportunities usually entail rapidly
scaling up a new business, aggressively entering a new market, betting heavily on a new
technology, or making signiﬁcant investments
in capacity. The agility to make a big bet
quickly does not, of course, guarantee that the
gamble will pay off—recall AT&T’s cable acquisitions. However, companies that avoid big
bets altogether risk falling behind more aggressive competitors.
Emirates Airline faced a golden opportunity
in the midst of a perfect storm in the global airline industry in the early 2000s. At the time air
carriers were battered by a surge in crude oil
prices and depressed consumer demand in the
wake of the September 11 terrorist attacks. By
sheer bad fortune, the supervisory board of
Airbus announced its intention to produce the
A380 less than a year before the September 11
attacks and desperately needed to ﬁll its order
book to cover development costs. Although the
double-decker aircraft promised more passenger space, better range, and greater efﬁciency,
it came to market at a time when few carriers
had the wherewithal to buy it.
Emirates, however, ordered 15 aircraft less
than a month after the World Trade Center attacks and soon became Airbus’s largest customer for A380s. Emirates’ ability to buy in
bulk when other airlines could not ensured the
carrier favorable prices and delivery terms,
which gave it a leg up on rivals.
Absorption: Take a Licking and Keep
on Ticking
Agility makes for good viewing—few heavyweights have matched the young Muhammad
Ali for pure spectacle. But agility is not the
only or surest way to win a bout. Boxers like
George Foreman rely on absorption—com-
harvard business review • february 2009
How to Thrive in Turbulent Markets
pensating for their lack of “bob-and-weave”
dexterity with the size, physical strength, and
toughness to withstand nearly any punishment opponents can mete out. Foreman could
weather his opponent’s blows, round after
round, patiently waiting for his adversary to
run out of steam or make a mistake—and
that’s when he’d let loose the knockout punch.
In a business context, ﬁrms can build absorption in several ways. The obvious levers include
size, diversiﬁcation, and a war chest of cash.
Other factors (high customer switching costs,
low ﬁxed costs, and a powerful patron) can
also buffer a ﬁrm against environmental
changes, although in less evident ways. (See
the exhibit “10 Ways to Build Absorption.”)
Emirates, for example, had structural
strengths other airlines lacked. To begin with,
it was owned by the government of Dubai,
which is ruled by the Al-Maktoum family, so it
was free to make bets that might pay off in
years, not quarters. The airline also had diversiﬁed its proﬁtability across regions and cargo,
which left it less susceptible to a drop-off in
travel; possessed a large war chest; and maintained low ﬁxed costs—which put it in a good
position to ride out tough times.
Because golden opportunities are not evenly
spaced over time, absorptive capabilities can
keep a company in the game until its big
chance emerges. Look at Apple. Its iPod is an
excellent example of agility, but it was the
ﬁrm’s absorption—in the form of a small core
of customers locked into the ﬁrm’s product—
that kept Apple around long enough to seize
the opportunity. During the 1990s, Apple was
relegated to the “other” category in the U.S. PC
market when its share fell to under 5%, and
from the late 1980s through early 2004, its
stock was essentially ﬂat. A small base of fanatically loyal customers kept the company going
until changes in context created its golden opportunity.
Absorption also allows companies to outlast
rivals in wars of attrition. Consider Microsoft’s
entry into the game-box industry. The software
giant has duked it out in round after round
with Nintendo and Sony, in the process losing
billions of dollars by some estimates. But Microsoft has also built up enormous stores of absorption over the years—through its brand
identity, customers who are locked into its
standard, and bulging coffers of cash—that
have allowed the company to wear down its
gaming rivals through successive periods of investment. Microsoft’s absorptive capabilities
increase the odds that the company could
emerge victorious at the end of the battle for
leadership in the game-box industry—even
without offering the best product.
Firms that rely on absorption solely for defensive purposes risk falling behind rivals that
deploy it on offense as well. For over a century,
Banco Santander and rival Banco Popular
were members of a protected oligopoly of
Spanish banks. Then Spain deregulated its
10 Ways to Build Absorption
To create a buffer against inevitable hard
times, executives should focus on strengthening the following sources of organizational
absorption. They must remember, however,
that some sources of absorption tend to kill
agility, while others allow a ﬁrm to weather a
wide range of threats without necessarily impeding its ability to seize opportunities. Low
costs, for instance, can keep a company in the
game long enough to ride out market shifts,
but excess staff can depress proﬁtability and
create busywork for others.
1: Low ﬁxed costs. To weather a wide range
of changes—for instance, price wars, higher
raw-materials costs, declining demand
2: War chest of cash. To deploy against
unexpected opportunities and threats
3: Diversiﬁed cash ﬂows. To withstand
downturns in speciﬁc units; diverse units
can serve as a store of potential wealth that
can be sold later
4: Vast size. To enable downsizing of
operations during crises
5: Tangible resources. To generate proﬁts in
the future; these resources might include
raw-materials deposits and real estate
6: Intangible resources. To insulate the ﬁrm
against short- and mid-term market shifts;
these resources might include brand, expertise, or technologies
7: Customer lock-in. To buy time when
competitive dynamics and markets shift;
high switching costs, for instance, can
prevent customers from jumping ship
8: Protected core market. To provide a safe
stream of cash to weather storms
9: Powerful patron. To provide extra resources
or a buffer from market shifts during times of
change; such patrons may include a powerful
government, regulator, investor, or customer
vested in the ﬁrm’s success
10: Excess staff. To be shed in hard times
harvard business review • february 2009
page 25
How to Thrive in Turbulent Markets
and then hire local talent, inculcate those
hires in the P&G way over the years, and
gradually replace the expats.
banking market, and their paths diverged.
Santander bulked up at home, seized opportunities in Latin America, and expanded into Europe, while Banco Popular played it safe, eschewed foreign markets, and focused on the
Spanish market. Popular’s domestic focus provided good returns to shareholders but left the
bank without Santander’s ability to weather
changes in the home market or seize major opportunities—such as buying a portion of ABN
Amro’s business—when they arose.
Whereas agility allows a company to stake
out an early position, absorption permits the
ﬁrm to secure an early lead and reinforce its
position. For example, in the fast-moving consumer goods industry both Groupe Danone
and Procter & Gamble were quick to spot
growth opportunities in China, Russia, Brazil, and other emerging markets. Danone, a
much less absorptive company, relied on joint
ventures to scale up quickly despite limited
resources. This approach, however, created
headaches later on when the partnerships
soured. By contrast, the much more absorptive P&G could afford to initially staff its
emerging market operations with expatriates
Agile Absorption: Strike the Right
Balance
Absorption and agility are not stark alternatives—the former is not the sole domain of established enterprises defending their turf nor
the latter of nimble start-ups looking at new
ways to grow. In the Rumble, Muhammad Ali
prevailed because he maintained his trademark agility but also had enhanced his absorption. His training regimen months before the
ﬁght consisted largely of being clobbered by
the hardest-hitting sparring partners his
trainer could ﬁnd. And during the Rumble, he
deployed the now-famous “rope-a-dope” strategy, defying centuries of conventional wisdom
in boxing by deliberately placing himself on
the ropes, which absorbed the energy of Foreman’s massive blows and allowed Ali to take
much more punishment.
Managers should similarly view agility and absorption as complements, with the balance shifting as circumstances change. Getting the mix
Is Your Business a Champ or a Chump?
Next, calculate the average of
your scores for each of the absorption and agility measures.
You can then plot your organization on the matrix against the
heavyweights.
If your organization lands in
the upper-right quadrant, it will
likely do well, come what may. If
it lands in the bottom-right box,
it may well survive but risks a
steady decline as it cedes opportunities to agile rivals. If it’s in
the upper-left corner, it needs to
build absorption. And if it lands
in the lower-left quadrant, it
risks the failure and obscurity of
the boxers who lacked agility
and absorption.
DANCERS
5
■
■
Muhammad Ali
James J. Corbett
4
■
■
Ezzard Charles
■
3
■
Larry Holmes
Gene Tunney
■
■
Joe Louis
Jersey Joe Walcott
Jack Dempsey
Floyd Patterson
■
■
■
Evander Holyﬁeld
■
Lennox Lewis
■ Sonny Liston
■
■ Riddick Bowe
Joe Frazier ■
Rocky Marciano
2
■
Jim Jeffries
■
1
George Foreman
CHUMPS
1
page 26
CHAMPS
Jack Johnson
AGILITY
The matrix plots 18 of the greatest heavyweight boxers of all
time in terms of their agility (including variables such as hand
speed and footwork) and absorption (including size and endurance). George Foreman deﬁnes
one extreme, scoring among the
highest in absorption and lowest
in agility, and 1892 heavyweight
champ James J. “Gentleman Jim”
Corbett represents the other extreme—exceptional agility but
limited absorption.
To see where your organization
falls in terms of agility and absorption, take the accompanying
survey: Fill in the number that reﬂects your level of agreement
with each of the statements.
2
POWERHOUSES
ABSORPTION
3
4
5
harvard business review • february 2009
How to Thrive in Turbulent Markets
right, instead of relying heavily on one or the
other, increases the effectiveness of these two
approaches during volatile times. (The sidebar
“Is Your Business a Champ or a Chump?” contains a diagnostic tool to quickly assess your organization’s balance of agility and absorption.)
Striking the right balance isn’t necessarily
easy. Many of the structural factors that provide absorption appear, at ﬁrst glance, diametrically opposed to those required for agility: global scale versus lean operations, for instance, or
legacy assets versus a clean sheet of paper. So
how, in practice, can leaders help their ﬁrms
achieve and maintain agile absorption?
More good fats, fewer bad fats. As a ﬁrst step,
executives should recognize that sources of absorption vary in terms of their effect on agility.
Absorption is a store of energy for hard times—
much like fat on the human body. And like dietary fats, some sources of absorption are more
healthful than others. Low ﬁxed costs, for example, are an outstanding source of absorption.
They allow a ﬁrm to weather a wide range of
threats without necessarily impeding its ability
to seize golden opportunities. The low ﬁxed
costs of Brazilian brewer Brahma, for instance,
allowed the company to outlast its rival Antarctica in the face of price competition, ﬂattening
demand, and macroeconomic shocks. The
brewer’s savings on ﬁxed costs also provided the
cash required to launch a second brand and ultimately acquire Antarctica and start the ascent
to global leadership.
At the other extreme are sources of absorption that bolster the company’s ability to
weather uncertain times but come at an unacceptably high cost in terms of lost agility. A
prime example is excess staff. Over time, ﬁrms
often build up “latent slack,” the academic euphemism for more employees than a company needs to get the work done. Excess employees, in this view, constitute resources that
management can recover, through layoffs or
capacity reductions, to free up cash in difﬁcult
times. But excess workers, particularly those
in staff positions, tend to generate work to
justify their existence. Their efforts, however
well-intentioned, introduce unnecessary layers of complexity and bureaucracy that sap an
organization’s agility.
Actively managing trade-offs. Consciously
managing the trade-offs between agility and
ABSORPTION VS. AGILITY SURVEY
SCORING
SCALE
1
STRONGLY
DISAGREE
2
3
NEITHER AGREE/
DISAGREE
4
MEASURES OF ABSORPTION
MEASURES OF AGILITY
1. Our size prevents us from failing or being acquired.
1. Our systems provide us with detailed, reliable
market data in real time.
2. Our company’s cash ﬂows are highly diversiﬁed by
business line or geography.
2. We consistently spot and exploit changes in the
market before our competitors do.
3. We have a strong balance sheet and more cash and
marketable securities than our rivals do.
3. We have a shared understanding of the situation
across units and levels.
4. We own unique tangible assets that customers pay
a premium for and our rivals cannot imitate.
4. Objectives are clear to all, and everyone is held
accountable for delivery.
5. We control intangible resources that customers pay
a premium for and our rivals cannot imitate.
5. We are not overwhelmed by a large number of key
performance indicators and objectives.
6. We have abundant slack (people who are not creating value in the organization).
6. Our organization attracts, retains, and rewards
entrepreneurial managers.
7. Customers are locked into using our product by high
switching costs.
7. We maintain the same sense of urgency as a startup venture even in good times.
8. Powerful partners (for instance, government or
investors) are vested in our success.
8. Management admits mistakes and does not delay
in exiting unsuccessful businesses.
9. We are leaders in a proﬁtable home market with
high barriers to entry.
9. Top executives systematically reallocate cash and
top management talent across units.
10. We have low ﬁxed costs relative to our most efﬁcient competitors.
10. Top executives have the courage to seize major
opportunities when they arise.
ABSORPTION SCORE AVERAGE
harvard business review • february 2009
5
STRONGLY
AGREE
AGILITY SCORE AVERAGE
page 27
How to Thrive in Turbulent Markets
Absorption: Foreman
compensated for his lack
of “bob-and-weave”
dexterity with the size,
physical strength, and
toughness to withstand
nearly any punishment.
page 28
absorption is critical, as the experiences of two
automakers show. Consider General Motors,
which consistently missed opportunities that
Toyota seized, including differentiating on
product quality and coming out with smaller
cars and hybrids. Many factors have contributed to GM’s relative decline, but one oft-cited
explanation is management’s inability to lay
off workers when demand slips, which would
translate labor from a variable to a ﬁxed cost,
thereby decreasing the carmaker’s absorption.
But Toyota also guarantees its workers lifetime employment; the Japanese carmaker attempted to lay off workers in the 1950s but encountered massive resistance from unions and
the government. Toyota agreed to a larger
workforce with its higher ﬁxed costs but also
instituted ﬂexible work rules, variable job assignments, and employee involvement, which
collectively enhanced the company’s agility.
GM’s executives, in contrast, basically gave the
absorption away without receiving signiﬁcant
beneﬁts in return.
Many managers believe that corporate bulk
is the archenemy of agility. But it is not size per
se that kills agility; it is complexity. Executives
at Emirates, for example, found they needed
several ancillary businesses, including baggage
handling, hotels, and tours, to support the
company’s growth from a two-plane operation
in 1985 to one of the top 10 international carriers in the world by 2007. Rather than complicate the core business, however, Emirates
hived off the ancillary businesses into a separate entity under different management. Note
that while a focused business model deﬁnitely
enhances operational agility and scales up well
without adding complexity, it can also decrease
the scope for portfolio agility and leave a ﬁrm
vulnerable to shifting consumer tastes (as Benetton and Laura Ashley were) or to new technologies (think Wang or Polaroid).
An alternative approach to combining scale
and agility consists of breaking a large company
into multiple, independent proﬁt-and-loss
units. These units can move quickly, increase
transparency and therefore accountability for
performance, and foster a sense of ownership
among managers and employees. Because they
continually probe different markets, looking
for unﬁlled gaps, the units are also more likely
to see new opportunities before their rivals do.
The great attraction of this approach is that it
offers the potential to combine all three types
of agility with high levels of absorption. Firms
that excel at this, including GE and Johnson &
Johnson, have remained leaders in their industries over long periods of time. Note that this
approach carries costs as well: Independent
units often duplicate back-ofﬁce functions,
which increase ﬁxed costs, and executives must
invest heavily to promote cooperation among
ﬁercely autonomous divisions.
Maintaining a culture of agility. During the
start-up phase, ﬁrms generally are agile but incredibly short on absorptive capabilities. Their
small size and lack of legacy allow these ﬁrms
to turn on a dime, but they can also ﬁnd themselves at a disadvantage to heavyweight incumbents. As ﬁrms enter corporate adolescence, they maintain some agility but also
accumulate absorption as they launch new
products, expand geographically, bolster
brand value, or ﬁrm up customer relationships. Over time, absorption stabilizes while
agility deteriorates.
Worse, a company’s absorptive strengths can
erode the culture of agility that once enlivened
it as a start-up: Size often engenders bureaucracy and silos. Switching costs give incumbents a false feeling of invulnerability, which
can lead to high-handed arrogance in dealing
with customers and competitors. A protected
core market can lull ﬁrms into complacency.
The biggest threat facing absorption heavyweights such as General Motors, Coca-Cola,
Microsoft, Royal Dutch Shell, and Sony is the
slow erosion of their once vibrant cultures,
rather than threats from new technologies,
competitors, or regulators.
The decline of a company’s culture of agility
is common but not inevitable. Recall the Brazilian brewer Brahma. The new CEO and his
partners bought a controlling stake in 1989
and spent the next decade transforming the
century-old company from a sleepy bureaucracy to an aggressive competitor, and in the
following decade transplanted its culture ﬁrst
to its largest Brazilian rival, Antarctica, and
then to Belgian Interbrew. (And perhaps it will
transplant that culture to Anheuser-Busch in
the future.)
Managers who want to maintain (or rekindle) a culture of agility need to maintain a strict
focus on the handful of values they deem critical to agility. Telles and his team, for example,
eliminated status symbols such as executive
dining rooms and reserved parking spaces to
harvard business review • february 2009
How to Thrive in Turbulent Markets
send a clear signal that performance trumped
titles or tenure. The team minimized the role of
hierarchy by holding meetings around a large
table and modeling executive meetings on the
free give-and-take of a traders’ room. Transparency was another critical value: Financial and
operating data were freely available, while individual and team objectives and performance
were posted publicly to stimulate healthy rivalry, put pressure on underperformers, and
help managers come to a shared understanding
of what everyone was doing and how everything hung together.
The team also focused on attracting and retaining employees who shared these values.
Brahma had limited success hiring experienced
recruits from the industry, who were often too
political and cynical to thrive in the company.
Instead the team focused its attention on attracting new recruits and launched a trainee
program that hired students straight from college to serve as the primary source of management talent. The career opportunities, rich incentives, and excitement of the company were
such that the trainee program attracted 9,000
applicants for 25 positions, placing the program among the most popular in Brazil. In its
ﬁrst decade, the company hired more than 400
recent college graduates; 60% went on to management positions, with the other 40% serving
in senior positions. The new recruits, along
with promising employees promoted from
within, became the carriers of the new culture
to the acquired companies.
As executives set out to increase their organization’s capacity for agile absorption, they
should keep in mind that what works in one industry may prove totally inappropriate in
other sectors. Scaling up a focused model, for
instance, works well in airlines, retail, automobiles, and fast food but not in consumer goods,
luxury products, or investment banking, all of
which require more portfolio agility. No matter what the situation is, however, managers
need to take inventory of the sources of agility
harvard business review • february 2009
and absorption within their organizations. Speciﬁcally, they can ask themselves a series of
questions: How agile are we? How absorptive
are we? Where does our absorption currently
come from? Are these the best sources? Are
there alternative ways to boost our absorption
that would enhance our agility?
•••
The rise and fall of Muhammad Ali illustrates
a universal dynamic: In his early career, Ali
could bob-and-weave to victory, but he rose to
true greatness by building his capacity to take
a punch. As champion, Ali combined agility
and absorption in measures that made him
“the greatest of all time.” But over time, the
agility seeped from his limbs, and by his ﬁnal
ﬁghts Ali could do little more than absorb the
punishment his opponents dished out.
Many organizations follow a similar arc.
Their early agility wins them the trappings of
success—size, cash, and a secure position.
These very sources of absorption, however,
gnaw away at the cultural roots of agility,
while bureaucracy, political inﬁghting, complacency, and arrogance sprout like noxious
weeds in their place. When the context
shifts—and it always does—the bloated organization lumbers through the ring like a
punch-drunk heavyweight, absorbing blows
that it can no longer dodge and missing opportunities it is too slow to seize. The cumulative effect of these blows can wear down
champions, like U.S. Steel or General Motors,
that once appeared invincible.
But tendency is not destiny. By understanding the sources of agility and absorption and
their combined power as a one-two punch, and
by actively balancing them over time, leaders
can increase their organization’s ability to go
the distance in an uncertain world.
Reprint R0902F
To order, see the next page
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or go to www.hbr.org
page 29
How to Thrive in Turbulent Markets
Further Reading
ARTICLES
Why Good Companies Go Bad
by Donald N. Sull
Harvard Business Review
July 1999
Product no. 99410
To Order
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One of the most common business phenomena is also one of the most perplexing: when
successful companies face big changes, they
often fail to respond effectively. Many assume
that the problem is paralysis, but the real
problem, according to Donald Sull, is active
inertia—an organization’s tendency to persist
in established patterns of behavior. Most leading businesses owe their prosperity to a fresh
competitive formula—a distinctive combination of strategies, relationships, processes, and
values that sets them apart from the crowd.
But when changes occur in a company’s markets, the formula that brought success brings
failure instead. Stuck in the modes of thinking
and working that have been successful in the
past, market leaders simply accelerate all their
tried-and-true activities and, by attempting to
dig themselves out of a hole, just deepen it. In
particular, four things happen: strategic
frames become blinders; processes harden
into routines; relationships become shackles;
and values turn into dogmas. To illustrate his
point, the author draws on examples of pairs
of industry leaders, like Goodyear and Firestone, whose fates diverged when they were
forced to respond to dramatic changes in the
tire industry. In addition to diagnosing the
problem, Sull offers practical advice for avoiding active inertia. Rather than rushing to ask,
“What should we do?” managers should
pause to ask, “What hinders us?” That question
focuses attention on the proper things: the
strategic frames, processes, relationships, and
values that can subvert action by channeling
it in the wrong direction.
Strategy as Active Waiting
by Donald N. Sull
Harvard Business Review
September 2005
Product no. R0509G
Successful executives who cut their teeth in
stable industries or in developed countries
often stumble when they face more volatile
markets. They falter, in part, because they assume they can gaze deep into the future and
develop a long-term strategy that will confer a
sustainable competitive advantage. But visibility into the future of volatile markets is sharply
limited because of the many different variables at play. Factors such as technological innovation, customers’ evolving needs, government policy, and changes in the capital
markets interact with one another to create
unexpected outcomes. Over the past six years,
Donald Sull, an associate professor at London
Business School, has led a research project examining some of the world’s most volatile arenas, from national markets like China and Brazil to industries like enterprise software,
telecommunications, and airlines. One of the
most striking findings from this research is the
importance of taking action during comparative lulls in the storm. Huge business opportunities are relatively rare; they come along only
once or twice in a decade. And, for the most
part, companies can’t manufacture those opportunities; changes in the external environment converge to make them happen. What
managers can do is prepare for these golden
opportunities by managing smart during the
comparative calm of business as usual. During
these periods of active waiting, leaders must
probe the future and remain alert to anomalies that signal potential threats or opportunities; exercise restraint to preserve their war
chests; and maintain discipline to keep the
troops battle-ready.
page 31
www.hbrreprints.org
Companies must pay as much
attention to the hard side of
change management as they
do to the soft aspects. By
rigorously focusing on four
critical elements, they can
stack the odds in favor of
success.
The Hard Side of
Change Management
by Harold L. Sirkin, Perry Keenan,
and Alan Jackson
Included with this full-text Harvard Business Review article:
35 Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
37 The Hard Side of Change Management
47 Further Reading
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
Reprint R0510G
page 33
The Hard Side of Change Management
The Idea in Brief
The Idea in Practice
Two out of every three transformation programs fail. Why? Companies overemphasize
the soft side of change: leadership style,
corporate culture, employee motivation.
Though these elements are critical for success, change projects can’t get off the
ground unless companies address harder
elements first.
CONDUCTING A DICE ASSESSMENT
The essential hard elements? Think of them
as DICE:
• Duration: time between milestone
reviews—the shorter, the better
• Integrity: project teams’ skill
• Commitment: senior executives’ and line
managers’ dedication to the program
COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
• Effort: the extra work employees must
do to adopt new processes—the less,
the better
By assessing each DICE element before you
launch a major change initiative, you can
identify potential problem areas and make
the necessary adjustments (such as reconfiguring a project team’s composition or reallocating resources) to ensure the program’s success. You can also use DICE after
launching a project—to make midcourse
corrections if the initiative veers off track.
DICE helps companies lay the foundation
for successful change. Using the DICE assessment technique, one global beverage
company executed a multiproject organization-wide change program that generated
hundreds of millions of dollars, breathed
new life into its once-stagnant brands, and
cracked open new markets.
Your project has the greatest chance of success if the following hard elements are in
place:
Duration
A long project reviewed frequently stands a
far better chance of succeeding than a short
project reviewed infrequently. Problems can
be identified at the first sign of trouble, allowing for prompt corrective actions. Review
complex projects every two weeks; more
straightforward initiatives, every six to eight
weeks.
Integrity
A change program’s success hinges on a highintegrity, high-quality project team. To identify
team candidates with the right portfolio of
skills, solicit names from key colleagues, including top performers in functions other
than your own. Recruit people who have
problem-solving skills, are results oriented,
and are methodical but tolerate ambiguity.
Look also for organizational savvy, willingness
to accept responsibility for decisions, and a
disdain for the limelight.
Commitment
If employees don’t see company leaders supporting a change initiative, they won’t
change. Visibly endorse the initiative—no
amount of public support is too much. When
you feel you’re “talking up” a change effort at
least three times more than you need to,
you’ve hit it right.
plement the change. Ensure that no one’s
workload increases more than 10%. If necessary, remove nonessential regular work from
employees with key roles in the transformation project. Use temporary workers or outsource some processes to accommodate additional workload.
USING THE DICE FRAMEWORK
Conducting a DICE assessment fosters successful change by sparking valuable senior
leadership debate about project strategy It
also improves change effectiveness by enabling companies to manage large portfolios
of projects.
Example:
A manufacturing company planned 40
projects as part of a profitability-improvement
program. After conducting a DICE assessment
for each project, leaders and project owners
identified the five most important projects
and asked, “How can we ensure these
projects’ success?” They moved people
around on teams, reconfigured some
projects, and identified initiatives senior
managers should pay more attention to—
setting up their most crucial projects for
resounding success.
Also continually communicate why the
change is needed and what it means for employees. Ensure that all messages about the
change are consistent and clear. Reach out to
managers and employees through one-onone conversations to win them over.
Effort
If adopting a change burdens employees with
too much additional effort, they’ll resist. Calculate how much work employees will have to
do beyond their existing responsibilities to impage 35
Companies must pay as much attention to the hard side of change
management as they do to the soft aspects. By rigorously focusing on
four critical elements, they can stack the odds in favor of success.
The Hard Side of
Change Management
by Harold L. Sirkin, Perry Keenan,
and Alan Jackson
COPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
When French novelist Jean-Baptiste Alphonse
Karr wrote “Plus ça change, plus c’est la même
chose,” he could have been penning an epigram
about change management. For over three decades, academics, managers, and consultants,
realizing that transforming organizations is difﬁcult, have dissected the subject. They’ve sung
the praises of leaders who communicate vision
and walk the talk in order to make change efforts succeed. They’ve sanctiﬁed the importance of changing organizational culture and
employees’ attitudes. They’ve teased out the
tensions between top-down transformation efforts and participatory approaches to change.
And they’ve exhorted companies to launch
campaigns that appeal to people’s hearts and
minds. Still, studies show that in most organizations, two out of three transformation initiatives fail. The more things change, the more
they stay the same.
Managing change is tough, but part of the
problem is that there is little agreement on
what factors most inﬂuence transformation initiatives. Ask ﬁve executives to name the one
harvard business review • october 2005
factor critical for the success of these programs,
and you’ll probably get ﬁve different answers.
That’s because each manager looks at an initiative from his or her viewpoint and, based on
personal experience, focuses on different success factors. The experts, too, offer different
perspectives. A recent search on Amazon.com
for books on “change and management”
turned up 6,153 titles, each with a distinct take
on the topic. Those ideas have a lot to offer,
but taken together, they force companies to
tackle many priorities simultaneously, which
spreads resources and skills thin. Moreover, executives use different approaches in different
parts of the organization, which compounds
the turmoil that usually accompanies change.
In recent years, many change management
gurus have focused on soft issues, such as culture, leadership, and motivation. Such elements are important for success, but managing
these aspects alone isn’t sufﬁcient to implement transformation projects. Soft factors
don’t directly inﬂuence the outcomes of many
change programs. For instance, visionary lead-
page 37
The Hard Side of Change Management
Harold L. Sirkin ([email protected]) is
a Chicago-based senior vice president
and the global operations practice
leader of the Boston Consulting Group.
He is the coauthor of “Fix the Process,
Not the Problem” (HBR July–August
1990) and “Innovating for Cash” (HBR
September 2003). Perry Keenan
([email protected]) is a BCG vice
president and the global topic leader
for rigorous program management
based in Auckland, New Zealand.
Alan Jackson ([email protected])
is a BCG senior vice president in Sydney,
Australia. More on change management and an interactive DICE tool are
available at www.bcg.com/DICE.
page 38
ership is often vital for transformation projects,
but not always. The same can be said about
communication with employees. Moreover, it
isn’t easy to change attitudes or relationships;
they’re deeply ingrained in organizations and
people. And although changes in, say, culture
or motivation levels can be indirectly gauged
through surveys and interviews, it’s tough to
get reliable data on soft factors.
What’s missing, we believe, is a focus on the
not-so-fashionable aspects of change management: the hard factors. These factors bear
three distinct characteristics. First, companies
are able to measure them in direct or indirect
ways. Second, companies can easily communicate their importance, both within and outside
organizations. Third, and perhaps most important, businesses are capable of inﬂuencing
those elements quickly. Some of the hard factors that affect a transformation initiative are
the time necessary to complete it, the number
of people required to execute it, and the ﬁnancial results that intended actions are expected
to achieve. Our research shows that change
projects fail to get off the ground when companies neglect the hard factors. That doesn’t
mean that executives can ignore the soft elements; that would be a grave mistake. However, if companies don’t pay attention to the
hard issues ﬁrst, transformation programs will
break down before the soft elements come
into play.
That’s a lesson we learned when we identiﬁed the common denominators of change. In
1992, we started with the contrarian hypothesis that organizations handle transformations
in remarkably similar ways. We researched
projects in a number of industries and countries to identify those common elements. Our
initial 225-company study revealed a consistent
correlation between the outcomes (success or
failure) of change programs and four hard factors: project duration, particularly the time between project reviews; performance integrity,
or the capabilities of project teams; the commitment of both senior executives and the staff
whom the change will affect the most; and the
additional effort that employees must make to
cope with the change. We called these variables the DICE factors because we could load
them in favor of projects’ success.
We completed our study in 1994, and in the
11 years since then, the Boston Consulting
Group has used those four factors to predict
the outcomes, and guide the execution, of
more than 1,000 change management initiatives worldwide. Not only has the correlation
held, but no other factors (or combination of
factors) have predicted outcomes as well.
The Four Key Factors
If you think about it, the different ways in
which organizations combine the four factors
create a continuum—from projects that are
set up to succeed to those that are set up to
fail. At one extreme, a short project led by a
skilled, motivated, and cohesive team, championed by top management and implemented
in a department that is receptive to the
change and has to put in very little additional
effort, is bound to succeed. At the other extreme, a long, drawn-out project executed by
an inexpert, unenthusiastic, and disjointed
team, without any top-level sponsors and targeted at a function that dislikes the change
and has to do a lot of extra work, will fail. Businesses can easily identify change programs at
either end of the spectrum, but most initiatives occupy the middle ground where the
likelihood of success or failure is difﬁcult to assess. Executives must study the four DICE factors carefully to ﬁgure out if their change programs will ﬂy—or die.
Duration. Companies make the mistake of
worrying mostly about the time it will take to
implement change programs. They assume
that the longer an initiative carries on, the
more likely it is to fail—the early impetus will
peter out, windows of opportunity will close,
objectives will be forgotten, key supporters
will leave or lose their enthusiasm, and problems will accumulate. However, contrary to
popular perception, our studies show that a
long project that is reviewed frequently is
more likely to succeed than a short project
that isn’t reviewed frequently. Thus, the time
between reviews is more critical for success
than a project’s life span.
Companies should formally review transformation projects at least bimonthly since, in our
experience, the probability that change initiatives will run into trouble rises exponentially
when the time between reviews exceeds eight
weeks. Whether reviews should be scheduled
even more frequently depends on how long executives feel the project can carry on without
going off track. Complex projects should be reviewed fortnightly; more familiar or straight-
harvard business review • october 2005
The Hard Side of Change Management
forward initiatives can be assessed every six to
eight weeks.
Scheduling milestones and assessing their
impact are the best way by which executives
can review the execution of projects, identify
gaps, and spot new risks. The most effective
milestones are those that describe major actions or achievements rather than day-to-day
activities. They must enable senior executives
and project sponsors to conﬁrm that the
project has made progress since the last review
took place. Good milestones encompass a
number of tasks that teams must complete.
For example, describing a particular milestone
as “Consultations with Stakeholders Completed” is more effective than “Consult Stakeholders” because it represents an achievement
and shows that the project has made headway.
Moreover, it suggests that several activities
were completed—identifying stakeholders, assessing their needs, and talking to them about
the project. When a milestone looks as though
it won’t be reached on time, the project team
must try to understand why, take corrective actions, and learn from the experience to prevent
problems from recurring.
Review of such a milestone—what we refer
to as a “learning milestone”—isn’t an impromptu assessment of the Monday-morning
kind. It should be a formal occasion during
which senior-management sponsors and the
project team evaluate the latter’s performance
on all the dimensions that have a bearing on
success and failure. The team must provide a
concise report of its progress, and members and
sponsors must check if the team is on track to
complete, or has ﬁnished all the tasks to deliver,
the milestone. They should also determine
whether achieving the milestone has had the
desired effect on the company; discuss the problems the team faced in reaching the milestone;
and determine how that accomplishment will
affect the next phase of the project. Sponsors
and team members must have the power to address weaknesses. When necessary, they should
alter processes, agree to push for more or different resources, or suggest a new direction. At
these meetings, senior executives must pay special attention to the dynamics within teams,
changes in the organization’s perceptions about
the initiative, and communications from the
top.
Integrity. By performance integrity, we mean
the extent to which companies can rely on
harvard business review • october 2005
teams of managers, supervisors, and staff to
execute change projects successfully. In a perfect world, every team would be ﬂawless, but
no business has enough great people to ensure
that. Besides, senior executives are often reluctant to allow star performers to join change efforts because regular work can suffer. But
since the success of change programs depends
on the quality of teams, companies must free
up the best staff while making sure that dayto-day operations don’t falter. In companies
that have succeeded in implementing change
programs, we ﬁnd that employees go the extra
mile to ensure their day-to-day work gets
done.
Since project teams handle a wide range of
activities, resources, pressures, external stimuli, and unforeseen obstacles, they must be
cohesive and well led. It’s not enough for senior executives to ask people at the watercooler if a project team is doing well; they
must clarify members’ roles, commitments,
and accountability. They must choose the
team leader and, most important, work out
the team’s composition.
Smart executive sponsors, we ﬁnd, are very
inclusive when picking teams. They identify
talent by soliciting names from key colleagues,
including human resource managers; by circulating criteria they have drawn up; and by
looking for top performers in all functions.
While they accept volunteers, they take care
not to choose only supporters of the change
initiative. Senior executives personally interview people so that they can construct the
right portfolio of skills, knowledge, and social
networks. They also decide if potential team
members should commit all their time to the
project; if not, they must ask them to allocate
speciﬁc days or times of the day to the initiative. Top management makes public the parameters on which it will judge the team’s performance and how that evaluation ﬁts into the
company’s regular appraisal process. Once the
project gets under way, sponsors must measure
the cohesion of teams by administering conﬁdential surveys to solicit members’ opinions.
Executives often make the mistake of assuming that because someone is a good, wellliked manager, he or she will also make a decent team leader. That sounds reasonable, but
effective managers of the status quo aren’t necessarily good at changing organizations. Usually, good team leaders have problem-solving
The Four Factors
These factors determine the outcome
of any transformation initiative.
D. The duration of time until the
change program is completed if it
has a short life span; if not short,
the amount of time between
reviews of milestones.
I. The project team’s performance
integrity; that is, its ability to
complete the initiative on time.
That depends on members’ skills
and traits relative to the project’s
requirements.
C. The commitment to change
that top management (C1) and
employees affected by the
change (C2) display.
E. The effort over and above the
usual work that the change initiative demands of employees.
page 39
The Hard Side of Change Management
skills, are results oriented, are methodical in
their approach but tolerate ambiguity, are organizationally savvy, are willing to accept responsibility for decisions, and while being
highly motivated, don’t crave the limelight. A
CEO who successfully led two major transformation projects in the past ten years used
these six criteria to quiz senior executives
about the caliber of nominees for project
teams. The top management team rejected
one in three candidates, on average, before ﬁnalizing the teams.
Commitment. Companies must boost the
commitment of two different groups of people
if they want change projects to take root: They
must get visible backing from the most inﬂuential executives (what we call C1), who are
not necessarily those with the top titles. And
they must take into account the enthusiasm—
or often, lack thereof—of the people who
must deal with the new systems, processes, or
ways of working (C2).
Top-level commitment is vital to engendering commitment from those at the coal face. If
employees don’t see that the company’s leadership is backing a project, they’re unlikely to
change. No amount of top-level support is too
much. In 1999, when we were working with
the CEO of a consumer products company, he
told us that he was doing much more than necessary to display his support for a nettlesome
project. When we talked to line managers, they
said that the CEO had extended very little
backing for the project. They felt that if he
wanted the project to succeed, he would have
to support it more visibly! A rule of thumb:
When you feel that you are talking up a
change initiative at least three times more
than you need to, your managers will feel that
you are backing the transformation.
Sometimes, senior executives are reluctant
to back initiatives. That’s understandable;
they’re often bringing about changes that may
negatively affect employees’ jobs and lives.
However, if senior executives do not communicate the need for change, and what it means
for employees, they endanger their projects’
success. In one ﬁnancial services ﬁrm, top management’s commitment to a program that
would improve cycle times, reduce errors, and
slash costs was low because it entailed layoffs.
Senior executives found it gut-wrenching to
talk about layoffs in an organization that had
prided itself on being a place where good peo-
page 40
ple could ﬁnd lifetime employment. However,
the CEO realized that he needed to tackle the
thorny issues around the layoffs to get the
project implemented on schedule. He tapped a
senior company veteran to organize a series of
speeches and meetings in order to provide consistent explanations for the layoffs, the timing,
the consequences for job security, and so on.
He also appointed a well-respected general
manager to lead the change program. Those
actions reassured employees that the organization would tackle the layoffs in a professional
and humane fashion.
Companies often underestimate the role
that managers and staff play in transformation
efforts. By communicating with them too late
or inconsistently, senior executives end up
alienating the people who are most affected by
the changes. It’s surprising how often something senior executives believe is a good thing
is seen by staff as a bad thing, or a message
that senior executives think is perfectly clear is
misunderstood. That usually happens when senior executives articulate subtly different versions of critical messages. For instance, in one
company that applied the DICE framework,
scores for a project showed a low degree of
staff commitment. It turned out that these employees had become confused, even distrustful,
because one senior manager had said, “Layoffs
will not occur,” while another had said, “They
are not expected to occur.”
Organizations also underestimate their ability to build staff support. A simple effort to
reach out to employees can turn them into
champions of new ideas. For example, in the
1990s, a major American energy producer was
unable to get the support of mid-level managers, supervisors, and workers for a productivity
improvement program. After trying several
times, the company’s senior executives decided
to hold a series of one-on-one conversations
with mid-level managers in a last-ditch effort
to win them over. The conversations focused
on the program’s objectives, its impact on employees, and why the organization might not
be able to survive without the changes. Partly
because of the straight talk, the initiative
gained some momentum. This allowed a
project team to demonstrate a series of quick
wins, which gave the initiative a new lease on
life.
Effort. When companies launch transformation efforts, they frequently don’t realize,
harvard business review • october 2005
The Hard Side of Change Management
Calculating DICE Scores
Companies can determine if their change programs will succeed by asking executives to calculate scores for each of the four
factors of the DICE framework—duration, integrity, commitment, and effort. They must grade each factor on a scale from 1 to
4 (using fractions, if necessary); the lower the score, the better. Thus, a score of 1 suggests that the factor is highly likely to contribute to the program’s success, and a score of 4 means that it is highly unlikely to contribute to success. We ﬁnd that the following questions and scoring guidelines allow executives to rate transformation initiatives effectively:
Duration [D]
Ask: Do formal project reviews occur regularly? If the project
will take more than two months to complete, what is the average time between reviews?
Score: If the time between project reviews is less than two
months, you should give the project 1 point. If the time is between two and four months, you should award the project 2
points; between four and eight months, 3 points; and if reviews are more than eight months apart, give the project 4
points.
Integrity of Performance [I]
Ask: Is the team leader capable? How strong are team members’ skills and motivations? Do they have sufﬁcient time to
spend on the change initiative?
Score: If the project team is led by a highly capable leader
who is respected by peers, if the members have the skills and
motivation to complete the project in the stipulated time
frame, and if the company has assigned at least 50% of the
team members’ time to the project, you can give the project
1 point. If the team is lacking on all those dimensions, you
should award the project 4 points. If the team’s capabilities
are somewhere in between, assign the project 2 or 3 points.
Senior Management Commitment [C1]
Ask: Do senior executives regularly communicate the reason
for the change and the importance of its success? Is the message convincing? Is the message consistent, both across the
top management team and over time? Has top management
devoted enough resources to the change program?
Score: If senior management has, through actions and
words, clearly communicated the need for change, you must
give the project 1 point. If senior executives appear to be
neutral, it gets 2 or 3 points. If managers perceive senior executives to be reluctant to support the change, award the
project 4 points.
Local-Level Commitment [C2]
Ask: Do the employees most affected by the change understand the reason for it and believe it’s worthwhile? Are they
enthusiastic and supportive or worried and obstructive?
Score: If employees are eager to take on the change initiative, you can give the project 1 point, and if they are just willing, 2 points. If they’re reluctant or strongly reluctant, you
should award the project 3 or 4 points.
Effort [E]
Ask: What is the percentage of increased effort that employees must make to implement the change effort? Does the incremental effort come on top of a heavy workload? Have people strongly resisted the increased demands on them?
Score: If the project requires less than 10% extra work by employees, you can give it 1 point. If it’s 10% to 20% extra, it
should get 2 points. If it’s 20% to 40%, it must be 3 points.
And if it’s more than 40% additional work, you should give
the project 4 points.
Executives can combine the four elements into a project score. When we conducted a regression analysis of our database of
change efforts, we found that the combination that correlates most closely with actual outcomes doubles the weight given to
team performance (I) and senior management commitment (C1). That translates into the following formula:
DICE Score = D + (2 x I) + (2 x C1) + C2 + E
In the 1-to-4 scoring system, the formula generates overall
scores that range from 7 to 28. Companies can compare a
project’s score with those of past projects and their outcomes
to assess if the project is slated for success or failure. Our
data show a clear distribution of scores:
Scores between 7 and 14: The project is very likely to succeed. We call this the Win Zone.
Scores higher than 14 but lower than 17: Risks to the
project’s success are rising, particularly as the score approaches 17. This is the Worry Zone.
harvard business review • october 2005
Scores over 17: The project is extremely risky. If a project
scores over 17 and under 19 points, the risks to success are
very high. Beyond 19, the project is unlikely to succeed.
That’s why we call this the Woe Zone.
We have changed the boundaries of the zones over time.
For instance, the Worry Zone was between 14 and 21 points
at ﬁrst, and the Woe Zone from 21 to 28 points. But we found
that companies prefer to be alerted to trouble as soon as outcomes become unpredictable (17 to 20 points). We therefore
compressed the Worry Zone and expanded the Woe Zone.
page 41
[C1]
[C2]
[E]
DICE SCORE = D + 2 + 2C1 + C2 + E
Plot
Likely Outcome
Calculate
7
WIN
8
WORRY
WOE
Copyright © 2005 Harvard Business School
Publishing Corporation. All rights reserved.
[ ]
Highly Unsuccessful
[D]
Highly Successful
The Hard Side of Change Management
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
DICE Score
or know how to deal with the fact, that employees are already busy with their day-to-day
responsibilities. According to stafﬁng tables,
people in many businesses work 80-plus-hour
weeks. If, on top of existing responsibilities,
line managers and staff have to deal with
changes to their work or to the systems they
use, they will resist.
Project teams must calculate how much
work employees will have to do beyond their
existing responsibilities to change over to new
processes. Ideally, no one’s workload should increase more than 10%. Go beyond that, and the
initiative will probably run into trouble. Resources will become overstretched and compromise either the change program or normal
operations. Employee morale will fall, and conﬂict may arise between teams and line staff. To
minimize the dangers, project managers
should use a simple metric like the percentage
increase in effort the employees who must
cope with the new ways feel they must contribute. They should also check if the additional effort they have demanded comes on top of
heavy workloads and if employees are likely to
resist the project because it will demand more
of their scarce time.
Companies must decide whether to take
away some of the regular work of employees
who will play key roles in the transformation
project. Companies can start by ridding these
employees of discretionary or nonessential responsibilities. In addition, ﬁrms should review
all the other projects in the operating plan and
assess which ones are critical for the change effort. At one company, the project steering com-
page 42
mittee delayed or restructured 120 out of 250
subprojects so that some line managers could
focus on top-priority projects. Another way to
relieve pressure is for the company to bring in
temporary workers, like retired managers, to
carry out routine activities or to outsource current processes until the changeover is complete. Handing off routine work or delaying
projects is costly and time-consuming, so companies need to think through such issues before kicking off transformation efforts.
Creating the Framework
As we came to understand the four factors better, we created a framework that would help
executives evaluate their transformation initiatives and shine a spotlight on interventions
that would improve their chances of success.
We developed a scoring system based on the
variables that affect each factor. Executives
can assign scores to the DICE factors and combine them to arrive at a project score. (See the
sidebar “Calculating DICE Scores.”)
Although the assessments are subjective,
the system gives companies an objective
framework for making those decisions. Moreover, the scoring mechanism ensures that executives are evaluating projects and making
trade-offs more consistently across projects.
A company can compare its DICE score on
the day it kicks off a project with the scores of
previous projects, as well as their outcomes, to
check if the initiative has been set up for success. When we calculated the scores of the 225
change projects in our database and compared
them with the outcomes, the analysis was com-
harvard business review • october 2005
The Hard Side of Change Management
pelling. Projects clearly fell into three categories, or zones: Win, which means that any
project with a score in that range is statistically
likely to succeed; worry, which suggests that
the project’s outcome is hard to predict; and
woe, which implies that the project is totally
unpredictable or fated for mediocrity or failure. (See the exhibit “DICE Scores Predict
Project Outcomes.”)
Companies can track how change projects
are faring by calculating scores over time or before and after they have made changes to a
project’s structure. The four factors offer a litmus test that executives can use to assess the
probability of success for a given project or set
of projects. Consider the case of a large Australian bank that in 1994 wanted to restructure its
back-ofﬁce operations. Senior executives
agreed on the rationale for the change but differed on whether the bank could achieve its
objectives, since the transformation required
major changes in processes and organizational
structures. Bringing the team and the senior
executives together long enough to sort out
their differences proved impossible; people
were just too busy. That’s when the project
team decided to analyze the initiative using
the DICE framework.
Doing so condensed what could have been a
free-ﬂowing two-day debate into a sharp twohour discussion. The focus on just four elements generated a clear picture of the project’s
strengths and weaknesses. For instance, managers learned that the restructuring would
take eight months to implement but that it
had poorly deﬁned milestones and reviews. Although the project team was capable and senior management showed reasonable commitment to the effort, there was room for
improvement in both areas. The back-ofﬁce
workforce was hostile to the proposed changes
since more than 20% of these people would
lose their jobs. Managers and employees
agreed that the back-ofﬁce staff would need to
muster 10% to 20% more effort on top of its existing commitments during the implementation. On the DICE scale, the project was deep
in the Woe Zone.
However, the assessment also led managers
to take steps to increase the possibility of success before they started the project. The bank
decided to split the project time line into
two—one short-term and one long-term.
Doing so allowed the bank to schedule review
points more frequently and to maximize team
members’ ability to learn from experience before the transformation grew in complexity. To
improve staff commitment, the bank decided
to devote more time to explaining why the
change was necessary and how the institution
would support the staff during the implementation. The bank also took a closer look at the
people who would be involved in the project
and changed some of the team leaders when it
realized that they lacked the necessary skills.
Finally, senior managers made a concerted effort to show their backing for the initiative by
holding a traveling road show to explain the
1 2
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2 1 4
9
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14 9 2 9 1 8
12
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WIN
8
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51 3
1
1
1
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Copyright © 2005 Harvard Business School
Publishing Corporation. All rights reserved.
Highly Successful
1
Highly Unsuccessful
When we plotted the DICE scores of 225
change management initiatives on the horizontal axis, and the outcomes of those
projects on the vertical axis, we found three
sets of correlations. Projects with DICE scores
between 7 and 14 were usually successful;
those with scores over 14 and under 17 were
unpredictable; and projects with scores over
17 were usually unsuccessful. We named the
three zones Win, Worry, and Woe, respectively. (Each number plotted on the graph
represents the number of projects, out of the
225 projects, having a particular DICE score.)
Actual Outcome
DICE Scores Predict Project Outcomes
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
DICE Score
harvard business review • october 2005
page 43
The Hard Side of Change Management
project to people at all levels of the organization. Taken together, the bank’s actions and
plans shifted the project into the Win Zone.
Fourteen months later, the bank completed
the project—on time and below budget.
Applying the DICE Framework
The simplicity of the
DICE framework often
proves to be its biggest
problem; executives seem
to desire more complex
answers. By overlooking
the obvious, however,
they often end up making
compromises that don’t
work.
page 44
The simplicity of the DICE framework often
proves to be its biggest problem; executives
seem to desire more complex answers. By
overlooking the obvious, however, they often
end up making compromises that don’t work.
Smart companies try to ensure that they don’t
fall into that trap by using the DICE framework in one of three ways.
Track Projects. Some companies train managers in how to use the DICE framework before they start transformation programs. Executives use spreadsheet-based versions of the
tool to calculate the DICE scores of the various
components of the program and to compare
them with past scores. Over time, every score
must be balanced against the trajectory of
scores and, as we shall see next, the portfolio
of scores.
Senior executives often use DICE assessments as early warning indicators that transformation initiatives are in trouble. That’s how
Amgen, the $10.6 billion biotechnology company, used the DICE framework. In 2001, the
company realigned its operations around some
key processes, broadened its offerings, relaunched some mature products, allied with
some ﬁrms and acquired others, and launched
several innovations. To avoid implementation
problems, Amgen’s top management team
used the DICE framework to gauge how effectively it had allocated people, senior management time, and other resources. As soon as
projects reported troubling scores, designated
executives paid attention to them. They reviewed the projects more often, reconﬁgured
the teams, and allocated more resources to
them. In one area of the change project,
Amgen used DICE to track 300 initiatives and
reconﬁgured 200 of them.
Both big and small organizations can put
the tool to good use. Take the case of a hospital
that kicked off six change projects in the late
1990s. Each initiative involved a lot of investment, had signiﬁcant clinical implications, or
both. The hospital’s general manager felt that
some projects were going well but was concerned about others. He wasn’t able to at-
tribute his concerns to anything other than a
bad feeling. However, when the general manager used the DICE framework, he was able to
conﬁrm his suspicions. After a 45-minute discussion with project managers and other key
people, he established that three projects were
in the Win Zone but two were in the Woe
Zone and one was in the Worry Zone.
The strongest projects, the general manager
found, consumed more than their fair share of
resources. Senior hospital staff sensed that
those projects would succeed and spent more
time promoting them, attending meetings
about them, and making sure they had sufﬁcient resources. By contrast, no one enjoyed attending meetings on projects that were performing poorly. So the general manager
stopped attending meetings for the projects
that were on track; he attended only sessions
that related to the three underperforming
ones. He pulled some managers from the
projects that were progressing smoothly and
moved them to the riskier efforts. He added
more milestones to the struggling enterprises,
delayed their completion, and pushed hard for
improvement. Those steps helped ensure that
all six projects met their objectives.
Manage portfolios of projects. When companies launch large transformation programs,
they kick off many projects to attain their objectives. But if executives don’t manage the
portfolio properly, those tasks end up competing for attention and resources. For instance,
senior executives may choose the best employees for projects they have sponsored or lavish
attention on pet projects rather than on those
that need attention. By deploying our framework before they start transformation initiatives, companies can identify problem projects
in portfolios, focus execution expertise and senior management attention where it is most
needed, and defuse political issues.
Take, for example, the case of an Australasian manufacturing company that had
planned a set of 40 projects as part of a program to improve proﬁtability. Since some had
greater ﬁnancial implications than others, the
company’s general manager called for a meeting with all the project owners and senior
managers. The group went through each
project, debating its DICE score and identifying the problem areas. After listing all the
scores and issues, the general manager walked
to a whiteboard and circled the ﬁve most im-
harvard business review • october 2005
The Hard Side of Change Management
portant projects. “I’m prepared to accept that
some projects will start off in the Worry Zone,
though I won’t accept anything outside the
middle of this zone for more than a few weeks.
For the top ﬁve, we’re not going to start until
these are well within the Win Zone. What do
we have to do to achieve that?” he asked.
The group began thinking and acting right
away. It moved people around on teams, reconﬁgured some projects, and identiﬁed those that
senior managers should pay more attention
to—all of which helped raise DICE scores before implementation began. The most important projects were set up for resounding success while most of the remaining ones
managed to get into the Win Zone. The group
left some projects in the Worry Zone, but it
agreed to track them closely to ensure that
their scores improved. In our experience, that’s
the right thing to do. When companies are trying to overhaul themselves, they shouldn’t
have all their projects in the Win Zone; if they
do, they are not ambitious enough. Transformations should entail fundamental changes
that stretch an organization.
Force conversation. When different executives calculate DICE scores for the same
project, the results can vary widely. The difference in scores is particularly important in
terms of the dialogue it triggers. It provokes
participants and engages them in debate over
questions like “Why do we see the project in
these different ways?” and “What can we agree
to do to ensure that the project will succeed?”
That’s critical, because even people within the
same organization lack a common framework
for discussing problems with change initiatives. Prejudices, differences in perspectives,
and a reluctance or inability to speak up can
block effective debates. By using the DICE
framework, companies can create a common
language and force the right discussions.
Sometimes, companies hold workshops to
review ﬂoundering projects. At those two- to
four-hour sessions, groups of eight to 15 senior
and middle managers, along with the project
team and the project sponsors, hold a candid
dialogue. The debate usually moves beyond
the project’s scores to the underlying causes of
problems and possible remedies. The workshops bring diverse opinions to light, which
often can be combined into innovative solutions. Consider, for example, the manner in
which DICE workshops helped a telecommuni-
harvard business review • october 2005
cations service provider that had planned a
major transformation effort. Consisting of ﬁve
strategic initiatives and 50 subprojects that
needed to be up and running quickly, the program confronted some serious obstacles. The
projects’ goals, time lines, and revenue objectives were unclear. There were delays in approving business cases, a dearth of rigor and
focus in planning and identifying milestones,
and a shortage of resources. There were leadership issues, too. For example, executive-level
shortcomings had resulted in poor coordination of projects and a misjudgment of risks.
To put the transformation program on
track, the telecom company incorporated
DICE into project managers’ tool kits. The
Project Management Ofﬁce arranged a series
of workshops to analyze issues and decide future steps. One workshop, for example, was devoted to three new product development
projects, two of which had landed in the Woe
Zone and one in the Worry Zone. Participants
traced the problems to tension between managers and technology experts, underfunding,
lack of manpower, and poor deﬁnition of the
projects’ scopes. They eventually agreed on
three remedial actions: holding a conﬂictresolution meeting between the directors in
charge of technology and those responsible for
the core business; making sure senior leadership paid immediate attention to the resource
issues; and bringing together the project team
and the line-of-business head to formalize
project objectives. With the project sponsor
committed to those actions, the three projects
had improved their DICE scores and thus their
chances of success at the time this article went
to press.
Conversations about DICE scores are particularly useful for large-scale transformations
that cut across business units, functions, and
locations. In such change efforts, it is critical to
ﬁnd the right balance between centralized
oversight, which ensures that everyone in the
organization takes the effort seriously and understands the goals, and the autonomy that
various initiatives need. Teams must have the
ﬂexibility and incentive to produce customized
solutions for their markets, functions, and
competitive environments. The balance is difﬁcult to achieve without an explicit consideration of the DICE variables.
Take the case of a leading global beverage
company that needed to increase operational
The general manager
walked to a whiteboard
and circled the five most
important projects.
“We’re not going to start
until these are well
within the Win Zone.
What do we have to do to
achieve that?”
page 45
The Hard Side of Change Management
Conversations about
DICE scores are
particularly useful
for large-scale
transformations that
cut across business units,
functions, and locations.
page 46
efﬁciency and focus on the most promising
brands and markets. The company also sought
to make key processes such as consumer demand development and customer fulﬁllment
more innovative. The CEO’s goals were ambitious and required investing signiﬁcant resources across the company. Top management
faced enormous challenges in structuring the
effort and in spawning projects that focused on
the right issues. Executives knew that this was
a multiyear effort, yet without tight schedules
and oversight of individual projects, there was
a risk that projects would take far too long to
be completed and the results would taper off.
To mitigate the risks, senior managers decided to analyze each project at several levels
of the organization. Using the DICE framework, they reviewed each effort every month
until they felt conﬁdent that it was on track.
After that, reviews occurred when projects met
major milestones. No more than two months
elapsed between reviews, even in the later
stages of the program. The time between reviews at the project-team level was even
shorter: Team leaders reviewed progress biweekly throughout the transformation. Some
of the best people joined the effort full time.
The human resources department took an active role in recruiting team members, thereby
creating a virtuous cycle in which the best people began to seek involvement in various initiatives. During the course of the transformation, the company promoted several team
members to line- and functional leadership positions because of their performance.
The company’s change program resulted in
hundreds of millions of dollars of value creation. Its once-stagnant brands began to grow,
it cracked open new markets such as China,
and sales and promotion activities were
aligned with the fastest-growing channels.
There were many moments during the process
when inertia in the organization threatened to
derail the change efforts. However, senior
management’s belief in focusing on the four
key variables helped move the company to a
higher trajectory of performance.
•••
By providing a common language for change,
the DICE framework allows companies to tap
into the insight and experience of their employees. A great deal has been said about middle managers who want to block change. We
ﬁnd that most middle managers are prepared
to support change efforts even if doing so involves additional work and uncertainty and
puts their jobs at risk. However, they resist
change because they don’t have sufﬁcient
input in shaping those initiatives. Too often,
they lack the tools, the language, and the forums in which to express legitimate concerns
about the design and implementation of
change projects. That’s where a standard,
quantitative, and simple framework comes in.
By enabling frank conversations at all levels
within organizations, the DICE framework
helps people do the right thing by change.
Reprint R0510G
To order, see the next page
or call 800-988-0886 or 617-783-7500
or go to www.hbrreprints.org
harvard business review • october 2005
The Hard Side of Change Management
Further Reading
ARTICLES
Changing the Way We Change
by Richard Pascale, Mark Millemann,
and Linda Gioja
Harvard Business Review
February 2000
Product no. 97609
The authors provide strategies for building
commitment to your change initiative
throughout the organization. The key? Engage people more fully in dealing with business challenges: 1) Instead of rolling out plans
concocted at the top, bring managers at all
levels together to audit your company’s strategy, structure, and systems. Identify and express appreciation for the important contributions they make to your company’s
challenges. 2) Resist any temptation to hand
down solutions to problems. Rather, create a
productive level of stress by setting difficult
goals—while letting managers decide how to
accomplish those objectives. 3) Instill mental
discipline by using after-action reviews to promote learning, frank discussion of performance, and a continuous-improvement
mind-set.
Learning in the Thick of It
by Marilyn Darling, Charles Parry,
and Joseph Moore
Harvard Business Review
July 2005
Product no. R0507G
This article focuses on the importance of frequent progress reviews during implementation of a transformation program. The authors
recommend breaking big projects into
smaller chunks, book-ended by two types of
meetings: 1) Before-action review (BAR). Before embarking on a project phase, ask, “What
are our intended results and metrics? What
challenges do we anticipate? What have we or
others learned from earlier project phases or
similar projects? What will enable us to succeed this time?” 2) After-action review (AAR).
Following each project milestone, review actual results and extract key lessons to apply to
subsequent milestones. Hold project team
members accountable for applying those lessons quickly in the next project phase. Also
tailor your BAR and AAR process to each
project: During periods of intense activity, use
brief daily AARs to help teams coordinate and
improve the next day’s work. At other times,
monthly or quarterly meetings may suffice.
To Order
For Harvard Business Review reprints and
subscriptions, call 800-988-0886 or
617-783-7500. Go to www.hbrreprints.org
For customized and quantity orders of
Harvard Business Review article reprints,
call 617-783-7626, or e-mail
[email protected]
page 47
www.hbr.org
A downturn opens up
rare opportunities to
outmaneuver rivals.
But first you need to put
your own house in order.
Seize Advantage in a
Downturn
by David Rhodes and Daniel Stelter
Reprint R0902C
page 49
A downturn opens up rare opportunities to outmaneuver rivals. But
first you need to put your own house in order.
Seize Advantage in a
Downturn
COPYRIGHT © 2009 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
by David Rhodes and Daniel Stelter
Inaction is the riskiest response to the uncertainties of an economic crisis. But rash or scattershot action can be nearly as damaging. Rising anxiety (how much worse are things likely
to get? how long is this going to last?) and the
growing pressure to do something often produces a variety of uncoordinated moves that
target the wrong problem or overshoot the
right one. A disorganized response can also
generate a sense of panic in an organization.
And that will distract people from seeing
something crucially important: the hidden but
signiﬁcant opportunities nestled among the
bad economic news.
We offer here a rapid but measured approach—simultaneously defensive and offensive—to tackling the challenges posed by a
downturn. Many companies are already engaged in some kind of exercise like this. Certainly every organization with an institutional
pulse has held discussions focusing on what it
should do about the current economic crisis.
We hope this article will help you move from
what may have been ad hoc conversations and
harvard business review • february 2009
initiatives to a carefully thought-out plan.
The merits of a comprehensive and aggressive approach are borne out in research by the
Boston Consulting Group, which indicates that
companies whose early responses to a downturn are tentative (for example, modest belttightening) typically overreact later on (say,
cutting costs more than they ultimately need
to). This results in an expensive recovery for
the company when the economy rebounds.
Our approach has two main objectives, from
which a series of action items devolves. First,
stabilize your business, protecting it from
downside risk and ensuring that it has the liquidity necessary to weather the crisis. Then,
and only then, can you identify ways to capitalize on the downturn in the longer term, partly
by exploiting the mistakes of less savvy rivals.
For some companies, the outcome of this
process will be a program of immediate actions
that represent a turbocharged version of business as usual. For others, it will be a painful realization that nothing short of an urgent corporate turnaround will sufﬁce.
page 51
Seize Advantage in a Downturn
What Is Your Exposure?
David Rhodes (rhodes.david@bcg
.com) is a senior partner and managing
director in the Boston Consulting
Group’s London office and the global
leader of the firm’s financial institutions
practice area. Daniel Stelter (stelter
[email protected]) is a senior partner
and managing director in BCG’s Berlin
office and the global leader of the firm’s
corporate development practice area.
page 52
The ﬁrst step for a company to take in a challenging economic environment—especially
one that could signiﬁcantly worsen—is to assess in a systematic manner its own vulnerabilities, at the company level and by business
unit.
Consider several scenarios. As an economic
crisis evolves, sketch out at least three scenarios—a modest downturn, a more severe recession, and a full-blown depression, as deﬁned
by both duration and severity. Consider which
scenario is most likely to unfold in your industry and your business, based on available data
and analysis. There was evidence from the beginning, for example, that the current global
downturn truly stands apart. Early on, banking losses had outstripped those of recent ﬁnancial disasters, including the United States
savings and loan crisis (1986–1995), the Japanese banking crisis (1990–1999), and the Asian
ﬁnancial crisis (1998–1999). Furthermore, as
the economy ﬁrst began to stall, the underlying problem of consumer and corporate indebtedness—in the United States, it totaled
about 380% of GDP, nearly two and a half
times the level at the beginning of the Great
Depression—pointed to a prolonged period of
economic pain.
Next, determine the ways in which each of
the scenarios might affect your business. How
would consumers’ limited capacity to borrow
reduce demand for your products? Will job insecurity and deﬂating asset prices make even
the creditworthy increasingly reluctant to take
on more debt? Will reduced demand affect
your ability to secure short-term ﬁnancing, or
will weak stock markets make it difﬁcult to
raise equity? Even if you are able to tap the
debt and equity markets, will higher borrowing costs and return requirements raise your
cost of capital?
Quantify the impact on your business. Run
simulations for each of these scenarios that
generate ﬁnancial outcomes on the basis of
major variables, including sales volume,
prices, and variable costs. Be sure to confront
head on what you see as the worst case. For
example, what effect would a 20% decline in
sales volume and a 5% decline in prices have
on your overall ﬁnancial performance? You
may be surprised to ﬁnd out that, even in the
case of a still-healthy company with operating
margins (before interest and taxes) of around
10%, such a decline in volume and prices could
turn current proﬁts into huge losses and send
cash ﬂow deep into the red. Conduct a similar
analysis for each business unit.
Next, quantify how your balance sheet
might be affected under the different scenarios. For example, what will the impact be of
asset price deﬂation? To what extent might
lower cash ﬂows and the higher cost of capital
affect goodwill and require write-offs on past
acquisitions? Will falling commodity prices
cushion some of the detrimental effects?
Assess rivals’ vulnerabilities. Of course, none
of this process should be carried out in a vacuum. Your industry and the locations of your
operations around the world will help determine how your business will be affected. It’s
critical to understand your own strengths and
weaknesses relative to those of your competitors. They will have different cost structures,
ﬁnancial positions, sourcing strategies, product mixes, customer focuses, and so on. To
emerge from the downturn in a lead position,
you must calibrate the actions you plan to take
in light of the actions that your competitors
will most likely take. For example, assess potential acquisitions with a focus on vulnerable
customer groups of weaker competitors.
This assessment of different scenarios and
their effects on your company and its rivals,
while just a ﬁrst step, will help you identify
particular areas where you’re vulnerable and
where action is most immediately needed. This
analysis will also help you to communicate to
the entire organization the justiﬁcation and
the motivation for actions you’ll need to take
in response to the crisis.
How Can You Reduce Your
Exposure?
Once you understand how your business could
be affected, you need to ﬁgure out the best
way to survive and maximize your company’s
performance during the downturn. This requires achieving several broad objectives.
Protect the ﬁnancial fundamentals. The aim
here is to ensure that your company has adequate cash ﬂow and access to capital. Not only
does a lack of liquidity create immediate problems but it also is critically important to your
ability to make smart investments in the future of the business.
Consequently, you need to monitor and maximize your cash position, by using a disciplined
harvard business review • february 2009
Seize Advantage in a Downturn
cash management system, by reducing or postponing spending, and by focusing on cash inﬂow. Produce a rolling report on your cash position (either weekly or monthly, depending on
the volatility of your business) that details expected near-term payments and receipts. Also
estimate how your cash position is likely to
evolve in the midterm, calculating expected
cash inﬂows and outﬂows. You may need to establish a centralized cash management system
that provides companywide data and enables
pooling of cash across business units.
How much spending you postpone depends
on your assumptions about the severity of the
downturn and to what degree such spending is
discretionary. But you’ll want to be just as aggressive in looking for ways to improve cash
ﬂow—if you were facing a worst-case-scenario
liquidity crisis, for example, just how much
cash would you be able to raise during the next
quarter?
One way to improve cash ﬂow is to more aggressively manage customer credit risk. Trade
credit—ﬁnancing your customers’ purchases
by letting them pay over time—should be reduced where possible. Given the economic environment, buyers will seek credit more frequently and your risk will increase. You’ll need
to segment your customers by assigning them
each a credit rating. Avoid granting trade credit
to higher-risk customers or to those whose
business is less strategically important to you.
Also, assess the trade-off between credit risks
and the revenue potential of a marginal sale.
This will require cooperation between people
in sales and customer ﬁnance, as well as a
review of those employees’ incentives to make
sure they’re aligned with revised strategic goals
for the downturn.
Another way to free up cash is to look for opportunities to reduce working capital. A surprisingly large number of companies are unaware
of the beneﬁts of aggressively managing their
working capital—the difference between a
company’s current assets and liabilities—and
thus make little effort to even monitor it. As a
rule of thumb, most manufacturing companies
can free up cash equivalent to approximately
10% of sales by optimizing their working capital. This involves reducing current assets, such
as inventories (through more careful management of both production and sourcing processes) and receivables (through, in part, the
active management of trade credit).
harvard business review • february 2009
As you scrutinize your customers’ debt
proﬁles, you should review your own as well,
in order to optimize your ﬁnancial structure
and ﬁnancing options. The heyday of leverage, with constant pressure from the market
to operate with relatively low levels of equity, is clearly over for now. You should be
looking for ways to strengthen your balance
sheet, reducing debt and other liabilities,
such as operating leases or pension obligations, with the dual aim of reducing your ﬁnancial risk and enhancing your risk proﬁle
in the eyes of investors.
Be sure, as well, to secure ﬁnancing—for example, draw on lines of credit as soon as possible to provide liquidity for day-to-day operations, holding onto any excess cash to avoid
reﬁnancing problems in the future. Meeting
such needs may require some creativity in a
tight credit market. For example, some companies, in renewing revolving credit facilities
with banks, have agreed to forgo ﬁxed interest
rates on the funds they draw down under the
facility. Instead, borrowers have agreed to link
the rate to the trading price of their so-called
credit default swaps. These ﬁnancial instruments, which represent a form of insurance
against a borrower defaulting, reﬂect the market’s perception of a company’s creditworthiness. By agreeing to initially high and variable
interest rates for a line of credit, borrowing
companies can secure access to funds at a
time when skittish banks are reluctant to
lend. To secure equity capital, companies
need to look beyond the market to sources
such as sovereign wealth funds, private equity
ﬁrms, or cash-rich investors.
Protect the existing business. After ensuring
that the company is on a ﬁrm ﬁnancial footing, turn to protecting the viability of the business. You must be prepared to act quickly and
decisively to improve core operations.
Begin with aggressive moves to reduce costs
and increase efﬁciency. Although cost-cutting is
the ﬁrst thing most companies think about,
their actions are often tentative and conservative. You need to work rapidly to implement
measures, using the turbulent economic environment to catalyze action that is long overdue—or to revive earlier initiatives that proved
too controversial to fully implement in good
times. Keep in mind, though, that while speed
is important so is a well-reasoned plan: You
don’t want to make cuts that in the long term
Idea in Brief
• Many companies fail to see the
opportunities hidden in economic
downturns.
• To take advantage of opportunities,
you ﬁrst need to do a thorough but
rapid assessment of your own vulnerabilities and then move decisively to minimize them.
• This will position you to seize future sources of competitive advantage, whether from bold investments in product development or
transformative acquisitions.
page 53
Seize Advantage in a Downturn
will hurt more than they help by, for example,
putting important future business opportunities at risk.
Some means of streamlining the organization and lowering break-even points are obvious: stripping out layers of the organizational
hierarchy to reduce head count, consolidating
or centralizing key functions, discontinuing
long-standing but low-value-added activities.
SG&A expenses—selling, general, and administrative costs, such as marketing—are also
prime targets for cost-cutting. As such, they can
highlight the risks of purely reactive action:
Companies that injudiciously slash marketing
spending often ﬁnd that they later must spend
far more than they saved in order to recover
from their prolonged absence from the media
landscape.
Opportunities to reduce materials and supply chain costs also arise in a downturn. Now is
the time to pursue a comprehensive review of
your current suppliers and procurement practices, which undoubtedly will prompt new initiatives—the adoption of a demand management system, say, or the standardization of
components. In particular, consider how the
downturn affects the economic equation of
offshore manufacturing. Falling shipping costs
Idea in Practice
Before trying to capitalize on the opportunities presented by a recession, you must assess and minimize your ﬁrm’s vulnerabilities.
The authors suggest setting up a recession checklist.
Financial Fundamentals
Share Price
Aggressively manage the top line
Liquidity is the key to surviving and thriving
in tough times, when both cash to meet current obligations and capital for investing in
the future are scarce. So you need to…
A strong market valuation relative to rivals is
important in raising capital and acting on acquisition opportunities. So you need to…
• Revitalize customer retention initiatives
Monitor and maximize your cash position
• Inform investors and analysts of your
recession preparedness
• Calculate expected cash inﬂows and
outﬂows
• Consider opting for dividend payments
rather than share buybacks
• Produce a rolling weekly or monthly
cash report
• Centralize or pool cash across units
Tightly manage customer credit
• Segment customers based on their
credit risk
Current Business
• Reallocate marketing spending toward
immediate revenue generation
• Consider more-generous ﬁnancial terms
for customers in return for higher prices
Loosely run operations, sluggish unit sales,
and an overextended enterprise leave you
vulnerable to economic shocks. So you
need to…
Rethink your product mix and pricing
strategies
Reduce costs and increase efﬁciency
• Identify products for which customers
are still willing to pay full price
• Offer ﬁnancing only to credit-worthy
or strategic customers
• Root out long-standing activities that
add little business value
• Assess trade-offs between credit risks
and marginal sales
• Revive earlier efﬁciency initiatives too
controversial to fully implement in
better times
Aggressively manage working capital
• Realign sales force utilization and incentives to generate additional short-term
revenue
• Offer lower-price versions of existing
products
• Consider creative strategies such as
results-based or subscription pricing
• Unbundle services and adopt à la carte
pricing
• Consolidate or centralize key functions
Rein in planned investments and sell assets
• Analyze current suppliers and procurement practices
• Establish stringent capital allocation
guidelines
• Reexamine the economics of offshoring
Optimize your ﬁnancial structure
• Shed unproductive assets that were
difﬁcult to dispose of in good times
• Reduce debt and other liabilities
• Divest noncore businesses
• Reduce inventories by monitoring
production and sourcing
• Reduce receivables by actively
managing customer credit
• Secure access to lines of credit
• Secure access to equity capital by tapping
nonmarket sources such as sovereign
wealth funds
page 54
harvard business review • february 2009
Seize Advantage in a Downturn
could make offshoring more attractive, even
for low-cost items; at the same time, a weakening domestic currency, trade barriers, and especially the cash tied up in the additional working capital required to source a product far
from its market may offset any savings.
While looking for opportunities to reduce
spending, you’ll also want to aggressively manage the top line, cash being crucially important
in a recession. Actively work both to protect
existing revenue and identify ways to generate
additional revenue from your current business.
Customer retention initiatives become more
valuable than ever. Consider tactical changes
in sales force utilization and incentives. Reallocate marketing spending to bolster immediate
revenue generation rather than longer-term
brand building. While granting trade credit
sparingly, also consider the possible beneﬁts of
offering customers more-generous ﬁnancial
terms while charging them higher prices—provided you’ve done your homework on your
own ﬁnancial structure.
As these initiatives suggest, you’ll want to rethink your product mix and pricing strategies in
response to shifting customer needs. Purchasing behavior changes dramatically in a recession. Consumers increasingly opt for lowerpriced alternatives to their usual purchases,
trading down to buy private label products or
to shop at discount retailers. Although some
consumers will continue to trade up, they’ll do
so in smaller numbers and in fewer categories.
Consumer products companies should consider offering low-priced versions of popular
products—think of the McDonald’s Dollar
Menu in the United States or Danone’s EcoPack yogurt in France. Whatever your business, determine how the needs, preferences,
and spending patterns of your customers,
whether consumer or corporate, are affected
by the economic climate. For example, careful
segmentation may reveal products primarily
purchased by people still willing to pay full
price. Use that intelligence to inform product
portfolio and investment choices.
Innovative pricing strategies may also alleviate downward pressure on revenue. These include: results-based pricing, a concept pioneered by consulting ﬁrms that links payment
to measurable customer beneﬁts resulting
from use of a product or service; changes in
the pricing basis that would allow a customer
to, for example, rent equipment by the hour
harvard business review • february 2009
rather than by the day; subscription pricing, by
which a customer purchases use of a product—say, a machine tool—rather than the
product itself; and the unbundling of a service
so that customers pay separately for different
elements of what was previously an all-in-one
package, as airlines have done with checked
baggage and in-ﬂight meals and entertainment. Offering consumers new and creative
customer ﬁnancing packages could tip the balance in favor of a sale. It was during the Great
Depression, after all, that GE developed its innovative strategy of ﬁnancing customers’ refrigerator purchases.
You should deﬁnitely rein in your investment
program. Most developed economies had excess capacity even before the downturn: Capacity utilization in the United States, for example, fell below 80% of potential output
beginning in April 2008. In the current economy, there is even less need, in most industries,
to invest in further capacity. You need to establish stringent capital allocation guidelines
aligned with the current economic climate, if
you haven’t already. This may also be the time
to shed unproductive assets, including manufacturing plants that have previously been difﬁcult to shut down, selling them where possible to generate cash for the business.
Finally, take this opportunity to divest noncore businesses, selling off peripheral or poorly
performing operations. Don’t wait for better
times, in the hope of getting a price that
matches those of recent years, when the economy was buoyant and credit was plentiful.
Those conditions aren’t likely to return anytime soon, and if the business isn’t critical to
your activities and increases your vulnerability
to the downturn, divest it now.
Research by our ﬁrm shows a strongly positive market reaction to the right divestitures in
recessionary times. And shedding noncore operations ideally will end up energizing your
core business. In 2003, in the middle of a particularly acute economic downturn in Germany, MG Technologies, a €6.4 billion engineering and chemicals company, decided to
focus on its specialty mechanical engineering
business. It sold its noncore chemical and plant
engineering businesses and emerged as the renamed GEA Group, a slimmed down but successful specialty process engineering and
equipment company, better positioned to pursue growth opportunities in its core areas.
Companies that
injudiciously slash
marketing spending
often find that they later
must spend far more
than they saved in order
to recover.
page 55
Seize Advantage in a Downturn
You’ll have to ride out the
recession carrying the
baggage of any company
you acquire, so due
diligence takes on even
more importance.
Maximize your valuation relative to rivals.
Your company’s share price, like that of most
ﬁrms, will take a beating during a downturn.
While you may not be able to prevent it from
dropping in absolute terms, you want it to remain strong compared with others in your industry. Much of what you’ve done to protect
the ﬁnancial fundamentals of your business
will serve you well. In a downturn, our data
shows that markets typically reward a strong
balance sheet with low debt levels and secured
access to capital. Instead of being punished by
activist investors and becoming a takeover target for hedge funds, a company sitting on a
pile of cash is viewed positively by investors as
a stable investment with lower perceived risk.
For that to happen, you need to create a compelling investor communications strategy that
highlights such drivers of relative valuation.
This will also be important as you try to capitalize on the competitive opportunities that a
recession offers, such as seeking attractive
mergers and acquisitions.
You can further enhance your relative value if
you reassess your dividend policy and share buyback plans. A Boston Consulting Group study of
U.S. public companies found that, on average,
investors favor dividends because they represent a much stronger ﬁnancial commitment to
investors than buybacks, which can be stopped
at any time without serious consequences. On
average, sustained dividend increases of 25% or
more overwhelmingly resulted in higher relative valuation multiples in the two quarters following their announcement. By contrast, buybacks had almost no impact on the relative
valuation multiple in the two quarters following
the transaction. For example, TJX Companies, a
U.S. discount retailer, announced a dividend increase of 33% in June 2002, when the country
was in a recession—and then enjoyed a price-toearnings multiple 42% higher than the average
of S&P 500 companies over the two quarters
following the announcement. These are exceptional times, though, and we recommend that
companies analyze their particular situation as
well as investor preferences before taking a speciﬁc measure.
How Can You Gain Long-Term
Advantage?
The best companies do more than survive a
downturn. They position themselves to thrive
during the subsequent upturn, guided again
page 56
by a number of broad objectives.
Invest for the future. Investments made today
in areas such as product development and information or production technology will, in
many cases, bear fruit only after the recession
is past. Waiting to move forward with such investments may compromise your ability to
capitalize on opportunities when the economy rebounds. And the cost of these investments will be lower now, as competition for
resources slackens.
Given current ﬁnancial constraints, you
won’t be able to do everything, of course, or
even most things. But that shouldn’t keep you
from making some big bets. Prioritize the different options, protecting investments likely to
have a major impact on the long-term health
of the company, delaying ones with less-certain
positive outcomes, and ditching those projects
that would be nice to have but aren’t crucial to
future success.
Sanoﬁ-Synthélabo, the French pharmaceutical company, entered the economic recession
that began in 2001 with a solid product portfolio. Throughout the downturn, the company
maintained, and in some cases increased, its
R&D spending in order to keep its product
pipeline robust. Sanoﬁ increased its absolute
R&D expenditure from €950 million in 2000
to €1.3 billion in 2003. Because of its strong
business and ﬁnancial performance, the company gained market share and outperformed
peers in the stock market. The company was
thus well positioned to acquire Aventis, a
much larger Franco-German pharmaceutical
company, after a takeover battle, in the economic upswing of 2004.
Or look at Apple Computer. The company
wasn’t in particularly good shape as it headed
into the 2001–2003 recession. For one thing,
revenue fell 33% in 2001 over the previous
year. Nonetheless, Apple increased its R&D expenditures by 13% in 2001—to roughly 8% of
sales from less than 5% in 2000—and maintained that level in the following two years.
The result: Apple introduced the iTunes music
store and software in 2003 and the iPod Mini
and the iPod Photo in 2004, setting off a period of rapid growth for the company.
A downturn is also a good time to invest in
people—for example, to upgrade the quality of
your management teams. Competition for top
people will be less ﬁerce, availability higher,
and the cost correspondingly lower.
harvard business review • february 2009
Seize Advantage in a Downturn
Pursue opportunistic and transformative
M&A. The recession will change several of the
long-standing rules of the game in many industries. Exploit your competitors’ vulnerabilities to redeﬁne your industry through consolidation. History shows that the best deals are
made in downturns. According to research by
our ﬁrm, downturn mergers generate about
15% more value, as measured by total shareholder return, than boom-time mergers,
which on average exhibit negative TSR.
To capitalize on opportunities, closely monitor the ﬁnancial and operational health of
your competitors. Companies lacking the ﬁnancial cushion to beneﬁt from the recession—or even to stay aﬂoat—may even welcome your advances.
In late 2001, only weeks after the 9/11 terrorist attacks had brought vacation travel to a
near standstill, Carnival, the world’s largest
cruise ship operator, interceded in the planned
friendly merger of Royal Caribbean and P&O
Princess Cruises, then the second and third
largest cruise operations respectively. Its own
bid to acquire P&O Princess required persistence—it was 15 months before P&O Princess
shareholders ﬁnally accepted Carnival’s offer—
but the deal turned out to be a smart strategic
move for the company, whose total shareholder returns far surpassed those of the S&P
500 in the years following the announcement
and then the completion of the acquisition.
Of course, you’ll have to ride out the recession carrying the baggage of any company you
acquire, so due diligence—particularly concerning a potential target’s current and future
cash positions—takes on even more importance during a downturn. This knowledge will
help you to limit the particular risks arising
from an acquisition made during a recession,
as well as to convince your management teams
and supervisory boards that a bold move during a period of caution makes sense.
Rethink your business models. Downturns
can be a time of wrenching transformation for
companies and industries. The economics of
the business may change because of increased
competition, changing input costs, government intervention, or new trade policies. New
competitors and business models may emerge
as companies seek to increase revenue
through expansion into adjacent product categories or horizontal integration. Successful
companies will anticipate these changes to the
industry landscape and adapt their business
models ahead of the competition to protect
the existing business and to gain advantage.
Consider IBM. During the U.S. recession of
the early 1990s, the company under Lou Gerstner faced its ﬁrst decline in revenue since 1940
and endured successive years of record losses.
In this context, it began to rethink its business
model. Struggling with sluggish economic
growth, particularly in Europe and Japan, as
Avoiding the Snags of Implementation
One key to the success of downturn-related
initiatives is rapid implementation. A formal
crisis management team to oversee your
company’s response to the recession can help
the organization avoid these typical sources
of failure.
harvard business review • february 2009
Insufﬁcient understanding and appreciation of the evolving crisis. The crisis management team can help create and maintain a
sense of urgency within the organization, in
part by creating a transparent, consistent, and
fact-based process for carrying out the necessary initiatives. The team should also continually monitor the economic situation and, if
needed, move from, say, a modest downturn
scenario to a worst-case action plan.
Senior leaders’ lack of preparation and
commitment. By promoting a close working
relationship with the sponsor of the company’s recession response (often the CEO), the
team can keep the company’s senior executives informed of progress and direct them to
where their participation is needed.
Failure to see how individual initiatives
are part of a comprehensive plan. By establishing the priority and timing of initiatives,
the team can help ensure that the individual
measures reinforce one another. The team
should continually evaluate initiatives both individually and collectively, with the aim of suspending, accelerating, or combining existing
efforts—or initiating new ones.
Lack of attention to the human element.
To earn employees’ commitment to the initiatives, the team must articulate the threats facing the organization, explain why change is
needed and what it will entail, and clearly
communicate to individuals how they will be
affected.
page 57
Seize Advantage in a Downturn
well as increased price competition, IBM was
forced to confront head on the inevitable decline of its traditional business, mainframe
computers. Realizing that the company’s markets were shifting, Gerstner redeﬁned the company’s business model, transforming IBM from
a hardware producer into a computer services
and solutions provider.
Where Do You Take Action?
The process we have laid out should yield a list
of promising initiatives—undoubtedly more
of them than you’ll have the capacity to
launch and manage all at once. So you’ll need
to prioritize, carefully assessing each initiative
based on several criteria—most notably, urgency, overall ﬁnancial impact, barriers to implementation, and risks that the initiative
might pose for the business. The result will be
a portfolio of actions with the right blend of
short-term and long-term focus.
Who is going to carry out the recession
plan? We recommend that you form a dedicated crisis management team to manage
your organization’s response to the recession.
page 58
The team will develop different economic scenarios and determine how they might affect
the business; identify recession-related risks
and opportunities; and prioritize initiatives
designed to mitigate the risks and capitalize
on the opportunities. It will then oversee implementation of the initiatives, monitoring
their progress and continually reevaluating
them in the light of changes in the economic
landscape. (For a summary of how the crisis
management team can help ensure a recession plan’s success, see the sidebar “Avoiding
the Snags of Implementation.”)
Companies adopting the comprehensive approach we have laid out will be not only better
placed to weather the current storm but also
primed to seize the opportunities emerging
from the turbulence and to get a head start on
the competition as the dark clouds begin to
disperse.
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harvard business review • february 2009
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MANAGING YOURSELF
Your company has a plan to
survive hard times. Do you?
How to Protect Your
Job in a Recession
by Janet Banks and Diane Coutu
•
Included with this full-text Harvard Business Review article:
63 Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
65 How to Protect Your Job in a Recession
69 Further Reading
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
Reprint R0809J
page 61
MANAGING YOURSELF
How to Protect Your Job in a Recession
The Idea in Brief
The Idea in Practice
Your company has a strategy for surviving
hard times. But do you? In a troubled economy, layoffs can hit with frightening regularity. Sure, these decisions may be beyond
your control. Yet you can take steps to protect your job, say Banks and Coutu.
Banks and Coutu recommend three strategies for recession-proofing your job.
COPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
Three practices can help you minimize the
chances of becoming a casualty: 1) Act like
a survivor by demonstrating confidence
and staying focused on the future. 2) Give
your boss hope by empathizing with him or
her and inspiring your team to pull together.
3) Become a corporate citizen by taking
part in meetings, outings, and new projects
designed to support a reorganization.
ACT LIKE A SURVIVOR
If you want to be a layoff survivor, it helps to
act like one:
• Demonstrate confidence and cheerfulness. When people need help getting jobs
done, they’ll choose a congenial colleague
over an unlikeable one. No one wants to be
in the trenches with someone who’s always
gloomy.
• Keep your eye on the future. There’s no
better way to look forward than to sharpen
your focus on customers. Without them, no
one will have a job in the future. Make anticipating customers’ needs your top priority. And show how your work is relevant to
meeting those needs.
• Wear multiple hats. To keep expenses in
check, look for opportunities to play more
than one role and leverage your diverse
experiences. For instance, a marketing
manager who had previously taught
school volunteered to take on sales training
responsibilities.
team of volunteers who created a live radio
show that engaged even cynical employees. It included a soap opera that kept staff
laughing and waiting for the next episode.
And it gave executives a platform to share
key information, such as the company’s
performance and structural changes.
Morale improved, and Isaac eventually became head of management and leadership
development.
BECOME A CORPORATE CITIZEN
Eighty percent of success is showing up. To
become a corporate citizen:
• Attend all voluntary and informal meetings
and corporate outings.
• Get out of your office and walk the floor to
see how people are doing.
• Get on board with new initiatives; for example, by volunteering to lead a newly formed
team crucial to your company’s recovery
strategy.
GIVE YOUR BOSS HOPE
The better your relationship with your
manager, the less likely it is that you’ll be cut.
Strengthen that bond through these practices:
• Empathize. Most leaders find layoffs agonizing. By empathizing with your manager,
you deepen your bond. You also demonstrate a maturity that’s invaluable—because
it models good behavior for others.
• Unite and inspire your colleagues. This
ability can prove crucial during the worst
of times.
Example:
At an international financial services
company that had endured a 20% staff reduction, morale had plummeted. Isaac, a
learning and development VP, assembled a
page 63
Your company has a plan to survive hard times. Do you?
MANAGING YOURSELF
How to Protect Your
Job in a Recession
COPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
by Janet Banks and Diane Coutu
In a troubled economy, job eliminations and
hiring freezes seem almost routine, but when
your own company’s woes start to make headlines, it all hits home. Intellectually, you understand that downsizing isn’t personal; it’s
just a law of commerce, but your heart sinks at
the prospect of losing your position. While
you know that passivity is a mistake, it’s hard
to be proactive when your boss’s door is always closed, new projects are put on hold, and
your direct reports look to you for reassurance. Don’t panic. Even though layoff decisions may be beyond your control, there’s
plenty you can do.
That’s what we’ve observed in numerous
layoffs over the years and in research on how
people respond to stressful work conditions.
(Author Janet Banks oversaw a dozen downsizings as a vice president in human resources
at Chase Manhattan Bank and a managing director at FleetBoston Financial. Author Diane
Coutu studied resilience during her time as an
afﬁliate scholar at the Boston Psychoanalytic
Society and Institute.) We’ve seen that while
harvard business review • september 2008
luck plays an important role, survival is most
often the result of staring reality in the face
and making concrete plans to shape the future. Machiavellian as it may seem, holding
on to your job when the economy softens is a
matter of cool strategic planning. In our experience, however, even the savviest executives
are ill-prepared to deal with job threats.
Here’s what you can do to keep your career
moving and minimize the chances that you’ll
become a casualty.
Act Like a Survivor
A popular partner in the Brussels ofﬁce of
McKinsey & Company mentored hosts of
junior consultants. When asked for advice on
getting ahead, he always gave the same reply:
“If you want to be a partner, start acting like
one.” The corollary of this advice is even more
important: During a recession, you have to
start acting like a survivor if you hope to
escape the ax.
Studying the thinking of survivors reveals a
surprising paradox. Though creating a plan to
page 65
M ANAGING Y OURSELF •• •How to Protect Your Job in a Recession
Janet Banks (janet.e.banks@gmail
.com) is a former managing director at
FleetBoston Financial and a former vice
president at Chase Manhattan Bank, responsible for leadership development
and succession planning. She’s been an
executive coach, an organizational
consultant, and an executive search
consultant. She lives in Boston and
continues small group facilitation work
for nonprofits. Diane Coutu (dcoutu@
harvardbusiness.org) was a communications specialist at McKinsey & Company and an affiliate scholar and Julius
Silberger Fellow at the Boston Psychoanalytic Society and Institute. She is
currently a senior editor at HBR and a
2008–09 fellow at the American Psychiatric Institute.
page 66
weather layoffs requires an almost pessimistic
realism, the best thing you can do in a recession is lighten up. Keep your eye ﬁrmly on the
eight ball, but act conﬁdent and cheerful. Research shows that being fun to be around really matters. Work by Tiziana Casciaro and
Miguel Sousa Lobo, published in a June 2005
HBR article, “Competent Jerks, Lovable Fools,
and the Formation of Social Networks,” shows
that while everyone prefers working with a
personable superstar to an incompetent jerk,
when people need help getting a job done,
they’ll choose a congenial colleague over one
who is more capable but less lovable. We’re not
suggesting that you morph into Jerry Seinfeld;
being congenial and fun isn’t about bringing
down the house. Just don’t be the guy who’s always in a bad mood, reminding colleagues
how vulnerable everyone is. Who wants to be
in the trenches with him?
Of course, putting on a good face can be psychologically exhausting when rumors of downsizing spread. Change always stirs up fears of
the unknown. Will you land another job? How
will you pay the mortgage? Can you ﬁnd affordable health insurance? Those are all valid
concerns, but if you stay positive, you’ll have
more inﬂuence on how things play out.
Survivors are also forward looking. Studies
of concentration camp victims show that people made it through by imagining a future for
themselves. The power of focusing on the
times ahead is evident even among people suffering the blows of everyday life. As Freud
wrote in “Mourning and Melancholia,” a critical difference between ordinary grief and
acute depression is that mourners can successfully anticipate a life where there will once
again be joy and meaning.
In your job, there’s no better way to look
forward than to stay focused on customers,
for without them no one will have a job in the
future. Anticipating the needs of your customers, both external and internal, should be
your top priority. Prove your value to the ﬁrm
by showing your relevance to the work at
hand, which may have shifted since the economy softened. Your job is less likely to be
eliminated if customers ﬁnd that your contribution is indispensable.
Being ambidextrous will increase your
chances of survival as well. In one company
we know of, senior staff members were often
expected to play more than one role to keep
expenses in check. When the organization’s
new chief operating ofﬁcer decided he needed
a chief of staff, he chose a person who continued to manage a human resources team,
thereby eliminating the need for additional
head count. Reorganizations and consolidations involve great change, so they demand
versatile executives. If you’re not already
wearing multiple hats, start imagining how
you can support your company by leveraging
experience your boss may know nothing
about. A marketing manager who taught
school before moving into industry might
volunteer to take on sales and service training
responsibilities, for example. A recession can
offer you plenty of opportunities to display
your capabilities. Layoffs typically occur at
all levels of an organization and can create
vacuums above and below you.
Finally, survivors are willing to swallow a
little pride. Take the case of Anne, a manager
at a large New England insurance company.
(We’ve changed her name, as well as those of
the other individuals cited in this article.)
During a reorganization, Anne found herself
vying for a position with a colleague who had
far less industry experience than she did.
When she learned that she and her department would be folded under this colleague’s
department, Anne realized that she had one
choice if she wanted to keep her job—use her
signiﬁcant inﬂuence to support her new manager. So she publicly threw herself behind the
colleague. In turn, he gave her the respect
and the loyalty she felt she deserved. Anne’s
attitude demonstrated commitment to the
company—something that was noticed by the
management. A year later Anne got new responsibilities that led to a prestigious board
appointment.
Give Your Leaders Hope
It’s important to recognize that times of uncertainty are also tough for leaders. They
don’t enjoy having to lay off their people;
most ﬁnd that task agonizing. It can be stressful and time-consuming for them to sort
through the various change mandates they’ve
been given and then decide what to do. Obviously, this isn’t the time to push for a promotion or to argue for a new job title. Instead,
try to help the leader defend your department. If the boss is working on a restructuring
plan and asks for ideas, offer some realistic
harvard business review • september 2008
How to Protect Your Job in a Recession •• •M ANAGING Y OURSELF
solutions. Don’t ﬁght change; energize your
colleagues around it.
It may sound like what Karl Marx called
false consciousness—thinking that disempowers you because it is not in your best interest—
to empathize with your boss when he or she
is considering cutting your job. However,
there’s science to support the idea that showing empathy for people more powerful than
you can be worthwhile. For example, recent
mother-infant research shows that the
more an infant smiles and interacts with the
environment, the more active the caretaker
becomes in the infant’s development and survival. Although the mother-infant research
has not, to our knowledge, been replicated in
the workplace, psychologists have shown that
so-called attachment behavior—emotional
bonding—can be learned, just as emotional
intelligence skills can be honed. That’s good
news. The better your relationship with your
manager, the less likely you are to be cut, all
things being equal. Your ability to empathize
can demonstrate a maturity that is invaluable
to the company, not least because it models
good behavior for others.
The ability to unite and inspire colleagues
goes a long way in the best of times; in the
worst it’s crucial. This was true at an international ﬁnancial services company that had endured a staff reduction of 20%. In the face of
low morale, the head of human resources
asked Isaac, a learning and development VP,
to help revive people’s spirits, improve communications, and stir up some fun. Isaac
quickly pulled together a small team of volunteers and created a live radio show that engaged even the most cynical members of the
organization. It included a soap opera that
kept staff at all levels laughing and waiting
for the next episode. The show gave executives a unique platform to share information
such as quarterly ﬁnancial results and
changes in the organization’s structure. It did
so much to improve morale that as a result
Isaac landed the job he wanted—head of
management and leadership development for
the company.
Become a Corporate Citizen
Remember Woody Allen’s remark that 80% of
success is showing up? That is especially useful
advice in a downturn. Start going to all those
voluntary and informal meetings you used to
harvard business review • september 2008
skip. Be visible. Get out of your ofﬁce and walk
the ﬂoor to see how folks are doing. Take part
in company outings; if the ﬁrm is gathering for
the annual golf tournament and you can’t tell
a wood from an iron, then go along just for
fun. In tough times, leaders look for employees who are enthusiastic participants. It’s not
the score that counts.
Corporate citizens are quick to get on
board. Consider Linda, a VP in operations,
who worked in a large company that needed
to cut costs. Management came up with the
idea of shared service centers to avoid duplication of effort in staff functions in areas such
as compensation, management training, and
strategic planning. The decision was universally unpopular. Service center jobs had none
of the cachet of working in small business
units, where customized solutions could be
developed. Headquarters staff objected to losing the elite status they’d enjoyed as corporate experts. When service center jobs were
posted, many high-proﬁle people refused to
put their names forward, misjudging their
own importance and hoping management
would relent. But Linda saw the opportunity
and applied for a service center job. The new
Preparing for the Worst:
You May Still Need a Plan B
Following the best advice is no guarantee that you won’t get laid off. That’s
why you need a plan for handling a
job loss.
The ﬁrst key to moving on successfully
is self-awareness. You’ll have better luck
ﬁnding a new job if you know what
you’re good at and what you’d really like
to do, so it’s wise to invest mental energy
now in ﬁguring those things out. If you
have results from a Myers-Briggs test or a
360-degree assessment, revisit them to
understand your strengths and weaknesses. Read self-help books to inspire
your thinking, or perhaps even hire an executive coach. (Just make sure to get references and agree on fees before you
start with any coach.)
Don’t wait till you get laid off to update
your résumé. Revise it now, so that you’ll
have it ready when you start approaching
headhunters, former bosses and colleagues, and industry contacts for job referrals and advice. It’s a good idea to
begin networking with those folks now,
in fact, but don’t stop there. Reach out to
the neighbor who’s the CFO of a successful company, and dig out the old business
cards from your drawer and add those
names to the list of those you’ll call.
Finally, think creatively about your future. Perhaps you want to go back to
school, start your own business, join a
smaller ﬁrm, or become a minister. That
may require some downsizing of your
own, but as Ellen, a consultant, told us:
“Now that the kids are grown, my husband looks at the house and says it’s too
big for the two of us. I’m willing to scale
back. Both of us want to do different
things.” Who knows, maybe plan B will
actually be more attractive than plan A.
page 67
M ANAGING Y OURSELF •• •How to Protect Your Job in a Recession
Many who resisted
change found themselves
without a chair when the
music stopped.
page 68
position gave her immense visibility and was
an immediate promotion. Meanwhile, many
of the resisters found themselves standing
without a chair when the music stopped. In
contrast, Linda kept her career on track; six
years later she reported directly to the president of the company.
Of course, changing your behavior or personality to survive may rub against your need
for authenticity, and you may decide that it’s
time to move on. In that case, you can be
both true to yourself and the ultimate corporate citizen by volunteering to leave the organization. Despite what the policy may be,
companies will cut deals. Deals are even welcomed. It’s much less painful for managers if
they can help someone out the door who
wants to leave rather than give bad news to
someone who depends on the job. If you’re a
couple of years away from retirement eligibility and want to go, ask the company if it
would be willing to bridge the time. Float a
few balloons, but don’t get greedy. Keep in
mind that even if you choose to go, you may
need to get another job and you’ll want good
references and referrals. If you’ve exited
gracefully, odds are, your boss and others will
do whatever they can to help you land on
your feet.
•••
Many forces are beyond your control in a recession, but if you direct your energy toward
developing a strategy, you’ll have a better
chance of riding out the storm. You have to be
extremely competent to make it through, but
your attitude, your willingness to help the
boss get the job done, and your contribution
as a corporate citizen have a big impact on
whether you are asked to stick around. The
economy will bounce back; your job is to make
sure that you do, too.
Reprint R0809J
To order, see the next page
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or go to www.hbr.org
harvard business review • september 2008
MANAGING YOURSELF
How to Protect Your Job in a Recession
Further Reading
ARTICLES
How Resilience Works
by Diane L. Coutu
Harvard Business Review
September 2002
Product no. 1709
To Order
Why do some people bounce back from life’s
hardships while others despair? HBR senior
editor Diane Coutu looks at the nature of individual and organizational resilience, issues
that have gained special urgency in light of
the recent terrorist attacks, war, and recession.
In the business arena, resilience has found its
way onto the list of qualities sought in employees. As one of Coutu’s interviewees puts
it, “More than education, more than experience, more than training, a person’s level of resilience will determine who succeeds and
who fails.” Theories abound about what produces resilience, but three fundamental characteristics seem to set resilient people and
companies apart from others. The first characteristic is the capacity to accept and face
down reality. In looking hard at reality, we
prepare ourselves to act in ways that allow us
to endure and survive hardships. Second, resilient people and organizations possess an
ability to find meaning in some aspects of life.
And values are just as important as meaning;
value systems at resilient companies change
very little over the long haul and are used as
scaffolding in times of trouble. The third building block of resilience is the ability to improvise. Within an arena of personal capabilities
or company rules, the ability to solve problems without the usual or obvious tools is a
great strength.
Moving Upward in a Downturn
by Darrell K. Rigby
Harvard Business Review
June 2001
Product no. R0106F
Drawing on extensive research of Fortune 500
companies that have lived through industry
downturns and economic recessions over the
past two decades, Darrell Rigby, a director of
Bain & Company, reveals how companies
need to go against the grain of convention
and exploit industry downturns to harness
their unique opportunities for upward mobility. The author explains that every downturn
goes through three phases, examining each
phase and showing how successful players
navigate the huge waves of a downturn.
Smart executives, he says, don’t panic: they
look bad news in the eye and institutionalize
an approach to detecting storms. Rather than
hedge their bets through diversification, they
focus on their core businesses and spend to
gain market share. They manage costs relentlessly during good times and bad. They keep a
long-term view and strive to maintain the
loyalty of employees, suppliers, and customers. And coming out of the downturn, they
maintain momentum in their businesses to
stay ahead of the competition they’ve already
surpassed. Every industry will face periodic
downturns of varying severity, says Rigby. But
executives with the vision and ingenuity to
take unconventional approaches can buoy
their companies to new heights.
For Harvard Business Review reprints and
subscriptions, call 800-988-0886 or
617-783-7500. Go to www.hbr.org
For customized and quantity orders of
Harvard Business Review article reprints,
call 617-783-7626, or e-mail
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page 69
PLEASE ADJUST FOR SPINE
how to lead in
UNCERTAIN TIMES
www.hbr.org
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