By Alan Denton Monday, 04 February 2013

Four reasons why leaders fail in a recession

Good business leadership is crucial when times are tough. Alan Denton, MD of executive coaching company The Results Centre, reckons it's all too easy to blame the recession for companies folding, when in fact it's the boss that's to blame.

One of the most damaging aspects of this recession’s longevity is the lowering of expectations. People are happy to get by, to play it safe rather than take risks or invest in growth as they would in more prosperous times.

Here are the four key leadership failings that will take a company to the wall in a downturn.

A short-term survival strategy

When a company is struggling, it’s understandable that leaders take the short-term view, focusing on quick gains to cut costs and increase short-term revenue.

Great businesses also focus on short-term survival - but have an unwavering eye on the medium to long-term and a clear focus on post-recessionary times. Key to this is getting and keeping the right people; thinking about engagement to ensure they stay after the recession lifts - and what is being done to attract new talent.

To determine how you are operating and to encourage a more long-term strategy, write down activity in the business that is focused on short-term management and tactical survival. Now summarise in one paragraph how you are focusing on a vision for medium to long-term growth and getting the right people.

A bunker mentality

Also known as 'head in the sand' syndrome. In a recession, leaders often stop looking at what other great organisations are doing and stumble on, blinkered.

It’s important to study what competitors, industry leaders in your sector and leaders in the wider business community are up to –  and to consider what you can learn from what they are (or are not) doing. Search out those that clearly have a great foundation of strategy and leadership and, most importantly, a fantastic team of people.

Looking inwards

Another recessionary trait is the tendency to insularity, making processes and cost reduction exercises the focus. Many organisations spend inordinate amounts of money on consultants and project teams who look at ways of improving efficiency, cost-cutting and headcount reductions, with very little emphasis on opportunities to invest in riskier, margin generating strategies.

Misjudging the balance of thrift and risk

The most successful leaders balance the obvious need for cost-cutting with the investment required to take calculated risks out in the market. A lack of focus on opportunity, including those that might be seen as slightly risky, will eventually lead to failure. The only likely result of excessive retrenchment is the ultimate demise of the business.

No one is saying it’s easy to lead well, particularly in these difficult times, but leaders need to hold their nerve, look forward and trust the good people that they have around them.  

Image: Crisis at BigStockPhoto

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