Leading and Managing through the COVID Downturn

Thank you all for your likes, comments and shares of my previous post, “What do Covid-19 and Y2K have in common”. As I read your comments, it struck me that it may be valuable to some share some of my learnings from other downturns. I have now been through six significant downturns or economic crises: the recession of the 1980s when inflation and interest rates were running wild (how would you like to have a 18% mortgage interest rate?); the early 1990’s and the imminent bankruptcy of IBM; Y2K; The dot-com implosion; 9/11; and the 2008 liquidity and sub mortgage crisis.

Although I didn’t realize it at the time, these were my periods of greatest learning and personal growth and shaped my views on leadership and managing through a crisis.

The Fall of IBM

Prior to 1990, IBM was a company which believed in employment for life. People joined following graduation and stayed until retirement. The concepts of market dominance and lifetime employment were baked into the culture, as unfortunately was also an arrogance and entitlement. With the advent of minicomputers in the 1970’s, personal computers and commercially-available off the shelf software in the 1980’s and computer networking in the 1990’s, IBM was losing its market dominance but was very slow to recognize and adapt. Hardware was no longer the King. Add to that, an economic downturn in the early 1990’s and it was a recipe for a perfect storm.

Early in 1991, IBM Canada completed a research study. It was hard to compare IBM against competition because IBM competed in so many sectors of the technology business (Mainframes, Mini-computers, Disk drive technology, PC’s, Networking, Software, Maintenance services, etc). The research study attempted to benchmark IBM Canada against a hypothetical aggregate of our top two competitors in each of the 11 business segments in which IBM participated. The study become known as the “Frankenstein Study” because it was our worst nightmare. The study showed on a pro-rata basis that our Canadian competitors operated with about half the cost structure of IBM Canada. In a market that was becoming commoditized, IBM was becoming increasingly uncompetitive.

The result was not pretty. IBM Canada was one of the first IBM countries to ever do a massive layoff. 25% of IBM’s 7500 Canadian employees in headquarters, sales, marketing, distribution and administration positions were eliminated, some through retirements, most through terminations. In customer facing roles, about 1 in 8 were eliminated. In headquarters or management roles, about 1 in 2 were affected. Entire layers of management or overhead positions were wiped out. As a result, our twin headquarters buildings at 3500 and 3600 Steeles Ave in Markham were combined and 3500 Steeles was emptied and sold. Numerous other offices were downsized or declared surplus and eliminated.

Three learnings

From this bloodbath, I took away three learnings that I still use today:

1. Successful change management requires employee buy-in. Employee buy-in requires honest, transparent and authentic communications as to what is happening, why it is happening and how it will impact the individual hearing the communication.

The reason I know of the Frankenstein study is that IBM Canada’s CEO went on a roadshow to every IBM office in Canada and presented it. It was shocking for employees to hear we were not the “best”, and that in fact we sucked. It also explained why we were losing in the market and why our spin that “no one ever got fired for buying IBM” was no longer working. The answer of what had to be done was obvious and when the downsizing announcements came, employees were able to get behind them.

I experienced the same phenomena a few years later at PeopleSoft when we hit the Y2K wall and had to press pause to rightsize to the Y2K freeze and reallocate resources to rebuild our software from Client-Server to internet-based technologies. Again, senior leaders went on the road to explain to employees the realities of our market, their projections for the future and the risks each option entailed (including the failure of PeopleSoft as a company). When employees were asked what we should do, the rallying cry became “go big or go home” and the risky decision was made to pause, re-build our software and take the stock price hit and layoffs.

As you deal with the necessity of changes to your business, spend as much energy on the change management aspects as you do on the changes themselves.

2.      When reducing force, worry as much or more about the survivors as you do about those losing their jobs. While those terminated have the shock and turmoil of termination, the survivors have the shock of losing friends and colleagues, but also have the near- and long-term challenge of picking up the pieces and moving forward.

A company just can’t cut workforce and expect the same work to get done. As part of the downsizing, IBM embarked on a rigorous process to reengineer itself. Processes and workload underwent a ruthless reinvention. Can it eliminated? What is the risk of just stopping doing it? Can it be simplified and if so, can the simplified workload be automated? Focus on priorities. What needs to be done “well” and what can be done “good enough”?

With entire layers of management removed, approval steps were eliminated. Where in the past, decisions were made by committees of many people over multiple meetings, now the remaining couple of survivors went for coffee and made the decision. Much of the inertia of the past which slowed IBM to a glacial quagmire disappeared. Employees and managers were encouraged to take risks, fail fast, try new things. Four years later when I left IBM, it had transformed from a hardware company that was six weeks away from bankruptcy to a growing software and services company.

Figure out the opportunities hidden in the changes that you have to make and how these will benefit the remaining team. Will you be smaller but nimbler? Do you have time now to build muscle in your business in terms of more robust people, product and processes that will accelerate your recovery later? Look for the opportunities for your team to rally around.

3.      I measure a person’s true performance and capabilities when things are bad. It is easier to look like a Rockstar when the business and the economy are good. The true test of a person is when things are not good. Be prepared to see new leaders emerge and unfortunately, you may be surprised when some of your current best performers fail or self-select out.

IBM has always had a strong reputation for attracting top talent. During the 1990’s, we had to evolve to a performance driven culture. We no longer had the luxury that we could afford to let performance issues fester and had to deal with these sooner. As a result, teams gelled into high performance teams.

Out of the depth of despair of IBM in early 1990’s, new leaders emerged. Some were external recruits like Lou Gerstner as CEO. Others were internal players who rose to new heights such as John Thompson, a former Canadian CEO who moved to New York and became a trusted lieutenant of Gerstner. This was at the top but was mirrored throughout the organization. I consider myself one of those. Since the beginning of my career at IBM in 1979, I had been a square peg trying to fit into a round hole. I didn’t quite fit the IBM of the 80’s, but in the 90’s, I flourished as a leader. I worked with other great individuals, leaders and teams during this period and watched many winners emerge.

Look for new leaders to emerge. Take this opportunity to build high performance teams. Don’t let the lowest common demoninator pull the team down. Expect some people will not buy-in or fit-in to the new reality of your business and will need to leave. Make these changes as humanely as possible, but move quickly.

Change is scary especially when so much about our current COVID crisis is unknown and changing weekly. Rahm Emanuel is quoted “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before”. Crisis changes risk profiles and allows individuals and organizations to evolve faster than otherwise allowed, both from necessity and opportunity. As a leader, figuring this out needs to be a big piece of your job.