INTRODUCTION: THE ULTIMATE TEST OF LEADERSHIP

There is nothing quite like a crisis to test your leadership. It will make or break you as a leader

What makes leading your organization through difficult situations so hard? Like being in a war, crises test you to your limits because the outcome is rarely predictable. You not only have to use all your wisdom to guide your organization through it, you must dig deep inside yourself to find the courage to keep going forward

LEADERS DEVELOP THROUGH CRISES

Unfortunately, there is no training ground for leading your organization through a crisis short of gaining the experience yourself. M.B.A. programs don’t teach you how. Crisis simulation exercises are just that: simulations, not the real thing. Studying cases of leaders in crisis is useful, but you won’t know how you will respond until you go through it

Leaders who never get tested until they reach the top may be unable to cope with the inevitable unforeseen events that come with the job. Some buckle under the pressure. Others become immobilized. Still others make big mistakes but learn from them to become better leaders the next time around

WHO WILL PASS THE TEST?

Under pressure, some leaders not only pass the test, but their leadership emerges even stronger

Sadly, many leaders do not measure up to these challenges. Senior leaders who fail are unlikely to make a come-back. More often than not, they rationalize their failings and blame others while disappearing from genuine leadership responsibilities

Management guru Peter Drucker once said, Leadership is not rank or privileges, titles or money. Leadership is responsibility. What shocks me is that leaders are not accepting their responsibility for this fiasco, in spite of the trillions of dollars and millions of jobs that have been lost.

THE 7 LESSONS

What kind of challenges are you facing in your organization? What are the practical ways you can lead your organization through them without being undone? With all the pressures, how do you stay on course of your True North?

This book is aimed at helping leaders at all levels of organizations, from those in the early stages of their careers to recently appointed CEOs. We will examine the issues you are facing in your organization and develop pragmatic approaches that will enable you to answer these questions

Each of the following seven lessons makes up a chapter of this book. In the Conclusion, I offer my thoughts on your personal leadership and what it takes to follow your True North when you may be facing your defining moment.

• Lesson 1: Face reality, starting with yourself. Facing the reality of the crisis is the most important lesson of all. Until you acknowledge that you are facing a serious problem, including your role in creating it, you cannot move forward to solve it.
• Lesson 2: Don’t be Atlas; get the world off your shoulders. You cannot get through this alone, so don’t try to carry the whole world on your shoulders. Reach out to others inside your organization and in your personal life to share the burden and help you come out a winner. This is a great opportunity to strengthen chemistry within your team, because the strongest bonds are built in crisis
• Lesson 3: Dig deep for the root cause. Under the pressures of a crisis, there is temptation to jump to quick-fix solutions that may mask the real problems and leave your organization vulnerable to repeating the crisis. The only way to solve these problems is to understand their root cause and implement permanent solutions.
• Lesson 4: Get ready for the long haul. When you are confronting significant problems, your first reaction may be that things can’t really be that bad. But in its early stages, you may be looking only at the tip of the iceberg, and things may get a lot worse. In a crisis, cash becomes king. To survive the crisis, you need to prepare for a long struggle to defend against the worst conditions so you will be prepared to pass through the eye of the storm.
• Lesson 5: Never waste a good crisis. The challenges you are facing represent your best opportunity to make major changes in your organization because they lessen the resistance that exists in good times. You should move aggressively to take actions necessary to strengthen your organization as you emerge from it
• Lesson 6: You’re in the spotlight: Follow True North. In a crisis, everyone watches what you do. Whether you like it or not, you are in the spotlight both inside and outside the company. Will you stay focused on your True North, or will you succumb to the pressure?
• Lesson 7: Go on offense; focus on winning now. Coming out of a crisis, the market never looks the same as it did going in. So don’t just batten down the hatches and wait for business to come back. This is your opportunity to reshape the market to play to your strengths. While others are licking their wounds, you should focus on winning now.

These seven lessons will be useful immediately in dealing with current crises and preparing for future ones

If you come through this crisis a winner, clearly focused on your True North, you’ll find that the confidence you gain to withstand any level of difficulty will enable you to be a far better leader, in good times and in bad.

LESSON #1 FACE REALITY, STARTING WITH YOURSELF

I learned firsthand the importance of understanding the mind-set of regulators and government officials and building a cooperative, problem-solving relationship with them instead of being defensive. I realized as well that in a crisis, you have to set aside your near-term profit plans and get the problems fixed, no matter how high the cost. Most important of all, I learned not to judge leadership from the outside before understanding what is going on internally.

FACING REALITY

In Leadership Is an Art, Max DePree writes, The leader’s first job is to define reality. The last is to say thank you. Before you can lead your organization through a crisis, you have to acknowledge that you are indeed in one. Next, you have to get everyone else to acknowledge it as well. Only then can you define the problems accurately and develop plans to deal with them

Why is this so difficult? Leaders often go into denial about the urgency and severity of the challenges they are facing. Or they tend to blame external events, people, or organizations for their problems. Without accepting that the problem is theirs to fix, they cannot understand what they are dealing with

WHY IT’S SO HARD TO FACE REALITY

Denying reality has destroyed more careers and organizations than incompetence ever did. Instead of asking yourself why it is so difficult for other leaders to face reality, ask yourself instead, Why is it so hard for me?

The first reason is that people always prefer good news or a quick fix. Rarely are they willing to acknowledge that their organization is facing a crisis. Crises often start out in relatively benign ways, and then seemingly minor events escalate into major ones. Unless leaders face reality early, they can easily miss the signals of the deeper crisis that is waiting ahead. Until its leaders acknowledge the crisis, their organizations cannot address the difficulties

Many people find reality is just too horrible to face or they are too ashamed, so denial becomes a convenient defense mechanism. If you feel yourself getting defensive, ask yourself, What am I defending against? How might denying reality make the situation worse?

DON’T SHOOT THE MESSENGER

Why aren’t there more truth tellers in organizations? The reason is that they are afraid of getting in trouble with a boss who won’t accept bad news. Leaders who are approached by a bearer of bad news may wind up shooting the messenger, because reality is just too painful to face

Instead of building an organization of truth tellers, many leaders surround themselves with sycophants who tell them only what they want to hear, rather than sharing the stark reality. Without a culture of openness and candor, leaders are highly vulnerable to missing the signals of big problems ahead. By the time they acknowledge how deep their problems are—or outsiders like government agencies, consumer watchdog groups, or the media do it for them—it is too late. Then they find themselves forced to defend their companies against charges that are even worse than reality.

I used to tell people at Medtronic, You’ll never get fired for having a problem, but you will get fired for covering one up. Integrity is not the absence of lying. Rather, it is telling the whole truth, so that we can gather together the best people in the company to solve the problem.

It is important to publicly express appreciation to the truth tellers so others in your organization will follow suit. Only with a culture of candor and openness can organizations cope with crises and act in unison to get on top of them.

IT’S HARD TO ADMIT YOUR MISTAKES . .

As a young civilian in the Office of Secretary of Defense Robert McNamara in 1966, I saw firsthand the consequences of an organization where people could not admit their mistakes. In the early years of the Vietnam War, McNamara was in complete denial about the war’s progress. He used his intellect to intimidate the military and civilians to produce quantitative analyses showing the United States was winning.

Given his quantitative proclivities, McNamara saw Vietnam as a war of attrition. To measure progress, he tracked the ratio of enemy troops killed to American troops killed, under the assumption that the North Vietnamese and Vietcong would eventually run out of guerrilla fighters if enough were killed

UNTIL YOU ACKNOWLEDGE YOUR ROLE IN THE PROBLEMS

Far too few leaders are willing to accept responsibility for their mistakes. Instead, many ignore problems and hope they go away. But like tumors growing inside the body, problems left unaddressed only get worse. If you face a similar situation, ask yourself, What’s the worst that could happen? Whatever your answer, it is not nearly as bad as compounding your errors by denying the problems

LESSON LEARNED

The crisis isn’t going to fix itself, so denying its existence can only make things worse—much worse. That reality must start with you and your acknowledgment of your role in the crisis itself. Then you have to guide your organization to face reality as well. As we will see in the next chapter, you cannot do it by yourself, so don’t try to carry the problems on your shoulders alone

LESSON #2 DON’T BE ATLAS; GET THE WORLD OFF YOUR SHOULDERS

Do you ever feel like Atlas—that you’re carrying the weight of the world on your shoulders? That the whole organization is depending on you and you’re not sure you can pull it off? And if you don’t, everything you have built for years will collapse overnight?

When I felt like that, I knew it was time to step back, take a deep breath, and recognize that I was not in this situation alone. It was time to get the world off my shoulders and ask others for help. This meant turning to my teammates within the organization and people in my personal world who support me

THE DANGERS OF TURNING INWARD

Faced with a pending crisis, some leaders take the whole burden on themselves. They retire to their offices to ruminate about the problems and try to work out solutions in their heads. People in the organization start speculating about what is happening with their boss, who seems so withdrawn. Then the rumors start, and they are always worse than reality.

DUELING NARRATIVES

One of the reasons leaders turn inward is that they fear failure and loss of self-esteem. My Harvard colleague Nitin Nohria and I believe that all of us operate with two narratives about ourselves. Our positive narrative is that we are capable and doing worthwhile work. Our negative narrative causes us to fear that acknowledging our shortcomings could ultimately destroy us and our self-esteem. A crisis tends to accentuate the negative narrative, and we retreat inward

What are the competing narratives you wrestle with? Do your fears stand in the way of realizing your vision? Do they cause you to turn inward instead of reaching out to others for help? If you embrace your fears instead of running from them, they will gradually dissolve. One of the best ways to do this is to turn to your teammates and the important people in your personal world for help and support

TURNING TO YOUR TEAM FOR HELP

In asking others for help, Steinhafel and Mulcahy overcame the loneliness of leadership and gained both insights and support

LOOKING TO YOUR EXTERNAL TEAM

To avoid the pitfalls of carrying the world on your shoulders, you also need support from people outside the company to get through it. Your external support team cares about you personally and is far less inclined to judge your actions in the company. Although they lack detailed facts, people you know well can provide insights and advice you don’t get from insiders.

By the time you are facing a crisis, it is too late to form your support team. The time to do so is when things are going smoothly. These people can then know you well, and you feel confident you can count on them when the going gets rough

Your support team starts with having one person in your life with whom you can be completely open, honest, and vulnerable

This person cannot help you if you share only parts of your story or protect your vulnerabilities. By knowing you intimately, he or she can help you discover your blind spots or point out what you are overlooking. If you don’t have anyone in your life with whom you can be completely open, I suggest consulting with a professional counselor or therapist.

Having mentors is another tremendous asset

BE WILLING TO BE VULNERABLE

One of the hardest things for leaders is being vulnerable with other people. It is also one of the most powerful. Exerting power over others through direct commands while appearing invulnerable is not at all motivating. When you open yourself up to others and share your fears and shortcomings, you connect with them at a deeper level. Exposing your vulnerabilities is an open invitation for others to share openly with you. In the process, you gain a higher level of support and commitment from people as well as their respect

Learning how to express your vulnerabilities on appropriate occasions is an emerging leadership skill. It needs to be used with care, so that people can have confidence in your leadership and the direction you are leading them

BUILDING YOUR RESILIENCE

The pressures on the leader that a crisis brings can be enormous. Crises often hit when you least expect them, so you need to be prepared. As crises drag on, you start wondering, When will this ever end? The truth is that no one knows.

To perform at your best throughout the crisis, you need a high level of resilience: a combination of hardiness, toughness, and buoyancy of spirit. These are challenging qualities to maintain during the rigors of a crisis, but they will sustain you through difficult times. That’s why you need to build your resilience before the crisis hits

To cope, I developed a set of practices over the years to maintain my resilience. In sharing these with you, I am not suggesting these practices are right for you or for others. You have to develop your own techniques. The important thing is to have a set of practices that you make habitual

• Keeping my body in shape
• Keeping my mind sharp and spirits high
• Not taking myself too seriously

LESSON LEARNED

You cannot get through a crisis alone, so don’t try. The good news is that you are not alone. People inside your organization and in your personal circle are more than willing to help you if you ask them and are willing to open up to them

You will be much more effective in getting through a crisis when you get the world off your shoulders and share your burdens with others. With the team solidly supporting you, you are prepared to bring them together to dig deep for the root cause of the crisis and get the problems fixed once and for all

LESSON #3 DIG DEEP FOR THE ROOT CAUSE

In the early stages of a crisis, it is easy to mistake the first symptoms that appear for the real problems. It is human nature to attempt to fix the symptoms before the root cause is determined. Like the weeds in your backyard, crises have roots with long tentacles that are buried deep underground. If you cut down the weeds without removing the whole root, they will surely grow back

As a leader, your natural instinct is to challenge bearers of bad news about whether things can really be that bad, or whether they are just doom-and-gloom people. You’re inclined to jump in and get the problems fixed to make them go away. And therein lies the danger.

If you move too fast to devise solutions, you may underestimate the depth of the problem or misjudge its root cause: the problem may be more serious than anyone appreciates. If you surround yourself only with positive people, your team may reinforce your natural instincts to solve the problem before it is fully understood. Thus, you cover over the wounds rather than undergo surgery, while letting the real problem fester. Or your quick fix may eradicate the symptoms of the problem while masking its root cause

TRUST, BUT VERIFY

As a leader during a crisis, you should insist that people give you the whole story. Then always protect them from negative consequences when they do. This means maintaining close contact with people throughout your organization, not just your direct reports

GETTING TO THE BOTTOM OF THE PROBLEM

Maintaining credibility trumps uncertainty every time

DISCOVERING THE ROOT CAUSE

Unless the root cause is corrected, the odds are high that the organization will find itself in yet another crisis in just a matter of years. It’s your job as a leader to prevent that, or the next time around the situation will be a lot worse.

HAVE YOU FOUND THE ROOT CAUSE?

It isn’t easy to determine whether you’ve gotten to the root cause. The only way to do so is to gather all your experts to analyze the problem and give them time to reach definitive conclusions. It is also helpful to engage outside experts to offer their perspectives.

When the problem is technologically challenging, this analysis takes time.

When your organization is confident that it has developed corrective solutions, an intense effort is required to implement the solutions. As the leader, however, you should express cautious optimism, but not complete confidence, that you have an acceptable solution

DÉJÀ VU: A CRISIS RETURNS

One of the most widely acclaimed examples of crisis management is Johnson & Johnson CEO Jim Burke’s handling of the 1982 Tylenol crisis. In Chicago an unidentified person caused the death of two people by lacing capsules of Tylenol with cyanide poison. After a third person died in Los Angeles, Burke immediately ordered a nationwide recall of Tylenol from retail store shelves.

BRINGING YOUR TEAM TOGETHER

LESSON LEARNED

An organization cannot deal with a crisis until it determines its root cause, but people are often mentally blocked from recognizing it because the implications are so frightening. The leader must bring people together to confront their worst fears and address the risks. In Medtronic’s 1998 crisis I learned that my teammates were willing to commit to the aggressive course only when I was willing to take those risks on my shoulders. The hesitancy and fears of failure that many felt were then channeled into turning this risky decision into a major success.

LESSON #4 GET READY FOR THE LONG HAUL

It is tempting to think of crises as events to weather until things return to normal. As hard as it is to predict when a crisis will hit, it is even more difficult to forecast when it will end

When facing a crisis, it is prudent for you to assume that the crisis will last a long time. When things return to normal (if there is any such thing as normal), everything will be different. When you sense a problem coming, ask yourself whether you are looking at a harmless piece of ice floating on the surface or the tip of the iceberg. If you don’t know for sure, this isn’t the time to move full speed ahead. If you do, you’re asking for trouble

THINGS WILL GET WORSE

When you find yourself getting into a crisis, it is human nature to think things couldn’t get any worse. Trust me, things could get a lot worse. More often than not, the situation deteriorates before it gets better

CRISES HAVE LONG ROOTS

Leaders often fail to see the crisis coming. Rather than acknowledging they should have recognized the signals in time, they blame external events and things outside their control. Many behave as if the crisis came out of nowhere or was an act of God, like Hurricane Katrina. Reality is usually very different. To quote Xerox CEO Anne Mulcahy when she visited my Harvard Business School class, A lot of crises seem to happen overnight, but they have really long roots, like ten to fifteen years in terms of the source of the real problems.

TAKING DECISIVE ACTION

To combat this human tendency, the reflective qualities of Intel CEO Andy Grove expressed in his book Only the Paranoid Survive are essential. By constantly fearing markets could collapse tomorrow or his company’s market leadership could disappear overnight, Grove was ever alert to Intel’s risks and preparing his defenses if the worst occurred.

REINVENTING YOUR LEADERSHIP

Facing such a decision yourself, are you prepared to walk out of your office, come back as the new CEO, and make the most painful decision of your career, unencumbered by your emotional involvement but guided by an impersonal logic? If you are, you may become a great leader.

IN A CRISIS, CASH IS KING

In a crisis, cash is king. Not earnings per share. Not revenue growth. Not return on equity. Survivability and fiscal conservatism must take precedence over near-term financial metrics. Ask yourself, do we have sufficient cash reserves to get through the worst crisis imaginable? If the answer is no, you should take immediate action to shore up your cash reserves.

The now widely held view that hoarding cash is bad and debt is good has been steadily evolving over the past twenty-five years

The stock market also shifted from valuing cash to devaluing it. As the stock market’s focus became increasingly short term, cash was viewed as a drain on return on equity

Wise leaders who are building their organizations need to resist these pressures and take a conservative course

RESPONDING TO EARLY WARNING SIGNALS

LESSON LEARNED

Many leaders will learn from the global economic crisis not to underestimate the length and severity of crises they face, even if their crises have nothing to do with the economy. When facing the early stages of a crisis, it is essential not to declare victory too soon. Prudent leaders recognize that survivability is their most important goal, so that they can come back strong as the crisis subsides.

LESSON #5 NEVER WASTE A GOOD CRISIS

In The Prince, Italian philosopher Nicolò Machiavelli advised his followers, Never waste the opportunities offered by a good crisis. Although it is hard to recognize at the time, a crisis provides a unique opportunity to create transformative change in your organization.

When business is booming, staffing and spending levels inevitably expand too rapidly, and wasteful habits creep in. People become highly resistant to reductions in infrastructure and employment, arguing that cutbacks will hurt the company’s growth and market position. In my years in business, I cannot think of a time when we cut too deeply or too soon. The greater danger lies in not recognizing the crisis early enough to take aggressive action. When that happens, revenues decline faster than expenses, and you never catch up

HITTING THE WALL AT TEACH FOR AMERICA

WASTING A GOOD CRISIS

In contrast to Kopp’s leadership, the real tragedy occurs when management wastes a golden opportunity to transform itself

CREATING A CRISIS TO GET COMPETITIVE

Contrast GM’s experience with the visionary leadership of Jack Welch. When he was elevated to CEO of General Electric in 1981, Welch saw a world ahead that few others recognized. He envisioned intense global competition in which only the leanest and most competitive firms would survive. Welch decreed that every GE business unit had to be number one or two in its industry and fully competitive, or GE would divest the business

Welch had two basic measures for his leaders: performance and values. One without the other was insufficient to get promoted. The performance metric was an obvious part of his strategy, but he made values equally important

IN CONTRAST . .

Welch’s actions left rivals like Siemens, Philips, Westinghouse, and Mitsubishi wondering why they never could get their organizations to shed their bureaucracies

USING A CRISIS TO FUEL THE FUTURE

Medtronic faced a looming crisis in 1993, triggered by the proposed Clinton health care plan. We feared this plan would lead to mandated price reductions for our pacemakers, defibrillators, and other high-margin products. That would threaten our strategies of high R&D investment and extensive support for physicians during implant procedures

In response, we made massive cuts in product costs, overheads, and infrastructure

expenses. We also took advantage of the opportunity to restructure and simplify our organization with fewer layers, meetings, and nice-to-dos. But we were unwilling to abandon our strategies of heavy investments in R&D and physician support.

LOU GERSTNER AND THE TRANSFORMATION OF IBM

To lead the massive cost cutting, Gerstner recruited Jerry York from Chrysler as his chief financial officer. York knew nothing about the computer business, but he knew how to cut costs. The proverbial bad cop with a job to do, York didn’t care what people thought of him and was impervious to criticism. He also permitted Gerstner to play the role of good cop, who focused on rebuilding IBM’s customer relations

LESSON LEARNED

The leadership stories of GE’s Welch and IBM’s Gerstner are fulsome examples of how great leaders use a crisis to transform their enterprises. These examples don’t apply just to major companies. They are equally effective in smaller and midsized organizations, where the need for restructuring and transformation is also great

Leaders who don’t take advantage of crises to make long-term changes not only waste their opportunities but sow the seeds for a repeat experience. Like General Motors, your organization will face these risks if you don’t make the required changes

Now let’s turn to the question of how, as a leader, you can deal with being in the spotlight, both internally and externally, and still stay on track of your True North

LESSON #6 YOU’RE IN THE SPOTLIGHT: FOLLOW TRUE NORTH

In today’s world you don’t have to be a politician or a celebrity to be a public figure. As a leader in business or a nonprofit, you are constantly in the public eye, whether you like it or not. Your compensation is published in the newspaper. Your statements are widely quoted. People inside and outside your organization speculate about what you are thinking

The modern media world with its multiplicity of new information sources presents myriad pitfalls and opportunities. In a crisis, everything is amplified one hundredfold. The world of the Internet has democratized information and dramatically increased its velocity of transmission. As a leader, you need to find ways to use it to your benefit rather than bemoan its downsides

In the glare of the lights, your ability to stay true to your values is put to the test. You

can make or break your reputation in an instant

BEING TRANSPARENT

The key to handling public issues is to be open, straightforward, and transparent. In a crisis, both employees and external observers are extremely sensitive to any attempts to dissemble or hide the truth. These will quickly be exposed, especially if subsequent events reveal your statements to be inaccurate or misleading

Externally, you should offer access to the media, customers, shareholders, and other constituencies who have a stake in the company’s future. I have found members of the media to be quite respectful when they believe you are telling them the whole story and not trying to cover up problems or ugly details. When they feel leaders are not shooting straight with them, they become aggressive and publish even the most far-fetched rumors and allegations

Being transparent creates an open and human image of the organization. Its leaders seem like normal people who are tasked to take on difficult challenges. When you are open, you are in a better position to ask people for their support. If things get worse, as they often do, people are more sympathetic to your point of view if you have kept them fully informed. During this time, you should be highly accessible within your organization, wandering around the offices and labs, visiting factories, and participating in events around the company

Why aren’t more leaders comfortable with transparency? It takes time, its sheer informality may be subject to misinterpretation, and it offers potential fodder for plaintiffs attorneys, the media, and other outside groups to use against the company. Thus, it requires greater skill and entails greater risk than more formal approaches. On balance, however, these risks are substantially outweighed by the benefits.

Of course, there are limits to transparency, such as release of classified or confidential information that would benefit your competitors. But they shouldn’t be used as an excuse for withholding vital information the public needs

BLENDING INTERNAL AND EXTERNAL COMMUNICATIONS

In today’s world, internal and external communications have morphed into one, making it impossible to draw a bright line between them. Whatever is said inside the company is quickly transmitted to outsiders, and whatever is written or said outside is also read or heard inside. Therefore, communicating the same messages internally and externally is essential.

Being candid is no guarantee that you’re not going to inadvertently create problems for yourself

DEALING WITH WHISTLE-BLOWERS

How should you deal with whistle-blowers who communicate confidential company information to outside attorneys and government officials? In some cases, blowing the whistle is the only way well-intentioned employees have to reveal dishonest dealings within the company’s hierarchy. In other cases, these allegations may be misleading or even untrue but reported as factual in the media

Given these complexities, how should leaders deal with potential whistle-blowers? They can make them irrelevant by creating an open organization in which information flows freely and disgruntled employees have vehicles inside the company to express their concerns. Medtronic has made effective use of a confidential hot line that employees use to report their concerns anonymously. We used a formal procedure to follow up on these concerns and determine their validity and actions that were indicated

CREATING A CULTURE OF CANDOR

As the leader, you need to keep people informed of what’s going on. The greater your openness, the more people will rely on you to provide them with the inside view, and the less they will rely on the rumor mill. If they cannot get the answers they need from the leaders, they will join the rumor mill.

PUBLIC CONFIDENCE, PRIVATE DOUBTS

Leaders in the public eye are expected to have the answers to most things. But what should you say when you don’t know, which is usually the case at the outset of a crisis? This early period, when information is sketchy and people are trying to piece together the full story, can be an uncomfortable time. People are counting on you as the leader to reassure them that everything will be all right. That’s hard to do when you don’t know if the actual situation may be much worse than anyone imagines. How can you instill public confidence when you have private doubts?

The natural instinct of most leaders is to follow the advice of their lawyers and public relations specialists to hunker down until they know where they stand. By saying nothing internally or externally or issuing meaningless statements, leaders come across as being isolated from reality, insensitive and uncaring, or even as stonewalling. Worse yet, they may lose the initiative to outsiders prone to rash statements that contain elements of truth. Rumors start to spread inside and outside the organization. What could have been a manageable crisis suddenly develops into one careening out of control.

WHO’S RESPONSIBLE FOR THIS CRISIS?

This raised the question, who was responsible for the defective toys: Mattel or its contract manufacturers? After several weeks of uninterrupted public outcry against the Chinese, Mattel’s executive vice president finally apologized to the Chinese minister for shifting the criticism to China. He told the minister, Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people.

LESSON LEARNED

These days the intensity of the spotlight is so great that leaders cannot get away with dissembling or being intentionally misleading. There are so many different channels for information to become public that the truth will eventually come to the surface. The velocity of information transmission is so fast that leaders must establish the groundwork for transparent communications long before the crisis hits. The key is getting out in front of the crisis in its first hours with clear statements, both internally and externally, that accept responsibility and build confidence and credibility with all your constituents

Surviving a crisis is only half of the challenge. The greater opportunity belongs to leaders who use a crisis to transform their industries by staying focused on winning.

LESSON #7 GO ON OFFENSE, FOCUS ON WINNING NOW

Thus far, we have been examining ways to get through a crisis successfully. This is only half of the challenge. Now that we have learned to play defense, it’s time to go on offense and focus on winning, not just getting through the crisis

Look at a crisis as a gift. It provides you a golden opportunity that may not come again to reshape your business and your industry and emerge as the winner. But you’ve got to be bold and focused to seize it.

Many leaders assume if they can just get through a crisis, everything will return to normal. So they hunker down and wait for the storm to pass. In the meantime, their competitors are reshaping the market to their advantage

Why not reshape the market yourself? First, you need a clear vision of what future markets will look like. This requires a keen understanding of how your customers’ needs will change as a result of the crisis. Second, you need a focused strategy to reshape markets to play to your strengths while exposing your competitors’ weaknesses

Then you’ve got to move aggressively to put your strategies into action, just as forcefully as you did to survive the crisis. If you can pull this off, you may be able to catch your competitors off guard. By the time they wake up to what your organization is doing, you will have solidified your leadership of the post-crisis market

TRANSFORM THE MARKET—AND YOUR COMPANY

Let’s look at several visionary leaders who have used a looming crisis to reshape their business and their markets: PepsiCo’s Indra Nooyi, IBM’s Sam Palmisano, Infosys’s Narayana Murthy, and Apple’s Steve Jobs.

Indra Nooyi

In May 2009 PepsiCo CEO Indra Nooyi made a profound speech about the new breed of CEOs and their responsibility to society. The hard-edged leader, delivering return on capital at no matter what emotional or social cost, is yesterday’s leader, she said. The new breed of CEO has to create sustainable value. A company is granted a license to operate from society and therefore owes society a duty of care. Pursuit of short-term performance is not enough. That performance needs to be allied to a purpose; otherwise, the performance disappears too.

Sam Palmisano

When Sam Palmisano was elected CEO of IBM in 2003, he replaced an iconic leader in Lou Gerstner. Palmisano, who has spent his entire career with IBM, recognized the daunting task that remained to rebuild IBM. He neither tried to emulate Gerstner nor did he reverse direction on his gains

Instead of waiting for the challenges of globalization to have an impact on IBM, Palmisano anticipated where globalization and technology were headed. Based on that vision, he reshaped IBM’s strategy to become a total systems supplier to meet the evolving needs of its global customers, with emphasis on services, not hardware

Narayana Murthy

At thirty-five years old, Narayana Murthy founded Bangalorebased Infosys with five colleagues from his former company. Starting with an investment of less than one hundred dollars, Murthy envisioned that his custom software firm would become India’s most respected company. Murthy explained how hard it was getting started in 1981. It was a crisis throughout, he said. We were forced to finance growth out of our earnings, but that instilled discipline. The hardships and financial challenges didn’t sap our enthusiasm.

Steve Jobs

Apple founder Steve Jobs had similar success after returning as CEO in 1997. Jobs founded Apple in 1976 at the age of twenty-one and pioneered the personal computer with products like Macintosh, known for its color graphics and friendly user interface. He was ousted in 1985 in a power struggle with CEO John Sculley. As it turned out, Apple was the one that struggled in Jobs’ twelve-year hiatus. Meanwhile, Jobs founded NeXT Computer and acquired Pixar, where he created eleven highly acclaimed animated films.

INVEST DURING DOWNTURNS

Visionary companies gear their businesses for the long term by preparing for sharp economic swings so that they can invest during the downturns. They recognize that competitors are likely to pull back investments when the economy turns down and markets decline. Well aware of the lead time for capital investments, they know they must invest heavily in downturns or they won’t be ready for the upswing. That takes substantial cash balances to withstand downturns while funding the expanded investments

7 STEPS TO FOCUS ON WINNING

How do you take the global economic crisis, or any other crisis, and turn it into an opportunity to transform your markets and your company? Here are 7 steps to keep your organization focused on winning in the depth of the crisis

• Step 1: Rethink your industry strategy. To figure out what your markets will look like after the crisis requires a keen understanding of the changing needs of your customers
• Step 2: Shed your weaknesses. A crisis presents the opening to eliminate your organization’s weaknesses, especially if it is too bureaucratic or too slow-moving to be competitive
• Step 3: Reshape the industry to play to your strengths. The bold strategy coming out of a crisis is to move your entire industry to make your strengths the basis for competition while exposing your competitors’ weaknesses
• Step 4: Make vital investments during the downturn. Intel and Exxon offer evidence that you cannot wait to make vital investments you need to win in the emerging market
• Step 5: Keep key people focused on winning. During a crisis there’s a risk that your entire organization gets so focused on keeping the ship afloat that no one is planning ahead. Therefore, you should assign a small team of highly talented people to devise the postcrisis strategy
• Step 6: Create your company’s image as the industry leader. With public criticism of Wall Street mounting and the industry defending itself, emerging financial service leaders are envisioning changes needed in capital markets
• Step 7: Develop rigorous execution plans. This final step is often overlooked by visionary leaders who devise new strategies but fail to underpin them with detailed plans for marketplace execution

Following these 7 steps with clarity and rigor will enable your organization to emerge from the crises you face as a leader in your field. By going on the offense, you can gain competitive advantage and build your market position to sustain your future growth and success

LESSON LEARNED

The final lesson to be learned is to keep your head up during a crisis rather than hunkering down, and maintain a laser-like focus on winning in the emerging marketplace. This period offers the best opportunity you will ever have to reshape markets to your advantage.

The best leaders emerge from a crisis as winners because they are both aggressive and courageous in turning the challenges to their advantage. Beyond that, they are passionate about using their leadership to make a difference in the world.

CONCLUSION CRISIS MAY BE YOUR DEFINING MOMENT

Until one is committed there is always hesitancy, The chance to draw back, always ineffectiveness . . . The moment one definitely commits oneself, then providence moves too. All sorts of things occur to help that never otherwise would have occurred. . . Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it —- W. H. MURRAY

The crisis you are facing, or inevitably will face, may be the defining moment in your professional life. Scottish mountain climber Murray’s wisdom offers a powerful message to today’s leaders as you face that moment: get committed to a bold plan, and the universe will move with you to enable you to turn your dream into reality

MAKING A DIFFERENCE IN THE WORLD

In 1966 Robert F. Kennedy said, Few will have the greatness to bend history itself. But each of us can work to change a small portion of events, and in the total of all these acts will be written the history of this generation.

It may not be our destiny to bend history as Roosevelt and Churchill did. But each of us has the opportunity to make a difference in the world by leading others through crises to change a small portion of events. If we learn our leadership lessons well, the history of this new generation will most assuredly be a great one

The world is crying out for your leadership. We face six major problems that are so pressing that we must address them now: global peace, health care, energy and the environment, job creation, income disparities, and education. These problems are so large and intractable that no one organization can possibly solve them on its own. That’s why they require each of us to use our leadership gifts to contribute to changing a small portion of these problems. Anthropologist Margaret Mead once said, Never doubt the power of a small group of people to change the world. Indeed, it is the only thing that ever has.

How can your leadership of your group help resolve these problems and others you see in your midst? Don’t try to do it overnight. Instead, get committed to lead people to change a small portion of these events, and providence will move with you. And you will become one of the authors of a bright future for this generation.

The time is ripe for you to step up and lead people through the current crisis. Be bold in your leadership because boldness has genius, power, and magic in it. If you stay on course of your True North, you can make a lasting difference in the world.

This is the ultimate fulfillment of leading people through a crisis

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