Feb
10

Your Leadership Approach Must Anticipate Crisis

By Gary Clayton

Corporate leadership approach must anticipate crisis to avoid chaos

Corporate leadership approach must anticipate crisis to avoid chaos

All too often, a single short event can send your world into chaos. Whether your business survives the crisis depends upon your leadership approach. It must encourage early recognition of the crisis and an appropriate response to the situation. I have seen such shock-waves slam the companies of entrepreneurs, who abruptly learned of a quickly advancing terminal disease, seen their finances wiped out by an action of a single major customer or bank, and many more disastrous situations. It can be as simple as a moment of carelessness with a blowtorch or a car hitting a utility pole miles away.

Open Communication is a Crucial Leadership Skill

How well you, as a leader, build flexibility and alertness into your organization will largely determine whether your business survives a disruption. As mentioned in my previous post (Leadership Approach for Crisis and Chaos), complacency can destroy your business. A crucial leadership skill is encouraging your employees to be on the alert anything that they think might damage your company - and being attentive and appreciative when they tell you of the situation. I can’t think of a clearer example than how a ten minute fire reversed the competitive standing of Nokia and Ericsson in the global cellphone industry.

Early Recognition Can Keep Crisis From Becoming Chaos

As reported in the Wall Street Journal, the reversal of fortunes started with a lightning strike at a semiconductor plan owned by Philips Electronics. The resulting fire was out in ten minutes, but its market-changing disruptive consequences to Nokia and Ericsson were not apparent for weeks to come.Both Nokia and Ericsson depended on the same chip produced by the plant, but Nokia prospered while Ericsson suffered tremendously. In fact, Ericsson ended up permanently shuttering its cell phone manufacturing and relying upon subcontractors.

The difference in business outcome can be attributed to the leadership culture differences between the two companies. Nokia’s culture promoted flexibility through open and rapid communication inside and outside the company. Ericsson’s culture fostered complacency and rigidity.

Nokia was alert for emerging problems, with a philosophy of “We encourage bad news to travel fast. We don’t want to hide problems.” Nokia noticed changes to its supply stream within 72 hours of the fire and quickly elevated its awareness to the head of the division. When the enormity of the disruption became apparent just two weeks later (chip production disrupted for an unknown time into the future), Nokia assembled a crisis management team and immediately swung into action. The team created alternative designs to eliminate the part in some products and worked actively with Philips to create emergency sourcing for the component.

Moving Quickly and Empowering Employees are Crucial Leadership Skills

Ericsson was slow to move, even after it was aware of the fire – and the enormity of the disruption didn’t become clear to Ericsson until after Nokia had locked in emergency manufacturing commitments from Philips. Unfortunately for Ericsson, Nokia’s emergency arrangement consumed any remaining production capacity for that chip worldwide. Bottomline: Ericsson lost hundreds of millions of sales dollars as it had no parts for its phones.

What can we learn from this story? Nokia was fast on its feet. At all levels of the organization, Nokia was alert for potential disruptions and the employees were quickly authorized to organize internally and with suppliers to tackle problems as they emerged. Ericsson was complacent, slow to react as employees waited to be told what to do and management assumed that Philips’ supply problems would soon disappear to due course.

Nokia’s flexibility, speed, open communication and hard work enabled it to thrive, while Ericsson was permanently impacted by it’s slow uptake on the supply disruption. The advantage lay with the company in which the leaders trusted the employees would figure out what needed to be done and were given the authority to act. The leaders and employees at Nokia shared a vision of Nokia as a “can do” company with a competitive position that all would work together to protect and help prosper. Truly, the workers stepped up for the common good and did what the leaders wanted them to do. To me, that demonstrates great leadership skills.


References

Latour, A. Trial by Fire: A Fire in Albuquerque Sparks Crisis For European Cell-Phone Giants. Wall Street Journal. January 29, 2001, pg A1.

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Categories : Approaches & Styles