Is the economic turbulence at an end?
No. But, to paraphrase Winston Churchill, this may be the end of the beginning but it is certainly not the beginning of the end.
Recessions can be broken down into phases. The decline phase, which has dominated the last year, is obviously different to the recovery phase, which has not yet begun.
Between these phases is the ‘bottoming out’ when there is no further decline but neither is there a sustained recovery. If the recession is a ‘V’ shape then this is not a phase but a moment. If the shape is a ‘U’ or an ‘L’ as it was in Japan in the 1990’s (the so-called lost decade) then this intermediate phase may last longer than the period of decline.
In many ways, shapes V, U or L are perversely reassuring because legislators and managers can operate in environments that, while possibly undesirable, are minimally turbulent and with the expectation that the next significant change is likely to be positive.
The problem with the W shape recession is that the early signs of recovery can be assumed to indicate a V shape but are in fact unsustainable and are followed by a further period of decline.
The fourth phase is post-recovery, when the economy has returned to the peak level that preceded decline. In the previous three UK recessions this took on average 40 months.
Currently, we have some tentative signs of recovery but no one can say with conviction that these indicate a V or a W shape. Given the nature of the event, a rapid decline caused by an asset bubble and magnified by a severe financial crisis it is, in my view, unlikely that a V shaped recession would occur.
Indeed it’s not clear how a V shape recovery will be financed when the broken banking system has not been repaired.
If we are, at best, at the end of the beginning, what does the next phase look like?
I suspect we may now see six months of uncertainty and volatility, with good news often tempered by bad.
The phase of recovery is usually characterised by a continuation of corporate financial distress, rising unemployment and an increase in the number of bankruptcies.
This is because all sectors of the economy never emerge from recession simultaneously and the distortion that accompanies the restructuring amplifies the pressures on those companies that are damaged survivors.
One of the most significant challenges for HR professionals is to monitor the degree to which senior managers recognise these risks and are being objective about the organisation’s status as a healthy or a damaged survivor and the extent of its vulnerability as the economy recovers.
How should we think about the senior management competencies as we move through the phases of the recession?
I have researched a new book examining the difference between leaders and managers and have concluded perhaps controversially that leadership is a different skill set that cannot be taught.
I also believe that we have distorted the relationship between the competencies of managers and leaders by implying that leaders are hierarchically superior to managers. My conclusion is that there is a phase when the managerial methodologies of control and incremental change should dominate and that leaders, by contrast, should be the guiding minds in turbulent situations in which radical change is necessary. Organisations perform badly when either style dominates in the wrong situation.
In the current and recovery phase I suggest that a leader should be the guiding mind to steer the organisation through the emerging conditions, which will inevitably be significantly different to those prior to decline.
In the phase following recovery, when the pace of change slows down, the manager should retake the senior position.
The difficult task is to identify those individuals who are leaders and managers and to orchestrate the change from one style to the other. HR professionals have a crucial role in meeting this challenge.
Is there any way to identify when the change from one to another should take place?
In my book Managing Through Turbulent Times I suggest that you can locate an organisation’s position on a simple turbulence matrix constructed by evaluating the degree of external turbulence versus the extent of internal discord. From this it is possible to identify the phase through which the organisation is passing and whether the orientation of the guiding mind should be managerial or leading.
In short, the higher the degree of external turbulence and internal discord, the greater the need to change to direction by an individual skilled at dealing constructively with the complexity of rapid and radical change.
When these chaotic and threatening conditions dissipate and stability is restored these change-makers tend to become disruptive and the organisation is better served by a managerial orientation that focuses on control and process.
In a modern organisation there is no more important role than that of the HR professional who realises that the concept of a CEO being appointed on the basis of an open-ended contract is now outdated and inappropriate. The HR professional’s critical role is to observe senior management behaviour and orientation, identify the point at which a change is beneficial and ensure that the fluctuation from manager to leader occurs with the minimum turmoil.
Anthony Holmes is a corporate turnaround specialist and transitional leadership expert. He has led the revival of seven companies over 15 years, and his 30-year international business career spans strategic consultancy, investment banking and senior corporate management in a diverse range of industries. Holmes has just published the business book Managing Through Turbulent Times with Harriman House and will publish A Time to Lead, A Time to Manage in Autumn 2009. He will speak at the Sunday Times Beating the Recession conference on 16 July 2009.