Mock Crisis to Maintain a Well-Oiled Machine

It’s amazing how success can cause numerous blind spots for managers and executives.  The greater the success, the more severe the blind spots.  As an advisor, I sometimes poke on those blind spots only to get a reaction like “Hey, we’re doing really well, what’s the problem?”  Well, it can be a big problem for multiple reasons that can backfire on you later if you’re not careful.  This article will explain that further.

Setting the Stage

The blind spots can relate to a variety of things, including tools and processes that are currently used but won’t scale much longer.  Or maybe a new competitor that is invisible for too long.  But the purpose of this article relates to your employees.  More specifically, “dead weight”, under-performing employees and sub-optimal programs or initiatives.

We all aspire to build a team of “A” players that work both hard and smart.  But no matter how good we are at interviewing prospective employees, some “B” and “C” players are certain to slip through.  This is especially the case when your company is doing really well because you likely have an aggressive hiring plan and desperately need more bodies to keep the success going.  Aggressive hiring plans can cause hiring managers to shortcut their due diligence and/or lower their bar.

The other thing that can happen is your hard workers suddenly start working less hard.  After all, things are going really well so why put in that extra effort or point out things that are likely to break or fail?

We often grow our business by adding new products, targeting new customer segments or opening new geographies.   But as we add more and more of these things to our operations over time, we never seem to re-evaluate the previous things we were doing to make sure they are still beneficial to our current goals and vision.

Time for a Crisis!

Why on Earth would you do a layoff or severely cut your expense budget when you’re experiencing a period of solid success?  Well, in this case I propose that you don’t actually do a layoff or whack your expenses, but rather go through the exercise as a “mock crisis”.  Pretend it’s September 16, 2008 – the day after Lehman Brothers suddenly filed for bankruptcy and economic panic set in to trigger the beginning of The Great Recession.  You don’t know what the next couple of years are going to be like but you need to be prepared to reduce your costs in order to survive.

March 2020 Update – Although you don’t need to go to the extreme of using a global pandemic as the backdrop scenario for the mock exercise, I’m certain that the companies that had any sort of “in case of emergency, break glass” plan were more prepared for the actions they ended up taking (or will likely soon take) in order to keep their company alive during the crisis.

Gather the executive team and start the process for a 20-25% expense reduction.  10% isn’t enough for this exercise to show its value and 35% or more isn’t really necessary.  Obviously, if your team is less than 10 employees, this exercise isn’t nearly as practical or worthwhile.  But with 25 employees or more, you’ll be amazed at how insightful this exercise is.

Revelations

When a real crisis happens, very painful actions are taken.  Revenue-generating products are eliminated and beneficial programs and activities are reduced or eliminated.  The severity of the crisis dictates how high the bar needs to be in order to maintain a product line, geography, program or activity.  Going through the mock crisis provides the prioritized list of these things.  And even though the line got drawn according to the severity of the mock crisis, the items towards the bottom of the list are often candidates to eliminate or curtail regardless.

When real layoffs happen, good employees are let go.  In other words, the employees weren’t stealing from the company or otherwise doing damage.  Such employees should be fired, regardless.  During a real crisis, as you decide to eliminate product lines, geographies, programs or activities, employees at all levels of performance are affected.  You’ll surely try to save your true “A” players by redeploying them, but solid “B” players will surely get affected.

Going through the mock layoff will enable your managers and executives to see these otherwise-hidden “B”, “C” and “D” players (shame on you if you’re carrying “C” or “D” players on your payroll, regardless of your success).  Your managers will be forced to stack rank their employees while assessing their actual contribution to the business.  Somebody has to be at the bottom of each list.

The greatest value of the mock crisis lies in the discussions and debates among the management team.  And the more you treat this like a real crisis, the better.

I predict that you will decide to take some actions following the mock crisis.  In fact, I guarantee you will identify some employees that you need to talk to about their performance.  But don’t be surprised if you also identify employees that need to be put on a performance improvement plan (PIP) and with intentions to terminate if things don’t dramatically improve.

Dead branches exist on even the most lush and healthy of trees.  You must trim those dead branches to have a well-oiled startup machine.

Side Note:  I sometimes say “Desperation reveals options that were always in front of you, but weren’t visible until you became desperate”

Maintaining a Well-Oiled Machine

I recommend going through this mock crisis exercise starting when you have ~25 employees and every year after that.  Just incorporate it into your management system.  It sucks to build a well-oiled machine that’s generating big success only to have that start crumbling due to your inability to see your blind spots.

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