Why Crisis is Good for Management

November 19, 2008

By Ichak Kalderon Adizes PhD.Companies are experiencing turbulence and uncertainty in face of the global financial crisis, but is a crisis good or bad for organizations? People generally dread changes, especially if they are major and unexpected, but opportunity lies hidden amidst crises for the organizations that have prepared.So is a crisis good or bad? To answer this, I have a story from my consulting experiences:A mother or spouse often warns us, after taking a hot bath, to refrain from going outside when it is windy. They worry that we will catch a cold. In Finland, however, people relax in a sauna, sweat, then roll in the cold snow outside. They don't get sick, but rather, they feel invigorated. Some people in Siberia, even the aged, will dig a hole in the ice on a lake or river, and then dive into the freezing water...and they do not fall ill. If I did that I would catch pneumonia and surely die.Why do such extreme changes invigorate some and threaten others?The cause of the illness is neither the wind nor the freezing water, but rather, unpreparedness for change. This phenomenon applies to organizations as well. Organizations that are prepared to deal with change are invigorated by it; those that are not risk death. This is Darwin's theory of evolution.Allow me to relate one more story.I used to consult to the automotive company, Porsche. The President of the company at the time, Peter Shultz, told me about something interesting that happened when he was first appointed President. He visited each department to introduce himself and become acquainted with each division. At the engineering department, he asked if the Porsche Company competes in Le Mans, which is the premier racing track for any sports car company."No, we don't," they said. Since Porsche is a leading auto manufacturer within the sports car industry, Peter gave them a challenge, " build a car to compete in Le Mans and win."The Engineers took the challenge seriously. They worked like ants, day and night, designed the engine and the racing car, tested it, and took their car to Le Mans to compete. Lo and behold, they won.A big, big celebration followed...but it was short lived. The racing committee unexpectedly changed the rules for the next year's race and Porsche's Engineers had to start from scratch to design and test a new car.As one would expect, morale plummeted. Peter had a different opinion, saying, " We should be happy they changed the rules. They didn't change it just for us. They changed it for everyone. Who will win now? Who will succeed? Those who are faster and more effective in dealing with the change will succeed. The weak ones will die." And here is the last sentence from his speech, which has become like a mantra for me:"When there is no change, THE MEDIOCRE catch up."Change provides the opportunity to leave the competition behind. Change can be invigorating for the strong. Change provides the opportunity for the strong to out-pace the weak and sick. Change is the best ally if you are ready for it.INTEGRATE TO WIN.

How should you prepare for the inevitable changes your company will face?First, let us understand what happens when there is change. An organization is a system and every system, by definition, is comprised of sub-systems. When there is an external systemic change, the internal organizational sub systems do not change in synchronicity; some change quickly and some change slowly. These discrepancies manifest themselves in what we call problems, and if those problems threaten the organization’s survival, we label them a ‘crisis.’Thus, I suggest to you that all problems, of any magnitude, are caused by disintegration, which originates from change.And what is the "therapy" then? Integration.The more integrated the organism, or in this case the organization, the better it can survive the change. (Note that the higher the rate of change, the higher is the rate of divorces and if there is a crisis, it accelerates the divorces).An organization should not wait for a crisis before integrating. It should simulate different scenarios and identify problems to deal with these problems before a crisis occurs. When the change or crisis happens, the organization will not panic because it will be ready as part its job. The military often performs these ‘maneuvers.’(I wish we would consciously integrate while courting. We could identify if we are compatible and capable of solving problems together. We could have done all our divorcing before marriage).Some organizations do "maneuvers" for earthquake or fire preparedness, but what about preparing for a liquidity crash, major inflation, or recession? What should a company do at the apex of a crisis?Some obese people get liposuction to avoid a heart attack, but if they do not change their eating habits, a heart attack becomes imminent. Companies weathering the crisis fire a certain percentage of their employees, like organizational liposuction. The "numbers" improve, but is the organism healthy? Why weren’t these unproductive employees fired before the crisis? Why didn’t the heart attack victim monitor his weight before the attack? "But there is a reduction in demand. We don't need so many people now," someone might say. So lets assume you have been lean and mean and your employees are all ideally efficient and effective. If you fire them, what is it analogous to? Firing good people is not cutting fat; it is cutting muscle.Assume you have first class machines in your production facility. There is a reduction in demand. Are you going to sell, say, twenty percent of your machines, or idle them till the demand improves?Selling some machines, then re-buying and re-integrating them to reuse is immensely easier than firing good people, re-hiring and re-integrating new people later on. It takes time and resources to find and assimilate good people into your company’s culture.What then?If you have a seasonal business, then ask your employees to take some vacation, without pay, and hibernate during the "winter" of your business. People will prefer to take less income, than no income at all.In a time of crisis, preserve your assets; do not dissipate them. When the enemy attacks, circle the wagons rather than shoot at each other.Ichak Kalderon Adizes, PhD.President of Adizes InstituteIchak@adizes.com

Written by
Dr. Ichak Adizes