Expert Marketer Magazine

When an Organization Faces Crisis

by William A. CohenJuly 2015

Peter Drucker didn’t predict economic or financial crises or say what to do about them, at least after 1929. The last economic situation he attempted to analyze and predict was that year in a newspaper article. A few weeks later the bottom fell out resulting in the Great Depression. Peter had predicted continual economic expansion and good times over the coming decade. Then he wrote another article admitting that he had been wrong. To the best of my knowledge he never made predictions having to do with the stock market again.

Drucker’s Infallible Predictions

However Drucker was almost infallible in predicting major political, social and business developments and upheavals and what to do about them. He predicted the rise of Hitler at a time when Hitler was at his nadir and practically every single political analyst in Europe had written him off and assured everyone not to worry.

Drucker predicted the rise of the “knowledge worker,” a term he created to describe the new worker that worked more with his mind than physically. He foresaw that the day of “carrot and stick” management as the prime motivator for workers was over. He foretold the rise of the healthcare industry, the tremendous expansion of executive education, the impact of technology, especially the Internet, and a major shift to online education for the future and more.

For years he railed against unreasonably high salaries paid to executives. He pointed out that in the U.S. that the ratio of the highest paid executive in the company to the lowest paid worker was the highest in the world, better than 300 to one. Drucker said it shouldn’t be more than 20 to one. He was against “golden parachutes.” He warned that they and we would pay a terrible price for this, and of course, that is exactly what has happened.

Many of the things Drucker wrote about were controversial and difficult to swallow, perhaps all the more so because they were all too accurate.  If Drucker’s  wisdom was applied in the past, it would prevent crises in many companies, organizations, and countries. But what if his wisdom wasn’t applied or a crisis occurred anyway?

Face the Difficult Facts and Take Action

A leader must expect positive results with new initiatives or he’ll never take necessary risks and will achieve little but mediocrity. However, when bad things happen, and a crisis is pending, negative facts need to be faced squarely and dealt with on that basis. Part of that positive action means facing the truth and immediately letting those affected know what has happened and what actions the leader proposes to take. In almost every instance of ultimate failure which eventually must be endured, the problem could have been fixed, or at least negative outcomes significantly mitigated if responsible individuals had faced the facts, taken action, and kept others informed.

Do What’s Right

A good many of the problems we face in our current financial crisis are due to people who should know better but just did not do what’s right. It may have started with a potential borrower who knows he can’t afford a house and maybe hasn’t even saved the money for a down payment. You recall the advertisements “No money down?” This borrower justified his loan in that housing would keep going up. . . forever. The Mortgage Broker didn’t much care since he wasn’t making the loan anyway. He still got his commission so he might not have checked the potential borrower as closely as he should have. In any case, what was the difference since housing prices would always go up? The bank made the loan since it would eventually pass it on to an investment firm on Wall Street. And anyway didn’t the government say that everyone should be able to afford his own home and had loosened restrictions on borrowing to permit this?  In any case, housing would always go up. That was what people told themselves at every level to justify actions that they knew were wrong. Wall Street could create an investment fund with all these mortgages, good and bad, and sell the fund to “sophisticated” institutional investors, insurance companies and the like. Even if forewarned that some of these loans were marginal, they assumed not all of the loans would go bad. Wall Street too knew better, but assumed that real estate would always increase in value. Every level justified their actions in that the value of housing would always increase. But just like any Ponzi scheme, the bubble eventually bursts and when it does there will be severe consequences. This is an example of not doing the right thing.

Share the Pain

If you are in a position of responsibility with subordinates, Drucker’s lesson is to share the pain. Consider another man named “Ken.” Ken Iverson was CEO of Nucor, this steel company, the third largest in the U.S. It consistently racked up high profits even in this declining industry. Nucor’s 7000 employees were the best-paid workers in the steel business, yet they had the industry’s lowest labor costs per ton of steel produced. Although a Fortune 500 company, only twenty-four people were assigned to corporate headquarters, and there were only four layers of management from the CEO to the front-line worker.

Then a major recession hit the steel industry. The total number of steelworkers dropped almost overnight industry-wide by 50%. At Nucor, they had to cut production in half. However, Iverson didn’t “downsize” anyone. Instead, Iverson shared the pain. He insisted that management take large pay cuts. Department heads took pay cuts of up to 40%. Company officers cut their salaries up to 60%. At a time when some Fortune 500 CEOs were taking home much more, Iverson cut his own pay from $450,000 to $110,000, a salary cut of more than 75%. Nucor actually got through three years of industry depression without laying off a single worker.

The Leader is Responsible for Getting Things Done --- Regardless

Drucker always said that leadership was essential. In fact before people needed to understand that there was a distinctive difference between management and leadership Drucker had declared in an article in Harper’s Magazine in1947, that “management is leadership.” He was trying to emphasize the importance of leadership. Toward the end of his career he wrote that leadership was a “marketing job.” Partially he wrote this because so much of leadership has to do with persuasion. The other thing that he was trying to show is that both concepts are so broad that they overlap significantly.

I was always impressed by the actions of then Lieutenant General Bernard L. Montgomery when he took charge of the British Eight Army in Africa during World War II.  Montgomery faced major problems. The Eighth Army had been defeated repeatedly by the German General Rommel and his Afrika Korps. After finally winning a victory, Montgomery's predecessor, General Auchinleck had attacked.  Unfortunately he had done so prematurely and had been defeated. There was the possibility of an immediate counterattack by Rommel. The Eighth Army had made withdrawal after withdrawal over the months.  Orders were sent out to prepare for yet another withdrawal. Morale in the Eighth Army was at an all-time low. It was at this time that Churchill sent Montgomery into the fray:

Here's what Montgomery did during his first day in charge:

·        He cancelled all previous orders about withdrawal.
·        In the event of enemy attack, there would be no withdrawal. The Eighth Army would fight on the ground they held. Or in Montgomery's words, "...if we couldn't stay there alive, we would stay there dead."
·        He appointed a new Chief of Staff.
·        He formed a new armored corps from "various bits and pieces."
·        He changed the basic fighting units from brigade groups and ad hoc columns to full divisions. Drucker called any reorganization “major surgery” so Montgomery had performed major surgery on his first day while his troops feared an enemy attack
·        He initiated plans for an offensive saying, "Our mandate is to destroy Rommel and his Army, and it will be done as soon as we are ready."

Speaking later of the events of his first day in charge he said, "By the time I went to bed that night, I was tired. But I knew that we were on the way to success." He was. Sure he faced different challenges, a different situation, and different authority to get others to do the things that he thought necessary. Every crisis situation is different.

To summarize Drucker’s lessons about what to do in a crisis ---- no matter your level of work or management --- the basic idea is to be a leader. A real leader does things that lesser leaders refuse to do:

·        Faces the difficult facts and take action
·        Does the right thing
·        Shares the pain
·        Exercises leadership

 Applying these to your work will mark you as a real leader and help to end the suffering from any crisis.



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