Excerpt: Great leaders recognize that tough times create a rare opportunity to make dramatic improvements. They see that calamity can crystallize thinking and temporarily paralyze the forces which prevented change in the past. They understand that urgency and stress are limited commodities which need to be channeled into productive action, not squandered on panic and indecision. They know that short term corrections can support long term goals.

Every year I have the pleasure of leading an executive education seminar on strategic execution. One of the more powerful exercises we go through is called “Masterpiece Theater”. Each participant thinks of situations in which his or her organization pulled off something truly amazing. As we dive into these examples, a clear pattern emerges. The greatest leaps in performance almost always occur under crisis conditions. The stories usually involve the company facing a profound threat, such as losing a key line or facing a powerful new competitor. Spurred on by the emergency, the team rallies together and attacks the challenge head-on.

Today, your company may be facing just such a crisis. How will you respond? Great leaders recognize that tough times create a rare opportunity to make dramatic improvements. They see that calamity can crystallize thinking and temporarily paralyze the forces which prevented change in the past. They understand that urgency and stress are limited commodities which need to be channeled into productive action, not squandered on panic and indecision. They know that short term corrections can support long term goals.

An example from the rustbelt shows how to pull this off. Last year, a distributor in a construction related line of trade faced the situation that is quickly becoming familiar across the country. New home construction was at a standstill and the company’s remodeling and commercial markets were also shrinking. The CEO recognized that its cost structure had to be radically reduced, but he also saw the opportunity to cement the company’s long term survival by realigning its strategy and sales force. He assembled a team of fully disclosed top managers to develop a concrete action plan. This ensured that actions across the company were coordinated and created a sense of “we’re all in this together.” The team developed a realistic five year revenue estimate and calculated a minimum acceptable profit level. Working backward from these numbers, they established the cost structure that the business could support, and challenged themselves to reach this level within three months.

Agreeing on all the specific actions was painful, but the team knew that they couldn’t stop until the numbers added up. “Hope” didn’t count for anything on the spreadsheets. This discipline forced them to confront some chronic issues and take immediate action. They moved sales specialists into territories with account assignments, enabling them to cover customers more effectively with fewer reps. They implemented a new customer service approach using teams of operations and sales staff. They re-designed their sales force compensation plan to align incentives more closely with the new strategy – always easier to do when sales reps’ incomes are dropping under the current plan. Finally, they put real resources into margin enhancement, creating a strategic focus on pricing and buy side management.

Many of these changes had been discussed and contemplated for years, but the market meltdown provided the leverage to overcome internal objections and make them happen.

Of course, every situation is different. However, we’ve found strong patterns in working with distributors and ownership groups over the past three business cycles. These experiences have taught us some fundamental lessons for surviving, and even thriving, during a sustained market downturn. In a nutshell, these lessons are:

- Face the future reality now. The distributors which are successful in the long term are those who take early action during downturns. Rather than hope that things will get better, they make a sober assessment of where the market will be in three to five years and immediately adjust their organization to fit. If you’re going to lose an arm it’s best not to cut off one inch at a time.

- Use the right team. Effective restructuring means that upper management, including top executives, should not be spared. Keep this in mind when determining who should be brought into the tent.

- Create a plan. Planning makes the difference between panic and positive change. Far from delaying action, proper planning can accelerate implementation by ensuring that it is focused, prioritized and well communicated. It’s absolutely critical that actions be tied to numbers so that you can clearly distinguish between the many “good ideas” and few essential adjustments. Failure to execute is most often the result of either poor planning or trying to take on too much.

- Don’t cut pay across the board. This is a very reasonable sounding alternative that almost always turns out bad. Unlike layoffs, pay cuts leave the affected people in place to spread bitterness and resentment. You will hurt morale and also lose the opportunity to unload your poor performers. Across-the-board reductions in upper management pay, in contrast, are a viable tactic. Your top management team should be more receptive because they have a bigger stake in your company’s future and better visibility of its financial condition. In addition, such cuts will probably save more money and send a strong message of commitment to the rest of your staff.

- Focus on your competitors. The instinctive reaction during recessions is to hunker down and play defense. This is probably what your competitors are doing as well, creating an opening that you can exploit. The essence of competitive strategy is to be two steps ahead of everyone else. What actions will they be likely to take and how can you benefit from them? Are they reducing inventory levels, firing sales reps, raising prices, closing branches? Rather than maintain an evenly reduced presence in all of your markets it may make sense to pour your resources into the locations that your competitors are abandoning.

- Buy some software. If you have the cash, this may be a great time to make some capital expenditures in training, facility upgrades or new systems. The vendors are probably very willing to bargain and conversions are a lot easier when business is slow.

- Let the truth be your friend. We’ve always found that the truth is the best lever for getting adults to accept change. If your company’s success requires a new strategy, and that strategy requires new behaviors or roles, explain it to your employees in these terms. The good times will return but the company has to survive to enjoy them.

Recessions are not fun. No one enjoys making painful decisions, no matter how necessary they are. But by getting proactive and developing a realistic plan you can start to gain more control over your own destiny. By thinking strategically you start to see opportunities instead of just misery. Turning urgency into action is not just good business, it will actually make you feel better as well.