Leaderonomics

The world was ours

The year was 2008, and we had every reason to be excited about the future. My company – an automotive parts supplier – had been bought over by a private equity firm with operations in China, the US, and Australia. We had just ended 2007 with a bang: a 13% increase in revenue across all accounts from the year prior. Nor were we any strangers to profit, as the company had been experiencing double-digit growth since 2005.

We did have slight reservations about Australia and whether the automotive industry here would survive. However, we were not too concerned as more and more projects were filling up our pipeline. The upwards trajectory seemed infinite.

Then, at the start of the second quarter of 2008, customer forecasts predicted a decline. We weren’t too concerned. It was nothing more than a speed bump, we told ourselves. We would slow down for a while and then it would be back to full throttle.

And full throttle it certainly went, just not how we wanted.

Our sales plummeted and we finished 2008 with 30% less revenue versus 2007. 2009 wasn’t as bad though – here our revenue only declined by 27%. In two years, we had lost 57% of our top line.

The world now calls it the Global Financial Crisis (GFC). Everything began to fall apart very quickly. The crisis had actually started in 2007 with a decline in the subprime mortgage market in the United States, and quickly developed into a global banking crisis.

Our sales plummeted and we finished 2008 with 30% less revenue versus 2007. 2009 wasn’t as bad though – here our revenue only declined by 27%. In 2 years, we had lost 57% of our top line.

In July 2009, General Motors, our biggest customer, declared Chapter 11 bankruptcy protection and cancelled many vehicle brands. From the four programs we had with GM, we lost three, leaving us producing at only a quarter of our capacity. At least we no longer had reservations about whether the Australian automotive industry would survive – we knew it was a matter of time before it went down under.

Decline during growth years

Depending on the industry, lead times play a big role in how you can react to an event. In the automotive industry, revenue recognition starts about 24 months after an award (though it’s much shorter in China). In those 24 months, there is plenty of cash outflow to support the launch of the program.

So there we were, buoyant about the future, planning our growth, when the rug was pulled from right under us. Thankfully, we had done something about earlier doubts regarding the Australian automotive industry. Since the end of 2007, we had already begun relocating assets and manufacturing lines to Thailand. Had we not done this, the company would have been unable to support our customers and we would have ceased to exist. It’s an alternative that still chills me to this day.

As if matters could not have been worse, this was the year our CEO was diagnosed with cancer and had to step down. There we were, falling revenue, poised to run out of cash in 20 days and with no CEO to lead us. Then one day the board turned to me and asked if I could lead the company alongside a chairman parachuted from a different industry.

There are times you cry for joy when you get promoted, then there are times you just cry. Whatever the case was (just crying) it was time to get to work.

Setting a clear strategy

One of the most important responsibilities of a leader is to create a clear strategy and develop a communication plan for the company. This is imperative as when pretty much everything around you is in chaos, there must be clear guidelines on execution so the team knows what to do.

I developed a 3 pronged action plan: Reduce, Stabilise & Grow.

Reduce

Obviously, we couldn’t pretend it was ‘business as usual’. We had to re-size and make tough decisions. And we had to make them fast.

We even had to exit a few of the projects we had been awarded. At the time, they were simply not generating enough value to see us through that particular period.

In such situations, you have to be decisive and act as if your hair is on fire. Our primary focus was to reduce costs as quickly as possible and to renegotiate our funding structure with the banks.

The closing down of our Australia operations was brought forward and all forms of costs were cut, delayed or renegotiated. However, it was paramount that we execute the reductions while continuing to keep an eye on opportunities for growth. In our case, we knew the industry would bounce back and we had to ensure that the restructuring did not impact our chances of growth when that time came.

I have seen too many instances in which good businesses are brought to a complete halt by indiscriminate cost-cutting. We questioned everything and set clear directions for each segment of our business. We even had to exit a few of the projects we had been awarded. At the time, they were simply not generating enough value to see us through that particular period.

For us to continue to compete, we needed to enhance/maintain our engineering capabilities and quality processes. Thankfully, we succeeded in both increasing said capabilities while finding cheaper alternatives.

Stabilise

The execution of our plan had to be time-bound and strictly on schedule. To ensure the company maintained intensity, we organised a ‘War Room’ where we had daily updates on key actions. When it appeared that execution was slowing down, we increased the meeting frequency to twice a day.

Any team handling a business during a crisis needs to appreciate the need for operations to be stabilised quickly. You need to regain some semblance of normalcy so that the company can forecast cash flow requirements and eliminate surprises.

Getting daily cash flow forecasts is crucial. Additionally, you need to maintain strong communications with your key partners on your payment plans. We always started our daily meetings with a review of the cash flow for the week.

We also took advantage of the downturn to revisit and enhance our processes. We looked at previous quality issues and upgraded our processes with better and cheaper practices. I am quite happy to say it worked. We improved our financial forecasting process and became so much better at predicting cash flow that we were accurately forecasting ending cash balances.

Grow

The Global Financial Crisis of 08’ truly turned the ultra-competitive automotive world into a level playing field. In the end, we were one of the very few automotive suppliers that did not declare bankruptcy. By the end of 2009, a total of 27 automotive suppliers had declared bankruptcy including Lear, Visteon and many others like Delphi and Behr had been sold.

As mentioned above, we executed ‘Strategic Cost Rationalisation’ and kept a keen eye on opportunities for growth. We focused on strengthening our engineering capabilities with a clear strategy and improved efficiency with better quality processes. As a result, we won a significant amount of projects as the automotive industry slowly rebounded.

We understood early on that electric and autonomous vehicles would play a bigger role in the future and we ensured that we had the right strategies to take advantage of this. Because of this, we developed a company that only designed and manufactured HVAC module & CRFM (Condenser, Radiator & Fan modules) to provide a wider range of solutions to our customers. We became one of the top thermal solutions providers in the automotive industry.

Our China business strategy targeted customers (or brands) that were overlooked by consumers and even the government. We had to engage the right customers who drove the China automotive industry. For our efforts, we signed significant deals with Geely, Chery, SAIC, VW China, NIO and many more.

Today, we have a foothold in more locations than ever; we’ve recently started new operations in India, Thailand, Mexico, California, Slovakia and have built yet more plants in China. Not a bad turnaround if I may say so myself.

Nimble and flexible

Crisis management calls for quick actions. Because the situation is never well defined, you have to be flexible and ready to change direction quickly. Under normal operating conditions, it might be ok to wait until you get all the data before acting or making a decision. Not so during a crisis.

You will have to able to make decisions with only about 60% of the information you need. This is where having a good set of people around you is important – more on this later. The constant meetings to review progress is where you will get to see if your plans are working and if not, what changes need to be made and by when.

Execution based thinking

Leadership without the discipline of execution is incomplete and ineffective – Ram Charan & Larry Bossidy

Even during normal periods, good businesses ensure good execution of their plans to achieve their goals. This is even more crucial during crisis management. It is all about discipline and clarity of what actions must be taken. Do not be generic with your action plans.

For example, an action plan cannot simply be ‘reduce costs’. It has to be broken down into categories of costs. For each line item, the costs must be fully understood. This is important to achieve strategic cost rationalisation as it will help you evaluate the risk of reducing and/or eliminating the cost item.

You also need to take execution to a different level. Your messaging has to be clear and succinct. Get your team to give you feedback on their understanding of what needs to get done. You also need to get the team to challenge or report present situations to enable you to revisit or change tactics quickly.

Execution plans need to be visual. We created our own Execution Strategy called ‘Focus 5’. It outlined five key areas and within each of those areas was a detailed list of actions.

These five areas were based on key elements in a typical automotive business: Quality, Program Management, Cost Management, Customer strategies & People.

For starters, we asked that everyone focused on 3-5 items. Close them out and then develop the next 3. This forces team members to focus and also motivates the team. We humans can get easily demotivated if we see a list of ten or more items to be completed. Heaven forbid that the first 3 items are not successfully implemented. It would create a sense of hopelessness in the group and nothing would get done.

People

It is people who get things done. No amount of latest technologies, efficient processes and fancy certifications will make up for execution by someone who lacks motivation or skill

Unsurprisingly, all key steps to managing during a crisis are centered around people. At all times, you must have the right people on your team. It is one of the most important things you need to do when deciding on a strategy.

You may come to realise that some team members you valued before the crisis just do not have the right skill sets to help the company now. This was the hardest thing I had to do, and if you are a true leader it will never get any easier.

This is one of the first steps you have to take and you need to give your team the space to appreciate and understand the rationale behind your decisions. In my experience, situations destabilise when messages are delayed and communication processes are not well thought out.

It is people who get things done. No amount of latest technologies, efficient processes and fancy certifications will make up for execution by someone who lacks motivation or skill. On the contrary, this can breed negative emotions which are especially contagious in a crisis.

We developed a concept called ‘CARE’. This concept revolved around the need for people who care enough about both the product & the customer. CARE is the final, and the most obvious ingredient to make a successful company. We ensure that CARE exists at all levels within our organisation.

You need to surround yourself with people who will think differently from you and have different emotional reactions. The danger for a leader is to lapse into a false sense of security as almost everyone agrees with you. I was fortunate in that I have had team members who did not hesitate to challenge me and in fact it was at the insistence of one of my executive team members that we developed our electric vehicle(EV) strategy.

If, as a company, you never had a good human resource strategy, making and communicating changes during a crisis is even harder. That is the reason HR must play a vital part of your operations. HR cannot be a department just about payroll and getting your allowances. It has to be the glue that holds the departments and the CEO together.

Summary

The current COVID-19 crisis is, in my view, far direr than the situation we faced in 2008/9. The human and economic implications are profound and it will take some time before we are back to normalcy.

As leaders, we will still have to steer our organisations in these turbulent times and I believe the fundamentals gained from our prior experiences should now be applied in earnest. Having a clear strategy and working on having the right people around you are the two most crucial steps you need to undertake. You will have to make difficult decisions and when they are made, act on them and do not second guess yourself. When a team sees a leader who is not phased and is continually communicating with them, I truly believe half the battle is won.