Leading through turbulent times

In a downturn, the "climate" within an organisation - when workers get together and talk - can adversely affect results.

IN recent years, Singapore has shown a slowdown in economic growth and this is expected to continue in the future.

The reality is that businesses today operate amid uncertain global economic conditions, heightened geopolitical risks and a backlash against globalisation. At the same time, the digital economy is rapidly transforming business and disrupting operating models. Against this backdrop, the Committee on the Future Economy (CFE) and the 2017 Budget had announced measures to make it more conducive for Singapore to continue to develop a digital economy to encourage innovation and promote entrepreneurship.

Impact of economic downturn on SMEs

With the looming economic downturn, SMEs that need to reduce costs seem to fall back on one natural response - budget cuts. While running leaner is a must in a sluggish economy, not every money-saving measure is an effective one. Unfortunately, most business owners make the mistake of reducing employment costs first, since eliminating salaries immediately frees up a large amount of capital.

However, there are alternatives to retrenching employees. Flexible wage structures, for example, can help many SMEs to reduce wage costs quickly to save jobs and stay cost competitive. The monthly variable component (MVC) mechanism, which has been implemented successfully by many organisations during the last financial crisis, allows these companies to adjust wages in response to changes in the business environment without having to wait till the end of the year to adjust variable bonus payments and other annual variable components.

What must SME leaders do to ride out this economic storm?

The suddenness and severity of the current economic downturn has inevitably generated a shared sense of shock and foreboding. The media's relentless reporting of the latest bad news fuels this mood and only adds to a sense of insecurity and lack of confidence in the future.

SMEs should also resist the urge to react to a downturn by putting the brakes on their training and marketing budget, because it can help a business gain a competitive advantage over its competitors. SMEs should instead focus on developing their human capital as well as building up their brand and business in the industry they operate in. It is critical to view human capital development or training as well as marketing as an investment rather than an expense.

Within organisations, negative feelings are compounded as colleagues interact. Research and experience demonstrate that feelings and states of mind are highly contagious. In the workplace, all employees can be influenced by a prevailing mood of anxiety, which gradually dominates the organisational "system". Negative thoughts and feelings predominate while more positive views become subtly excluded or difficult to express. This creates an intangible but powerful emotional backdrop that can be termed "systemic anxiety".

SME leaders must understand the dynamics that lie "below the surface" of their organisations and skilfully address the unspoken needs of their staff. This takes maturity and skill but will maximise the chances of weathering the economic storm and emerging strengthened when times improve. Those businesses that do not achieve this will find their commercial problems compounded by destructive internal dynamics and underperformance. Leaders also often fail to appreciate how profoundly organisational climate influences organisational results. Research has shown that it can account for nearly 30% of financial performance.

Today's turbulent business environment demands that individuals and organisations perform at higher levels and with greater speed than at any time in the past. Organisational leaders and team members alike must place a new emphasis on learning and the harnessing of individual and collective creativity.

During the turbulent times, SMEs leaders will face the almost overwhelming task of restoring confidence and respect of their employees in leadership and business. They are being called upon to guide organisations through times of turbulence and uncertainty, to show the way forward and to set an example. And all this in the face of a recessionary economy and in a climate of cynicism and mistrust - tough economic and political circumstances by any standards.

Aligning people is about generating awareness and understanding of the differences between individuals in the way they prefer to work and the way they make decisions or manage relationships. By creating a common understanding - a common sense of purpose and a shared commitment to action evolves.

The writer is CEO of the Centre for Executive Education