Resilience in the Face of Chaos and Stress

A critical attribute in a leader, maybe their #1 skill, is having resilience during times of chaos and change.  The uncertainty of not knowing what to do can throw a leader into a state of panic or depression because there are so many changes in the business environment, and everything seems to be in a state of flux, making it difficult to plan for certain outcomes. 

My coaching colleagues and I have noted a growing and significant concern with the response to increased levels of stress among some of our clients.  This raises an important question: Why are some leaders resilient in times of stress, seeming to thrive in a chaotic environment, when other leaders become forlorn, desperate, and lose focus?  Can resilience be learned, and if so, how?  Are there skills we can learn to enable us to thrive in stressful environments?

As a coach to CEOs and their leadership teams, I have seen the effects prolonged stress has on individuals who have not developed resilience.  Recently, as I was about to start a quarterly planning session with the leadership team of a mid-market company, the CEO asked me to join him for a private conversation in his office, just as the team was waiting to start the meeting in the conference room.  We sat together for a few minutes as he told me of his unbearable stress level.  He was quite emotional, and definitely not ready to participate in the session.  

I suggested that he take the day off and referred him to a professional skilled in working with clients like mine who are under constant stress.  I observed that while his performance was rock solid, the effect of constant stress on his mind, body and emotions had taken its toll.  (Note to coaches, think about developing a ‘go-to list’ of professionals who are trained to handle specific issues that we see from time to time in our client behavior, and be ready to refer out to them as needed) 

Stress, and even depression (a term which I use advisedly), are not uncommon to leaders and their families.  David from the Old Testament battled depression, as did/have Abraham Lincoln, Martin Luther King, Jr., Michael Phelps and Barbara Bush.  The key question is how do we, as leaders, face these challenges? One way is to identify those tools which enable us to develop resilience.  It is not about being “tough” or “thick-skinned” or stoical.  Rather, it is about learning what tools we have that enable us to overcome.

How are we defining resilience?  Webster's dictionary defines resilience as follows: "an ability to recover from or adjust easily to misfortune or change."  The word “resilience” comes from the Latin term to “leap back.”  This has the sense of making a choice, rather than a passive quality granted to some and denied to others.  The resilient student chooses to overcome the math problems by leaping back.  The resilient leader chooses to dip into cash reserves to enable her company to leap back. 

Abraham Lincoln had multiple failures before he become one of the greatest leaders our country ever had.  That is resilience.  Children with disabilities have shown remarkable resilience in facing and choosing to overcome steep odds.  Leaders today need to expand that definition.  CEOs and other leaders need to prepare for change, challenges and chaos, so that when the inevitable chaos or crises hit, it is more easily dealt with. 

Leaders must be able to cope with turmoil mentally and physically before a crisis.  Leaders need to notice when they are 'full up and topped off', exhausted, and unable to think clearly or retain new information. 

For leaders, or anyone with stress, if the individual’s inner battery is depleted prior to the chaos, they will be less able to handle the crush emotionally, physically, intellectually or in any other way.  They will lose focus, and not be able to function as effectively.  Energy reserves will be depleted, and they will be more susceptible to anxiety and rash decision-making.  Rather than executing strategy with peak mental alertness and on the basis of sound advice, they will be more prone to making choices that are not well thought out.  Rashness and panic may replace wisdom and calm.

If we allow stress to build without having a relief mechanism, our immune system is also compromised.  It is well known that stress injures and kills.  It increases blood pressure, organ disease, and can lead to heart attacks and strokes.  Our bodies are created to take limited amounts of stress before we are harmed. 

Strategies such as prayer, meditation and renewing one’s mind practiced daily, sometimes multiple times per day, help us to stay focused and in the moment, and helps to build response capacity.  These practices can work for anyone, but especially for those operating in extreme situations. 

Resilience in the face of chaos is the lead off topic in our new series on leadership.  This week’s CEO BrainFood Podcast episode features an interview with Susan Drumm, CEO and founder of Meritage Leadership, an Executive Coaching firm focused on helping leaders and teams be more effective.  You can access Episode 25 through this link,

For more on effective leadership, visit Meritage Leadership.

The Three Execution Disciplines

Numbers.  They are everywhere, and if accurate, you cannot argue with them.  They represent the facts, not opinions, not thoughts and not suggestions.    They present in many ways: some as drivers, key performance indicators (KPIs), critical numbers, leading and lagging data points, milestones, and targets.  They can be expressed in scoreboards, priorities, tactical planning frameworks, communication rhythms, and weekly huddles. But they all are part of what I like to refer to as execution disciplines.  There are three execution disciplines; Priorities, Data/Metrics, and Communication Rhythms. Each are described as follows:

Priorities:  In the short term (i.e. one year or less), company priorities are set by the leadership team that align with broader three-year (or longer) strategic targets.  There should be a line-of-sight created that links priorities that have been set for this year with the strategic differentiators identified in the three-year planning horizon.  The priorities identified and deployed during the current year are critical to achieving the line of sight. If we have an aspirational differentiator in the three-year horizon, then it follows that we need to be working on elements of that differentiator in the current year.

The quarterly period provides an opportunity to link current monthly, weekly, and daily activities with the annual priorities, and each individual accountable for those priorities must be engaged in activities that support them.  Individual accountability ensures that employees’ daily activities are adding value and are accretive to the overall company objectives. 

Metrics / Data:  Before describing how to measure a performance variable, it is important to understand why the variable needs to be measured, and why the it has been chosen by leadership as something to be tracked.  If growth of the enterprise is the primary objective, the activities of the enterprise need to be organized around specific strategic objectives tailored to such growth.  

Enterprise activities should be focused on improving or driving one primary objective in the current time period that is critical to the ongoing success of the organization.  The measure for that one objective is often referred to as a ‘critical number’. A commonly accepted definition of critical number comes from Wikipedia, , which is “an operational or financial number that represents a weakness or vulnerability that, if not addressed and corrected, will negatively impact the overall performance and long-term security of the business.”  

The critical number defines winning.  It rallies people around a common goal, providing a focus on what’s most important in the business.  It is the determining factor critical to the company’s success. It’s ‘The One Thing’ that, at any given time, is going to have the greatest impact on your business, ‘The One Thing’ you must achieve, or nothing else you achieve really matters much.

Like other lagging indicators, the critical number is influenced by other input variables, or drivers.  When we look at the Critical Number, it is usually on a historical report such as a statement of cash flow, balance sheet, or profit and loss.  Examples of critical numbers are profit before tax, gross margin percentage, conversion rate, return on assets, cash conversion cycle, debt coverage ratio, among others.

As you think about your critical number, invite others on your leadership team to offer their perspectives.  Debating critical issues in the business is healthy for the team, and agreement on what is most critical in a collaborative way encourages teamwork and deeper understanding of the business objectives.  Once you select the ideal Critical Number, then define the improvement target related to that number. And that is where the real excitement happens. It is in the process of getting to the critical number and improving it by focusing on the right drivers.

The drivers to the Critical Number are often referred to as KPIs.  The right KPI is a number that directly influences the Critical Number and will help predict the outcome.  The appropriate KPI also demonstrates cause and effect, by pointing directly at the Critical Number as one of its components.  A driver is a leading indicator, a number which provides insight or forewarning of what’s likely to happen with the Critical Number.  KPI’s are metrics to predict and measure progress, or achievement of a priority.

Leading KPIs usually change before the lagging indicator changes and are extremely useful as short-term predictors of the direction of the performance variable being measured.  Some examples of leading indicators, and the lagging indicators they influence include: Average weekly hours in manufacturing, impacting scheduling or backlog; vendor performance, impacting on time delivery, or materials variances; requests for proposals (RFPs), impacting revenue; bonus plans, impacting labor efficiency.  More examples are listed here...

Lead Measure  → Lag Measure

Measures Progress→Measures Success

How will we achieve? →What we will achieve?

Activity→Outcome

Behavior→Result

Cause→Effect

Driver→Critical Number

Weekly scrap dollars→Material cost reduction

# of upsells→Increased revenue per customer

Daily Labor Hr. Variance→Reduced cost of goods sold

Weekly new qualified customers→Increased revenue

These are just a few.  For more, see www.kpilibrary.com, or click the link below for a detailed list by category.

Communication Rhythms: Once you have determined the critical number, determined the drivers that can influence that number, assigned accountability to the number, and decided upon the improvement objective, then you can begin to manage the process.  Your meetings should be about discussing how you are progressing with movement of the critical number, or the input measures, or drivers, associated with that number.  

Your daily huddle should include members of the natural work teams or departmental units that are focused on some aspect of the critical number.  Each day those teams will have brief 5-10 minute stand up meetings where each member of the team is able to share 1.) what they accomplished yesterday; 2.) what they will be doing today to make progress towards the one most important priority they have; and 3.) where they might be struggling or ‘stuck’.  

The daily huddle is not a problem-solving session.  Instead, it provides an opportunity each day at a specific time for the team to communicate with each other on a specific topic that everyone on the team can relate to and understand.  Each member should come prepared to talk about the three topics, for no more than a minute or two. Talking about what we have recently accomplished, what we intend to accomplish, and where we are struggling to achieve our priorities creates higher team function, team awareness and team cohesiveness.  Other team members need to practice empathetic listening while their teammate is talking for maximum effect.

The weekly huddle is a longer meeting lasting up to 1 or 1.5 hours where the discussion can be centered around weaknesses or problems that are difficult to solve, or opportunities to leverage.  If your company has a gainsharing or bonus plan, the weekly huddle is the place to update forecasts, assign accountability for line item ownership on the P & L or Balance Sheet, and to forecast the variables that drive the critical number and have an impact on the overall bonus.  In the weekly huddle, the entire team can see the playing field in front of them, and gain perspective and understanding on all aspects and complexities of the business.

Additional meetings include monthly all hands, quarterly planning and review, and annual strategy planning.  There are also going to be many ad hoc meetings that occur each week outside this set of communication rhythms, but those will be minimized because most of what you need to talk about is covered during the daily and weekly sessions.

If the leadership team can be clear about the three execution disciplines: clear with priorities, with data and metrics, and with communication rhythms, the company will be well positioned to improve performance, experience less process variance and less drama, and accelerate growth.

The Power of The Critical Number

'People support what they help create.'  - Jack Stack, Chairman, SRC Holdings.

When my CFO released the financial reports each month, I poured over them with great interest and curiosity.  I wanted to know what the numbers were telling me, whether we were favorable or unfavorable to plan, how much profit we earned on our revenue for the period, and how much cash we were able to generate to help fund initiatives we had set out to accomplish to scale the business.  

I carefully compared results period over period, and the year to date to the prior year to date.  The results were either acceptable or not, and if not, I would task my team to research why and come back with answers.  This was my pattern, and while I thought I really knew what was happening in my company, the reality was that I didn't. My process meant that I would always be too late to make any sort of meaningful difference.  I was reviewing historical (albeit recent) numbers; however, they were still historical.  

 Numbers are everywhere, and leaders use them in tracking progress and making important decisions.  The problem is identifying which numbers are critical. Take baseball for example. Just enter a name, such as the great pitcher Mariano Rivera, who just recently received the Presidential Medal of Freedom.  Entering his name into the tracking site: www.baseballreference.com reveals a spreadsheet which includes 35 columns of data categories across 19 rows, with each row representing a year in the major leagues.  Mr. Rivera started with the New York Yankees at age 25, and stopped at age 43, playing his entire career with that one team.  

This at-a-glance spreadsheet includes no less than 665 data points, and a vast number of comparators, and all this for just one player.  That is a lot of data. But which data points are most important, and who would care? I like to look at wins vs. losses, and the earned run average (ERA), but I am not the coach.  The coach many need all 665 entries, but which numbers are the most critical? 

 Business is no different.  As a leader, you have at your fingertips a plethora of data including financial, marketplace, operational, human, and administrative that can help you keep tabs on your business.  You can read publications like The Wall Street Journal, Barron’s, Investor’s Business Daily to name a few, that have data on every company listed on multiple stock exchanges. You can purchase enormous quantities of data if you need specific types, but one thing is true about all the data you can access ... it is all historical.  Every data point you access represents something that has happened in the past. Every number on your financial statements, your Profit and Loss and Balance Sheet, your Statement of Cash Flow, is a lagging indicator, an effect that certainly has a cause, but is nevertheless a historical number.  

 With so much information, we tend to lose focus, and miss critical marketplace or operational trends that we should be paying attention to.  These trends might have been spotted had we been focused, real time, on a specific number. The challenge is that there are so many data points that it is difficult to get employees to focus on or even care about where they come from and what they mean.  Getting your employees engaged in the “business of running the business” will help you enormously as you scale the company. But, first, you must identify the one Critical Number that everyone must be laser-focused on. 

What is the critical number and how do I identify it? 

 I like to think of the Critical Number as the One Number that represents the most important variable we have to get right in order for our organization to succeed.  Many think of that one number in financial terms, such as profit before tax (PBT). It might be thought of in human terms, such as finding and retaining talented people in these strong economic times where unemployment is below 4% in most parts of the country. 

At The Great Game of Business, the Critical Number is defined as an 'operational or financial number that represents a weakness or vulnerability that – if not addressed and corrected – will negatively impact the overall performance and long-term security of the business.'  For more on Critical Number, go to their recent blog at the Great Game of Business titled 'Four Characteristics of a Strong Critical Number.' 

Once defined, we then need to forecast it along with the associated drivers, so we have clarity about how our company is performing at all times, in all departments, with all employees fully engaged and working to improve.  

A great way to engage your people is to connect the data to a benefit such as a bonus, a reward, or even equity in the form of stock or stock options.  Remember that if you engage your people through education, teaching them about the business of running a business, and including them in a reward system, they will become more interested in shaping the numbers in a way that benefits the company, and increases the reward.

Before we do that, we need to teach our people about business, about finance and accounting, and how we can influence the Critical Number by focusing on the drivers to that number.  You might think that to be an impossible task, but if you really want to get great results, teach your people the rules of the business, educate them, and then provide them with a stake in the outcome, and you will be amazed at what they can and will accomplish. 

Want more? Here’s a couple more resources to investigate: 

ARTICLE: [2 min read] What's my Critical Number and Why Do I Need It? 

There is at least one financial or operational number in your company that, if clearly understood and improved in the short term, would have a dramatic effect on your business.  What is that number for your enterprise? Your Critical Number will change depending on market conditions and strategic goals.

By engaging your team in the process of focusing on the Critical Number, they will become far more engaged and focused on the top priorities. They will have a common goal to target and collaborate with others to achieve.  They will also become educated about the factors that drive the business forward, and what it takes to be successful. They will, critically, have a chance to improve their own lives, and their families’ lives, in the process.

BOOK:  Get In The Game: How To Create Rapid Financial Results And Lasting Cultural Change, by Rich Armstrong and Steve Baker 

Due to be released on October 1, 2019, Get in the Game outlines the 10 main steps to implement the Great Game of Business framework.  I especially like the goal of the Great Game of Business, which is about transforming lives for the better by giving people the opportunity and tools to build better lives for themselves, their families, and their communities - empowering people to pursue their dreams.  

It starts with the right leadership and understanding the WHY behind open book management (OBM).  Getting employees engaged and passionate about the Game involves a real commitment to developing relevant knowledge of financial terms, what they mean and how they are used.  The authors further describe the path to determining your critical number, and help you develop a focus on the drivers to that number. I highly recommend reading this new book.

Compete to be the best? Not so fast!

Are you competing to be the best company in whatever vertical market you are operating in? The best software company; the best manufacturer or distributor? How about the best CPA, Legal, or Consulting firm? With 13,000 new companies starting up each week, how can you say you are the best? 

Rather than thinking of your product or service as the ‘best’, consider how it is uncommonly or uniquely different from your competitors.  Strategy is all about being different.  In his classic book 'Competitive Advantage', author Michael Porter defines strategy as the “creation of a unique and valuable position, involving a different set of activities (from competitors)”.  If we cannot clearly define how our offering is unique or uncommon, then, as a leadership team, we need to discover, understand and articulate what makes our offering uncommonly different from our competitors.

So, what can we do about it? Here's what I think:

• Understand your core competencies.  Develop competencies that your competition will be hard-pressed to duplicate.

• Define your core customer, your WHO.  Think of your core customer as a real person who exists and is working in a company already in your database, and with whom you find it a pleasure to do business and who buys at a profitable level.

• Discover your 'Uncommon Offering.' Determine WHAT you are providing for your ideal 'WHO'.  (Hint…  it satisfies both transactional and emotional needs).

• Define your 'Imaginative Acts', your STRATEGIC DIFFERENTIATORS, things you are doing that are not being done well or at all by your competitors.

• Discover your X Factor, your Secret Sauce, the big differentiating secret that only you and your team know about and leverage it to greater levels of profit and increased enterprise value. 

Below you'll find a series of resources if you want to dive deeper into understanding the problem. 

ARTICLE: Core Competencies, Bain & Company. [12 min read]

Defines Core Competency as follows:  A Core Competency is a deep proficiency that enables a company to deliver unique value to customers.   Such a Core Competence…

1). Creates sustainable competitive advantage for a company
2). Helps it branch into a wide variety of related markets

The litmus test for a Core Competency? … It’s hard for competitors to copy or procure.

Understanding Core Competencies allows companies to invest in the strengths that differentiate them, set strategies that unify their entire organization, and leverage their strengths to profitable advantage.
 
VIDEO: Core Customer Component of The 3HAG Way. 3HAG pt. 4 - Core Customer: who will buy at a profit  [3.12 min watch]   

As a practicing 3HAG WAY coach, I strongly support author and coach Shannon Susko's approach to defining Core Customer, which is a critical component in her 3HAG Way Strategic Execution System.  Susko's Core Customer exercise is derived both from her own experience as a CEO, and also adapted from 'The Inside Advantage', by Bob Bloom, referenced below.

BOOK: Inside Advantage, by Robert Bloom. 

Southwest Airlines was launched in 1970 in Bob Bloom's conference room in Dallas, Tx. Working with some of the world's most famous brands, such as L'ORÉAL, Perrier, BMW, Southwest Airlines, and Nestlé, Bloom developed an effective guide to help you discover your Core Customer, (WHO), then your Uncommon Offering (WHAT), then your Imaginative Acts, (STRATEGIC DIFFERENTIATORS) and finally your 'Inside Advantage’. Pulling it all together in ‘Inside Advantage’, the author demonstrates HOW to sell your WHAT to your WHO, at very high levels of profit. 

Excerpt: “I believe that a flourishing business should double in size every 5 years.  It's an ambitious goal, but at the same time a reasonable measure of an aggressively managed firm firing on all cylinders, on track to reach its full potential.”

Self-inquiry questions to consider:  

1. Do you know how your product or service is differentiated in your market space? 

2. Do you know your core customer down to the individual who is buying at a profit?

3. What uncommon and imaginative acts you are offering to your core customers that differentiate you from your competition?

And finally, I'll leave you with a quote:

“If you want to teach people a new way of thinking, don't bother trying to teach them. Instead, give them a new tool, the use of which will lead to new ways of thinking." - R. Buckminster Fuller; Designer, Inventor, Futurist.