Do not trust your rearview mirror

By Frank R. Lloyd, PhD
Southern Methodist University Cox School of Business

The road ahead for business leaders is treacherous and difficult to navigate, full of hills and blind corners. This perilous line of sight is a sharp contrast to the spectacular view of the business landscape one gets from the rearview mirror.

Looking back in the US, for example, the quarter century from 1982 through 2007 was a period of unprecedented growth. However, that era was fueled by a convergence of factors that is not likely to exist again anytime soon. That prognosis means the current economy should not be expected to break into the clear just around the next bend or over the next rise. 

In the 25 years between 1982 and 2007, the US economy was in recession for only sixteen months. In the previous 100 years, on the other hand, the US economy was in recession 40% of the time – for forty years! 

So what was different about the recent period?
Technology: The invention of the microchip had an impact on the economy as great as the harnessing of electricity in the late 19th century, and of steam power 100 years before that. 

Globalization: The emergence of China and India and the collapse of the Soviet empire tripled the size of the global marketplace.
Economic policy: Government policies promoted low taxes, low inflation, and free trade, all of which are favorable to business.
Demographics: Rising US birthrates and in-migration led to an expansion of the domestic market.
Debt and credit: New instruments created much wider access to capital for consumers and businesses.

None of these factors taken individually or collectively can be expected to recur in the near future. Instead, there is likely to be a prolonged period of volatility – slipping in and out of recession – that adds up to long-term slow growth. This “new reality” will continue to be uncertain and ambiguous, which is quite different from the past 25 years.

For companies to thrive in a prolonged environment of increased volatility, they need to continually scramble to identify new sources of competitive advantage. Thus, more than ever, finding and retaining top talent will be the key to success. 
This assumption is verified in SMU Cox’s most recent annual CEO sentiment survey, conducted in collaboration with D CEO magazine, where respondents identified “attracting and retaining good employees” and “developing good leaders” among their top three challenges. 

Top talent will be well-rounded talent. Smart firms are already looking for leaders who combine:
• Business acumen;
• Customer focus;
• Interpersonal skills;
• Organizational agility;
• Strategic thinking; and
• Innovation.

It is no secret that a leadership gap exists in the oil and gas industry. Although retirement may not come for many current employees as early as it was anticipated 18 months ago, it will come.

A well-rounded approach to leadership development is not only desirable these days, but required. This is perhaps best demonstrated by a large E&P company whose leaders recently created a management development program for high-potential employees. The purpose is to create alignment across the business to achieve the company’s overall strategic objectives. The program is centered on the key competencies of strategic thinking, decision quality, personal and organizational relationships, developing and mentoring subordinates, and managerial courage.  Two years ago, the company might have focused primarily on personal and interpersonal competencies. Today, strategic thinking and decision quality are perceived to be just as critical to assure sustained performance and competitive advantage.

To turn “the great recession” into “the recession that made us great,” firms will have to recognize that what is in the rearview mirror is not what will appear through the windshield anytime soon.  Accordingly, they will need to adopt a comprehensive new approach to developing leadership competencies – one that focuses on creating leaders who can lead people, make money, and grow the organization strategically in a period that will be marked by continuing volatility.