During the rollercoaster ups and downs of our recent economy, minor shortfalls quickly turned into major cliffs for leaders who failed to bolt expenses to revenues. Just look at U.S. Steel. In the second quarter of 2008, the company achieved record profits, but by November, executives laid off 675 workers and postponed a $450 million new plant.

While many companies emulate U.S. Steel, the good news is that there are organizations that have shown a strong ability to respond to these changing financial conditions. The most agile tend to respond faster and find millions of dollars more in savings than their peers.

VitalSmarts researchers wanted to identify the crucial moments leaders face in fiscal challenges that profoundly predict the quality and speed of an organization’s response. To uncover best practices of the financially agile, we asked more than 2,000 managers and executives from more than 400 different companies to reflect on their experiences with major financial retrenchments. Our hypothesis was that major financial adjustments were more of a human than a technical problem—that they didn’t rely as much on the quality of data, processes, or policies as on behavior.

The results were remarkable. We found four moments that happen in every organization that predict with incredible precision how well and how fast an organization responds to economic threats. Those who handled these four moments well were more than five times more likely to respond within days or weeks. Furthermore, those who stepped up to these crucial moments effectively were more than ten times more likely to respond in a way that positioned the company for future success.


The Four Crucial Moments

Our research shows that if and when cultural norms make it impossible for people to speak up in financially crucial moments, opportunities are missed, time drags on, and peril mounts. On the other hand, organizations respond faster and better to threatening conditions when leaders create candid and effective dialogue during the following four crucial moments:

1) Debate and Denial: The moment teams are asked to evaluate pending financial crises and disagreements and debate ensues over the urgency of the organization’s financial outlook. Teams that are able to effectively disagree are twice as likely to act within days instead of weeks or months, and are nine times more likely to resolve it. But only 40 percent of teams have these skills.

2) Silent Collusion: The moment people fail to hold their teammates accountable for not keeping commitments related to the financial crisis. Teams that hold each other accountable are more than six times (6.5x) more likely to take effective action within days instead of weeks or months. Even more remarkable, every one of the 109 highly accountable teams in our sample resolved their financial crisis. But only 11 percent of teams hold each other accountable.

3) Undiscussables: The moment ideas and solutions are shot down or withheld because people don’t know how to discuss entrenched cultural norms or suggest cuts to the boss’s pet projects. Teams that aren’t mired in undiscussables are four and a half times more likely to act on the financial crisis within days instead of weeks or months, and are nearly five times (4.9x) more likely to resolve it. But fewer than half of the teams we studied were able to discuss these undiscussables.

4) Irrational Slashing: The moment leaders decide to impose across-the-board cuts rather than engage key leaders in problem solving and strategic solutions. Leaders who exclude the team are nearly three times (2.9) more likely to undermine their own purpose by either undercutting their mission, making ill-advised cuts, or resorting to uniform across-the-board cuts when a more tailored approach would have been more effective.


What Leaders Can Do to Create Financially Agile Teams

The pattern is clear. Each of these crucial situations represents a pivot point between agility and a tar pit. Teams that step up to these conversations are 250 percent more likely to survive. Our less agile teams are 360 percent more likely to say they miss hundreds of thousands, millions, or tens of millions of dollars in lost opportunities. So here’s how leaders can take control:

1. Model and Teach Dialogue Skills. Leaders must overtly foster the dialogue skills required to address these four crucial conversations. As managers hold crucial conversations, every one of the positive results described above is enabled. Issues are quickly surfaced are discussed in a way that leads to consensus not conflict.

2. Schedule Regular Financial Workouts. The era of fixed budgets is over. Agile firms replace fixed budgets with financial workouts, scheduled quarterly or in response to unforeseen shocks. These workouts are led by the C-Suite, and pit a wide range of initiatives against clear criteria, the firm’s revenue, and strategy.

3. Publicly Sacrifice a Sacred Cow. Sacrifice breathes life into new values. When leaders openly demonstrate that fiscal stewardship is more important than pet projects or personal ego, cynical team members begin to “doubt their doubts.”

4. Support Decisions that Favor Timeliness over Perfection. Most managers believe their leaders expect perfection. This tacit belief can create peril in a financial crisis. Fiscally agile leaders accept that urgent financial decisions are made under conditions of uncertainty. So, they help managers determine the nature of the uncertainties and encourage them to tailor their decisions to the information they have.

5. Create Safe “Sub Dialogues.” Break fiscal challenges into discrete problems and assign small cross-functional groups of peers to work in a time-bound way to generate solutions. When done effectively, the result is intelligent cuts proposed rapidly by those who truly understood and embrace the goals of the reduction.


Conclusions

The greatest barrier to financial agility is not a lack of intelligence or a lack of time; it’s a lack of focused and unified dialogue.

While the need for financial agility is greater today than at any time in recent memory, the capacity to engage an entire organization in candid, timely and wise deliberation pays returns in any season. The present study shows that quality and speed are not at odds. If leaders invest in the skills, time, and support required to allow people to hold the four crucial conversations outlined here, they can generate both profoundly wise and surprisingly rapid solutions to their financial challenges.




About Joseph Grenny—Coauthor of the New York Times bestseller, Crucial Conversations (McGraw-Hill), Joseph Grenny is a sought-after speaker, consultant and cofounder of VitalSmarts, an innovator in corporate training and organizational performance. www.vitalsmarts.com