The “New Economy” is the trendy new term for the years ahead. We are all trying to anticipate what that means for us and how can we position our companies to adapt to whatever that “New Economy” will mean. Obviously even the best of economists cannot agree to what the future holds for us — unemployment holding or worsening, capital restricting or freeing, health care expanding or constricting, taxes growing a lot or a little and for whom, energy costs raising or lowering, the stock market up or down, the dollar strengthening or getting replaced. There is more confusion than ever. So how do we plan for a future that will more than likely challenge us as business leaders like we have never been challenged before?

There are many unknowns and uncontrollables in our current marketplace. The key to leadership is having a system that is most able to adapt. The number one criteria for success in the “New Economy” is the ability to have the most agile system. You are already seeing that play out with the recovery starting.

In the Auto Industry, “Cash for Clunkers” is an incredible temporary boom that created a shortage of vehicles and cash flow issues for the dealers. The dealers that were able to react quickly to getting more autos on their lots and had managed their cash well through the tough times were able to gain radically more sales from this boom. The ones who had low availability to inventory or poor cash positioning did not benefit.

This boom at the dealerships will now expose the auto company who is most able to react to a shortage at the dealers with the right inventory. The auto companies gearing up to a shortfall will then bleed down to the suppliers. Whichever organizations can react to the demand the fastest (and then probably quickly ratchet back down to “normal” demand levels) will be the ones that prosper.

The lessons that can be learned from this microcosm of our economy are vast.

• Response Times – Whoever can react the fastest is in a great position to get the business. We have a customer that used to take five days to get quotes to their customers. They have historically competed with China and have a great niche of filling orders that are running late. Because of improvements, they are now able to give quotes over the phone. Typically in these situations, the purchasing person wants to find the first person that can deliver to avoid a shutdown or shortage. They are often willing to pay a premium for getting product. It starts, however, with the ability to get the cost to the buyer. The first “reasonable” price gets the order.

• The “Right” Products – Meeting the customer’s ever changing needs are trickier than ever. Our R&D and new product development teams are racing to meet customer demands for new products. We still have an insatiable appetite for the latest and greatest, and companies who are able to quickly develop products, get them to market and obsolete them by introducing new products are going to thrive. That often creates some interesting dynamics in new product development. They like to use terms like “go, no-go,” decision gates, focus groups, milestone checking and the project plan. We are radically challenging the mindset of our new product development folks. The companies that innovate and the suppliers that can support them are going to be the successful companies of the next decade.

• Ramp Up/Ramp Down – The ability to staff to proper levels will probably be one of the top needs of the “new economy.” With shorter lead times and a fickle customer, we are bound to have wide swings in our business. This does not sit well with most organizations. We have not created systems that allow us to quickly shift or train labor. The most successful organizations that we work with have incredible training programs, great processes for sharing/transferring labor and a workforce that is very adaptable to the business needs. Long gone are the days of doing one job day after day in one department. Businesses need employees that are very adaptable, and they have to have systems that create the adaptable employees.

I do not know what our future monetary policies will be or what our new health care plan will look like, but I do know that it is imperative that we are setting our organization up to be more adaptable to the needs of the consumers. This includes our ability to lead an organization that can have incredibly quick response times in operations and new product development and also has the ability to react to all types of demand levels. The leaders that understand this are the ones who are going to lead the successful organizations in the 2010’s.

Current economic conditions are testing the leaders of many companies across multiple industries. We are hearing terms like “ride the storm out,” “hunker down” and “lay low.” The majority of executives are frustrated with their financial performance as businesses continue to cut their staff and ask their employees to do more.

Having the Right People Focused on the Right Responsibilities

I recently visited a client in the housing industry and talked with several employees from front-line operations to the president. A common theme emerged: managers should remain steadfast in allowing operational employees to oversee and be held accountable for improving production outcomes. This enables management to remain focused on overall process improvements and growth initiatives. This client previously had difficulty managing over 20 items with a four-week lead-time, where as today they are managing 350 items that are being shipped in a week. The management team consistently trains employees how to make day-to-day decisions to “run” the business, allowing the management team to look for areas of improvement and the leadership team to focus on growth into new markets, new products and new offerings. This client is now second in its market, closing quickly on becoming number one, growing in six years from $25MM to $170MM.

Another one of our clients is an automotive supplier. The company is down more than 50 percent in volume from the previous year. However, by having front-line personnel focused on operational improvements and executives being proactive in the marketplace, it acquired new business when its largest competitor was forced to close its doors. By previously aligning its production systems to handle complex products, this client was able to ramp up quickly to meet the new demand and deliver a high quality product. Being nimble in its operations has positioned it for projected record revenue levels this January, even in the face of the current automotive industry difficulties.

The Run – Improve – Grow Principle

“Run” is defined as the day-to-day activities that have to be executed consistently to effectively operate. If business systems are unproductive, executives have a tendency to constantly engage in “firefighting,” which keeps their eye away from potential opportunities or threats in the marketplace.

“Improve” occurs when companies instinctively challenge the status quo and realize it is dangerous not to constantly adapt. It is important for companies to continually examine their current operations in order to determine the best ways to eliminate waste and focus their time, money and energy on achieving better business outcomes.

“Grow” is looking outside your current business to areas of potential new markets, products and services to differentiate you from the competition. By becoming a solution for other’s problems and offering a unique selling proposition, your company can avoid simply being the lowest bidder.

Executives must spend the majority of their time in “Grow” and “Improve” activities.

Too often, when companies “hunker down,” the improvement and growth activities take a back seat due to fear of the unknown. Executives who cut only to control costs, or, worse yet, get involved with running the daily business activities, are putting their company’s long-term future in jeopardy. Successful business leaders are investing their time and energy in areas of improvement and growth to prosper, even in the face of a challenging business environment.

The leaders of the two highlighted companies are engaging their employees and eliminating to the obstacles that are preventing them from optimal job performance. They are empowering their employees to address issues before they become real problems and working to develop confidence in their employees by setting performance expectations and providing them the tools to achieve desire results.

Successful businesses continuously invest in leadership development and process improvement. For example, the housing industry client mentioned earlier had their changeovers go from six hours to 30 minutes. How? By listening to operators and involving them in the solution. The team was able to organize pre-build changeover kits and implement SMED techniques to make radical improvements, enabling it to now complete 12 times more setups without impacting production.

As the Run Improve Grow Principle takes hold in a company, the executive leadership team can focus on growth opportunities due to the high confidence in the operational process. They have time to think about what separates them from the competition. Too often, executives get distracted by working “in” the businesses instead of “on” the business. In order to achieve long-term success, business leaders must engage clients to understand their needs and anticipate industry trends. Business leaders must keep asking themselves these simple questions -

1. I have confidence in WHO ?
2. I need to let go of WHAT ?
3. I am going to do it by WHEN ?

After they are done, they do it again and again until the right people are focused on the right activities.  They also must insist that their direct reports do the same.

I recently met with a company struggling to adapt to today’s economic conditions. I had the company president participate in this simple exercise. We discovered that he was spending too much time settling disputes between a department manager and a supervisor.  This operational dysfunction was causing him to spend valuable time and energy on running the business on a daily bases rather than focusing on critical, future growth opportunities.

The market is on the side of the business leaders preparing for tomorrow.  So what are you spending your time on today? Are you running or growing your business? Whether you are a line leader or a president, you can take action today and start making a difference. By developing confidence in your team, you can meet the changing conditions of today’s economy and continue to grow your business.