Analysis: Leading Through the Budget Downturn

What federal managers can learn from the private sector.

Federal leaders are facing significant challenges in dealing with budget cuts, public scrutiny, political turbulence and a disgruntled workforce. Leading through this crisis requires vision and fortitude to facilitate major transformations. Fortunately, government executives have the benefit of seeing how the private sector has navigated similar challenges.

The government’s financial situation is reminiscent of industry challenges that developed during the recession and linger today: uncertainty, employee disengagement and risk aversion.

Starting in 2008, a series of high-profile bankruptcies and financial meltdowns led to an environment of intense uncertainty. A recent study by CEB, an industry advisory company, showed that 28 percent more chief executive officers anticipated substantial budget changes in 2009, compared with 2006. Similarly, the ambiguity of operating under constant continuing resolutions and the threat of sequestration makes long-term planning difficult. Government leaders are used to doing more with less, but now they must try to meet their missions in a landscape of shifting budgets and priorities.

Massive layoffs, frozen wages and a lack of job security during the recession contributed to a significant decline in morale throughout the U.S. workforce. CEB research shows the number of employees who have become disengaged increased by 50 percent from 2008 to 2010, and the amount of discretionary effort employees are willing to put forth decreased by 29 percent. In government, looming furloughs, ongoing pay freezes and harsh criticism of civil servants have hampered their ability to stay engaged and focus on their mission. The Office of Personnel Management’s 2012 Federal Employee Viewpoint Survey showed a decline in job satisfaction for the second consecutive year.

During the financial crisis, high-profile scandals among well-respected financial institutions resulted in calls for increased oversight and regulation. Mounting public pressure led to a climate of avoiding risk at a time when more innovation was essential. In the first year of the recession, manager support for new ideas declined by 10 percent, while 97 percent of senior leaders indicated that more innovation would be needed in the years ahead, according to CEB research. In government, allegations of improper spending have resulted in layers of new rules that stifle innovation and progress. Restrictions on travel and training make it difficult to make the investments needed to prepare for future challenges.

Just as private sector organizations have been able to overcome these challenges, so can government. Lessons from the economic crisis highlight the importance of three essential leadership attributes: adaptability, engagement and courage. Federal leaders can leverage the same capabilities to lead through tough times.

  • Adaptability: Effectively navigating a shifting landscape requires leaders to keep abreast of changes and provide guidance to employees on how to adjust accordingly. This requires remaining optimistic amid uncertainty, recovering quickly from setbacks, persevering despite obstacles, and experimenting with new approaches to identify what works. Beyond adapting themselves, flexible leaders develop these skills in others and cultivate a dynamic environment that is conducive to high performance.
  • Engagement: Leaders can foster engagement by establishing clear mission-related priorities and regularly talking to employees about how their activities fit into the broader scheme. Effectively managing poor performers is key. If leaders can get them to engage, these employees are three times more likely to produce quality work. Leaders must address performance issues fairly and directly. Moreover, they must provide nonmonetary rewards -- praise and recognition for high performers and opportunities for those who have potential.
  • Courage: In this budget climate, it is tempting to avoid risk. But courage to experiment and protect investments is needed now more than ever to drive innovation. Courage means speaking up to preserve resources, holding stakeholders accountable for results, confronting those who fail to uphold values and ethics, encouraging open and honest discussion, and keeping fear or risk aversion from stifling new ideas.

The private sector’s experience does not offer an exact recipe for success, but as the saying goes, “those who ignore the past are destined to repeat it.” Government leaders must learn to navigate uncertainty, proactively manage performance and embrace reasonable risk-taking. These strategies can help agencies retain top talent and focus on their mission amid the distraction and chaos.

Adam Cole is a senior director at CEB specializing in employee engagement, employment branding and performance management. Rose Mueller-Hanson is director of organizational and leadership development consulting with PDRI.