The pandemic, rising inflation, supply chain disruption – businesses have been hit with an unprecedented series of shocks in recent times.
For most leaders, the environment these events have created is the most challenging they have ever experienced.
Against this backdrop of difficulty and uncertainty, most senior executives have switched to a mode of strategic “watching and waiting”. However, another leadership mindset is also in play – one where all the right defensive actions are being taken while also using the volatility as a catalyst for exploring new opportunities.
This latter approach is explored by Michael Birshan, Ishaan Seth and Bob Sternfels, writing for McKinsey Quarterly. They believe this balanced modus operandi is a sound leadership approach for tough times and superior to the alternatives on either side of the risk equation; their research on corporate resilience found a “defence only” stance tends to produce median results, while an “attack only” outlook can deliver the occasional win but also some catastrophic losses.
The best leaders and organisers, Birshan, Seth and Sternfels insist, are “ambidextrous” – managing the downside carefully while pushing the upside zealously. Using this dual approach of prudence and boldness, they thrive in challenging environments rather than just survive. Moreover, these leaders create an edge for their organisation in three areas: insights, commitment and execution.
In the face of disruption, senior executives should examine the extent to which their organisation has an edge in each of these aspects – and if an edge doesn’t exist, it needs to be developed quickly. To help them, the authors explore each of the three edges and how they can be acquired.
An “insights edge” requires depth, granularity and diversity in an organisation’s analysis of a situation.
Depth of insight means looking at the impact down the line. For example, look at how a supplier’s production issues could cause disruption all the way down your value chain.
Granularity, meanwhile, is necessary because shocks can interact and play out in different ways around the world. For example, while the war in Ukraine led to disruption in the supply of food and metals, this had less of an impact in Chile, where there is an abundance of both, than in Sri Lanka, which does not have the same level readily available.
Diversity means using sources of information outside of the organisation or even the industry to gain different perspectives. Birshan, Seth and Sternfels use the example of the pandemic, which supposedly “no one saw coming” – except, upon analysis, a number of people had indeed warned of such a threat.
To build an insights edge, the authors advise leaders to ask themselves questions such as:
- Do we have a clear view of our supply chain risks and options for strengthening its resilience, all the way down to third- and fourth-tier suppliers?
- Is our portfolio fully understood on a granular level based on regions and segments of the market?
- Do we understand customers and end users intimately enough to pinpoint changes in behaviour and sentiment?
- Do we have mechanisms in place to catch and distil disruption signals from within the organisation on a regular or, preferably, real-time basis?
- Do we have sufficient diversity of external sources to capture signals and are we giving consideration to contrarian viewpoints?
Also recommended is the building of digital and analytics resources across the organisation, along with scenario analysis to identify previously unseen risks.
It’s obviously important to know what to do – but you also have to do it quickly and with enough ambition. That’s where “commitment edge” comes in.
Recent shocks mean the longevity of decisions has collapsed, so you need to evaluate your choices on a more regular basis than before. Moving in the right direction isn’t necessarily what differentiates the best leaders and teams; rather, it is taking the right action quickly and decisively before other organisations have built up sufficient knowledge or confidence to commit.
In the face of uncertainty, adjusting and acting is preferable to merely watching and waiting, insist Birshan, Seth and Sternfels. They give the example of BP, which reacted to Russia’s invasion of Ukraine by signalling its intention to divest its stake in Rosneft – with the announcement of the plan coming before most companies had managed to evaluate their response to the invasion. Thus, BP moved from being one of the global organisations most heavily invested in Russia to one often used as an example of decisive action against the invasion.
The commitment of resources can also be important, with companies moving early and to scale often gaining significant advantages, according to the authors’ research.
They suggest leaders ask themselves the following in questions to help them build their commitment edge:
- Is the leadership team effective in making decisive strategic choices or do we have to change mindsets and processes?
- Are we betting sufficiently on our most confident beliefs?
- Is our governance holding us back from making bold moves at the right times?
- Do we continuously track the movements of competitors, as well as organisations and disruptors in other industries, to help us act decisively at sufficient scale?
Also recommended is the development of a “playbook” for bold market moves, including M&A activity and divestment – ready to be implemented when you reach a trigger point – along with the ring-fencing of capital to deploy dynamically as threats and opportunities arise.
Once you know what to do and have fully committed to it, you need “execution edge” to complete the picture. Successful execution is important at all times but is especially advantageous in the face of volatility.
Once again, speed is of the essence when it comes to execution edge. A prime example is the race for effective Covid-19 vaccines at the start of the pandemic and the organisations that successfully delivered them to market.
To achieve the necessary speed in a volatile environment, leaders must look to break silos, streamline the decision-making process, slice through cumbersome red tape and hierarchies and invest sufficient power in frontline leaders. But don’t wait until disruption arrives: according to research by McKinsey and Harvard Business School, companies that had embarked on agile transformations prior to the pandemic outperformed those that had not – both during and after the crisis.
Leaders should ask the following questions when building execution edge:
- Are we up to speed as an organisation – literally?
- Does our current technology suit our purposes and not constrain us?
- Do our marketing, sales, pricing and customer experience strategies underpin growth sufficiently?
- Can our procurement create value from volatility?
- Does our balance sheet have enough flexibility for the execution of bold action during tough times?
- Have we learned lessons from past experiences of crises, recessions and acquisitions and translated them into playbooks for future events?
In conclusion, Birshan, Seth and Sternfels insist that one half of crisis is danger, and the other is opportunity. Courage and bold, decisive action can leave less-equipped rivals in the dust when volatility rears its head.