Ten strategic lessons for corporates that are emerging from the current crisis, from an article published by the BCG Henderson Institute.
By Martin Reeves, Simon Levin, Georg Kell, Kevin Whitaker, and Saumeet Nanda
The COVID-19 crisis has posed a number of severe challenges for businesses, from reacting to the outbreak, preparing for a potential recession, anticipating an eventual rebound in demand and placing bets against the post-crisis landscape. But it also provides an opportunity for organizations to step back and assess their approach to strategy and their strategic capabilities. As the context in which businesses operate becomes more dynamic and unpredictable, driven by the pace of technological change and a high degree of interconnectedness, we should expect other shocks of a similar nature moving forward, whether the trigger comes from biological pathogens, cyberattacks, market crashes, or another sources. Some will be exogenous to the business world, but some will be endogenous.
How can companies be better prepared for when those shocks occur? We see 10 strategic lessons emerging from the current crisis:
1. Think in multi-level systems for highly interconnected problems. Companies are embedded in markets, which are embedded in highly interconnected economies and societies, which are in turn embedded in natural ecosystems and the biosphere. In such nested complex adaptive systems, disturbances often cascade up from lower to higher levels and back down again, reshaping the whole system in the process. COVID-19 started as a local outbreak, which many believed would be contained in China. However, by adopting a systems perspective, forward-thinking leaders, forewarned by prior epidemics, might have seen that there was a strong chance that it could spread globally — with cascading effects on economies, markets, and companies. Systemic risk is a common feature of highly interconnected systems, from banking systems to infectious diseases and beyond, begging a systemic approach.
2. Design and manage for resilience. During stable times, companies tend to compete by building scale and static efficiency. From this standpoint, redundant resources and capabilities could be seen as wasteful. However, redundancy is one of six characteristics that we have identified that increase the resilience of natural and social systems. The others are: heterogeneity (a diversity of perspectives and approaches), modularity (creating “firebreaks” to prevent whole system collapse), adaptability (the ability to flex designs in changing circumstances using a process of variation, selection and amplification), prudence (stress testing for plausible tail risks) and embeddedness (coherence with higher-level systems like society and nature). In the case of COVID-19, we see that organizations that failed to build resilience, such as governments that lacked reserves of critical health-care equipment or companies with distressed balance sheets, have much more difficulty responding to the crisis.
3. Create a sense of urgency and avoid complacency. Even after the coronavirus started spreading globally, many countries delayed ramping up testing and adopting mitigation measures, and as a result the outbreak spread and intensified. However, some countries that had experienced prior coronavirus outbreaks, such as Singapore (SARS) and Korea (MERS), were less complacent and intervened more rapidly and forcefully. Many companies found that while they had a “crisis response plan” on paper, they had never used or simulated it, so it was difficult to actually implement. To avoid complacency in future crises, leaders should instill a sense of vigilance and urgency in their organizations by, among other measures, conducting “war games” to create mental and physical preparedness for a range of possibilities.
4. Avoid communications gridlock. Once they eventually grasp the significance of a crisis, many organizations become hyperactive and gridlocked by incessant, ever-changing instructions cascading up and down the hierarchy. There are of course benefits to sharing information, but there are also costs: communication takes time away from the real work that needs to be done, over-communication drowns out critical messages, and the agility of the organization can be diminished. This is an example of a larger issue that pervades many organizations: new instructions, processes or structures get built but few are ever removed, so complexity tends to increase over time. In the case of crisis communications, leaders should employ the military principle of Commander’s Intent (auftragstaktik), focusing on communicating key facts, principles and objectives, and allowing the rest of the organization to decide on appropriate tactics, informed by the local circumstances they face at the time. Effective decision-making requires finding the right balance between leadership and collective action.
5. Match your strategy to your environment. Classical strategies that depend on deliberate, episodic planning cycles, such as those adopted by most governments and businesses, can be effective in stable environments. However, the COVID-19 crisis is extremely unpredictable and fast-moving, due to unknown characteristics of the virus and the exponential trajectory of infections. As a result, many organizations found they needed to use an adaptive strategy in rapidly changing circumstances, and to accelerate decision making accordingly. Furthermore, as the crisis recedes, they will need to adopt shaping and visionary strategies to influence and exploit the post-crisis landscape. Each style constitutes a distinct approach to problem solving and requires very different metrics, processes, capabilities and leadership styles. Companies increasingly need to choose the right approach to strategy at the right time for each part of their business. To effectively implement multiple approaches to strategy in this way, they will need to master the art of strategic ambidexterity.
6. Operate on multiple timescales simultaneously. In early stages of the crisis, companies focused primarily on reacting to immediate threats. However, the outbreak also surfaced other challenges and opportunities: preparing for a potential recession in the near-term, taking advantage of a potential rebound in the medium-term, and eventually reimagining offerings and business models for the post-crisis world. Many companies are learning that they cannot wait to tackle these challenges sequentially, because each requires significant mental and physical preparation — rather, they have to consider multiple timescales simultaneously to both survive and position themselves for the future. The clock speed of most organizations is determined by the annual planning cycle. But at a time when strategically relevant timescales are being stretched from the algorithmic (milliseconds) to the planetary (decades), they need to build the capability to operate at multiple clock speeds.
7. Compete on the rate of learning. The pace of history and strategy is not linear. Sometimes there are long stretches of time when little of strategic significance happens. At other times, every second counts. In a quickly changing, interconnected digital world, with access to the rapid pattern detection capabilities of machine learning, organizations can and need to learn faster. The need is further amplified in rapidly moving crises like COVID-19. Companies increasingly need to compete dynamically and cultivate the capability to learn rapidly. Traditional measures of an economy’s or company’s activity, such as GDP statistics and earnings reports, are far too infrequent and lagging to be of use during the COVID-19 crisis. To understand how activity is changing during the outbreak and see hints of the emerging post-crisis future, organizations need to access and analyze high frequency, granular data, such as daily information on specific products or sub-categories. Digital pioneers that have built massive data ecosystems, and the analytical capabilities to learn from them on a continuous basis, are advantaged in this regard. But it’s not just a technological matter: companies need to build hybrid learning organizations that combine human ingenuity and machine learning in order to compete effectively.
8. Find advantage in adversity. When the economic environment gets challenging, companies tend to act defensively. However, 14% of companies across sectors increase both growth and margins during downturns. As a result, competitive divergence increases during recessions. The companies that emerge stronger from a downturn tend to take a long-term perspective and treat the crisis as an opportunity. Benchmarking suggests that while the majority of companies are focused on reacting to and managing the current crisis, some are seeing and executing against emerging longer term opportunities. For example, Apple made several acquisitions during the heart of the crisis, leveraging its strong cash position to take advantage of depressed valuations.
9. Compete on imagination. There is no tried-and-tested playbook to tackle an unprecedented crisis like COVID-19. And in a strategic sense there could not be, since the impact on each company will be largely determined by its ingenuity and ability to see and shape new possibilities. History shows that new attitudes and patterns of demand emerge during a crisis, prompting many innovations, but the spoils accrue disproportionally to imaginative pioneers. Imagination is often the first victim of a crisis, but it is an essential ingredient for long-term success. Imagination is not, as is often believed, mainly about serendipitous individual inspiration — it can be developed and cultivated as an organizational capability in a structured manner.
10. Shape collaborative
solutions. COVID-19 is a global crisis that touches nearly all aspects of
society, and solving it will require a collaborative response across business
ecosystems, sectors and nations. Atomistic competition within current
governance and regulatory frameworks will not get the job done. When confronting
global issues, such as pandemics and climate change, governments and business
leaders alike will need to build and shape coalitions for collective action at
a global scale. This is necessary both for society as a whole to thrive, and to
preserve the viability and legitimacy of the canvas upon which business
operates. Business ties across nations create the empathy and connection that
can facilitate broader collaboration. In addition, businesses are highly
effective problem-solving entities and have a crucial role to play in tackling
our common problems. This agenda will, however, require innovations in how we
lead, collaborate, govern and collectively mobilize.
About the Authors
Martin Reeves is a managing director and senior partner in the San Francisco office of Boston Consulting Group and the Chairman of the BCG Henderson Institute.
Simon Levin is the James S. McDonnell Distinguished University Professor in Ecology and Evolutionary Biology at Princeton University.
Georg Kell is Chairman of Arabesque, an ESG Quant investment firm, and founder and former head of the UN Global Compact.
Kevin Whitaker is the head of strategic analytics at BCG Henderson Institute.
Saumeet Nanda is a consultant in the San Francisco office of Boston Consulting Group and an ambassador to the BCG Henderson institute.
Read the original article here.