Leadership priorities in response to disruption

Dr. Nenad Filipović, Director of Executive Education, IEDC

The definitions of disruption vary, but in my view the disruption is an event or a sequence of events threatening the sustainability of our business model. To put it simply: “business as usual is no longer possible”. It is not always an external disruption that causes business go bust. Take for an example Kodak, which fell victim of a “self-inflicted” disruption. These days the case of British Airways, on the other hand, is a clear example of an external disruption caused by the coronavirus epidemics. 

Disruption does not allow us much time for reaction. Most often it is also a moving target, hard to know what is the current situation and how the it is going to develop. The same is true for the epidemics we are experiencing. In many countries in Europe regulations change overnight, government reactions are difficult to predict, consumers reactions oscillate, business partners drop their orders just to find themselves out of stock and so on. From business perspectives, the implications are huge. There are fast changes in complex situation, with no clear answers. At the same time, resources tend to be highly limited. From financial perspective, cash flows are extremely tricky for many companies, not only small ones- It is easy to run out of cash fast. Not only cash, but also people – with high levels of stress one can question the ability of people to engage and deliver the necessary changes.

I believe it is interesting to look at the research of motivation and performance. It shows four distinctive periods related to disruption. Three of them we could already witness in the current Covid-19 disruption. After the initial shock, which decreased the performance, the high motivation bounced back, even above usual averages. However, now, after a full year, the prolonged stress is eating in and the performance is again suffering. We are seeing many “soft” challenges, including the ethical challenges and conflicting interests of stakeholders - all of these clearly being big issues for the companies. In order to reach the fourth stage of motivational swing we need to resolve these challenges and create a credible, positive vision of future developments. As much as vaccination may be a good starting point, such a vision goes way beyond it.

Another aspect of the disruption may be interesting, too. If it is a life-threatening situation, and I believe that both from personal and business perspective epidemics has that potential, one of the things that we can do is to look at the research on the surviving mechanism in such circumstances. One of the great sources would be “The Survivor’s Club” written by Ben Sherwood (2010). It is not an academic piece of research. Rather, it is based on numerous interviews done by a journalist with people who survived deadly accidents. He was trying to understand what do all these people have in common that helped them survive. I must admit that many of these things I find extremely interesting also for business and useful in the situations like we have found ourselves in now.

First of all, despite things being urgent and fast reactions being needed, panic reactions are to be avoided. Employing active passiveness is an approach that helps us take stock of the situation and assess what is needed. It is important to see what really is there and not what one expects or hopes to see. What surprises me a lot, and I am talking about more than 40 years of experience in the business sector, how even senior managers are able to look at the situation and be completely opposite in their conclusions of what they see, being totally unrealistic in their assessment. We tend to see what we would like to see, rather than to face the facts. An advice is not to be alone when interpreting the situation, share your understanding with others and try to come to the common picture that needs to be shared not only within the company but preferably also with the external stakeholders. Next stage is to be ready to find new solutions to the new situations, which might require a new approach and out-of-the-box thinking, some creativity. That requires a lot of self-confidence, because going off the beaten path requires some courage and persistence. It is very likely that the first solution would not be the ultimate solution. 

What leaders tend to notice very soon in these situations is that there is a lot of contradictions (just look at the active passiveness step described above). Disruptions are notoriously bringing contradictions and creating paradoxes. 

Paradox 1: Ambiguity vs Certainty

Even in situations, which are fluid and ambiguous we need to take decisions and be certain. We cannot create 27 different futures for the company. We need to decide for one or two possible courses of actions. So, how to balance between ambiguity and certainty? When I hear the phrase “new normal” , popular these days both in business and political circles, I am honestly confused what is meant by it. It is a deceiving phrase. What are talking about here is in fact a longer period of a changes and the hope that things will become stable. I think change is becoming our biggest stability. Unfortunately, as much as our business environment changes, our infrastructure, our business infrastructure (financial systems, IT systems, HR systems, etc.) are not changing that fast or at all. That also includes social infrastructure. 

Moreover, it is clear that employees expected from their managers and leaders a sense of certainty, stability, of knowing where they are going. Research shows that if human beings are exposed to a longer periods of uncertainty, and especially, if they are dealing with complex jobs, their performance sinks. So performance of our designers, our R&D people, our managers, will suffer in prolonged uncertainty. 

If we cannot create certainty in the business environment, where can we create certainty? We as leaders can and should create certainty in the space of values and behaviors. We may change the way we work, but we should stick to a set of certain values, which make people comfortable in the sense that it would create guidelines which make people sure they are doing fine if they follow them. One practical tool in this is promoting the positive approach to business, the Appreciative Inquiry technique, that helps understand what could be done better rather than looking for who was guilty for things going wrong. Moreover, we have to bring another set of supportive system, starting with HR, possible psychological support, learning support, to help employees cope with uncertainty. 

Paradox 2: Safety vs Humanity 

What is safe these days and what is not? Things that used to be obvious and normal are not anymore. Social distancing, which in my opinion, should have been called physical distancing, leads to sudden dominance of online environment. Sending people to work from home may have contributed to safety when it comes to exposure to virus, but has likely led to decreased safety in some other aspects. Doctors keep saying that we are unfortunately loosing lives because of the pandemics, because of COVID-19, but we are also loosing lives because people who do not go to hospitals for other treatments. Depression and other mental health related problems are surging in all segments of population, with enormous long-term social cost. 

I think we as leaders should keep looking at the larger picture and making ethical choices – what is more important for the people, for the company: to keep them safe? How to balance between economic safety and health safety? Unfortunately, research tells us that in crisis times, ethics is often violated. So, what can we do? Understand this complexity and make sure that people who are forced into online environment still get enough social integration. We will have to be more inventive about it in the future, since what we have at the moment is not sufficient. I also think that all companies have to make explicit ethical guidelines for these situations – what is acceptable behavior, what is seen as appropriate and what is not. 

Paradox 3: Rationality vs Empathy

Situations when crisis hits often require drastic responses. Sometimes, very rational responses, as part of crisis management. I do not like analogies with war or surgery. We have to keep people focus on important things and keep their motivation. The vocabulary of war cannot keep people motivated for longer periods of time. Skill and will of people is needed in order to perform well. Empathy has to be shown, because without empathy people soon loose commitment to people on the other side. If we expect them to use their brains and heart and we, ourselves, do not show any hearts, we are very likely to lose many people in the company soon. 

When disruptive change happens, companies have to reinvent themselves and research shows that roughly 50% of middle managers are gone during that process – some left the company, some were asked to leave, some got another type of job within the company. That is a huge flux. Dealing with demanding stories of people, showing the human face in all this, thinking of people as people, not only numbers, but also thinking of qualities that we need in the future and using this opportunity to build the structure of the employees, beef up the competences of the company, in steering it in the right direction, is important. Using the right language, meaning, showing empathy in the way we address our people, is also important. Understanding who is important for the company is vital. Sometimes, surprisingly, we are not well aware where the value is created for the customer. As an example, as much as doctors do a lot for the patient recovery after surgery, janitors and nurses have extremely high impact on the recovery of the patients because they connect to them, they provide them with human support. It is actually they, who allow for speedy recovery. We need to understand who is creating value for the clients, and these people need to receive proper attention.

Paradox 4: Short-term vs long-term proliferation of “zombies with vision”

A very common paradox in business is the paradox of short-term and long-term optics. We have to survive, we have to be sufficiently successful in the short-term to have even the opportunity to run the business in the long-term. However, it does not solve the problem if we just do things to survive short-term. We may become zombies and die after few years, because we are dead now, we just do not know it yet. 

Managers for sure develop short-term focus in liquidity crisis. Owners usually help to that, since, unless the government is the owner, they tend to be very short-term oriented. This short-term pressures may seem cruel these days, but long-term has to be addressed, otherwise we will not be successful. 

How can managers and leaders deal with that? One way is to keep re-checking the reality, asking very pragmatic questions which allow us to understand where are we today. The other way is to think about long-term through the optics of the business model: the way we compete in the market, whom we address and why would they buy from us, how do we deliver the value to them. This has to be clear both for today and for the future. There are many tools available for this, such as Business Model Canvass. Balanced Scorecard can also be very useful, although in our region it is usually not implemented well. All these tools help us understand the true drivers of business success, rather than just focusing on measuring the financial outcomes. By measuring the drivers and intervening on the drivers such as market performance, internal operational efficiencies, people and culture, we are more likely to avoid becoming zombies. Understanding the last one, the human capital of the company, and how it contributes to the future of the company – this is where the leadership effort should be placed even in current crisis.

Paradox 5: Speed vs Robustness

Should we be fast and then risk making mistakes? How to think about making mistakes? In a situation of a disruption, I think it is impossible to avoid mistakes. Of course, some of them could be extremely costly. My observation is that most of the companies treat all the mistakes in the same way, which I think is very wrong. Companies also very often lack clear understanding of what a mistake is, looking at short-term effects rather than long-term ones. What we see in the region, is something that is associated with dealing with mistakes – that is fear. What research tells us is that this fear is driven by wrong leadership behavior – by autocratic leadership, by leadership that relies on power and rules, rather than on cooperation and performance. When even the smallest mistakes are punished, fear creeps in and readiness to learn is diminished.  Dealing with that in an appropriate way is critical for our ability to find the way out of crisis, and to do it fast.

I think in any disruption, we need to take every opportunity to learn from smart mistakes. I always make this difference: smart, stupid and killing mistakes. As leaders, we should be able to differentiate. Smart mistakes are those, which allow our company and our people to learn from making them. That, however, requires the focus to be on “how can we do better next time”, rather than “who is guilty”. Going around punishing people for mistakes that have learning potential will have an effect of causing people avoiding to engage or hiding mistakes, and the potential for organizational learning will be lost. Stupid mistakes, on the other hand, should be punished. If we learn from smart ones, stupid are repeated over and over again and people making them should not be allowed for such kind of negligent behavior. If people do not show any readiness or any ability to learn, we may rethink whether we need them, should they be part of our organization at all.  So, if smart mistakes are welcome and stupid mistakes are punished, “killing” mistakes, that can sink the business or literally kill people, must be prevented. We have to have enough overview of what is going on in the company either directly or through culture mechanisms, where people understand that these mistakes are to be prevented and each of us in the company does his/her best to prevent them, not that we all rely on the control of one person at the top. 

I think good companies these days are able to differentiating between these mistakes, which leads to agility and creative responses to the crisis. If we want to move fast and agile, we need to adjust to continuous changes, and our first duty is to remove fear: understand what are the sources of fear, be in the front line, engage in the behaviors which are supportive and do not induce fear. 

Paradox 6: Rules vs Wisdom

All the above leads us to the topic of moral skill and will. Dealing with others in a fair way, being ready and able to stick to the rules but also break them if needed. One of the things that we see in the region, in most of our companies and in most of our political systems, we have created an enormous number of rules. Of course, many of them are needed, but some of them are pure “alibi” rules – they actually allow us not to act, not to be agile, to avoid being creative because we stick to rules. While, of course, rules should exist and allow us to “drive safely” in simple situations, I think, complex problems cannot be solved by application of rules, complex problems do require wisdom and that is leadership. That also means if we do not have trust in people, we keep adding rules, we hope that rules will prevent people from doing wrong things. 

Trust is also tricky, since if we trust wrong people, we will create a lot of damage. By the way, in change management – trust is a central concept, disruption requires change, hence, it requires high trust in the organization. A global research shows that when people were asked if they trust their boss, YES is at 25% only. If you look at trust polls of politicians, it is even worse! So, what leaders should do? We need to rebuild trust, we need to have rules but in certain situations where they will be effective, in others we will require wisdom, moving into a “soft area” in-between – I’m not speaking about compliance in banking or insurance here. What I am saying is that for complex business situations, we will not find answers in the rule books. Let us use collective wisdom of teams, and in order for teams to function, let us understand the trust levels and find expected points of trust in the organizations and take actions to bring trust to the high level. Leaders here have these symbolic roles – they are the role models, and unless the organization trusts their leaders, it is very difficult to hope for success.

Paradox 7: Heroes vs Servants

So, what kind of a leader we need to be? Hero-type or the servant-type of the leader? Why is it even a paradox? I believe all our countries in the region are under a strong influence of an Anglo-Saxon understanding of a heroic leader, a macho leader in business. Historically, there are macho stereotypes in our societies. Strangely enough, research shows that people do expect heroes in these times, they would feel safer with heroes. But at the same time, it is not enough. People also expect empathic leaders, who understand their troubles. From my recent conversation with a colleague from Harvard who did a research on macho-type leadership, performance of companies where macho-style only has been displayed, did not bring good results in current crisis. While  leaders worked for 20 hours and so on, they wanted their people to perform at the same level – to work under pressure and deliver under pressure. Lack of empathy was tolling, since most of the people just do not have capacity for permanent heroism, and it is nothing to blame.

In our region, autocratic leadership does dominate. When we did the study of the leadership styles in our region, autocratic leadership dominates and the tenure, the number of years spent in the top position, makes it worse. While this is not a good starting point, I think we should manage the expectations about the leadership style. Being ready to engage in these days is important, but showing empathy is no less important. I think we should provide support to leaders in forms of coaching and mentoring. Coaching on the psychological and behavioral side, mentoring on holistic business view.

Companies performing better than the others tend also to differentiate by emphasis on leadership development, which as a result is one of the drivers that makes good companies even better and makes troubled companies even worse performers. Disruption is one of the periods when market cards are reshuffled and the gap between good and bad performers widens. Unfortunately, there is a relatively little space in the middle. 

So, if these are the paradoxes that leaders face, what are the actions that could be taken:

1. Leadership alignment

- Clarity of roles in the leadership team
- Decide which sources to trust
- Develop and align on core scenarios
- Develop and prioritize list of actions in other five streams

2. Maintaining operational viability

- Understanding the implications of disruption for operational model
- (more sophisticated) demand planning and inventory management
- Fast redesign of go-to-market strategy (typically including more online)
- Out-of-the-box service delivery solutions

3. Maintaining financial liability

- Creating relevant financial scenarios
- Conservative cash flow planning
- Balanced financial decision-making
- Monitoring and developing access to government/bank support mechanisms

4. Developing new business model

- Focus on new value for customers
- Build core assets and competencies
- Leverage new resources in the market
- Develop new ecosystem
- Transform the operating culture

5. Maintaining customer trust  & engagement

- Full transparency and active communication
- Maximum customer support addressing key concerns
- (low cost) Engagement mechanisms
- Reconfigure offering to fit post-disruption lifestyle patterns

6. Maintaining employee trust and engagement

- Show that we care
- Resolve “fairness of rules” process
- Share confidence of survival through common action
- Inform relentlessly
- Keep emotionally close (even if physically distant)

All of the above said boils down to a very personal, intimate reaction of a leader to the situation. Fight or flight is an old dilemma. As leaders we have to decide in these situation if we are ready and able to put energy into it, do we believe ourselves that this fight is meaningful, are we upfront doubting the outcome or not. Unfortunately, there is little space for publicly expressed doubt here. People read our behavior. If there is doubt, they will start doubting themselves, which leads to a downward spiral.

During the disruption, we are often pushed into a “burnout” area (ref. to the graph burnout/boreout from The Decision Book by Krogerus and Tschappler, 2017), which we have to deal with and what could help us here is the following:
- Empathy over bravery
- If you do not care for yourself, nobody else will
- Confirm personal priorities with key stakeholders
- Seek support in the form of mentoring and/or coaching
- Reserve some time for reflection and (structured) learning / refueling.

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Dr. Nenad Filipović, Director of Executive Education, IEDC
01.03.2021

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