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Published: May 28, 2013
 / Summer 2013 / Issue 71

 
 

Captains in Disruption

The key to the problem, says Clayton Christensen, lies in the nature of data itself. “How can you make sense of the future,” he asks, “when you only have data about the past? That’s the role of theory, to look into the future.” In other words, you have to think through the reasons that the pattern of behavior in the data in this case appears to be different. Christensen adds that in most companies, top executives do not have access to candid insights from people at all levels—perspectives that they need if they are to plan for future disruptions. “Data is heavy. It wants to go down, not up, in an organization,” he says. “Information about problems thus sinks to the bottom, out of the eyesight and earshot of the senior managers.”

In Christensen’s view, chief executives (and other senior leaders) can compensate for these limitations only by learning to ask better questions. “Instead of looking at the data about today’s performance, I [need to] keep my attention on the questions I need to ask so I can catch the issues of the future…. For instance, if you’re concerned about disruption, you ask: ‘Which competitors are threatening me and which am I more likely to threaten?’ Disruption is a question about who’s going to kill whom.”

It falls to the CEO to ask questions this way, and to oversee the enterprise-wide thinking required to assess potential disruptions. Executives within business units and functional silos tend to focus on making progress toward their unit’s business objectives, and not to think deeply about longer-term threats to the whole company. Only the CEO can ensure that the company is taking a multifaceted approach to sensing and recognizing trouble. Chief executives must be willing to lead the effort directly, drawing on past methods of gauging risks and disruptions, while also admitting that the old ways of doing business are no longer adequate.

Plan and Respond

Once a potential disruption has been recognized as a real threat, it is time to develop a plan and initiate the first wave of reaction. The wake-up call will likely happen in one of two ways: Either the company’s leaders will realize that it is vulnerable to a potential disruption and thus needs to be shaken up proactively or an event-driven disruption will occur, and the leaders will see that the company must respond immediately.

Sometimes a CEO must plan a response to a sudden, unexpected disruption. When the LIBOR rate-rigging scandal broke in mid-2012, Antony Jenkins was the very successful head of the retail and business banking division of Barclays, then the U.K.’s second-largest bank. After both the bank’s chairman and its CEO resigned, Jenkins took on the role of CEO. He knew that the entire organization had to confront the scandal along with the pain that executives and staff felt about how Barclays was being portrayed in the press. At the same time, the financial-services industry as a whole was still navigating the collapse in trust that had followed the crisis of 2008–09—along with the reversal of globalization, heavier regulation, and a more adverse macroeconomic environment. This was a new and difficult situation for every bank.

Upon his appointment, Jenkins immediately made it clear to the bank’s 140,000 employees that short-term thinking and a focus on immediate profits—attitudes that had contributed to the LIBOR scandal and to aggressive tax practices in the structured capital markets division—would no longer be tolerated. (Barclays announced the closure of the structured capital markets division in February 2013.) He carried out a strategic review of the bank’s business units, which numbered more than 70. He then developed an overall strategy and new direction for the bank called TRANSFORM (Turnaround; Return Acceptable Numbers; and Sustain Forward Momentum).

 
 
 
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Resources

  1. Amy Bernstein, “Yossi Sheffi: The Thought Leader Interview,” s+b, Spring 2006: MIT’s leading supply chain expert says business leaders have to figure out how to bounce back from the unthinkable.
  2. Christopher Dann, Matthew Le Merle, and Christopher Pencavel, “The Lesson of Lost Value,” s+b, Winter 2012: A study of companies with shrinking shareholder returns shows that strategic risk—self-induced disruption—is the number one cause.
  3. Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “CEO Succession 2011: The New CEO’s First Year,” s+b, Summer 2012: Last year’s study focused on guidance for the incoming captain of the company.
  4. Art Kleiner, “The Discipline of Managing Disruption,” s+b [online only], Mar. 11, 2013: The interview with Clayton M. Christensen where the quotes in this article first appeared.
  5. Gary Neilson and Julie M. Wulf, “How Many Direct Reports?Harvard Business Review, Apr. 1, 2012: During the past 20 years, the CEO’s average span of control has doubled, giving fresh relevance to the question, How much should the chief executive take on?
  6. For more thought leadership on this topic, see the s+b website at: strategy-business.com/strategy_and_leadership.
 
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