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strategy and business
Published: May 28, 2013
 / Summer 2013 / Issue 71

 
 

Captains in Disruption

At the same time, a CEO should make clear that the company needs to be forward-looking, and declare a kind of amnesty for past activity. Decisions made and actions taken in previous years may have made sense at the time, but they must change as the situation changes. A new marketplace requires different ways of doing business, and it won’t work to simply carry on with legacy practices (and, in some cases, legacy products or services). If this requirement isn’t understood throughout the organization, executives can waste time defending their past behavior and actions.

When communicating the need for change, CEOs should describe the path ahead as clearly as possible, including the specific steps that will get the company through to the other side. For example, a few of the U.S. healthcare companies facing the disruptive changes of healthcare reform have developed a strategic communications process in which they explicitly lay out—for investors and employees alike—the decisions that must still be made in executing their strategy for managing disruption. On a regular basis, these executive leaders formally review the company’s choices and progress, ask their board to approve major changes, and reevaluate their components.

3. CEOs must make cogent decisions about the team of top executives. They must give people a chance to come on board with the new system and remove those who resist. If anyone visibly resists the changes, it soon becomes evident—to them and everyone else—that they are now at the wrong company. This process can be designed in ways that treat everyone, including those who exit, with respect. Nokia CEO Stephen Elop kept the senior leadership team largely intact, but set up an initiative, called the Challenger Mind-Set, in which executives were given a chance to show how well they could adapt. It was clear that those who could not perform would be better off elsewhere. Changes in top management must of course be made carefully, but even one or two visible changes can dramatically reinforce people’s awareness that the situation is serious.

4. It is often important to choose a small team of top decision makers to lead the response. Paradoxically, the more profound the changes planned, the faster they need to take place. A small team of top leaders can maneuver more nimbly than a large group.

Implement and Sustain

All too many companies, when faced with business crises, have initiated appropriate responses but have then been unable or unwilling to carry them to completion. When that happens, the issues that scuttled the response remain unaddressed, and the company will ultimately be even less prepared to face the next crisis. Ultimately, to implement a plan and sustain a company during disruption means looking closely at both the organizational design and the company’s culture. It’s up to the CEO to make sure that the structure and the culture are ready for the necessary changes and set up to support the new strategies and each other.

Organizational redesign. In most cases, response to disruption necessitates a shift to a more nimble, focused, and strategically aligned organizational structure—one that encourages other people to change, rather than trapping them in outmoded processes or approval gates. The new structure must enable people to cooperate fully across internal boundaries, even if that runs counter to long-standing patterns of communication or control.

One example of this type of redesign is Amedisys Inc., a provider of healthcare to patients in their homes. The Amedisys business model had long been built around payments from Medicare and other insurance companies. With pressure on Medicare prices squeezing profits considerably, Amedisys CEO Bill Borne, who founded the company and designed its original business model, decided that it would have to change. Amedisys should be paid for outcomes rather than offering a menu of narrowly defined services.

 
 
 
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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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