3 questions for leaders during a crisis

Friday, 01 May 2020


    The current situation offers a rare opportunity for organisations to refresh their business models, writes University of California Berkeley professor Peter Wilton.

    Amid business closures, job losses and solvency concerns, it might be tempting for business leaders and their organisations to hunker down and hope to ride things out. This thinking goes: “after the storm has passed, we can return to business as normal. The imperative must be to slash the cost base of the business, put investment on hold — including human capital development — and withdraw to a more distributed work environment that protects the employees of the organisation and community in which it operates”.

    These are sensible and prudent business decisions that reduce short-term risk for the organisation. But what happens to innovation in this environment? Does it also have to be put on hold while the organisation struggles for survival? That depends on the role innovation plays in the mindsets of leaders and managers.

    Innovation is the willingness to challenge assumptions about the most efficient and effective ways of creating and delivering value to the organisation’s customers and other stakeholders. Decomposing this view of innovation gives leaders guidance on keep innovating alive in the current environment. Consider these three points:

    Innovation is a mindset

    It is the willingness to challenge the status quo. Fear of the unknown and the desire for stability are the enemies of innovation. Rather than withdrawing to a scaled-down, familiar view of the business, leaders should be encouraging themselves and those they support to proactively reinvent the way they operate and do business.

    As an Australian expat, I’m fortunate to teach at one of the world’s leading academic institutions, the University of California, Berkeley. In early March, it became apparent we would not be able to continue teaching our undergraduate and MBA classes in the traditional face-to-face model that has defined the heritage of the university for more than 100 years. To compound matters, many of our international students became nervous about remaining in California wanting to return to their home countries immediately — but still continue their classes.

    Our entire campus has shifted rapidly to alternative learning delivery platforms, and we now deliver instruction to classes distributed across multiple continents virtually. This happened in less than two weeks. Throughout the transition, advice from our campus leaders was to “own it” — to take control of the transition and not rely on others to create a successful experience for our core constituents, our students. Equally important, we were admonished by our leaders not to blame others for not being able to make the transition and deliver the new learning experience effectively. We were told, “You are the leader. You are in control of the transition and the innovation that supports it.” Mindset comes first in innovation.

    Innovation is a process

    It is a process of challenging the business and operating assumptions of how an organisation works. Assumptions about who the organisation’s key customers/stakeholders are, what environment they are living/working in, what their needs are, how we can best address these needs, what our core assets and distinctive competencies should be, who our competitors are, how we fund the organisation, and what mix of partnerships or ecosystem/network is necessary to fulfill the promise to our customers. Innovation requires the organisation to challenge one or more of these assumptions. If not, then the organisation is not innovating. It is remaining static structurally.

    Even in normal times, the organisations facing the biggest challenge in this process are the ones that are most successful. Successful organisations are typically very reluctant to change, except incrementally. Rather, the core business process and leadership focus becomes fixed around the process of “operational excellence” — the process of optimising the current model, rather than the search for an entirely new business model. Of course, the longer the “operational excellence” business process drives the thinking of its leaders, the greater the risk the organisation will ultimately be disrupted by another competitor with a different set of business and operating model assumptions — a different way of doing things.

    In the current economic environment, it’s clear the business and operating model assumptions of countless organisations are no longer valid. They are under attack. Restaurants and cafes can no longer seat customers. Airlines can no longer carry passengers. Real estate companies can no longer hold auctions. Sporting teams can no longer have live stadium audiences. Businesses are being disrupted everywhere, not necessarily by competitors, but by exogenous forces.

    What can leaders do in this environment? The process is to “hack” the current business and operating model assumptions. List all the assumptions you’ve made about your organisation and how it operates. Then go through them, in teams of internal/ external stakeholders, searching for new assumptions and ways of operating.

    Imagine you are designing your business from scratch, creating a brand-new organisation that fits optimally with the current environment in which it now operates. Find the “toxic assumptions” constraining your organisation from being effective, those that bind your organisation to a fixed way of thinking and operating and prevent you from truly innovating. Then challenge them.

    Even the smallest business can do this. In the UK, Magical Quests, a two-person business providing live visits of Frozen fantasy characters to toddlers’ birthday parties, was staring down the abyss. There would be no more in-person gatherings of five or more persons, no more live birthday celebrations, no more live visits by the company’s actors. There are two “toxic assumptions” in this business model. First, that all toddlers need to come to the same physical location to attend the party. Second, that the live fantasy character visits must be at the same physical location as the actual birthday party. Using a Zoom platform, the company created a 30-minute virtual visit connecting toddlers in their separate homes, allowing each of them to engage with “Elsa” individually, then re-uniting to sing Happy Birthday.

    Similar business model innovation is likely to abound in the current environment. Healthcare delivered through telemedicine platforms will inevitably accelerate. Ford, 3M and General Electric are collaborating to increase the supply of critically needed ventilators. Traditional brands and bricks-and-mortar retailers will likely accelerate their shift to digital direct-to-consumer platforms for building and sustaining customer relationships.

    For the businesses and organisations that understand the innovation process of challenging and reinventing assumptions to fit a new environment, the current crisis is not a thing to be feared, but rather an opportunity to invent entirely new ways of operating and leading.

    Innovation is about outcomes to customers and other stakeholders

    It is not about technology. Innovation is about finding new ways of creating and delivering value to the organisation’s attractive customers and stakeholders. This is the task of remaining relevant and unique in the eyes of customers as their world shifts — of recognising emerging new customer needs or ways of satisfying them — within the context of a customer experience that continues to strengthen the reputation of the organisation.

    For most businesses, the customer’s world is changing dramatically as a result of the current health crisis. A large part of the workforce is either currently, or soon to be, unemployed. Purchasing power has been severely compromised. New pain points are arising daily for this segment of buyers. Other economic segments are more fortunate, with gainful employment opportunities in demand. Yet the needs, lifestyles, and buying behaviours of the segments are also changing rapidly.

    To remain relevant as its customers’ behaviours change, an organisation needs to focus upon identifying new hotspots of overlooked or underserved customer need, or desired experience. Even if these hotspots are temporary, there remains an opportunity for the organisation to reframe how it is helping its customers and creating value for them.

    As an example, many individuals are now facing economic hardship. This represents an opportunity for major financial service providers and credit card issuers to assist customers by offering payment deferrals, late fee waivers or lower interest rates. Dollar General, a retailer of essential household items in the US planned to hire 50,000 new employees before the end of April to keep up with customers’ needs during the coronavirus pandemic. This is double the firm’s normal hiring rate.

    Similar capacity surges are happening at Walmart, Amazon, Pepsico, Dominos, CVS Pharmacy and others, in response to increased demand for solutions that fit with customers’ urgent needs for reliable access to household staples and health products during self-isolation.

    In the public sector globally, agencies are being encouraged to hire and onboard new employees virtually, via visual inspection using remote electronic capabilities such as Skype. Agencies are also making onboarding documents available electronically. New employees sign these documents and email them to their agencies, either with an electronic form and signature or by simply taking a picture of the completed document. Compare this to the endless lines outside many Centrelink offices around Australia, and the potential for reframing citizen interactions with their public agencies becomes obvious.

    In today’s compromised world, opportunities for leaders to rethink how they help their customers and stakeholders, to deliver their traditional solutions in new and innovative ways, seems almost unbounded. Innovative organisations will lead this search and undoubtedly be rewarded for their efforts once things return to normal.

    Peter Wilton teaches strategy, innovation, digital transformation and marketing at Haas School of Business, University of California, Berkeley, US.

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