On March 10, 2020 the MIT Sloan Management Review published How Leaders Delude Themselves About Disruption” as part of a series on Disruption 2020 published in memory of Clayton Christensen.

The article, authored by Scott D. Anthony and Michael Putz, is focused on the challenges faced by companies experiencing the effects of disruptive innovation.  As articulated by Christensen (and others) in a 2015 Harvard Business Review piece, “disruption”  in this sense describes the situation “whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.”  More specifically:

[A]s incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success.

The MIT SMR article notes that disruptive innovation has up-ended many businesses such as Eastman Kodak, Blockbuster, and Toys R Us.   In the authors’ view, leaders should take affirmative steps both individually and organizationally to “confront powerful self-deceptions” that have impeded action to avoid disruption.

For example, the authors note various delusions that afflict incumbent business leaders including:

        • The “we’re safe” delusion:  to demonstrate this point, the authors point to the April 1, 2008 interview of BlackBerry’s co-CEO dismissing the introduction of the iPhone.  BlackBerry’s revenues have fallen considerably since that time of course.
        • The “it’s too risky” delusion:   in support of this point, the authors describe the significant and underappreciated risk of not investing boldly in innovation compared to the limited risk of investing and being wrong — summing up by noting that “companies increase risk by not taking risk.

The article concludes by imploring leaders to “focus more on mindsets, awareness, and inner capacities to combat basic biases” in navigating the challenges posed by disruptive innovation.   In short – mindfulness for both leaders and their organizations.

Just one day after the article’s release, the World Health Organization declared COVID-19 a pandemic.  The public health disaster at the heart of that announcement has caused and will cause disruption for many industries and companies – not disruption caused by innovation of new entrants – but disruption nonetheless.   And the need to deal effectively with that disruption is imperative.     Here are five keys to dealing effectively with disruption in the current distressed circumstances:

        • Avoid Denial

A common expression in the restructuring world (and other places) is that “denial is not just a river in Egypt.”   Another is that “hope is not a strategy.”   When dealing with disruption, do not underestimate the scope, potential magnitude or possible implications of the situation presented.   Rather, facts must be grasped, scenarios mapped out, options identified, and alternatives understood.    Because time is at a premium, it is critical for leaders to focus on the task at hand and not debate the “fairness” of the situation, how things “should be” different or “could be” different if some uncontrollable factors emerged.   Denial is pure delusion akin to the “we’re safe” falsehood described above that can put an incumbent at risk through disruptive innovation.  Get the facts, absorb them and begin to map out a strategic response.

        • Attack the Problem not the People

A company experiencing disruption can be tempted to focus on the people involved in the situation as opposed to the problem at hand.  Unfortunately, that focus can quickly turn negative as the company conflates the problem with the people and ends up attacking both – thus compounding the problem and the chances for creating an acceptable path forward.   Your enemy is the problem.   And that problem should be viewed as the common enemy of both you and the other party.   Navigating disruption means knowing how to work effectively with others (even others who may be disagreeable) to achieve what you desire  cost-effectively in a way that is acceptable to the other side.  More discussion of this topic is set forth in this article published in CFO Magazine prepared last year.

        • Assistance – Obtain it

The best time to obtain assistance in any situation is when time remains for those rendering aid to have an impact.   Wait too long in any number of situations and would-be helpers are rendered useless.  Of course, it can be challenging to seek assistance and daunting as well to know where to turn.  But often an essential component of “avoiding denial” and “attacking the problem not the people” is lining up experienced advisors who can help navigate the path.   Unfortunately, not all would-be helpers provide much help at all.  Some will simply exacerbate a situation – causing unnecessary delay, adding burdensome cost and failing to move a situation forward.   That is not assistance – and should be avoided at all costs.   Using a trusted network, determine reputable people that might be able to help, vet carefully, listen to the perspectives offered and ensure you fully understand all options and alternatives for moving forward.

        • Accelerate Communication

Communication is fundamental in navigating disruption.   That means communication with all key constituents including employees, vendors, suppliers, board members, investors, lenders, landlords, partners and anybody else with a relationship with the company.   Communication should be concise, honest and regular.  The purpose of communication is not just to convey information but also to convey credibility.   When a company fails to communicate to key constituencies, relationships suffer not only from a lack of information but also from a lack of attention.   Relationships are critical and deserve your investment of time and energy.  If not quite sure what to say, seek assistance from informed sources.   Do not deny the need to communicate or think that since certain parties have not reached out they must have all the information they need.  Own the responsibility to communicate.

        • ·Appreciate Cash Position

Nothing spells disruption more than dwindling cash.   Of course, cash is essential to keeping the gears of any business moving and its absence can and will bring operations to an immediate halt.   Some companies dealing with disruption will not understand their cash position or will deny the reality of threats to cash.  Avoid that scenario.  If necessary, seek assistance in developing accurate and credible cash projections.  Take steps necessary to ensure the company’s runway is well supported by available cash.   If issues exist around availability, then this reality must not be denied but rather factored into a critical problem to be solved promptly with the help of informed assistance through effective communication with key stakeholders.  Cash is truly king and shows no sign of renouncing that royal title.

The consequences of failing to deal effectively with disruption are severe.   Whether disruption is caused by innovators entering into the market or a pandemic of significant scale, leaders must avoid delusions about the potential impact of disruption.   The five keys identified above should help in building resiliency and dealing effectively with the disruptive effect of today’s economic reality.