For the last several decades, it was relatively easy to predict when companies would run into financial distress. Credit would tighten, rates would go up, and when struggling companies needed to refinance their debt, they would not have enough cashflow to make their interest payments. This would necessitate a corporate restructuring. And in fact, this is still the case today, though we have not seen this cycle in more than a decade as interest rates have stayed low and cash plentiful.
Yet, while this accommodating credit cycle has been in place for a long period, we see many companies having a hard time in sector after sector. The macro headlines look reasonably good, but beneath the surface we see some companies doing extremely well, and many other companies struggling, closing plants and stores, shedding jobs, selling business units and straining to fund innovation and growth.
We observed this striking phenomenon in our everyday work so consistently that we decided to undertake an in-depth study of how disruption is shaping the current global business climate. We found five broad sources of disruption at play—regulatory, economic, societal, environmental and technological, the most powerful disruptor of all—that are both increasing in frequency and stacking on top of one another to create both opportunity and risk for companies. (To read our full findings and find out more about the forces of disruption, click here to receive the AlixPartners Disruption Insights report.)
Issues including the rise of populism; the sense of uncertainty and of falling behind that the world’s middle class are feeling; and environmental factors such as the changing climate mean that businesses and their leaders are being hit harder and more frequently than at any time in history. And of course, technology is both a disruptor unto itself and an accelerant of the other disruptors as our world is increasingly connected, with “news” (accurate or inaccurate) being transmitted globally in the blink of an eye.
And this sense of accelerating disruption is not isolated to an industry or two. It can be seen everywhere—from the prevalence of channel-agnostic commerce in retail to the rise of robotics and artificial intelligence in industrials to the fragmentation of the customer base in consumer goods to electrification and autonomous vehicles in auto and the ubiquity of streaming in media. This clustering of disruptive forces, amplified by connective technology, is creating a deep sense of uncertainty among businesses and consumers alike.
Studying both the strategies and tactics of the winners and underperformers in this current environment provides interesting insights:
• Successful companies typically place thoughtful bets, while laggards spread themselves too thin.
• When it comes to new technology, being a fast follower, or even a gradual one, can often deliver a much better return on investment and with lower risk.
• Authenticity matters for brands—perhaps more than ever in a complicated, fast-changing world.
• Contrarian positions can be profitable, and avoiding herd mentality and carefully selecting where to invest can be a very logical strategy.
Perhaps the single most powerful observation regarding leading organizations in these disrupted times is that what leadership values most must change across a multitude of dimensions:
Talent – Experience is and always will be valuable, but in a disrupted world, different cognitive and emotional skills are required for a workforce constantly navigating the changes. Organizations must be both purposeful and deliberate in the capabilities they recruit and train for. Competencies such as being able to manage ambiguity creatively, an openness to new ideas along with a prudent willingness to act on the best ones, and empathetic and flexible communication skills are all critical traits that can be assessed for, trained, and rewarded.
Diversity – Diversity in the traditional sense (gender, racial) continues to be important, but other types of diversity such as educational background, professional experience, and global exposure is vital to prevent self-inflicted wounds. When we encounter companies that struggle, we often see a narrow, limited, tried-and-true understanding of the universe of possible solutions. Executive teams and boards need to be challenged from within for best solutions and this starts with diversity, defined broadly.
Creative Destruction – A major observation is that the leadership teams of companies that struggle often hang on too long to increasingly outdated business models, ignoring or minimizing the opportunities and threats around them. This happens even as they are often more well capitalized than the companies that pose the existential threats to their business.
Leadership Activism – The increasingly influential value systems of millennials and Generation Z, who have grown up in a connected and transparent world, have meant that employees as well as consumers are looking to leaders of companies to take a stand and to drive positive change in the world. Younger generations, and now more and more people regardless of age, are broadly distrustful of government and leery of institutions in general. Having grown up connected 24/7, they are able to define their own worldview and personal commerce systems. Rather than seeing themselves as the passive recipients of “value chains” (products, entertainment, lodging, travel, media, etc.), they position themselves at the center of their own connected ecosystem, where they self-define how, when, what and whom they interact with, and to whom they give their time, attention and money. This “self-centrism” allows, and increasingly demands, that the companies they work for and give their money to align with their values.
There are clear and distinctive differences between those companies that proactively create or react to disruption, and those that don’t. The definition of leadership excellence in our disrupted world has changed rapidly and will be the defining characteristic of corporate performance moving forward.