High impact, low probability events occur more frequently than you think. During the 20th century, major business disruptions occurred about every seven years in Europe. Often, it took several years for businesses to recover afterward.
- The Messina Earthquake of 1908 killed 123,000 people and decimated the Italian economy.
- Energy crises upended economies and monetary policy in the 1970s.
- Disruptive innovations like the airplane, fertilizer and nuclear power reinvented trade.
- Then there were two world wars, regional conflicts and the Cold War to boot.
When looked at in aggregate, the improbable is more than probable. It’s normal! During the 20th century, business shocks hit the United States four times a year, according to research my team did at HP. More importantly, high impact events are likely to increase in frequency. This is because the world is becoming faster, more complex and more connected. You are highly likely to deal with the impacts of radical change in your business, and in your current role.
Yet, most companies are less prepared to respond than they should be. At this point, your organization has probably beaten Covid, but have you prepared yourself for the next disruption? Often, it’s not a single disruption, it’s a combination of individually manageable issues that collide to create a rogue wave of change. How might your business be impacted if there were a slew of insolvencies (they are currently unnaturally low in the United States), maybe a political tension gets out of control (there is currently an exodus from Haiti), or a natural disaster (a volcano erupts). Whatever the cause, the next shock won’t demurely wait for Covid to recede.
Now is the time to be vigilant. When we face disruption, resilience is a popular topic, but it gets ignored when equilibrium sets in—precisely when we have a chance to get ahead of it. For instance, when I started writing Rogue Waves, my book about using resilience to drive growth in 2019, publishers weren’t interested, but when the pandemic hit, there was suddenly a line out the door.
The best companies and leaders don’t see the ebb of the last disruption as a respite. They know that disruption is one of the few constants in our lives. The best leaders see it as an opportunity to prepare for the next one. They don’t bet on the year, they bet on their career. They know that, while companies typically incentivize for quarterly performance, that’s a fool’s errand. My colleague Rita McGrath led a global study on the growth of 2,347 large companies. Between 1999 and 2009, only five grew both revenues and net income every year.
As Covid (hopefully) ebbs in America over the next year, expect your managers and the media to start yammering about becoming the disruptor. If you haven’t first prepared for the next sucker punch, this is dangerous. It ignores the reality that you, like the other 2,342 companies in the study are far, far more likely to be disrupted.
You need to better link resilience and growth—how you think about risk. The end goal shouldn’t be threat mitigation or avoidance, those are tactics. The goal should be to enable you to take risks when others can’t—in the situations where you are the most differentiated.
The reality that most leaders ignore is that the biggest opportunities occur in the worst times.
- Amazon experienced explosive growth during the first few months of COVID.
- The World Wars cemented the United States position in the twentieth century.
- More billionaires are minted during financial downturns than upturns.
If you intend to profit from disruption, instead of simply profiting from it, that’s why you should be asking these questions in your next planning meeting:
- How can we set ourselves up to exploit disruption, instead of reacting to it?
- Are there solid investments we can make based on fundamentals that could hockey stick when the current wave crashes?
- How will we build the assets and processes that enable us to take risks that others can’t?
