Here is a brief excerpt from an article written by Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson for strategy+business magazine, published by Booz & Company. In it, they explain how, even when facing a crisis, some CEOs know how to anticipate the worst, plan a response, and navigate to advantage. They insist that you can do the same.To read the complete article, check out a wealth of other resources, learn more about the firm, obtain subscription information, and sign up for email alerts, please click here.

Illustration by Gérard DuBois
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Sooner or later, every corporation will face disruption. It may be the result of a decrease in its competitive advantage, a shift in the regulatory environment, or some catastrophic event that affects its ability to operate. No matter what the underlying cause, the chief executive is the person most accountable for managing the disruption. He or she must recognize its dynamics, anticipate its likely effect, develop a response, manage that response, and sustain the necessary changes. If the CEO is not directly involved in guiding his or her company through the storm, the entire company is likely to suffer—and, in extreme cases, disappear entirely.

There is no single formula for managing a disruption, because it can come in any number of forms. Any event that has the potential to adversely affect a company’s business model or ongoing operations is disruptive. Some disruptions involve shifts in the dynamics of competitive advantage for an industry, stemming from a variety of causes—technological breakthroughs that favor new rivals, global changes in labor arbitrage, shifts in cost structure, or new rivals entering markets from adjacent sectors. Some are instigated by regulatory upheaval, such as the structural changes to the U.S. healthcare market set in motion by the Affordable Care Act. Virtually every CEO of a hospital system in the U.S. is confronting a major disruption to its business model as a result (see “Putting an I in Healthcare,” by Gil Irwin, Jack Topdjian, and Ashish Kaura, s+b, Summer 2013). There are also event-specific disruptions, such as economic downturns, idiosyncratic geopolitical and natural events, and unforeseen internal company events such as sudden major trading losses or public scandals.

The severity of these events can vary considerably, as can the duration. Some disruptions, like the rise of the Japanese auto industry in the 1970s that eventually crept up on U.S. and British carmakers, are so gradual that, like a frog in a pot of water, company leaders may never realize they are slowly boiling to death. Others are sudden and devastating, like the 2011 floods in Thailand that crippled the country’s hard-drive manufacturing sector and revealed extreme vulnerabilities in the industry’s supply chain.

Since the mid-1990s, disruptive events have become increasingly difficult to deal with. Technological evolution, ongoing globalization, two huge financial bubbles, the rapid pace of change in emerging economies, the deregulation and re-regulation of a number of industries, and waves of political turbulence in some regions have made the world a more challenging place to do business. For example, banks and financial institutions have had to rethink their business models after the financial crisis. And retailers and many parts of the media industry have seen their revenue streams fall away with the rise of new, technologically enabled competitors.

Yet even in the worst disruptions, some companies do better than others. These companies have leaders who recognize the crisis and act accordingly, either in advance or in time to recover. Some of the most celebrated cases are those of IBM, which shifted to business services before the rest of the computer industry did; BMW, which rebounded decisively from near-bankruptcy in the late 1950s; Ericsson, which reinvented itself in 2002–03 after nearly being driven out of business by sudden competition from Asia; and Lego, which rebuilt its supply chain and regained profitability after its retail channels dramatically changed.

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To read the complete article, please click here.

Ken Favaro is a senior partner with Booz & Company based in New York. He leads the firm’s work in enterprise strategy and finance. Per-Ola Karlsson is a senior partner with Booz & Company based in Stockholm. He serves clients across Europe and the Middle East on issues related to organization, change, and leadership. Gary L. Neilson is a senior partner with Booz & Company based in Chicago. He focuses on operating models and organizational transformation. Also contributing to this article were Booz & Company senior partner Alan Gemes and senior manager Josselyn Simpson, and s+b contributing editor Edward H. Baker.