Digital leaders are best positioned to meet disruptive challenges with innovation.
On Jan. 8, 2020, when Chinese researchers announced that they had identified a new virus that had infected dozens of people across Asia, few business leaders realized that their companies were on the brink of an economic, medical, political, and cultural disruption of global magnitude. In short order, they were called upon to respond to potential illness among employees and customers, supply chain interruptions, dramatic fluctuations in demand, and extraordinarily high levels of uncertainty.
Yet, for all its grim — and ongoing — consequences, the COVID-19 pandemic is just one of many fundamental breaks in the business environment that have challenged leaders over the past 30 years or so. These disruptions come in two forms.
The COVID-19 pandemic is an acute disruption. As with an acute medical condition, the onset of such a disruption is sudden and severe, and its symptoms are obvious. Its treatment calls for a rapid and dramatic response, and its duration is relatively short. The Sept. 11, 2001, terrorist attacks in the U.S., the 2004 tsunami in the Indian Ocean, the 2008 housing and financial crisis, and the 2010 volcanic eruptions in Iceland are examples of acute disruptions.
The second form of disruption is more like a chronic medical condition. Chronic disruptions build slowly. Their immediate symptoms can be subtle and easily overlooked. They require sustained treatment that must be tolerable over time. Chronic disruptions, such as China’s economic rise, climate change, and the evolutionary emergence of digital technology, tend to be persistent and long lasting.
While the two phenomena present differently, they both represent a departure from business as usual to which companies must respond. In studying corporate responses to the pandemic from March through December 2020, we found that companies with existing playbooks for responding to chronic digital disruptions were also responding more quickly and effectively to the acute pandemic disruption. The economic payoffs from digital technologies that allow for enterprise virtualization — such as remote work, e-commerce, and telehealth — increased significantly in the context of COVID-19. Moreover, in responding to the pandemic, many of these companies wound up accelerating their digital transformation efforts and their returns on those efforts.
These companies’ ability to manage the pandemic offers a dramatic illustration of what we’ve come to call the transformation myth. The myth is the idea that transformation is an event with a start and an end during which organizations migrate from one steady state to another, as opposed to a continuous process of adapting to a highly volatile, ambiguous, and uncertain environment shaped by multiple, overlapping disruptions.
More and more executives are coming to view disruption and transformation as continuous processes. In a 2021 Deloitte survey of 2,260 private- and public-sector CXOs in 21 countries, 60% of the respondents said that they believe disruptions like those seen in 2020 will continue. The resulting challenge is underscored by another of the survey’s findings: Seventy percent of the CXOs do not have complete confidence in their organization’s ability to pivot and adapt to disruptive events.1
The research we conducted during the pandemic suggests that the companies that are most successful at meeting the challenge of continuous transformation are those that innovate through disruption.2 They achieve this by developing four key organization capabilities that overlap and operate in concert. We think of them as digital innovation superpowers.
- Nimbleness: The ability to quickly pivot and move. (“We used to do this, and now we do that.”)
- Scalability: The ability to rapidly shift capacity and service levels. (“We used to serve x customers; we now serve 100x customers.”)
- Stability: The ability to maintain operational excellence under pressure. (“We will persist despite the challenges.”)
- Optionality: The ability to acquire new capabilities through external collaboration. (“Our ecosystem of partners allows us to do things we couldn’t do previously do.”)
Each of these superpowers is supported by digital technologies — cloud computing, data analytics, machine learning, cybersecurity, and others — but they extend beyond the adoption of technology per se. More important is how companies wield the technologies to transform themselves in response to disruption.
1. Nimbleness: Pivot and Move Quickly
Nimbleness determines both the speed at which organizations act and their ability to pivot when circumstances merit a significant change in direction. Digital technologies enable nimbleness in resilient companies.
Technology is not only an enabler of nimbleness in the face of disruption but can also be a source of disruption and thus a forcing mechanism for the development of a nimble organization. Consider a competitor that begins using machine learning algorithms to extract patterns from customer data in order to offer tailored goods and services to select customer segments with speed and effectiveness far superior to human interventions. Or imagine a rival that uses cloud computing to set up new business and technical capabilities without costly systems upgrades and time-consuming implementation processes. You must cultivate similar nimbleness.
Rapid pivots, such as the shift to remote work and contactless interactions during the COVID-19 pandemic, are needed to respond to acute disruptions. For instance, the pre-pandemic digitalization of the safety and productivity systems within Hitachi Vantara’s factories allowed the enterprise storage solutions company to quickly repurpose those systems into the social-distance monitoring infrastructure needed to restore capacity during the pandemic. The company used its existing cameras and sensors, equipped with lidar and thermal imaging, and ran a hackathon that developed the algorithms needed to monitor social distancing and COVID-19 symptoms within two weeks.
“Previously, these solutions have been driving productivity improvements,” Brad Surak, then president of digital solutions, told us in September 2020. “Now, we can automatically monitor the 2-meter restriction and provide feedback to employees.”
When a company has the right culture to leverage the capabilities of a robust digital infrastructure, it is relatively easy to make quick decisions and repurpose that infrastructure for new challenges that emerge during disruptions. Our survey research shows that companies exhibited certain cultural characteristics as they matured digitally, such as encouraging experiments and continual learning, recognizing and rewarding collaboration, accepting the risk of failure, and organizing around cross-functional mission teams that enjoyed considerable autonomy. These cultural characteristics are the primary way that these organizations drive digital change.3
When the pandemic shut down dining in restaurants, Portillo’s Restaurant Group (a Chicago-based chain with 62 locations) had to shift its traffic and loyal customers to drive-throughs. In addition, it had to adapt its service model to offer online ordering and curbside pickup. The chain quickly shifted waitstaff to support call centers and delivery. The upside: Jobs were redesigned, and Portillo’s didn’t need to furlough any employees during the crisis.
“We’ve launched an entire self-delivery program in the last few months. We’re hiring about 150 drivers. We’re using this as a strategic advantage. Instead of relying on a third party for delivery, you can have the true Portillo’s experience the entire time,” explained Nick Scarpino, senior vice president of marketing and off-premise dining, in July 2020. “For us, it’s just been about ‘let’s control what we can actually control.’ In order to do that, we’ve had to strip away all the things that don’t matter. It is incredible to me how fast our company has been able to pivot … because we were able to just say, ‘OK, 95% of things that we were doing were great ideas, but they don’t matter now.’”
2. Scalability: Resize at the Speed of Demand and Supply
The second capability that digital technologies enable in resilient organizations is scalability. Scalable typically refers to the ability of digital-first companies, such as Google, Facebook, and Instacart, to meet the operational dictates of rapid growth. With respect to acute disruption, however, scalability is the ability to cope with unanticipated, exponential rises and falls in demand and supply that can develop overnight.
If there is a single technology brand associated with the acute disruption caused by COVID-19, it’s Zoom. Between December 2019 and April 2020, the number of meeting participants using the platform each day rose from 10 million to over 300 million.4 Increases of this magnitude were not unique to Zoom. Amazon and shippers FedEx and UPS needed to scale up quickly to meet huge demand spikes too. Skillsoft, an educational technology company, also experienced a spike in demand for its digital learning content. “[COVID-19] advanced the digitization of the learning process by about two to three years with some companies,” chief content officer Mark Onisk told us. “We saw a 300% increase in the consumption of our product.”
Other companies, such as cruise lines, hotels, and movie chains, found themselves facing precipitous drops in demand during the pandemic. In these cases, the ability to scale down rapidly has been critical to weathering the downturn.
Even the best-prepared companies can find it challenging to respond instantaneously to dramatic demand changes, but data and analytics can help them make sound decisions about capacity and service levels during and after disruptions. In the travel industry, “the first step was using an empirical approach to try to figure out how severely, and in what structured way, companies needed to scale back their operations and their operating costs,” said Tom O’Toole, associate dean of executive education at Northwestern University’s Kellogg School of Management and the former CMO of United Airline’s MileagePlus program. “Then the focus turned to discerning where demand may continue to exist and where demand is beginning to recover.”
How companies treat and communicate with customers, employees, and business partners can be as important as increasing or decreasing capacity. When hospitality leader Hilton experienced a 90% drop in demand in the early days of the pandemic, the company could have simply furloughed or fired employees. Instead, it reached out to companies that were experiencing demand surges and developed agreements that offered Hilton employees preferred application status.
“We knew we were going to have to temporarily suspend operations across many hotels. We were also seeing the need for surge hiring in industries like retail,” explained Matt Schuyler, Hilton’s chief brand officer. “So we created a pathway for our team members to look at opportunities at those companies, and essentially Hilton would vouch for them.”
To accomplish this feat at scale, Hilton used its digital recruitment system to enable employees to search for jobs at the partner companies. “Our recruiting funnel literally reversed, and we pivoted our digital platforms to support it,” said Schuyler. “The beauty of what we’ve built here over the years is that it made it really manageable to use the backdrop of our HR system, coupled with our partners in the recruitment and learning space, to essentially transform the operation to be outside in versus inside out.”
At its peak, Hilton had over 1.2 million positions listed on its job engine. Taking this action on behalf of its employees allowed the company to rapidly reduce its employee head count while preserving its brand as a hospitality company and its relationship with its employees. As a testament to the success of this initiative, Hilton was ranked third on Fortune’s 100 Best Companies to Work For list in 2021, despite having had to furlough 45,000 employees. One employee noted that the reason for this high placement was that the company treated its workers with “dignity and compassion” and that “each decision was made to do the best the company could to help people in crisis.”5
3. Stability: Maintain Trust in the Face of Insecurity and Uncertainty
Stability enables resilient companies to maintain operational excellence while nimbly pivoting and rapidly scaling. This capability is essential for ensuring an organization’s trustworthiness during disruptions.
Pfizer’s heroic vaccine development initiative is a case study in stability. Pfizer’s pre-pandemic investments in digital R&D and artificial intelligence allowed the company to develop a vaccine in record time, but if it had been unable to maintain its safety and security standards during the crash program, the odds of a successful outcome would have been considerably longer.6 Stability was essential at all stages of the project — during the vaccine’s development, production, and distribution. Stability is so important for Pfizer, it emphasizes trust as a foundational component of its organizational culture.7
With respect to acute disruption, stability involves the ability to use digital platforms to enable companies to respond to shocks, such as shifting to a socially distanced environment while maintaining productivity. At Envision Healthcare, a national hospital-based physicians group based in Nashville, Tennessee, the IT team developed an app that transformed the cameras in tablet computers into “electronic personal protective equipment” by enabling doctors and other staff members to closely monitor patients and equipment in intensive care units without entering patient rooms.
“We didn’t know where the surges were going to occur, but we knew it was imperative to have a coordinated response,” recalled CIO Kristin Darby. “First, we focused on getting our back-office operations stable and making sure our nonclinical teammates could support the clinicians who were focused on patient care. By strengthening our back-office operations, we could support the clinicians on the front lines delivering care when and where it was needed most.”
Stability can also entail maintaining technological uptime during massive upticks in demand and usage. “It felt like some days we were like Atlas holding up the restaurant world, and now we’ve made it through the first wave of this thing,” Noah Glass, founder and CEO of Olo, a digital restaurant platform, told us in June 2020. “I said to my customers that I want you to walk away from the end of this knowing that we are this reliable, stable platform.”
The demand for Olo’s services doubled during the pandemic, but it had only two short outages — of seven and eight minutes each — during peak usage time. “When we did get knocked down, we stood up and showed we’re resilient,” recalled Glass. As a testament to its stability, Olo went public in March 2021 at a $3.6 billion valuation — nearly quadruple its projected value before the pandemic.8
4. Optionality: Plug Into an Ecosystem of Capabilities
Optionality is the ability to leverage the capabilities of other companies and organizations to become even more nimble, scalable, and stable. Often, it is created through a robust ecosystem of partnerships that help a company experiment, learn, and, ultimately, import capabilities that are necessary to adapt to acute and chronic disruption.
Resilient organizations use partnerships to support multiple dimensions of the innovation process and create wide-ranging, capability-building ecosystems that address both short-term and long-term objectives. Ecosystems enable organizations to operate more flexibly, providing access to more collaborators and a greater range of potential innovations, thereby increasing the volume, quality, and risk tolerance of experimentation and learning. “It’s just a healthy way to have partners on the street that are exploring new ideas,” said Frank Nazzaro, CIO of Freddie Mac. “It’s also a cost-effective way to innovate because they bear the burden of experimentation, and then we can capitalize on it when it’s at certain stages or we have certain needs.”
Ecosystems and their partnerships need to be established in advance if they are to be leveraged quickly when disruptions occur. As the chief digital officer of one global insurer told us, “You really need to have already figured out in advance who are the partners you want to work with. I wouldn’t want to be starting from scratch, trying to figure out who does the sort of thing we need.”
Brice Challamel, whom we spoke with when he was global transformation leader at Google Cloud, called out three elements necessary to the development of a robust ecosystem of partners. “[The first element is] alignment on a vision for the future,” he explained. “The second element is the value model that we’re creating together. And the third element is the change management road map for the ecosystem, which supports the need to evolve in order to deliver those solutions and unlock that value model.”
The Real Disruption Starts Now
The expanding availability of COVID-19 vaccines in many countries and the long-awaited decline in cases they have produced make it tempting to believe that we are nearing the end of this pandemic. To be sure, many governments are loosening restrictions, and some companies are beginning to reopen their offices. But we believe that businesses have only just begun to experience the disruptions spawned by COVID-19: Many companies responded to the pandemic by developing new digital capabilities, and as restrictions are lifted, they won’t go back to business as usual. Instead, they are more likely to use their hard-earned capabilities to unleash a new wave of innovation and competition.
Resilient companies use the four capabilities described above to navigate a three-step process: Respond, regroup, and thrive. The first step is the immediate and decisive action that a company takes to respond to an existential threat, such as COVID-19. The second step is not a return to the past but a systematic consideration of how to take advantage of the opportunities presented by the disruption and the company’s responses to it. The third step — the one that is fast approaching as the pandemic subsides — is where organizations chart a new path, wielding the transformational changes forged in disruption and building even more resilient and successful organizations.
If the “respond, regroup, thrive” pattern holds true for the acute disruption of COVID-19, we expect that the business environment over the next three to five years will be the most exciting and innovative period that many of us will experience in our lifetimes. Now is the right time for companies to innovate and thrive, not retreat to pre-pandemic ways of doing business.
1. “Building the Resilient Organization: 2021 Deloitte Global Resilience Report,” PDF file (Deloitte Insights, January 2021), https://www2.deloitte.com.
2. Our research is also supported by a forthcoming Deloitte research study of Russell 1000 Index companies since 2016, which shows that on average, those large-cap companies with a high capacity for change earn 31% higher forward price-to-earnings multiples and have share prices 26% less volatile than their lowest-ranked peers.