FRESH TAKES ON BIG IDEAS

During times of upheaval, if leaders believe that the forces of creative destruction are getting more destructive, their greatest risk is presiding over slow but inexorable decline. We’re in a time of volatility right now. The power curve of economic profit is getting steeper. Those that succeed are taking more. Those that fall behind are falling harder. The topple rate for longevity in the S&P 500 or FTSE 100 has accelerated, and many of the most valuable companies in the world are teenagers or young adults, rather than baby boomers. 

Some macroeconomic uncertainty is resolving. Politically, though, more people than ever before are going to the polls this year. Fundamentally, this is an age of volatility, with new shocks on top of old shocks on top of enduring disruptive trends. A few years ago, so many boards were learning fast about sustainability. Now it’s generative AI. Geopolitically, at one point the new shock was Russia’s invasion of Ukraine. Now the new shock is the tragedy in the Middle East. 

How can organizations move faster and further in this environment? It’s more important now than ever to adopt the notion of strategic courage. Many leaders honed their management intuition in a period that was relatively stable, where change was predictable, and where some value came from riding out trends. And during times of volatility, the easiest thing is to hunker down. But if leaders only derisk and defer making important choices, they can wind up in a middle band and probably end up capping the upside more than the downside. 

Now, value comes from managing through shocks. Three things can give leaders a competitive edge in these uncertain times: insights, commitment, and execution. 

An insights edge comes from more and better information from more diverse sources. One mistake I sometimes see is when leaders solicit a diversity of superficial perspectives. They ask ten people for their views, get everybody’s first-order view, and conclude that since everybody’s first-order view is basically the same, there is a clear consensus. That’s not good enough. A real insights edge comes from doing the genuine work to look at second-, third-, and fourth-order views. 

“Three things can give leaders a competitive edge in these uncertain times: insights, commitment, and execution.”

A strong commitment edge is in some ways the most important. Sometimes I see gaps between knowing and doing, where management teams are too cautious. They pledge to dip a toe in the water or take months to come to decisions when they would be far better off committing to a path forward. 

Finally, there’s execution, which is always important, of course. But what differentiates companies during times of volatility is the ability to execute fast and turn on a dime when the situation calls for it, and to do so with discipline and rigor. Many organizations are not built for that because they lay tracks to keep trains going in one direction only.

Turning courage into a strategy requires a few key elements. One approach is to focus on growth. Established companies often struggle because they optimize for returns from their core competencies when they should be thinking about building new breakout businesses. Another way is to disrupt organizational inertia and put money where strategy is. We did some research on resource allocation and found that while entire countries and technologies changed dramatically over a 20-year period, capital allocation among business units in most companies didn’t change. Yet during the same period, faster and more aggressive reallocation correlated with higher shareholder returns. Finally, it’s always helpful to go back to the classics and check the ten tests of strategy. 

The key to success is the right mindset and the excellence of the CEO. Courage means bold aspirations, energy, and attempts to succeed—whether that’s to move from the middle to the top quintile of performance, or to say, “I’m not going to benchmark my industry; I’m going to reinvent it.” There needs to be a hunger. 

Who’s doing this right? Some of the most vibrant owner-operated companies—whether they’re family-owned businesses or tech firms with strong founders—are courageous because they’re able to be bold and think long term. They have a greater commitment edge and they’re able to allocate substantial resources to move further and faster. Other successful leaders are new, ambitious CEOs who refuse to preside over slow decline and strive to be truly exceptional. 

Ultimately, fortune favors the bold. Instead of deciding to wait and see, resolving to act and adjust can make all the difference.

ABOUT THIS AUTHOR

Michael Birshan is a senior partner in McKinsey’s London office; he co-leads McKinsey’s global Strategy & Corporate Finance Practice.