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Professor Henri Schildt: 'Strategic leadership is particularly important during this global crisis'

The Coronavirus pandemic is putting great strain on companies and their employees alike. Moments like these create unique demands for inspired and bold leadership. Academic research provides insights into the organizational and strategic challenges posed by crises. Here are some central ideas that can help strategic leaders weather the storm.
The picture shows Professor Henri Schildt. Photo: Mortti Saarnia / Aalto University.
Photo: Mortti Saarnia / Aalto University

Attend to employees as individuals. Crises create uncertainty and anxiety among employees. In such circumstances, empathy is much needed, as attentive leaders can help alleviate negative emotions and foster engagement. Leaders play a key role in managing uncertainty and creating a sense that the events are under control and that the organization will survive. A crisis is always a threat to the established order and way of life, as the need to survive trumps the organization’s established commitments and values. The CEO needs to affirm that the organization sticks to its identity that employees hold dear—if that is the case. On a positive note, uncertainty allows the leaders to strengthen their relationships with employees, partners, and customers; the best time to prove yourself to be trustworthy is when others find themselves dependent on you. 

Common wisdom would suggest that crises are great opportunities to leave the old status quo behind and to implement radical changes. This is challenging and runs counter to the emotional needs that members of the organization have when faced with radical uncertainty. However, leaders must think strategically about the characteristics of the organizational culture they want to affirm and which may need to be abandoned. Members of the organization are not expecting everything to remain the same, but they expect the leaders to reduce uncertainty and maintain at least some sense of continuity.

Provide new interpretations. At the heart of every strategy is a story, an account of where the organization is coming from and where it is going, and why. These stories are seldom formalized, but arise from the organization’s history, it’s current identity, mission, and the vision that it is pursuing. The current crisis calls into question the viability of the organization’s current strategy, pushing employees to make sense of the uncertain future. The leadership cannot control how employees make sense of the crisis, but they can direct employees’ attention towards desired interpretations of the ongoing events.

When an organization is threatened, employees tend to look towards the leadership to interpret the changes and to provide a direction. Employees look for leaders to explain how the organization’s mission is to be pursued when employees cannot go to work and customers remain at home, how existing plans will be adapted, and when things will get back to normal. Employees will make their own stories, but when they do so they are more likely than not to draw on the information, ideas, and emotional tone of the leader.

Many employees, particularly millennials, expect companies to change after this crisis. Purposeful business was an emerging trend in leadership already before the crisis, and many younger employees were looking for fulfilling work that makes a difference beyond the paycheck and shareholder returns. As the world recovers from the crisis, leaders should not expect their company to return back to business as usual. The U.N. Secretary General, António Guterres, noted 'We simply cannot return to where we were before COVID-19 struck.' Leaders who are able to create a stronger social mission for their companies are likely to benefit from more committed and loyal workforce, positive publicity, and perhaps even growth in demand.

Secure and reallocate resources. While crises call for inspired leadership, they also call for prudent management. Research and practice on corporate turnarounds recommend companies to secure resources that enable them to adapt to the environmental changes. This can involve selling assets, borrowing, and—unfortunately—seeing that company has the number of employees it can afford.

Companies tend to be extremely inert in their resource allocation. During normal times, budgets shift slowly and investment decisions tend to be fairly political. Crises demand rapid reallocation of resources, as some operations grind to halt and demand shifts. The collective processes are unsuitable for this, and even though it is possible to form a broad consensus on strategic changes, the CEO must inevitably take the lead. The primary goal is to make sure that the organization adapts its operations to match the environment it now finds itself in. McKinsey’s research suggests that high performing corporations have been faster and bolder in reallocating their investments already prior to the crisis. I fully expect that the companies who come out of this crisis as winners are those that withdrew resources from failing domains and bet boldly on the most attractive opportunities.

Address the myopic dynamics created by the crisis. The three recommendations above all call for strong centralized leadership. Research has indeed shown that humans have a tendency to expect and value strong and authoritative leadership when they feel threatened. Indeed, centralized leadership helps organizations deal with information overflow and painful inertia that they typically suffer from during a crisis. Yet, when taken to extremes, these tendencies can be counterproductive. Seemingly effective crisis management practices can lead to myopia, preventing organizational learning.

The threat rigidity theory, developed by Barry Staw and colleagues, highlights how the tendency of individuals and organizations to turn towards their leaders can actually limit information flow, idea generation, and useful experimentation. When we face stress and uncertainty, we tend to turn to our most familiar routines and knowledge. Threatened groups tend to demand loyalty from their members, exerting pressure towards cohesion and uniformity. While this can help align behaviors within the group, it also limits the ability of individual members to explore new ideas or to reach out to external stakeholders. As leaders seek to offer interpretations and redirect resources, there is a risk that valuable ideas and expertise within the organization remain underutilized.

To offset these dynamics, leaders must empower and encourage employees to create ideas and even design local experiments that help the organization respond more effectively to the crisis. This requires a careful balancing act, where the leader provides emotional support, strategic direction, and decisive management, while at the same time fostering independent thought and initiative.

Crises are threats to firms’ survival, but they are also opportunities for strengthening relationships and the position of the firm among its competitors. As Richard Rumelt has noted, environmental changes are like wind in a boat’s sails; it is difficult to catch up on competitors when there is no wind, no matter how good a skipper you are. The pandemic is dangerous and unwanted disruption, but it is also an opportunity for those who find themselves at the helm to apply themselves and make a difference. Ed Schein has noted that the defining characters of organizational culture arise from the biggest crises and victories. Companies’ responses to this crisis will have an impact on their identity for years to come. It is at times like this that the quality of leadership matters the most.

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