Systems Leadership in the Face of Disruption

Leading and investing in people is most urgent during crises and cycles.

Running companies is fun during economic booms, when customers are eager to spend money, markets are growing, and new opportunities abound. Unfortunately, such times never last. Even if there are no sudden disruptions in your industry, economic contractions follow expansions as dependably as sunsets following sunrises.

Whenever storm clouds gather on the horizon, the most common reaction is to “batten down the hatches” and prepare for an oncoming onslaught of volatility and turbulence. For many companies, this tendency manifests itself via budget cuts, killed projects, and often employee layoffs. Yet those reactions can be just as ineffective (or even counterproductive) as ordering students not to try ChatGPT (you can find how I had to confront this here). Now, the advent of ChatGPT was hardly a true crisis compared to so many worse things going on in the world in recent years. But it was an instructive moment about coping with any unexpected new technology or other sudden change. It’s always tempting to fight disruption, but that never works — the genie can never be put back into the bottle.

Run into the Disruption?

Instead of resisting change, Systems Leaders must move towards the change by clarifying both their and their company’s top priorities. Systems Leaders need to approach volatile situations, whether triggered by economic cyclicality or an exogenous shock, by holding onto two optimistic thoughts: that difficult times can be survived with careful attention to what’s truly important, and that such times never last forever.?

This means resisting the urge to slash budgets with a meat cleaver instead of a scalpel. Andy Grove, a legend and the former CEO of Intel, frequently used to say that you can’t save your way out of a recession. Instead, Systems Leaders try to see crises and downturns as opportunities to drive their organization in new directions and to embrace changes that will add value in the future when good times return.

Systems Leaders need to run into the disruptions in their market, industry, or the entire economy. I think of it much like a first responder or firefighter who runs toward the scene of an accident or into a burning building. The natural human instinct is to run away — to stay safe and not take the risk of getting hurt in a dangerous situation. But if your company or industry is confronting a potentially existential threat, your people will be counting on you to take positive, proactive steps.

Change is inevitable. When Corie Barry, the CEO of Best Buy, visited my class in 2021, she gave us a valuable insight: “You can’t fall in love with how you do business today.” She noted that Best Buy’s business in 2012, when it faced intense competition from Amazon and Apple, created an opportunity for the company to completely change how it operated. At a time when her family and friends questioned why she would stay with what appeared to be a sinking ship, she acknowledged that no one expected Best Buy to survive. On the other hand, she said, “Being an underdog can be liberating.” The only employees who would remain at Best Buy, or join during their crisis, would be those willing to do things completely differently than in the past.

Part of doing something new, and getting through these periods of disruption, may include expanding training and developing people rather than balancing one's budget at their expense.

According to research by the Society for Human Resource Management, “Employers will need to spend the equivalent of six to nine months of an employee’s salary in order to find and train their replacement. That means an employee salaried at $60,000 will cost the company [an extra] $30,000 to $45,000 to replace. Other research shows the average costs of replacing employees could be even higher. In a study conducted by the Center for American Progress, the cost of losing an employee can be anywhere from 16% of their salary for hourly employees, to 213% of the salary for a highly trained position.” Thus, reskilling a current employee will usually be less expensive than recruiting a new one, even if such reskilling costs $10,000 or more. Even if you only care about the bottom line of your company, it is in your economic interest to invest in the development of your people.

Systems Leaders take advantage of cost-saving opportunities without treating their people like replaceable cogs in a machine. At the same time, however, they also believe fully in holding people accountable to high standards. They would say it’s a false choice to frame strong management and compassionate management — hard heads and soft hearts — as opposites. Great leaders aspire to both.

Now, I don’t think we should romanticize the idea that a company educating (or otherwise supporting) its employees is about love or some other noble emotion. Sometimes your need to develop your people will be thrust upon you as an urgent problem, rather than as an initiative that you can ponder, test, and gradually implement on a conservative timeline. But I do believe that education creates opportunities for both individuals and organizations to thrive. And whether you invest in your people for strictly economic or more empathetic reasons is much less important than seeing the critical need of ensuring that employees are well-trained in an increasingly rapidly changing world. It’s up to Systems Leaders to make sure that happens.

About The Systems Leader:

A groundbreaking blueprint for mastering “cross-pressures” in a rapidly changing world, teaching leaders to execute?and?innovate, think locally?and?globally, and project ambition and?statesmanship alike—from a Stanford Graduate School of Business lecturer and consultant to some of the biggest and most innovative CEOs.

Actionable and powerful, The Systems Leader is a playbook for riding turbulent waves instead of drowning in them—and for taking readers from chaos to clarity.

About Robert:

Robert Siegel is a Lecturer in Management at the Stanford Graduate School of Business, a venture investor, and an operator.

At the Stanford Graduate School of Business he has taught nine different courses, authored over 115 business cases, and led research on companies including Google, Charles Schwab, Daimler, AB InBev, Box, Stripe, Target, AngelList, 23andMe, Majid Al Futtaim, Tableau, PayPal, Medium, Autodesk, Minted, Axel Springer and Michelin, amongst others.

Robert is a Venture Partner at Piva and a General Partner at XSeed Capital. He sits on the Board of Directors of Avochato and FindMine, and led investments in Zooz (acquired by PayU of Naspers), Hive, Lex Machina (acquired by LexisNexis of RELX Group?), CirroSecure (acquired by Palo Alto Networks), Nova Credit, The League (acquired by Match Group), Teapot (acquired by Stripe), Pixlee (acquired by Emplifi), and SIPX (acquired by ProQuest).

He is the author of The Systems Leader: Mastering the Cross-Pressures That Make or Break Today's Companies, and The Brains and Brawn Company: How Leading Organizations Blend the Best of Digital and Physical.

He is the co-inventor of four patents and served as lead researcher for Andy Grove’s best-selling book, Only the Paranoid Survive.

Robert holds a BA from UC Berkeley and an MBA from Stanford University. He is married with three grown children.