What should business leaders learn from 2020?

By Martin Reeves and Kevin Whitaker

2020 was a year of unprecedented disruption for business and society. When the crisis eventually resolves, we will have the choice of either heaving a sigh of relief and resuming our previous management protocols or stepping back, extracting lessons and adopting new practices. 

What then are the lessons business leaders should be learning from 2020? 

1. Forecasting and planning have severe limitations. After the initial shock of Covid-19 set in, many economic forecasts predicted a very slow and difficult recovery. However, the pace of the rebound significantly exceeded expectations. In fact, forecasts for almost all aspects of the crisis, from its length and severity to its broader impact, have been dispersed, changeable and inaccurate.   

Business leaders need a broader strategy toolkit that goes beyond the traditional approach of point forecasting and episodic planning. This is especially true in times of severe crisis, but it also applies more broadly in today’s dynamic and unpredictable business environment. 

2. Resilience is more important than you think. Resilience in business can be defined as the ability to absorb, recover from, and thrive amid shocks. 2020 has shown that there can be a very significant difference in companies’ ability to do so: for example, the average gap in total shareholder returns between the top-quartile and bottom-quartile companies within each industry in China was nearly twice as high as a year before. The Covid-19 shock was not exceptional in this regard—our research shows that crises disproportionately drive long-term outperformance in business.

The value of resilience was evident well beyond business in 2020. In contrast to healthcare infrastructure, as our consumption, work, and social lives moved online during the pandemic and digital infrastructure became critical—one often heard refrain was “at least the internet is still working.” That isn’t just a stroke of luck however: the architects of the internet designed it to withstand a wide range of shocks, such as a nuclear attack. They did so by making the network highly redundant, modular (one failure doesn’t bring down the whole system), and adaptive—principles that business leaders can also use to boost their companies’ resilience. 

3. Optimism is critical during a crisis. Conventional wisdom holds that business performance falls across the board during a crisis, the magnitude mostly depends on what happens to your industry, and operational discipline is the key to minimizing the damage. However, the evidence shows that one in seven companies increases absolute outperformance in crises, that some companies perform well in all sectors, and that revenue growth, not costs, is the primary driver of differential success. Furthermore, because consumer beliefs and behaviors often shift during crises, they be a good time for innovation—indeed, new business formation hit a record high last quarter.

Crises foreground the leader’s duty of optimism. Key to being a company that emerges from this disruption stronger, is seeing opportunity in adversity sooner than others. For example, Airbnb initially seemed like a company severely hurt by Covid-19—demand for travel and accommodation plummeted and it was forced to put IPO plans on hold. However, because the company’s platform can offer a more diverse set of accommodations and flex more quickly than traditional hotel chains, it was able to mobilize to serve new demand for longer-term stays at more remote locations. As a result, the company’s business bounced back rapidly, gained significant share against competitors and it went public this week with a very high valuation. 

4. Everything is connected to everything else. Within three months of the initial outbreak in Asia, ripple effects as far-ranging as collapsing global oil prices, a shutdown of nearly all live entertainment and a global recession were observable. This was an extreme example of a trend that was already underway—political, social, economic and business systems are becoming more interconnected, and changes in one part of the system can have effects at all levels. 

Business leaders therefore need to expand the boundaries of strategy. No longer can they consider only what happens within their corporate walls and to their customers and competitors; they need to understand shifts in the broader external context and the potential implications. 

5. Time is not linear. Even though clocks tick at a constant pace, the relevant time for business is nonlinear. As Vladimir Ilyich Lenin famously said, "There are decades where nothing happens; and there are weeks where decades happen." Examples of this in 2020 included “two years’ worth of digital transformation in two months”, as Microsoft CEO Satya Nadella said, or seven years’ worth of e-commerce growth in one year. To keep pace, organizations need to constantly sense when the context is shifting and proactively shape new needs. 

6. Organizational inertia is costly but not inevitable. Looking back, it seems inevitable that Covid-19 would turn into a global pandemic—the disease is highly contagious, it can have severe effects, and international travel gave it plenty of opportunities to spread. But even though those basic facts were known relatively early on, it was still treated as a localized issue for some time. Few treated the disease as a major global concern until exponential outbreaks erupted in multiple regions, even though seeing it in advance and taking preemptive action would have had significant benefits.

The bigger a company gets, the slower it tends to move and the harder it is to reinvent the business. But the shocks of 2020 also spurred many large organizations to move more quickly than they might have imagined was possible. Companies around the world shifted to remote work in a matter of weeks. Manufacturers across sectors revamped their factories to produce critical health and safety goods in a matter of weeks. And several pharmaceutical companies brought vaccines to market in a matter of months, much faster than ever before. 

Now that they have learned how quickly their organizations are capable of moving, leaders need to harness this ability in the absence of an external crisis. This will require avoiding complacency and creating a sense of urgency, as well as raising the level of ambition for change.

7. The long term didn’t go away. Leaders spent much of 2020 dealing with immediate challenges, such as protecting health and safety, shifting to remote work, and restoring supply chains and sales channels. But not only have the pre-existing long-term challenges not disappeared, many have been become more important:

• Technological advantage has become even more critical, because the pandemic accelerated the adoption of digital technologies in business
• Long-run growth continues to face demographic headwinds, which may be exacerbated by Covid-19
• Inequality and social polarization have been accentuated by the crisis
• Geopolitical tensions and uncertainty remain elevated
• The urgency of dealing with climate change is greater than ever

2021 will bring new short-term challenges—some of which can be anticipated, such as how vaccines are distributed and how this will bottleneck the recovery of hardest hit industries. But these long term issues will quickly come back into focus too.  Leaders who pivot back to this agenda on multiple timescales and adopt an agenda to address it will be best positioned to succeed in 2021 and beyond.