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The coronavirus pandemic has reminded business leaders of some unsettling truths: that all assumptions and practices must be continually reexamined and that existential threats can come at any time, from any direction. This crisis will eventually pass. But its ramifications will ripple through the economy for years, and inevitably it will be followed by another global crisis — or an unforeseen revolution in the marketplace. How can companies strategize once they have recognized the limitations of long-term planning in an unpredictable world? By mercilessly examining their own weaknesses and vulnerabilities, and by gaming out their own destruction before someone — or something — does it for them.
In this article, we will walk you through an intensive, multipart exercise in that kind of creative destruction that we have field-tested with more than 1,500 leaders from around the world as part of executive education at INSEAD. Ordinarily, the process includes participants from multiple companies and plays out over several days as CEOs search for the surest way to demolish their respective companies from a competitor’s perspective. Here, we streamline the exercise for a single institution and a flexible time frame. Ideally, there should be four teams, each with as many as six members, working independently and sharing their insights later in a debriefing session. We call this undertaking the Phoenix Encounter Method because our true subject here is not the ashes of destruction but the revitalized company that will rise out of them.
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A Journey in Three Stages
This process unfolds in three stages.
Stage 1: Groundwork. Prevailing mindsets and values are questioned. Major global trends are examined. Group members work toward a Phoenix Attitude, which embraces upheaval as a catalyst for change.
Stage 2: Battlefield. The facilitator delivers a short list of scenarios that could disrupt the company. The threats might be new technology, demographic shifts, social trends, or all of the above. Group members craft the most devastating attack and use it to shine a light on their business’s weaknesses.
Stage 3: Breakthrough. New strategic priorities are put in place. New business models are adopted. The Phoenix rises.
In each of these stages, the team will grapple with difficult and potentially divisive issues. (See “Guiding an Effective Phoenix Encounter Group.”) To provoke a real change in perspective, it’s essential that a facilitator oversee this process and that each team — in our parlance, the Phoenix Encounter Group, or PEG — bring a diversity of experiences and opinions to the table. Team members should be drawn from vastly different areas or business units within the company, and perhaps even different management levels. The presence of outsiders, like stakeholders or customers, can also energize the process and enhance key relationships.
Stage 1: Groundwork
1. Define your company’s status quo. Before the first meeting, PEG members should each prepare a frank assessment of the organization as it currently stands — the good, the bad, and the ugly. What is the company’s vision? What are its strategic priorities? How does it create value for stakeholders, be they customers, employees, partners, or investors? How does it capture value for itself? What, to borrow the prompts of a standard SWOT analysis, are the company’s strengths, weaknesses, opportunities, and threats — and how are they reflected in the way things are done? This material will be useful not just in the initial stages of the process but later as well, when it will help you assess whether the PEG has been as rigorous as necessary.
Why must each participant produce a report if they all work for the same company? An organization can look vastly different from disparate vantage points, and what’s needed here is a frank, multidimensional portrait. In a Phoenix Encounter session we ran with a large financial services provider, the multiplicity of perspectives yielded some hard truths: “too inward-looking,” “very confusing priorities,” “our past strengths are being overplayed.” Senior leaders tend to believe they’re too busy to prepare the report themselves and often try to outsource it, but it is crucial that they do their own legwork and take ownership of their analysis. These reports will be shared with the group when everyone gathers at the end of stage 1.
2. Interrogate your own mindset. Participants should also complete a more introspective assessment that will remain private. What are their own attitudes toward disruption? How willing are they to call out outmoded practices and identify problems on the horizon? What are the characteristics of the leaders they admire most, and how do those shape their own management styles, for good or ill?
3. Identify threats and tools. There’s just one remaining piece of prep work: Team members must scan the landscape for new trends that could either disrupt the company or, ideally, be used to defend it. They could include sweeping societal changes, like regulation, generational shifts, and activism, as well as specific technologies that are evolving quickly, like cloud, AI, internet of things, 3D printing, blockchain, and social media.
The leaders most open to utter disruption will survey not just their own industry but beyond it as well. Android and iOS smartphones didn’t just disrupt Nokia and Motorola — they affected different sectors altogether, like the manufacturers of GPS devices and pocket cameras. They made Uber possible, which in turn disrupted taxi companies and automobile manufacturers. They enabled Alibaba to create Alipay and Tencent to create WeChat Pay, which are now hugely popular payment systems in China and many parts of Asia. That, in turn, produced a sea change for financial services companies that traditionally would be unaffected by developments in the social media and e-commerce sectors.
Proactive scanning is critical if executives are to develop an intuition for what’s on the horizon, whether it is a boon to business or potentially menacing. Change, when it comes, doesn’t trouble itself with the boundaries of industries or nations.
Stage 2: Battlefield
1. Launch the scenario. At the first meeting of the PEG, the facilitator presents each team with a scenario to ignite discussion: Newco — an aggressive behemoth with unlimited resources in terms of capital, tech, and regulatory influence — has the team’s company in its sights. Newco intends to destroy the organization and then, if it’s still hungry, the whole surrounding industry.
2. Think like your enemy. It’s here that PEG members must imagine themselves in their competitors’ shoes. How will Newco take them down? What would be the most devastating combination of, say, leading-edge tech and established business strategy? The PEG’s work in stage 1 has prepared everyone for this debate. What would truly leave their company for dead? The suggestions should be wild and unexpected — and deviate radically from the organizational status quo. Whatever the team believes to be the wiliest plan, or combination of plans, is adopted.
It can take anywhere from three to seven hours to define the takedown plan and write it down for future reference. What the teams come up with is often inspired. In one of our workshops, a senior vice president for a global hardware manufacturer helped dream up a speculative technology that would decimate his company: a Google Chromebook-like smartphone with an entirely cloud-based operating system, for which the physical device would be a mere carrier. The product was entirely imaginary but believable. With the advent of such a device, the hardware company’s competitive edge — its hard-won technical expertise and supplier and customer relationships — would be wiped away, leaving only cumbersome and costly physical processes. Its business model would be placed in existential danger, almost overnight.
Another workshop included a man we’ll call Trevor, who was the CEO of a Canadian agricultural commodities company focused on grains. Despite the success of his company, Trevor was fixated on a confluence of potential dangers, such as growing public unease about the meat industry, animal rights activism, and the global spread of African swine fever. Along with his PEG, he marshaled an attack straight out of his worst nightmares: Newco would capitalize on socially conscious consumers by delivering food products customized to fulfill their sustainability and personal wellness goals. It would adhere to the principles of a circular economy, with end-to-end sourcing — and its advocacy arm would use social media to hammer Trevor and his fellow multinational incumbents for their dependency on sourcing from far-flung suppliers. To give customers locally sourced alternatives, Newco would even acquire Trevor’s suppliers. The attack was no less startling for the fact that Trevor had helped conceive of it himself. By collaborating with teammates from different backgrounds, he saw how quickly a bold competitor could push his company to extinction.
Emotions can run high in this phase, even if everyone has examined their mindsets ahead of time. (See “Guiding an Effective Phoenix Encounter Group.”) But the work done here can save a company.
3. Develop a defense. After the PEG’s company has been leveled, each team must come up with a commensurate plan to rebuild. This requires a transition in thinking that we call turning the wheel — a mindset shift from destruction to rebirth. In our experience, this phase can last anywhere from four to eight hours. Radical ideation — and the debate between those with utterly opposing viewpoints — comes back into play now, as team members search for new strategies that will not just help them preempt Newco’s attack but also stand the test of time.
Trevor’s team devised a plan that would unfold in three parts. In the short term, his company would beat Newco to the punch by inviting local farmers to be partial owners of the enterprise. Over the medium term, the company would work closely with those farmers to develop new proprietary business models for the optimal use of land in terms of sustainability and profitability. In the long term, Trevor and his team would transform their organization from a mainstream agricultural company into a food company in touch with current trends. Rather than striving to merely improve their previous business model, which was based entirely around delivering in bulk, they would pivot to a more niche market space with the help of trusted partners.
Stage 3: Breakthrough
1. Make a blueprint for the future. The battlefield stage can be cathartic and inspire real camaraderie among executives who, by virtue of their differing roles, have never truly partnered before. But as the PEG disbands and team members return to their normal routines, they will find that the gravitational pull of the old ways of doing business is strong. Without concentrated follow-up, the lessons of the first two stages may be forgotten and momentum lost.
We advise teams to prepare what we call a future-facing blueprint immediately after finalizing their defensive strategies. The document should describe the reimagined business model and include an updated SWOT analysis. (The latter is likely to be starkly, almost comically, different from the one that the team completed in stage 1.) But the blueprint should also address key details: What is the new value proposition for various stakeholders? What are the most important action items in the short, medium, and long terms? How can internal stakeholders at large be brought on board and energized the way the PEG has been?
2. Embed the Phoenix DNA. If there’s a danger of executives sinking back into the status quo, there’s also a danger that — fired up from the sessions — they will attempt to change too much too quickly. That’s a recipe for burnout. We suggest that they focus on the plan for the first 100 days and select three significant action items from their new blueprint. These might include engaging stakeholders, earmarking resources, initiating pilot projects, or analyzing aspects of the company at a more granular level than was possible during the sessions. After that, they can take more decisive actions, such as acquiring new partners or competencies, monitoring progress, and revamping organizational culture.
We worked with an Eastern European supplier of household appliances and farming equipment — let’s call it Dvorak — that had created a financial services arm. In the first two phases of Dvorak’s Phoenix Encounter, the PEG envisioned an Alibaba-like Newco that partnered with local insurance companies and banks to offer a suite of new-to-market financial products (think digital microloans with innovative, customer-friendly incentives, such as cash prizes for early payments). Newco would exploit the split in Dvorak’s business between engineering and financial services to foment dissent among the shareholders and would poach younger, tech-savvy employees who felt stifled by Dvorak’s senior management.
How did Dvorak respond to the sudden threat? It reinvented itself as a physical/digital one-stop shop for all the financial demands, both professional and personal, of rural households. To make this enormous task tangible, Dvorak prepared a blueprint with specific goals, which included constructing an engine for analyzing consumer insights, developing more fine-grained approaches to consumer data collection and segmentation, and totally automating core tasks (such as data input, processing, and recommendations). The organization also resolved to wage a zero-tolerance assault on internal silos to boost customer-centricity.
Dvorak’s response was sweeping and inspired. The company did the two most crucial things that any legacy organization can do when it’s looking to remake itself for the new world order: It fortified its core business, and it identified the actors, actions, and activities that would enable it to face the future from a position of strength.
Of course, like other entities, companies are not always free to execute change on their own timetables. A Phoenix Encounter we led not long ago brought that fact home vividly. Amy had been tapped to become CEO of a large British private hospital and retirement care business that we’ll call Horcomp PLC. Only a few weeks after Amy returned from her Phoenix Encounter, however, Horcomp’s chairman informed her that an activist investor was advocating for radical changes that eerily echoed the scenario she had just been workshopping. Her worst-case scenario had sprung to life.
Knowing she had to accelerate her long-term plan, Amy convened an in-house PEG within the senior leadership team and wisely persuaded the retiring CEO not to take part. The team brainstormed ways to ramp up Horcomp’s technological capacities through rapid, iterative steps. Within one year, Horcomp had built a pilot ecosystem for providing whole-of-life care, with the help of a digital partner. The pilot projects included patient-monitoring systems, health care apps created in tandem with Apple, and technology that allowed users to easily access support services and connect with other patients and families. Taken together, the new programs not only produced service improvements but also reduced costs by 10% and helped increase talent retention across the company.
Accelerating the Destruction
As they seek to recover from the growth and opportunities lost to the COVID-19 pandemic, a great many organizations are focused on trying to claw their way back to “normal” business operations. We think that strategy is entirely misguided. Instead of attempting to preserve what worked in the past, leaders should lean in to the inevitability of large-scale disruption and brainstorm radical solutions. The future may be highly uncertain, but it is coming no matter what.