On Jan. 8, 2020, when Chinese researchers announced that they had identified a new virus that had infected dozens of people across Asia, few business leaders realized that their companies were on the brink of an economic, medical, political, and cultural disruption of global magnitude. In short order, they were called upon to respond to potential illness among employees and customers, supply chain interruptions, dramatic fluctuations in demand, and extraordinarily high levels of uncertainty.
Yet, for all its grim — and ongoing — consequences, the COVID-19 pandemic is just one of many fundamental breaks in the business environment that have challenged leaders over the past 30 years or so. These disruptions come in two forms.
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The COVID-19 pandemic is an acute disruption. As with an acute medical condition, the onset of such a disruption is sudden and severe, and its symptoms are obvious. Its treatment calls for a rapid and dramatic response, and its duration is relatively short. The Sept. 11, 2001, terrorist attacks in the U.S., the 2004 tsunami in the Indian Ocean, the 2008 housing and financial crisis, and the 2010 volcanic eruptions in Iceland are examples of acute disruptions.
The second form of disruption is more like a chronic medical condition. Chronic disruptions build slowly. Their immediate symptoms can be subtle and easily overlooked. They require sustained treatment that must be tolerable over time. Chronic disruptions, such as China’s economic rise, climate change, and the evolutionary emergence of digital technology, tend to be persistent and long lasting.
While the two phenomena present differently, they both represent a departure from business as usual to which companies must respond.
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2. Our research is also supported by a forthcoming Deloitte research study of Russell 1000 Index companies since 2016, which shows that on average, those large-cap companies with a high capacity for change earn 31% higher forward price-to-earnings multiples and have share prices 26% less volatile than their lowest-ranked peers.
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