60 MIT SLOAN MANAGEMENT REVIEW SPRING 2020 SLOANREVIEW.MIT.EDU
DISRUPTION 2020: LEADING WITHOUT BLINDERS
when the capital investment required would have
been much lower and the tolerance for losses (nec-
essary to catch Amazon) higher.^5
Ironically, such late-breaking attempts to catch up
on innovation after being too slow are often, wrongly,
seen as proof that they offer systemic risk — Walmart
is “betting the store” on its web strategy. But that
wrongly characterizes what is actually happening.
Walmart was very, very late to the party and is now in-
novating to control the damage. Late-breaking
catch-up innovation with a burning (or smoking)
platform is not the same as making bold bets early on.
LIE NO. 3: “My shareholders won’t let me.”
This deception shows up in various guises. It might
be “The activists will pounce on me,” or “My share-
holders won’t like it,” or “The market just cares
about short-term results.” This type of lie — more
like an excuse — leads to self-harm. A compelling
stream of research by McKinsey shows that compa-
nies that take a long-term perspective outperform
those that don’t. So, paradoxically, those that focus
on short-term returns generate lower short-term
returns.^6 Indeed, many leaders hide behind the
“maximize shareholder value” maxim without
understanding exactly what it means. As Michael
Mauboussin and Alfred Rappaport, prominent
financial experts and coauthors of Expectations
Investing, once noted:Maximizing shareholder value means focusing
on cash flow, not earnings. It means managing
for the long term, not for the short term. And it
means that managers must take risk into account
as they evaluate choices. Executives who manage
for value allocate corporate resources with the
aim of maximizing the present value of risk-
adjusted, long-term cash flows. They recognize
that to create value, a company must generate a
return on its invested capital that covers all of its
costs over time, including the cost of capital.
These executives are not fixated on the short-
term stock price but rather on building enduring
long-term value that ultimately shows up in a
higher stock price.^7Further, there are clear examples demonstrating
that you can actively sell your shareholders on a new
story, as long as it is indeed a convincing story andyou demonstrate early success. But that doesn’t make
it easy. Aetna’s Bertolini recalled a tense meeting
early on in the company’s strategic transformation
where he fielded questions from investment banking
analysts: “I walked into a room of analysts and I said,
‘You either think of me as stupid or that I’m lying to
you, neither of which makes me want to spend more
time with you.’ I have had shareholders who have
said to me, ‘Why don’t you double your dividends?’
Well, I want to invest in the company. So I said that
one of my largest shareholders should get the hell
out of my stock.”^8 In 2018, Harvard Business Review
identified Bertolini as one of the 50 best-performing
CEOs in the world and the highest-performing CEO
in the health insurance industry.^9 Bertolini’s deci-
sion to stand firm in the face of criticism helped
drive Aetna’s successful transformation.
LIE NO. 4: “My people aren’t up to the task.”
Leaders often use their own people as an excuse not
to take action. It’s a convenient lie that puts the bur-
den of inaction on others — or worse, requires
leaders to take dramatic action that may not be re-
quired. For example, in 2018, Biogen CEO Michel
Vounatsos told a group of CEOs that transforming
his company had required turning over a staggering
80% of his top leadership team. “People resist
change,” he said. “You need to find the leaders in the
room who will be the ambassadors to the future.”^10
Vounatsos’s strategy underlines a popular percep-
tion that changing a company requires changing the
staff. It is too early to tell whether Vounatsos’s
method will pay off, but there is an obvious risk of
destroying a significant amount of institutional
knowledge. The difficulty and pain of the “rip and
replace” strategy is perhaps one reason why only 3%
of companies researched by Innosight were embark-
ing on significant strategic transformations.
As a counterexample, DBS, the largest bank in
Southeast Asia, went from a stodgy regulated bank to
an innovative digital powerhouse without dramati-
cally changing its workforce. Soon after becoming
CEO in 2009, Piyush Gupta set a challenge: Given
increasing technological change, DBS had to func-
tion like a 27,000-person startup. That meant
embracing new behaviors, such as agile develop-
ment, customer obsession, and experimentation.
DBS’s culture change effort rested on the fundamen-
tal belief that its staff had the inherent capabilities to