See Sooner, Act Faster: How Vigilant Leaders Thrive in an Era of Digital Turbulence
George S. Day & Paul J. H. Schoemaker
208 pages, The MIT Press, 2019
Technological and social turbulence is foreshadowed by weak signals of looming threats or potential opportunities. Organizations that sense and understand the implications of these signals sooner than others will be able to act quickly when the time is right. Organizations that miss the early warning signs become vulnerable and are forced to act defensively.
Our insights about vigilance are equally applicable to the social and private sectors. They are extracted from a decade of study of a total of 380 organizations ranging from global companies to libraries, medical schools and foundations. We consistently find that most differences between vigilant and vulnerable organizations in these sectors can be explained by the extent of the commitment of the leadership team to vigilance, supported by investments in foresight capabilities.
The leadership team’s commitment to vigilance is signaled by the amount of time they spend exploring the future, their openness to diverse inputs from anywhere inside or outside the organization, the extent of active networking beyond their comfort zone, and whether the board of directors is actively engaged in surfacing and understanding weak signals. A litmus test is revealed in the stories that are told about vigilance (or its absence) within the organization.
We share below lessons we have distilled from our research and experience as consultants, board members, and entrepreneurs about how vigilance can be assessed and developed by a vigilant leadership team.— George S. Day and Paul J. H. Schoemaker
Becoming More Vigilant
Most firms have the desire and the potential to become more vigilant but are unclear about how to make it happen. Should they adopt a freewheeling, opportunistic approach, or a tightly disciplined process? Which features of the most successful change initiatives observed elsewhere might apply to them? Where and how should the leadership team start the initiative? In the preceding chapters, we identified some common themes of effective change programs. Here we bring them together in the four-step change process, which serves as a general roadmap for answering these early design questions.
This guide is less orderly and more freewheeling than most change processes, but it always begins with visible demonstrations of leadership commitment. This is reinforced by three further stages that put the leadership team’s intentions to work: alter how strategy is formulated, make investments in foresight, and finally align the organizational activities. These implementation steps may proceed in sequence or in parallel as the situation dictates, with variable pacing and priorities. What worked for Mastercard—or Adobe Inc., as we saw earlier in the book—has to be adapted and modified for each case. There are many iterations and feedback loops in any learning by doing, multiyear change process. But as Oscar Wilde once said about history, “It may not repeat itself, but it surely rhymes.”
The change process shown in figure 7.1 combines lessons from our research into the drivers of vigilance described in chapter two with hands-on experience working closely with executive teams during the past decade.
Step 1: Demonstrate Leadership Commitment to Vigilance
The starting point is to have the CEO and the leadership team ponder six “leading” questions. The answers uncover whether the team is serious about becoming more vigilant or is just going through the motions. For each question, there are well-tested answers to help strengthen the vigilance capability and demonstrate commitment throughout the organization.
How Much Time Do We Spend Exploring the Future?
Short termism is the number one enemy of vigilance about longer-term undercurrents. This key point was reinforced by the findings of the CEO Genome project’s assessment of 2,000 CEOs. Leaders who excel at adapting to turbulent environments spend significantly more time—as much as 50 percent of their time—thinking about the long term to spot subtle trends. Less successful chief executives devoted only 30 percent or less of their time to long-term thinking. The conclusion was that a long-term focus makes CEOs more likely to pick up earlier on weak signals and sense potential changes.
Do We Encourage Diverse Inputs?
For example, Ajay Banga championed diversity from the start, arguing: “Leadership attributes are tremendously facilitated if you surround yourself with people who don’t look like you, don’t talk like you, and don’t have the same experiences as you. Diversity is essential because a group of similar people tend to think in similar ways, reach similar conclusions and have similar blind spots. To guard against that, you need to harness the collective uniqueness of those around you to widen your field of vision—to see things differently, to fail harder and to question everything. Widening that field of vision means widening your worldview.” Leaders can encourage vigilance by hiring for it as well as by promoting “mavericks” or others from within who are naturally more vigilant and externally focused. Mavericks tend to be independently minded. They hang out with different groups and read and digest different media than their peers. When hiring new staff, specific questions can be posed to assess a person’s ability to scan without taking his or her eyes off the main focus, and when designing performance reviews, leaders should evaluate how frequently and successfully employees have picked up weak signals from the periphery and reward them for it. Vigilant leaders should also educate employees in critical and divergent thinking skills, scenario planning to open their eyes to new possibilities, and weak signal detection.
How Widely and Well Do We Network?
Vigilant leaders see sooner by acting like explorers. They participate in diverse and unconventional knowledge networks to expand their worldviews. Engaging in diverse external webs, in which weak signals may be serendipitous, is especially challenging for operationally focused managers who have already much on their plates. They tend to be more comfortable within the evident relevance of clearly defined and long-established industry settings. These are too likely to be echo chambers in which like-minded managers seek and get affirmation of their biases and convictions. Connecting with a network of contacts outside familiar domains requires a tolerance for ambiguity and disagreement, plus some courage and a willingness to take some bets that may not pay off.
For example, look into joining small groups of noncompeting companies such as those inspired by former Medtronic CEO Bill George, called True North Groups. By sharing failures and misses, executives turn their blind spots into building blocks for sharper anticipation. Reflect on how well you create and mine your own networks. What purpose does each one serve? Do they corroborate or confront your beliefs? How can you push yourself further out on the periphery? To scan wider, you might want to start tracking cutting-edge blogs, tap into the wisdom of the crowd, and join LinkedIn interest groups outside your fields. Encouraging diverse views and networking outside someone’s comfort zone will cultivate curiosity at many levels. Once curiosity is triggered, employees will think more deeply about weak signals, share their concerns, and help their firms adapt to uncertainty. Yet surprisingly, research shows that most leaders largely suppress curiosity, fearing that it will reduce efficiency or perhaps call into question the strategic plans they are pursuing.
What Are the Stories About Vigilance We Tell Around Here?
Examining organizational narratives is a proven way to diagnose the perceived realities within a company. Narratives are much more powerful than facts in getting attention and motivating either action or resistance. Comparing stories about successes from seeing sooner or responding to unwelcome surprises will emphasize the values and beliefs that underpin vigilant behavior. A newly appointed Ford CEO did this during his weekly leadership meetings by asking his leadership team members about anomalies they had recently observed. This intervention soon changed the tone of the meetings, shifting the narrative from operational questions to expressing the kind of curiosity that is so essential to vigilance.
Within vulnerable firms, the prevailing narrative is too often self-defeating. We will hear middle-level managers say, “There are no carrots when it comes to sharing bad news, only sticks. … We tend to shoot the messenger. … We just don’t have time to listen and reflect.” Another pernicious belief is, “I don’t think they really want to hear this,” especially after bad news or awkward information has been muted, bit by bit, as it moves up the management chain. As one manager ruefully reflected, “In our culture, only good news can go upward, so it doesn’t matter if the CEO supports this. Concerns will be filtered out before she hears them.”
When the prevailing narrative is an impediment, all is not lost. Leaders can begin to change the collective mindset by envisioning a desired future state in which the company becomes more vigilant to ride waves of change and shape events rather than reacting slowly. Answering the following questions is a good place to start: If our organization was to act out a narrative about winning with vigilance, what behaviors would we see? What would a storyboard mapping out the way we practice vigilance look like? Once enough people embrace an uplifting and promising narrative, leaders can turn their attention to actually realizing it.
Have We Fully Engaged the Board of Directors?
Too many talented boards simply review and approve management’s proposed strategy. Their meeting time is mostly spent on progress reports, compliance problems, and operating issues. Bringing them into the challenges of seeing sooner offers many benefits. Board members can tap into a much wider network of information sources about trends, weak signals, and vigilance practices in leading firms. Boards also have a longer time horizon than the leadership team because management is more incented to deliver short-run results. What most directors desire is more breathing space in board meetings to help position the organization for an uncertain future. Once engaged in being more vigilant, these directors can become “scouts” who are actively listening. At Boeing in years past, for example, the board became concerned with the highly scripted agendas developed by the C-suite and staff, leaving little room to address truly important issues. So the board decided to add a two-hour open time slot to each agenda, titled “things we should really talk about.”
With shareholder activism rising and corporate scandals a serious risk, many boards in the United States are moving away from reactive oversight and toward becoming boards that lead. For a compelling example of effectively utilizing the board, consider a leading children’s hospital facing an increasingly uncertain future. The board members helped develop alternative scenarios for the coming 10 years. Together with the hospital’s leadership, they foresaw that the most daunting uncertainties would be the availability of funds and whether the pace of scientific advances in genomics and personalized medicine would evolve slowly or rapidly and disruptively. Different assumptions about these two uncertainties had profound implications for the need to acquire new areas of practice and develop new capabilities. Because board members were involved in constructing the scenarios, they also helped the executive team identify early warning signs and probe their meaning. These activities included:
- providing top-level guidance about realistic philanthropic expectations;
- helping assess how to practice medicine remotely, especially teleradiology;
- attracting a few highly regarded venture capital leaders to the advisory board; and
- periodically updating the external scenarios and further stress-testing new initiatives.
What Is Our Vigilance Quotient? Are We Vigilant or Vulnerable?
Stepping up to the implications of the previous five questions means the leadership team will have to allocate most of its scarce attention to vigilance. The vigilance survey in appendix A offers a practical guide to the areas most in need of attention. This survey is especially revealing when first completed by each member of a leadership team individually, to identify areas of agreement as well as differences in the diagnosis. In one vulnerable firm, for example, most leaders agreed that failure was typically viewed as an error—not as a learning opportunity. This prompted soul-searching that led to deliberate efforts to relax the approval practices for innovation projects because they had become overly cautious. The company realized this by conducting postmortems of recently failed innovation efforts and discovering that most actually contained key lessons. Armed with a better understanding of the company’s zones of vulnerability, leadership changed its approach to innovation—making more room for well-intentioned failures and learning how to see the silver linings in each.
Step 2: Change How Strategy Is Created
The way strategic choices are made in many firms can actually increase their vulnerability if too few people outside the leadership team participate in the process or if cumbersome steps in the process make it a formulaic exercise. The risk is that the firm starts to suffer from an inside-out bias and a near-term orientation. To become more vigilant, such firms need to widen their scope, lengthen the time horizon, and expand the number of people who are involved beyond the leadership team. Some of the features of a vigilant strategy formulation process follow.
Take an outside-in approach. Vigilant firms start their strategy dialogue by discussing what’s happening with customers, competitors, and adjacent technologies. This approach was embraced by Mastercard as it focused its strategic thinking on how to compete with cash. It found that many people preferred cash over credit cards because of the personal control. Others were forced by merchants to use cash, and many people in developing economies simply didn’t have bank accounts. But Mastercard also found that even the most reluctant adopters of credit cards preferred a cashless solution in such areas as transportation and meals because handling cash often became cumbersome in these settings. For example, when people need to catch a train or grab a meal on the run, they want a quick payment process rather than having to wait in line while they and others find the right cash amount in their wallet or purse. For Mastercard, this deeper insight led to a partnership with Transport for London that resulted in a contactless payment solution, allowing travelers to skip the queues for the tube or bus.
Balance formal and emergent planning. Successful strategies emerge from two interlocking processes: upfront planning, followed by learning by doing. The deliberate or intentional part is more structured and based on rigorous analysis of customer requirements, cost competitiveness, technology road maps, drivers of growth, and so on. This disciplined approach has to be balanced, however, with an emergent and opportunistic process of trial and error learning that allows for exploration and for midstream adjustments. The emergent part entails much experimentation, especially when innovations are involved. Those tests that succeed should then be acted upon quickly, whereas the disappointments should be mined for their learning opportunities. By embracing this dual approach, outside-in firms learn to excel at both the formal and the emergent aspects of strategy, letting resources flow to the best opportunities while quickly neutralizing threats.
Embrace anomalies. Emergent strategy processes emphasize surfacing anomalies and then addressing them while a strategy is being formed. Whereas vulnerable organizations ignore information that doesn’t fit or convince themselves that it isn’t important, vigilant firms seek out anomalies as early warning signs. Intuit calls this approach savoring the surprise. Once its leadership team members saw that some users of the online money management service Mint weren’t behaving the way the young-professional target market was “supposed” to behave, they dug deeper and found that these users had adopted Mint to manage their self-employment income and spending. Many, it turned out, were Uber or Lyft drivers, operating in the expanding gig economy. Embracing this market insight, Intuit designed a variation of QuickBooks especially for self-employed workers—which became its fastest-growing product. This novel product extension opportunity would never have been surfaced if Intuit hadn’t been studying its customers rigorously with an eye out for anomalies.
Answer guiding questions. We recommend an issues-based strategy process focused on addressing those big questions whose possible answers will shape future results. One of the best sources of these pivotal issues is the set of guiding questions in chapter three for systematically learning from the past, interrogating the present, and anticipating the future. These questions serve as an antidote to the precise and targeted focal questions used to evaluate and improve current operations. Vulnerable organizations usually are intent on asking and answering questions about capability utilization, cost variances, and market share changes, but often at the expense of seeing the big picture. The risk is that they see far too many trees and not enough of the overall forest.
Step 3: Invest in Foresight
The strongest signal of leadership commitment is putting serious resources into surveillance, scanning, and other activities aimed at improving vigilance. This shifts the narrative from operational concerns and current performance to looking for what may be coming over the horizon. In most companies, leadership conversations are about how much to budget for R&D or how to balance the project portfolio. But at W. L. Gore and Associates, the $3.1 billion materials technology firm best known for its rain-resistant Gore-Tex fabrics, deeper conversations are encouraged. For example, CEO Terri Kelly wants to know, “How do we create the right conditions where collaboration and sharing occurs naturally … where people want to work together … to be part of something greater than the individual contribution?”
Investments to enhance vigilance through better foresight start by strengthening the ability of the organization to anticipate surprises and take precautions against unexpected events. Spotting weak signals should be everyone’s concern but often is no one’s responsibility. One way to fix that problem is with a small foresight unit or team that can scour the technical literature, patent filings, and news feeds for early warning signs; (2) send out scouting teams to precursor markets or innovation hubs such as Silicon Valley; (3) engage with venture teams to learn about new relevant investments; (4) mobilize “red teams” to role-play competitors’ moves; or (5) conduct low-cost experiments to probe critical uncertainties and capture their lessons.
When Ajay Banga challenged different groups throughout his organization to allocate budget and energy to finding new opportunities, he sent a very strong message throughout Mastercard. He also created Mastercard Labs, with a mandate to generate disruptive services, and then had Mastercard Labs report directly to him as a further sign of strong commitment. The labs operated as a central hub responsible for nurturing a culture of innovation, generating and capturing good ideas from inside and outside the firm. To stimulate broad and novel ideas, the labs organized events such as Take Initiative, a two-day hackathon for developing and testing ideas around a specific challenge. When such commitments are made by top leaders, they bind the organization to a future direction and set the right tone at the top. The commitments of vigilant leaders like Banga aim to introduce a shared narrative about the importance of taking a long view and acting proactively.
Other ways to invest in foresight are to mount a disciplined search for threats and opportunities and engage with an ecosystem of partners. Let’s look at each approach.
Mount a disciplined search. Few firms do this better than Intuit. When its leadership in 2010 first saw the possibilities of adapting personal finance solutions to mobile devices, there was resistance from managers who were sure that there was no money to be made with mobile. So Intuit found companies making solid profits from mobile applications and assigned some of its own managers to interview their executives. These contrarian interviews were then shared at an off-site event. As Scott Cook, the founder and chairman of Intuit, recalled, “We didn’t have enough time in the meeting. … They wouldn’t stop talking. They were convincing each other there was money to be made in mobile.” Today, with Intuit’s TurboTax mobile app, it’s possible to prepare and file a full 1040 form from your phone.
In the same spirit, Walmart, the exemplar of a sclerotic, established retailer, has embraced a disciplined search with an incubator called Store No. 8 (named after an early store where founder Sam Walton conducted business experiments). This incubator is tasked with imagining “new verticals, capabilities, and existential threats” that Walmart might face in the next decade so that it can develop strategies to stay ahead of competitors—especially Amazon. The businesses that are incubated will be run as start-ups, with Walmart investing in them like a venture capitalist and then growing the group as a portfolio. One start-up that Store No. 8 acquired is exploring how virtual reality can augment customers’ shopping experiences. They forecast that within a decade, many households will have a super-high-resolution and streamlined VR headset that may reinvent merchandising.
Engage partners in the ecosystem. Mastercard has adopted this approach in recognition that the best opportunities often lie at the intersections where market spaces and industries overlap. Thus, it worked with Maytag to develop Clothespin, a wireless laundry equipment pay-per-use solution that connects washers and dryers to smartphones and laundry equipment service providers. These uncommon partners drew on available technologies—smartphones, online credit card payment systems, and devices connected through wireless cloud communications—to devise a novel solution to make doing laundry away from home easier.
This ecosystem engagement approach was then codified into a platform called Ecosystem Design and Development (EDD), allowing Mastercard to move into many new domains. The platform was managed by Tara Nathan, executive vice president of public-private partnerships, who compares ecosystems to 10-sided networks—in contrast to the classic two-sided network—highlighting the coordination challenges of multiparty innovation webs. The EDD platform enabled Mastercard to collaborate with NGOs in the private sector and with United Nations agencies to help beneficiaries in developing countries receive social services from multiple sources through a single ID. This enabled a secure exchange of data and transparency into the delivery of benefits while reducing leakage and fraud. The process was further digitized by modifying Mastercard’s prepaid card infrastructure.
Step 4: Align the Organization
When drafting the Declaration of Independence in 1776, Ben Franklin famously said, “Surely we must all hang together lest we all hang separately” (as traitors to the British Crown). When leaders bring new strategies to life, the biggest obstacle they face is bringing others along the desired path. The gap between strategy and execution remains devilishly hard to bridge.
Getting alignment on the need for heightened vigilance and agreement on what has to be done is an affirmation of the action agenda that puts the organizational pieces in place. This is especially daunting for vulnerable organizations in which most managers are comfortable with their current performance but leadership has become anxious about the future. They see digital turbulences looming, doubt the sustainability of the current business model, and are starting to see things happening in the market that can’t be readily explained.
Closer alignment of levels and functions means convincing the broader organization of the need for action. There will be pushback and obstacles to overcome, such as, “We are doing this already … we barely have time to do our day jobs and just don’t have the extra capacity.” The case for vigilance can be made by revisiting past surprises that should have been caught earlier and assessing the cost and waste from being forced to react to competitive moves or the damage sustained by overlooking or suppressing internal threats. Reminders of the long-run damage to Volkswagen from its defeat device debacle or Dansk Bank being oblivious to unusual bank transfers from Russia, are salutary. Leaders also should make clear that vigilance is a team sport and that wearing functional hats requires listening to the concerns of others.
The inability to align stakeholders to strategy implementation takes a heavy toll on leader effectiveness. Efficiency, productivity, and spirit are drained when needed most. The solution requires a human touch that connects with people’s interests and their natural desires to work effectively in teams. Here are some proven ways:
1. Communicate your intent early, often, and simply. According to Chip and Dan Heath, “What looks like resistance is often a lack of clarity.” Leaders can get so invested in their strategic agenda that they fail to realize that what’s clear to them is fuzzy to others. Without an abundance of clear communication about where you’re going and why, team members may default to behaviors that inadvertently undermine the strategic intent.
2. Reach out to those who have a stake in your direction. It was easier for leaders of command and control organizations to line up the troops and send them marching. But organizations have moved from hierarchical structures with clear lines of authority to horizontal networks in which decision-making is more diffuse. These organizations should especially try to include all those with a significant stake in the outcome. Wider communication may slow things down at first, but you will easily make up that time by having better implementation and execution.
3. Promote open dialogue and true debate. One of the oldest axioms for change leaders is to approach resistance, not ignore it or fight it. Yet too often we fail to even surface, let alone fully understand, why people see things differently. This failure readily occurs when people have their heads down and are focused on immediate demands. And yes, it is messy and often awkward to surface and deal with conflicting views. Yet we pay a heavy price when we don’t attend to differences up front. It takes courage to face conflict, tease out diverse expectations, and manage differences.
4. Reward those who truly take ownership. Strategic change can only be achieved when people own the solutions in their guts, not just their heads. What we may think is buy-in is often superficial agreement. When a client asked us to help translate their strategy into action, the first thing we did was a “lessons learned” debrief on why they failed to execute successfully before. It became apparent that many leaders did not share the same urgency or ownership of the prior initiatives, even those assigned to them. This is common when leaders fail to clarify their change agenda, connect key stakeholders, and promote debate of the issues. Rallying people around an execution strategy is hard work. Unless you rely on a proven approach to align stakeholders, you may have no more than an illusion of agreement.
A common barrier to vigilance taking root deep inside the organization is the silent middle that remains unconvinced or confused about what is expected. Here are some of the problems leaders may have to overcome: “This will cause a flood of false signals that will clog everything … the money would be better spent on getting our new product to market faster … marketing and R&D will be upset their role is being taken out of their hands.” Such objections reflect a mindset that activities and initiatives should have a clear, calculable payoff. It assumes that the ordinary course of business matters more day-to-day than investing in dynamic capabilities. The counter-response from leadership should be that vigilance is about assuring a healthy future in a changing world. Ideally, tensions between getting bread on the table now versus assuring survival later would have been addressed in the strategic planning phase. Without a clear vision and sustained commitment by leaders to institutionalize organizational vigilance, alignment conflicts usually will be resolved in favor of the status quo.
A recurring theme of successful alignment initiatives is the efficacy of small, empowered teams. As Jeff Bezos once said, “No team should be any bigger than can be fed on two pizzas.” At Intuit, new ideas are initially developed by small “discovery teams” that don’t report up the chain of command but instead have a direct line to the divisional general manager. Such small teams are especially suited to enhancing vigilance. Recently, 70 Intuit senior managers were grouped into small teams and told to investigate eight major trends that had surfaced either in customer interactions or diverse technology forums (such as how kids under 10 years of age use technology, conversational user interfaces, and blockchains). Their reports sparked 15 further topics, all of which were investigated with hundreds of customer observation studies, interviews with thought leaders ranging from Marc Andreesen to the founders of Airbnb and Uber, and field experiments in diverse geographic markets.
More fundamental organizational transformations to heighten vigilance may have to include structural separation as well. This allows exploration and exploitation activities to occur in newly created units that follow different procedures, reporting rules, and incentives as needed. By putting all sensing and experimentation activities together in a single unit, with a supportive team that relies less on hierarchy and more on behavioral integration, better alignment can be achieved. This approach should be considered whenever the dynamic capabilities needed for greater vigilance conflict with the current business model and operational demands.