What You Don’t Know Could Kill Your Company

“We never saw it coming.” That could be the epitaph of many companies that have faded into history: Studebaker, Sears, Shearson Lehman, AltaVista. But why couldn’t they see the dangers lurking in the not-too-distant future? And it is not just companies that get blindsided but governments, NGOs and non-profits alike. Consider the legions who were unprepared for Covid-19 or Russia’s invasion of Ukraine, and the ensuing supply chain crisis, inflation and further bifurcating world order.

Organizations benefit disproportionately if they see looming threats or embryonic opportunities sooner than rivals. To do so, however, requires leadership teams that orchestrate vigilance at all levels of the enterprise. Many management consultants just emphasize the growing need for agility, mindfulness, resilience, and vigilance. However, few address how to achieve this in practice– even though that is where the rubber hits the road. I was recently interviewed about the concept of vigilance– what is it and how do you execute it – and here are some of Q&As that resulted.

Q1: All organizations get surprised at times. What are some of the biggest internal and external surprises you have seen? External surprises related to digital disruption really tripped up Kodak, Nokia, Blackberry and many other IT firms. Likewise, many executives were unprepared for the serious supply disruptions that followed the Covid-19 outbreak in 2020. Facebook is another example of being unprepared when nefarious actors abused its platform, followed by media and PR storms.

Notable internal surprises that made it to the front pages occurred at Theranos, Volkswagen and Wells Fargo–with layers of fraud detected far too late. We also saw notorious cases of high-profile CEOs abusing their power for years, like Harvey Weinstein at Miramax and Roger Ailes at Fox News, further fueling the ‘me too’ movement. Keep in mind that the leadership skills needed to avoid internal surprises, like safety violations, may be quite different from required to see external ones such as regulatory changes..

It’s useful as well to distinguish between threats and opportunities, since these also entail different competencies. Leaders who are good at seeing the promises of new distribution channels, emerging technologies, or ecosystem enhancements will not excel, necessarily, at handling threats related to abuse of power, discrimination, fraud, espionage, kickbacks, risks, rogue operators, or any other problem festering inside the firm.

Still, there are some traits that generalize across most cases, such as being curious, open-minded, listening to weak signals, and showing courage when pursuing potentially unwelcome news.

Q2: It seems that some people in the organization usually knew about any given surprise. But leaders didn’t know who knew, and those folks usually did not realize that the leaders needed to know. Why is leadership sometimes last to know?

The root problem here is ‘distributed intelligence’ where one part of the system doesn’t know what another side knows, which is why systematic ‘knowledge management’ is so important. But then, organizations may run into the problem of information overload as the Nobel-winning economist and political scientist Hebert Simon noted when he said that ‘a wealth of information creates a paucity of attention.’

There is also the problem that bad news doesn’t always travel well– especially upward. Who in Russia’s top echelon is going to tell President Vladimir Putin upfront that his military strategy is deeply flawed or that his sense of history is slanted and self-serving? Not me, comrade.

Great leaders are able to surface weak signals, such as rumors of a pending merger or new legislation gaining traction. Weak signals can easily be overlooked or dismissed as white noise. To interpret them properly usually requires finding more dots and connecting them. This is why vigilant leaders must tap into informal channels as well, from water cooler conversations to what people talk about in grapevines outside the company. More controversial methods exist as well for this, such as codifying all e-communications, (anonymized for privacy as needed), and use of AI-based text analysis to mine for subtle shifts in organizational attention and sentiments.

The paradoxical bottom line here is that any big thing that surprises an organization typically has multiple precursors; Nearly always, there are weak signals and sometimes people in the know. Surprises seldom come out of the blue although early warning signals typically first appear at the edges of the business. That is why leaders need to scan the periphery and look around corners for faint stirrings.

Q3: Some firms are clearly better than rivals at interpreting weak signals of looming threats and latent opportunities. What are some of the factors that distinguish these vigilant organizations?

The issue is not just seeing sooner but also acting faster on that information, while still keeping your options open. Vigilant organizations have to be self-learning enterprises that build a collective vigilance capability and mindset buttressed by curiosity, candor, and interest in diverse inputs. This also requires a cultural willingness to challenge superficial assumptions and outdated conventional wisdom. Vigilant leadership teams invest in tools and training so that managers will act faster when the time is right. Leaders who fail to foster such vigilance are typically late warning in comprehending early signals and often forced to react in haste. By then, they will have lost valuable degrees of freedom to maneuver and are at risk of choosing from inferior options.

Our own research surfaced the following drives as most crucial for organizational vigilance:

· Leadership commitment to vigilanceby an openness to weak from diverse sources, while also encouraging others in the organization to explore issues beyond their immediate domain and think outside the box.

· Investments in foresightare often made through centralized units for scanning and by using strategic dashboards to monitor plausible future scenarios.

· Strategy-making processeshave to be flexible and agile, by adopting ‘outside-in’ thinking and ‘future-back’ analyses. Outside-in thinking starts with understanding how the outside world is changing rather than focusing on the current plan. Future-back thinking asks what it takes to win long term and how to plant sufficient necessary seeds ahead of time.

· Coordination and accountabilitywhen interpreting weak signals is key as well, supported by an organizational norm of sharing information readily across silos. This last driver is what it takes for the other three drivers to flourish.

Q4: Do vigilant organizations actually outperform their rivals?

A longitudinal study of 85 European multinationals in 2008 by Rohrbeck and Kum assessed the “future preparedness” of each using a detailed organizational survey. The researchers then waited seven years to assess each firm’s gain in market capitalization and profit. For the 36 percent of firms judged to be highly vigilant in 2008, the average gain in stock price was 75 percent in 2015 – nearly double the stock gains of the more vulnerable firms. These vigilant firms were also 33 percent more profitable in 2015 than the others. There is further corroborating evidence, using other outcome-based field research, that building vigilance indeed pays off with the right investments and tools. Q5: How do vigilant firms actually outperform their rivals in practice?

It is crucial that leaders are committed to fostering a culture in which weak signals are spotted early, shared quickly and acted upon in a timely manner. To understand this culturally, we studied Mastercard’s remarkable transformation under CEO Ajay Banga. First, he encouraged overly comfortable managers to take thoughtful risks and develop the courage to decide with imperfect information. Second, he fueled constructive paranoia to avoid being blindsided by rivals. Third, he emphasized the need to develop a more global view reaching well beyond current boundaries. To help change Mastercard’s culture he promoted mavericks, developed new partnerships, explored underserved segments (such as people preferring cash over credit cards), and invested in better understanding the next generation of consumers (especially adolescents and children).

It worked, raising Mastercard’s game significantly against its main rival Visa. Vigilant leaders are change agents who empower managers and teams to become the eyes and ears of the organization. They also train people in the gentle art of reperceiving their business, from products and services to customers and partners, in search of joint gains. And finally, they empower these teams to pursue new opportunities beyond the confines of traditional procedures, routines and mindsets. In a word, they excel at renewing their organization so they will be ready for additional turbulence.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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