Are You a ‘Vigilant Leader’?

More than ever, CEOs must develop their peripheral vision, scanning for faint — but vital — signals that will help them give their companies an edge.

When Dutch drugmaker Organon International Inc. was conducting clinical trials for a new antihistamine, the secretary in charge of registering the trial volunteers for their medical checkups noticed something: Some volunteers were unusually cheerful. An extraneous observation, perhaps, but one she felt was worth sharing with the managers running the trial. They dug deeper, only to discover that all of the giddy participants were in the group taking the drug. Ultimately, the drug proved unsuccessful as an allergy-fighter. But by then the managers knew what they had on their hands: a highly effective treatment for depression. Marketed as Tolvon, the drug turned out to be very successful.1 That product never would have materialized if not for an employee who was trained to pay close attention to details and trust what she saw, and managers who were receptive to hearing a colleague’s input and taking it seriously. Modeling such vigilance is a leadership skill most valued in its absence. The words no board or investor wants to hear about a company’s leaders are “they ignored the warning signs” or “they missed the boat.” On the positive side, vigilant leaders can spot opportunities and threats before rivals. Boards don’t expect prescience, but they do rely on the leadership team to sense and act on early warning signs of trouble, or opportunity. But slow-dawning awareness is the norm. For example, Monsanto Co.’s leadership was slow to see the rising tide of public opposition to genetically modified foods. The recent subprime mortgage meltdown had been foreshadowed by several years of warnings that were ignored or downplayed by most investment banks, mortgage brokers and rating agencies.2 Problems with Chinese-made exports, leading to recalls of tainted pet foods, lead-painted toys and defective diabetes tests, were preceded by years of concerns about long and murky supply chains and systematic reductions in quality.3 In a survey of 140 corporate strategists, two-thirds admitted that their organizations had been surprised by as many as three high-impact competitive events during the previous five years. Moreover, 97% of respondents said their companies lacked any early warning system to prevent such future surprises.4 Lack of vigilance can be a career killer: A study examining why CEOs were fired found that 23% were terminated for “denying reality.

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References

1. This accidental discovery was told to us by Dr. Hans Vemer when he was president of Organon International, which then was part of Akzo Nobel N.V. (Organon has since been sold to Schering-Plough Corp.) The pharmaceutical industry is replete with such accidental discoveries, from penicillin to Viagra; see M.A. Morton, “Happy Accidents: Serendipity in Modern Medical Breakthroughs” (New York: Arcade Publishing, 2007).

2. N.D. Schwartz and V. Bajaj, “Credit Time Bomb Ticked, but Few Heard,” New York Times, Aug. 19, 2007, pp. 1, 23.

3. P. Midler, “Quality Fade: China’s Great Business Challenge,” July 25, 2007, http://knowledge.wharton.upenn.edu/.

4. The survey was conducted by the Fuld-Gilad-Herring Academy of Competitive Intelligence, a management training company in Cambridge, Massachusetts; L. Fuld, “Be Prepared,” Harvard Business Review 81 (November 2003): 20–21.

5. J. Hempel, “Why the Boss Really Had to Say Goodbye,” BusinessWeek, July 4, 2005.

6. A.S. Grove, “Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company” (New York: Currency, 1999).

7. In the section of the survey that asked about the orientation of the leadership, we asked about the attitude toward the periphery. One pole of the question was “active and curious: systematic monitoring of periphery,” which was chosen by 23% of respondents (a score of 6 or 7). The other pole was “limited and myopic: few people care,” and a score of 1 or 2 was picked by 25%. The rest of the sample was between these two poles. See G.S. Day and P.J.H. Schoemaker, “Peripheral Vision: Detecting the Weak Signals That Can Make or Break Your Company” (Boston: Harvard Business School Press, 2006), 191–205.

8. Our survey of literature on leadership found that vigilance has received scant attention from researchers as well. One possible exception is the emerging notion of “mindfulness,” which is seen as a process that enables organizations to minimize errors, remain vigilant and respond effectively to unexpected events. See, for example, D. Levinthal and C. Rerup, “Crossing an Apparent Chasm: Bridging Mindful and Less-Mindful Perspectives on Organizational Learning,” Organization Science 17, no. 4 (2006): 502–513. Their perspective on mindfulness draws on C.M. Fiol and E.J. O’Connor, “Waking Up! Mindfulness in the Face of Bandwagons,” Academy of Management Review 28, no. 1 (2003): 54–70; and K. Weick and K. Sutcliffe, “Managing the Unexpected” (San Francisco: Jossey-Bass, 2001).

9. J. Collins, “Good to Great: Why Some Companies Make the Leap … and Others Don’t” (New York: HarperBusiness, 2001).

10. G.S. Day, P.J.H. Schoemaker and S.A. Snyder, “Extended Intelligence Networks: Minding and Mining the Periphery,” in “Wharton on Network-Based Strategies and Competencies,” ed. P. Kleindorfer and J. Wind, in press).

11. For descriptions of these and related tools, see P.J. H. Schoemaker, “Profiting from Uncertainty: Strategies for Succeeding No Matter What the Future Brings” (New York: Free Press, 2002). Appendix B.

12. R. Foster and S. Kaplan, “Creative Destruction: Why Companies That Are Built to Last Underperform the Market — and How to Successfully Transform Them” (New York: Currency, 2001).

13. L. Huston, “Mining the Periphery for New Products,” Long Range Planning 37 (2004), 191–196; also see L. Huston and N. Sakkab, “Connect and Develop: Inside Procter & Gamble’s New Model for Innovation,” Harvard Business Review 84 (March 2006): 58–66.

14. P. Lewis, “Texas Instruments’ Lunatic Fringe,” Fortune, Nov. 14, 2006, 121.

15. M. Useem, “Leading Up: How to Lead Your Boss So You Both Win” (New York: Crown Business, 2001).

16. For insights about organizational culture, see G. Hofstede, “Culture’s Consequences: International Differences in Work-Related Values” (Newbury Park, California: Sage Publications, 1980); R.J. House, P.J. Hanges, M. Javidan, P.W. Dorfman and V. Gupta, eds., “Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies” (Beverly Hills, California: Sage Publications, 2004; and C. Hampden-Turner and F. Trompenaars, “Building Cross-Cultural Competence: How to Create Wealth From Conflicting Values” (New Haven: Yale University Press, 2000).

17. W. Bennis, “It’s the Culture,” Fast Company, August 2003, 35.

18. R.S. Burt, “Structural Holes and Good Ideas,” American Journal of Sociology 110, no. 2 (2004): 349–399; and R.S. Burt, “Structural Holes: The Social Structure of Competition” (Cambridge: Harvard University Press, 1992).

19. Some hallmarks of these mavericks are that they were right in the past when everyone else was wrong; they tend to be independently minded; they hang out with different groups (or even live on a “different planet”); they read and digest different books, movies and magazines than their peers; and they play unusual sports or have eccentric hobbies. For more on mavericks, see M.K. Pratt, “Spotting a Maverick,” Computerworld, Feb. 13, 2006; and W.C. Taylor and P.G. LaBarre, “Mavericks at Work: Why the Most Original Minds in Business Win” (New York: William Morrow, 2006).

20. J.E. Russo and P.J.H. Schoemaker, “Winning Decisions: Getting It Right the First Time” (New York: Currency, 2001).

21. A. Gentleman, “For 2 Giants of Soft Drinks, a Crisis in a Crucial Market,” New York Times, Aug. 23, 2006.

22. J. Immelt, “Letter to Investors,” GE 2006 Annual Report, Feb. 9, 2007.

Acknowledgments

We thank Josh Hyatt and Robert E. Gunther for their valuable editorial assistance. Wharton’s Mack Center for Technological Innovation is acknowledged for its research support.