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George S. Day and Paul J.H. Schoemaker  |  November 21, 2019

The Importance of Vigilance

How Companies Can Avoid Missing the Boat with Vigilant Leadership

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See Sooner Act Faster coverEditor’s note: See Sooner, Act Faster, the new book from strategy experts George S. Day and Paul J.H. Schoemaker, explores how companies can use vigilant leadership to stay ahead of problems. In the following excerpt, the authors argue that some big scandals plaguing companies like Facebook and Wells Fargo could have been avoided.

We live in an increasingly turbulent world, filled with both leadership dilemmas and unlimited opportunities.

This relentless turbulence can be managed, just as whitewater rapids are navigable with a vigilant guide. But it demands different capabilities from those used to manage the current operations. Leadership teams need their organizations to become more vigilant and able to navigate the increasing turbulence magnified by the inexorable process of moving from analog to digital.

Vigilant firms have greater foresight than their rivals. Charles Schwab was early to see and act on the promise of “robo-advisors,” GM jumped ahead of Ford in the world of autonomous cars, and Novartis led others in equipping their sales teams with a digital platform to access medical expertise for doctors in real time. Such vigilant firms win at the expense of their slower rivals. Vulnerable firms, on the other hand, often misread early signals of external threats or internal organizational challenges. Honeywell stumbled when Nest Labs came out first with a sleek, Internet-enabled thermostat, an early tool in the creation of the nascent “smart home.” Volkswagen crippled itself with revelations that it created intelligent systems inside its cars to fake emissions test results. Dansk Bank, Denmark’s largest lender, spiraled down from being one of Europe’s most respected banks after being caught in a massive, 200-billion-euro money-laundering scandal in which it ignored many red flags.

The words no board or investor ever wants to hear about an organization’s leaders are “they ignored the warning signs” or “they missed the boat.”

george s. day and paul j.h. schoemaker, SEE SOONER, ACT FASTER

The myriad problems afflicting Facebook that first surfaced in 2018 show that vigilance is about how organizations frame or ignore problems, interpret awkward information, share information, and deal with difficult questions—or not. The infamous “deny, deflect, and delay” approach of CEO Mark Zuckerberg and COO Sheryl Sandberg to dealing with manipulative and false campaign messages, illicit data sharing via Cambridge Analytica, and hate speech has had severe effects on the firm. Facebook squandered some of the essential trust on which its social media platform was built, unleashed angry calls for regulation, and bashed both its reputation and market capitalization (within one five-month period, the stock price dropped 39 percent). This issue goes well beyond the Facebook malfeasance and is a warning sign to all organizations that their ownership and monetization of the individual data they hold is becoming tenuous.

The antidote to such vulnerabilities is heightened vigilance. Traditional methods of strategic planning, risk analysis, and decision modeling are now less effective because there is just too much uncertainty on the periphery and too little stability at the core. Today’s environment requires new tools and mindsets. Fortunately, our understanding of the nature of vigilance—including corporate foresight—has advanced steadily. The fulcrum of strategic thinking has moved from leveraging a firm’s scarce and valuable resources to building the dynamic capabilities needed to adapt to increased turbulence. Whereas the resource-based approach emphasizes internal efficiency and narrows the strategy dialogue, a dynamic capabilities approach puts the emphasis on organizational anticipation and agility—enabling a firm to shape the environment to its advantage.

Vigilance is rewarded when there is a corresponding ability to act faster than rivals once the ambiguities of a weak signal of a threat or opportunity are resolved. “Fail fast” experiments and investing flexibly using “strategic options”—small bets that a firm can unwind if necessary while still learning enough to stake out market positions or build new capabilities—are crucial ingredients. So is creating an “ambidextrous” organization that supports both innovation and the optimization of current models.

Vigilance means sensing, probing, and interpreting weak signals from both inside and outside the organization. Highly publicized internal breaches such as the Wells Fargo account manipulation scandal and the revelation that numerous Japanese firms didn’t follow their quality standards have created shock waves in boardrooms. These firms and many others have been damaged by scandals that could—and should—have been foreseen. All have paid a high price, with fines and legal costs being just the tip of the iceberg. The larger costs come from managers being distracted by the crisis, as well as collateral damage to a brand, the morale of a company’s employees, the hesitation of new partners and customers, and the burden of greater regulatory oversight.

One certainty about vigilance is the pivotal role of the leadership team in preparing and aligning the organization to see sooner and act faster. Modeling such vigilance is a collective skill set most evident in its absence. The words no board or investor ever wants to hear about an organization’s leaders are “they ignored the warning signs” or “they missed the boat.” With a vigilant leadership in place, they rarely do.

Excerpted from See Sooner, Act Faster: How Vigilant Leaders Thrive in an Era of Digital Turbulence by George S. Day and Paul J.H. Schoemaker. Reprinted with permission from The MIT PRESS, 2019.

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