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our guests today are George D and Paul Schumacher George is an emeritus professor of marketing at Wharton and a
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senior fellow at the Mac Institute for innovation management Paul founded and has been the CEO and chairman of
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decision strategies International and he's also served on the faculty at Wharton and at the University of Chicago
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we are speaking with them today about their new book see sooner act faster how vigilant leaders thrive in an era of
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digital turbulence George and Paul thank you so much for joining us today acknowledged at Wharton thanks for
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having our pleasure George maybe we can start with you what do you mean by vigilance and why is it so important
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well let's start with individual vigilance which is a heightened sense of alertness and we take that and bring it
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up to the full organization and the idea of a leadership team which is our our primary focus
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that's vigilant is one that's characterized by candor high curiosity openness because they receive a lot of
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weak signals and they're open to them and and interestingly we have found in
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the ten years we've been working together on this that whenever an organization missed a weak signal of
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either a threat or an opportunity that there was someone in the organization that in fact knew about it but the
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leadership team didn't know about it so we built on that kernel to come up with
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this notion of a vigilant organization in in short one that is able to see sooner and the the the the reference
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point is the rivals both potential and current I could just add to that what what's the payoff for a vigilant
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organization in terms of being more vigilant tennis rivals and sanctioned rivals so the payoff we've
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were very fortunate to have some colleagues in Europe do a study based upon part of our survey and they
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actually ask the question what is the payoff but as contrasted with much management research which is
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cross-sectional they actually defined vigilant and vulnerable organizations those that continually are surprised and
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wrong-footed and they tracked 85 large European multinationals over eight years and the payoff was that the Vigilant
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organizations had an increase in market capitalization that was double the increase in market cap of the vulnerable
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organizations to find the way we do it which is you know investment in foresight capabilities and leadership
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commitment what is vigilance so important especially at a time of digital turbulence as you see in the
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subtitle of your book yes I think because you have these different combinations of technologies they may be
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emerging technologies and already developed technologies but when they coalesce to make something possible and
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could be a new electronic digital product it could be over it could be air B&B did they people don't see it coming
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quickly because it is not in the traditional mold and it may not be in the space that where people are looking
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so that the feature of these digital technologies and after they are disruptive but not always would be that
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they don't respect industry boundaries the way normally is the case they do allow for very fast scaling so these
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light asset kind of things and they become new entrants who don't want to compete with the old business model but
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they bring in a new one and to to destroy maybe did the old one or find a hybrid of these things but each of
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these technologies it may be five four six seven technologies if you think of autonomous cars as twenty different
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technologies now to predict when everything is at the right point of reliability cost functionality in order
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to make the car function and forget for a moment regulations that is very hard to predict so it seems that these
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happens suddenly in fact there's a long gestation period but this combinatorial
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complexity or well that is an express exponential explosion if you have twenty thirty technologies that make coalesce
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how do you get a fix on that so is that the reason why turbulence is so hard to predict yeah I think there's an
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unpredictable element to it and and so your vigilance has to respect the fact that it cannot all be analytically
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predicted as you you mentioned a very interesting term in your earlier comment which is vulnerable organizations I'm
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sorry vulnerable organize oh yes yeah and I was wondering what factors matter most in explaining the difference
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between vigilant organizations and vulnerable ones so the the vigilant organizations we've already talked about
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now why would you be vulnerable well we have discovered that in this study that we talked about where the market cap
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increase was so much lower for the vulnerable organizations that vulnerability starts at the top and it's
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that's a consequence of the leadership team being a very short term oriented
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operational stick to the knitting to use the old term and very comfortable in their familiar surveys so they don't
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step outside the bounds of their industry they don't challenge themselves they stay within their comfort space and
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as a consequence there's not a lot of curiosity they don't invest in foresight
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which is the second big factor they don't do for example discipline searches for
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our opportunities using techniques like lead user analysis they tend to be more inside-out thinkers that is say okay
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I've got this capability this resource what do I do with it now and so that sets them up to be always
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reacting and that's the definition of a vulnerable organization it's always in
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react mode it never has a chance to get ahead Paul do you have something to add about why why it is that if
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organizations need to be vigilant all the time that vulnerability seems to be the norm do you have some of your
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thoughts yeah because I think the day-to-day pressures really command a lot of attention it's almost like grass
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Ohm's law of planning where you know that the the less important stuff drives
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out the more important stuff which has to do with the longer term which always can wait people think but in fact of
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course you using a precious time it has to do where the attention goes attention
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now we focus in our book on the leadership team we don't think it's one person one CEO a board member who can
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say this is how you become vigilant we ask the question what master leadership team do at the corporate level
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divisional level functional level SBU level in order to be vigilant and they become vulnerable the moment they get
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sucked into either protecting turf or the politics of organizations and they don't really fully anticipate once you
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have a shorter term focus how much how the scenarios for the future may be very different from the status quo and those
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are discomfort level with that the version two ambiguity so people that want to go there so what they have to do
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is often counterintuitive you have to almost say as a leadership team so what are the anomalies what is happening in
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our environment that people are curious about they wonder why is this happening and most of the time that's white noise
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people people themselves who maybe observe that a price is increased or that something happens they want to
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raise it unless they have a good rationale for it so you need a leader sort of what's Andy quoted at Intel sort
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of through this paranoia that you're looking for the reasons why things may break and that you're also willing to
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challenge the current model when he became CEOs was well-known of course then he challenged the business model
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and he said if we had taken over this company through an acquisition would we really stay on the current
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course and here legitimates now questions about whether they have the right business model still but in light
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of signals that are weak so in signals a weak it's hard to build a strong case that you should make a
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bold move so George is building upon what Paul just said could we talk a little bit about some of the features
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that define a vigilant organization and if you have an example or two of companies that demonstrate that I think
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that would be great yeah there's a lot of nonprofit as well as for-profit but I
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will start with Adobe which is a masterful example of a vigilant organization because way back we all
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remember the shrink-wrapped image building photoshop capability and when I talk to my students about shrink-wrapped
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software they say what what they don't understand that concept but it was only
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15 years ago that that's the way software was sold and you bought your software and you got full rights to it
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Adobe could see over the horizon actually ahead of almost all their rivals that cloud storage was going to
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dramatically change the way images are stored and made available and so they made the decision to shift to a
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subscriber based model where all the content was lodged in the cloud and and of course their customers objected
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strenuously because they liked having a physical object is it what's this cloud up here we we don't
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feel comfortable having our images out of our control but they persisted because they were confident with what
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they had done in testing the proposition and what why we use the term see sooner
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then act faster acting faster is doing probin learn studies a lot of experimentation and buying real options
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it doesn't mean acting in the full sense of jumping into the market it's getting
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yourself ready so when the time is right you have all the pieces in place and Adobe did that superbly but in another
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domain entirely I think the Canadian government was very farsighted in realizing that the future
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digital technologies was going to be inextricably linked to artificial intelligence and they made 10 years ago
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a major commitment to investing in keeping the science at home as in Canada and making it very attractive for people
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to come from the states to Canada they took a lot of the risk out but this required some pretty farsighted
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vigilance in our term and a lot of initial investments to get proof of concept make people comfortable with it
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and now we see the payoff in fact it's interesting you mentioned the Canadian
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government because we some time ago featured the vector Institute and interviewed page Dickey from there who
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explains some some of these things in in detail Paul you referred to in your earlier comments the importance of
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reading weak signals and I was wondering you know why is it so important to for companies and leadership teams to pick
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up on weak signals what exactly does that mean and again like George could you give any examples of companies that
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have done it well yeah so the first question is what is a weak signal and I would say it's something that on its own
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doesn't have a lot of meaning but if it is combined either by understanding in
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the context of the signal or by combining it with other signals through triangulation that in fact holds
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a lot of informational value so it requires a culture that is curious about anomalies or things that are contrary to
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expectations so one pharmaceutical company to give an example was working on and dermatological drug and they ran
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and standard controlled experiments and the volunteers had to come in for medical check-ups and the person who
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registered them and noticed that some of these were very cheerful more so than others and this is a woman and she
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mentioned that the secretary to the people running the trial and they were also sufficiently curious it starts with
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this culture of curiosity that they wanted to look into this and as you can imagine it turned out that many of these
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cheerful folks happen to be in the treatment group not in the control group and even though this particular drug
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failed as a dermatological drug it became a very successful antidepressant now how often is it the case that weak
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signals from customers or from volunteers from inside the organization die at the point where it is seen it
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stays in the reception area right rather than make it all the way up the organization and so it would show you
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need champions for weak signals otherwise they will just die and they won't be noticed I do think that the
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future foreshadows itself and there's many warnings but it's not presented on
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a gold platter it's distributed you know to lay out your organization and beyond
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the organization some of the signals may be in other industries and if you go too
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far out it may become very complex or what Canada this is a great example when Japan tried to do something along many
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decades ago in anticipating its future mitii and sort of industrial policies they had identified artificial
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intelligence and supercomputers as the two big pillars and that turned out to be not so easy to do because they were
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very far into the future so it's a very fine balance between where can you still
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not only understand it but act on it in and responsible you know financially speaking waves interesting let's be be
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ready to act when the time is right yes and that was probably the problem with Japan let's go back to the the digital
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turbulence problem which it just increases the amount of data and information the last date I saw was our last
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information was that the amount of data is doubling every 18 months that means the signal to noise ratio is
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deteriorating rapidly so the important week signals the threats and opportunities are often
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shrouded in all of the noise and so we spend a lot of time in the book helping leadership teams think about how to
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allocate that scarce resource of attention and then focus on a few areas that will be ultimately extremely
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critical and so we have come up with the concept of guiding questions one of the
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six or eight questions that you've got to keep your eyes on and make sure the
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whole organization is aware of them and these questions come out of looking at where you missed things in the past
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diagnosing the future I mean diagnosing the present and anticipating the future and so we come up with two or three
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questions that the whole organization is aware of is widely communicated you have
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task forces working on them for example a medical device company some years ago was very concerned about the likelihood
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that a drug would displace the function of a peacemaker and it's not implausible
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and they were very concerned about it so they said their guiding question was what drug pharmaceutical drug could
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possibly displace an obsolete our our product and so they created a task force they made it highly visible all of the
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weak signals on that particular topic flowed into this one central node and interestingly just as a sidebar they
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learned an enormous amount about the drug industry and they found some amazingly effective drugs to enhance
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the capabilities of not only their their stents would say also sold but of the peacemakers that's in great that's a
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great story so based on everything both of you have said so far I wonder if I could ask each
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of you how can companies become more vigilant or as you put it in your book how can a company increase its vigilance
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quotient the quality won't start with that yeah I think a very good starting
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point is to and if I may just comment briefly on what George was saying what was in the medical example striking is
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that it was many signals having receptors where they can be interpreters so it's seldom that it was one weak
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signal but it is this combination and the CEO of DuPont was famously in the news for having identified early before
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the you know the Great Recession three different signals of a cash flow problem with the customer in Japan and then the
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the hotel in Wilmington DuPont hotel not being fully occupied and unusually low and GM not being able to give production
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numbers to them as they normally would he triangulated these and they all happened at different times not within
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the context at all of may there be a recession or whatever and he said are we gonna hit a wall and saw that early so
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that is the hard part to do so one I think is to really identify cases where people were prescient in some sense they
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saw the future and as importantly look at the past so we start with an audit and say let's look at what you missed in
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the past must be years what you saw early was it more a threat it's an opportunity and when we did that with
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olympus for example there were things that they've really excellent that they
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saw underwater cameras at opportunity before others did but there were other things that there endoscopes which were
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high-end endoscopes would be replaced by the displaced by disposable endoscopes they were like there was a blind spot
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and at Shell we did this one I worked at the Planning Group in shell in London and we said well what is shell missed
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and it turns out they miss of course stuff in economics but they don't miss a
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lot and systematically in in in the other domains except for one in public relations and media they didn't have a
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good sense they had to Brent's Peres Fiasco at one point in the North Sea there in Nigeria they had made payments
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to schools that ended up in the pockets of corrupt officials and then they overstated though their oil reserves
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just have to big companies look very bad and I had a vnp lost his job over that issue so once you start to study the
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profile you identify well is the organization systemically weak and once you understand that you can then say
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well how can we fix that and of course the past doesn't predict the future in
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that sense unless you have a starting point and then the other way maybe George can talk about that we have tests
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lots of surveys to measure the requisite conditions for being vigilant in place and we have survey that has you know 30
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questions that and we have benchmarks tokens which that can be compared so those are Diagnostics that can help so
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we offer at the the end of the book a an action agenda that is consistent with all the examples we talked about there's
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a lot of research but especially our research says there's two big factors and that is leadership commitment to
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vigilance it's highly visible signal to the organization and then significant
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investments in foresight activities so leadership commitment is signaled by the amount of time you spend for example
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thinking about the future and an a vulnerable organization will spend less than 20% vigilant organisations spend up
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to 50 percent of the leadership time thinking about the future they also Network very widely they're
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open they signal that they're ready and open to weak signals Andy Grove was a
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magician at that he gave permission to people at the way out on their periphery to come to him directly with a concern
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and and that kind of openness curiosity and candor is is critical because it vigilance is a team sport and
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then you follow that with very visible investments in foresight activities including what we find is the 3m and
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companies of that sort invest an enormous amount in looking for opportunities they don't wait for them
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to come but they use lead user analysis to pursue interesting needs of their lead customers they do a lot of
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experiments and they have a lot of investments in small startups for example that might have a but go back to
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the medical device company they invested a lot in small stakes in many many companies to get visibility into what
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was the next generation rather than having it appear as a product they knew the basic science and then they
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communicated that widely through the organization and finally just one of the things that is so consistent through all
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of our studies and examples is that when information is not shared you're vulnerable yeah now we've talked a lot
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about for-profit companies and I wonder if vigilance and vulnerability are also applicable to other kinds of
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organizations like nonprofits foundations and so on yeah yes sir we also samples in particular foundations
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American foundations with the help of the Council on Foundations and also Credit Union's American credit unions
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the corporate study was actually global in this world a lot of time of global companies but we do can see a comparison
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and indeed the weight that some of these factors that we mentioned in terms of vigilance differ but and it differs as a
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function of size and the difference of a function of how the degrees of freedom if you're highly regulated as credit
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unions are there is of course less scope for really farsighted leadership foundations likewise for some small
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Community Foundation's some other MacArthur Foundation's very big and so
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there is a lot of you need you need to understand the contingent factors why when is a certain
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foresight capability a certain attitudinal shift critical in that sector so it's hard to sort of have
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here's the recipe the five things they always work they work but two different
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degrees and so I think you cannot I think it says still a research topic about why vigilance varies and what are
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the determinants of it because it depends on time place culture all these kinds of things George would you like to
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add but one interesting finding was that the large foundations had the same attributes and and the the vulnerable
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foundations and the vigilant foundations were very similar to our sample of global organizations but only for the
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large foundations the small community foundations with the restricted mandate may be only in a region say southeastern
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Pennsylvania with a very limited periphery the that they had a totally different as Paul said those very
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restricted entities didn't have much need for vigilance because they they knew what they had to do they had very
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few resources and so we we only really began to appreciate how applicable the model was when we started looking at the
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big foundations I'd like to end with one question for each of you that is that
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let's imagine there is a CEO who comes to you and says what's your one piece of
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advice to make my company's leadership team more vigilant what would be your
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top recommendations Paul I would say reward it if you see it and share the best practices and and instill a culture
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of curiosity and hypothesis testing George the litmus test is openness and and so
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that's almost the other side of the curiosity coin but you also have to be open and make it clear to the
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organization that you're open to weak signals nagging concerns anomalies that
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you can't explain rather than having them bottled up in the at the point of contact with the
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marketplace for example or the technologists people feel comfortable forwarding that up and that openness is
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is in a critical part of the curiosity well George Paul thank you so much for speaking with knowledge it working about
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your book it's been a pleasure talking with you likewise thanks as always for
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more insight from knowledge at Wharton please visit knowledge Wharton UPenn edu [Music]
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