How Vigilant Organizations Gain an Edge

In his speech and conversation with Christine Miles, George Day says that vigilant organizations recognize the digital and societal transformations taking place and will be able to navigate them in the long term. The COVID-19 pandemic has landed us in an unprecedented environment. Some organizations will come out of the other end, find their footing, and capture some of the opportunities, while others will struggle and fall behind. The article builds on this theme and the idea of how vigilant organizations can gain an edge. The fundamental issue is how do you navigate simultaneously the Horizon 1 of immediate fire-fighting where we have to cut costs, repair broken supply chains, and keep the organization together. We are all in survival mode right now, but still, the vigilant organizations are going to devote some small share of their scarce leadership attention to Horizon 2 of intermediate agility. By Horizon 2, I mean that it is uncertain as to when we would have to pivot, but vigilant organizations have that agility to pivot quickly and capture the opportunities and move on because they are already prepared. The most vigilant organizations recognize that the digital transformation, the societal transformations that we all have been witnessing will continue into the perceivable future. They are not going to stop, so they spend a little bit of time looking out over the long term. They have already invested in foresight, next, they are going to exercise that foresight. Vigilant organizations can navigate the turbulences and uncertainties by following these three principles: Leadership attention is a scarce resource: Paying attention is a deliberate act, and we see in vigilant organizations the ability to look out ahead in the midst of the fire-fighting, chaos, and the current uncertainty.Robust dynamic capabilities foster agility: They do that by building robust dynamic capabilities so they can both sense opportunities and seize them while fighting off threats and transform themselves faster than their rivals. Hence, it is important to underline that it is framed against the rivals in an industry.Seeing sooner gains degrees of freedom later: In other words, you do not want to be forced into a reactive mode where you lose control. Being defensive always puts you at a disadvantage. You gain degrees of freedom by starting the strategy process from the outside-in but you have to be able to act fast when the time is right. Studying 400 organizations in 10 years, what we have learned about vigilance can be started with Jack Welch who summarised the concept of vigilance as the notion of a sixth sense, an ability to see around the corner. What we are talking about is building the ability to anticipate, not predict. We have to anticipate and prepare to move and pivot when the time is right. Vigilant organizations are curious, they are willing to challenge assumptions, they seek diverse inputs and they network widely. We have learned consistently, and particularly in vulnerable organizations that when they are surprised, someone in the organization knew about it beforehand but the leadership didn’t know they knew, and the people who knew about the new opportunity, new technology, or competitor threat didn’t know that leadership needed to know, and that kernel of an idea is the essence of the change process. Regarding the second navigation principle of dynamic capabilities, in order to execute these dynamic capabilities and focus them, we need insightful questions about the past, present, and future. Most important of all is the character of the leadership teams. This is what sets the vigilant organizations apart- that they have a leadership team that is deeply curious, very open to diverse inputs and they begin their strategy journey from the outside-in. They really outperform their vulnerable rivals. To understand the vigilance quotient of an organization, we can start with understanding the difference between vigilance and vulnerability. This is actually a spectrum with vigilance and vulnerability at each end. Of the 400 organizations studied, most are somewhere in the middle, with 20-25% really in the vulnerable category and 20-21% in the vigilance category, who we call the vigilant organizations. One can move in the spectrum from left to right but the change process is distinguished by leadership posture first. Vigilant organizations are curious, they are willing to challenge assumptions, they seek diverse inputs and they network widely. Their contrast with ‘immediate focus leadership’ in vulnerable organizations is noticeable. They also make strategy differently and it starts with looking at the organization from outside as opposed to inside-out thinking, which is really rooted in the capabilities and the structure and resources of the existing organization. They also focus on unprecedented uncertainty and see them as creating opportunities for them to move faster. Vulnerable organizations, on the other hand, are myopic and uncomfortable with uncertainty. Vigilant organizations have a very different approach to foresight, and they invest a lot in it, as they can be seen buying experiments, real options, etc. whereas vulnerable organizations are quite reactive. Lastly, they have strong accountability and coordination capability. Our tested model of how to become vigilant starts with demonstrating leadership commitment to vigilance. To quote Peter Drucker, only three things happen naturally in organizations- friction, confusion, and underperformance; everything else requires leadership, and that is why we have put it front and centre in our change process. The most effective way to do it is to begin by thinking more about the future. This is not the CEO but the leadership team collectively working together to chart the future and navigate the current chaos. They are also much more open and they cultivate their curiosity and they are out there asking questions. They don’t necessarily believe that they have the answers and are open to inputs from the rest of the organization. Vigilant organizations have a very different approach to foresight, and they invest a lot in it, as they can be seen buying experiments, real options, etc. whereas vulnerable organizations are quite reactive. One of the particularly compelling things about leadership commitment in vigilant organizations is that they spend a lot of time talking anomalies, that is, anything out of the expected norm. Sometimes in vulnerable organizations, those are brushed aside and/or never even brought up before the leadership team, whereas vigilant organizations spend a lot of time surfacing them and understanding what is going on, and that is a strong signal. So, demonstrating a commitment to how leadership behaves and how they signal what the priority is. They are also far better at connecting with and utilizing the board of directors. The second step in the change process is investing in foresight. One of the paramount and earliest manifestations of a vigilant leader, Andy Grove says, “When spring comes, snow melts first at the periphery, because that is where it is most exposed.” The message there is that you have to bring in the outer circumference of the organization into the centre. To do that, making capabilities or developing dynamic sensing and sense-making requires scoping widely but scoping too widely can often get you in a lot of clutter and noise and you lose the signal. Vigilant organizations also focus, and that is done by paying attention to just certain parts of it. Guiding questions are a tool that can help with that. Within those domains then, you can scan thoroughly and actively, and this is where investment in foresight pays off. Vigilant organizations are also exceptionally good at amplifying and clarifying this process and continuously improving. As part of their investment in foresight, they also systematically search for opportunities. A major investment is partnering and one of the attributes of a vigilant organization is that they are widely networked, both informally and formally, and that gives them a lot more resources to work with. Finally, vigilant organizations typically have a small foresight group that may be under the chief strategy officer or associated with the leadership team, which is the focal point where everyone can make sure that competitive intelligence, insights, warning, and anomalies are both collected and interpreted and brought to the attention of the leadership team. Lastly, invoking Charles Darwin in this environment under unprecedented uncertainty, it won’t be the strongest who survive nor the most intelligent, but the ones who are most responsive to change, that is, the most vigilant. That will come about by following the three navigation principles. Christine Miles in Conversation with George Day Christine Miles: How do we shift our focus from short-term survival mode to longer-term strategy right now? We laid off almost 98% of our organization and there’s few of us that are left and spread very thin, so it’s hard to find the opportunities to do the short-term versus the long-term. Can you provide some guidance around that? George Day: If you are in survival mode, you will be best served by being radically transparent about what you are doing, bringing in the whole organization, communicating very quickly and thoroughly, and mostly focused on getting the resources you need to survive. If your situation is dire, then you don’t have much bandwidth to look out of Horizon 2 and Horizon 3, but when the crisis is past the crest of the coronavirus seems to be winning then you should start thinking about how to position, pivot, and bring back your people, rebuild the organization and take some risks. The third horizon can’t be ignored, because the digital transformation that we are all living through is not going to stop, and in fact, the coronavirus and all of the reactions are just accelerating those trends. In the worst case, you have to focus on the here and now, but when you have come out on the other side, then you have to start paying attention to what it all means to your organization. Vigilant organizations will be more likely to make that pivot. They’ll have the flexible systems in place to act on Horizon 3. Miles: Could you share some examples of the guiding questions that you referenced? Day: Absolutely. The recurring problem with all the organizations we worked with is that the signal to noise ratio is deteriorating fast. That’s a recipe for deep confusion, and it clouds your ability to create foresight and be vigilant. In order to separate out the weak signals that really matter, both threats and opportunities, you start with questions. Guiding questions are the big questions that you want to communicate through the organization about the past, the present, and the future. Learning from the past is an important way to build guiding questions. One can make use of an exercise called hits and misses where you learn from those threats and opportunities you saw sooner and acted on more effectively and what was about those that you wanted to do more of, whereas the misses are those threats and opportunities that we did not see in time, we were forced to react and lost a lot of ground, and figure out the common factor in those. One kind of question it entails is a question on the capabilities of the organization. These are highly tailored to your situation. One of the ways to lift up your head towards Horizon 2 and 3 is to start selectively thinking about an alternative, plausible future, and that is a necessary condition for scenario thinking. It’s a powerful tool that will help you decide where you want to do a little market study or run an experiment. The vigilant organizations are going to have the resources that they need and they’ll be able to make opportunistic acquisitions because the antitrust regulations are going to be eased substantially. In the present environment, the DOJ is going to be looking around for someone to save failing companies, so who can we reach out to and possibly learn about and potentially acquire in the future? Those are some of the ways to get out the guiding questions. About five years ago, a medical device company asked a guiding question: what drug developments could perhaps displace our device that provides the same capabilities? They were not in the drug business but by asking that guiding question, they focused the organization and collected as much, learned as much and ended up investing in some biotech companies, and used the knowledge they acquired to even improve their existing devices. That’s what I mean by guiding questions. You cannot trace every weak signal. Miles: How do you convince the leadership team in investing in these important foresight capabilities, and how do you make sure the board is really helping as they need to be and guiding the organization and leveraging their talent as best as possible? Day: One way or another, it all has to do with the leadership team demonstrating their commitment to vigilance, and that comes through not only the way they shape strategy but how much they involve people. A good starting point is just to extend your network, that is, think much more broadly. Another technique that works really well is this idea of focusing the leadership team. If a leadership team is focused on the here and now, optimising efficiency, managing supply chain, that is important, but that is short-term thinking. If you want to break them out of that mould, then you start asking them to surface anomalies and try to understand the implications of them. You can ask the board the same thing. The idea here is to set up an environment where they are motivated to go out to their extended networks and learn about new technologies and capabilities that could be brought in, and make sure the board continuously challenges the leadership team about the future, Horizons 2 and Horizons 3. Horizon 1 firefighting to keep the ship afloat is our highest priority, and in some cases, the only priority, but vigilant organizations allocate an increasing percentage of their scarce attention to Horizons 2 and Horizons 3 as well. Miles: What do you do if the board is the one that is not accepting the change or the need to change? Day: In my experience, you have got to start with the chairman. If the chair of the board is not on board, then you have a real problem. Then, I would turn to governance and really start to change the composition of the board, and search for different kinds of people. This is pretty general but it is very different in the non-profit sector where you are building big boards that mostly have fundraising as their focus, but you have to be tapping into them for more guidance and insight and treat them much more as a sounding board rather than a recipient of your message. Miles: How do you decide what weak signal to pursue and which ones to reject in these difficult times when you are in firefighting mode, and also trying to look out into the future? Day: The signals are cross-cutting and confusing, but if you take this idea of guiding questions, the few big questions that we really have to pay attention to, then that’ll help you focus the attention of the organization. One should make sure that everybody feels a part of the future of the organization. That’s where this concept of radical transparency is so critical. Everybody has to know what is at stake but they want to have confidence that their leadership is also thinking about the future and is aiming to protect them, build a future for them, while keeping the organization in survival mode to get through. We are totally in unchartered waters but the companies that are well-resourced now, that have robust balance sheets, and organizations that have non-profits with bigger endowments are going to be better positioned and then, this is going to give them the luxury of vigilance to be able to look ahead. Think about where you are on this vigilant versus vulnerable spectrum and ask yourself “where am I vulnerable and which organizations are going to be more vigilant? If we are in the lead, let us capitalise on that,” because there will be wonderful and amazing opportunities coming out of this and also a lot of dire things are going to happen in the near term. Miles: When are the people going to know they have learned the lesson they were supposed to have learned from this? Day: Well, not for a few years, because this will have immediate consequences for the organizations that are really struggling and they might want to position themselves for networking, partnering and being taken over. Part of vigilance on the behalf of the leadership team is to start thinking the unthinkable, like contemplating partnership with another organization or positioning themselves to get taken over in order to survive, so that their people are protected and they have opportunities in the future. That requires Horizon 2 and Horizon 3 thinking. To sum up, there is so much uncertainty here you have to be buying a lot of real options that is considering multiple possibilities. You can’t look on one path. One has to be flexible but look for opportunities to keep the footing.

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