Hate Surprises? Think Again

Are you a vigilant or an operational leader? 

You may already intuit the difference, but it bears discussing, since our friends at Wharton have written about four leadership traits that count:

• External focus
• Conceptual ability
• Organizational role, and
• Time horizon

They cite Richard Branson as a paradigm of "external focus," listening widely to an array of diverse perspectives and sources from outside their industry (and just what "industry" is Branson/Virgin in, again?).

Meanwhile, "conceptual ability" is dimensionalized as the ability to probe for "second order effects," or what I have previously described as dynamic, not static, analysis.  This simply means asking the basic question, "And then what?"   For example, if you introduce "business intelligence" software to your firm (a/k/a profitability analysis, at least as a first cut), and you find out that some rainmakers are actually not so profitable, the first thing that happens is that you worry profoundly about how to break the news.  And the fact is:  There is no good way to break that news, either to the rainmaker, your executive committee, or the partnership as a whole (choosing your poison, as it were).

But if you move to "dynamic" rather than "static" analysis of what will happen—meaning that you foresee, and act upon, the question, "And then what?"—you can make lemonade.  View  your new-found intelligence as a powerful learning tool to enhance future performance, not a cudgel to punish heretofore-unsuspected inefficiency.

Back to "conceptual ability" and second order effects:  We'll make it concrete.  When Sarbanes-Oxley passed, did you foresee an upswing in "private equity" work?  Do you have a "de-listing" practitioner?  Have you been following the relative market share of the American and the European markets in IPO's since then?  And if you bet on something you thought was going to come to pass, which didn't (for example, piling into Northern California in 2000), do you distinguish between well-intentioned and credible, and reactive and doomed, failures?

Next up is time horizon, and Wharton discusses the example of Ford, a train wreck (along with GM and Chrysler, of course) 30 years in the making.  Merely the latest in an enervating and what I predict will be ultimately fatal string of body blows to the US auto industry, at least as we currently know it, was Ford's failure to wean itself from its addiction to pickups and SUV's as profitability drivers.  Sure, for Ford trucks are addictive:  They're good at building them and they were highly profitable.  But the days of $30/barrel oil are history.

Of course, the real problem with Detroit does go back 30 years, over which period their behavior has epitomized what Einstein (perhaps apocryphally) defined as insanity:  "Doing the same thing again and again and expecting it to turn out differently."  And what has Detroit been doing?  Building sluggish, wallowing rustbuckets to quality standards defined in the former Soviet Union.  Meanwhile, compare Toyota, which is not only better prepared than any automotive company for the end of $30/barrel oil, but relentlessly pushes ahead (for proof, read yesterday's WSJ's article, "Toyota to Detroit:  We Will Bury You.").

Three more examples of what "vision" can mean and where it can come from, all the way from a receptionist at a Dutch pharmceutical company to Bill Gates:

• At Organon, the Dutch drugmaker, a secretary checking in subjects in a blind clinical trial of an antihistamine noticed that some patients seemed exceptionally cheerful, which she duly reported.  Upon further investigation—authorized and funded by senior management, it's important to note—they found out that the "antihistamine" chemical compound, while ineffective as such, was actually a nice anti-depressant.  Moral:  Listen to your secretaries and receptionists.  You might learn which clients are at risk, and which ones love you, for starters.
  
• Novozymes, a Danish firm which is a leader in industrial enzymes (and you thought "Adam Smith, Esq." was only about law firms!) discovered that a few grams of an enzyme could substitute for the loads of pumice stone customarily used to "stone-wash" jeans—at a fraction of the wear and tear on the washing machines.  The conventional wisdom was that "stone-washed" meant "stone-washed," and no other firm explored alternatives.
  
• Finally, the Bill Gates story:  Looking at Google's website a few years ago, he noticed job postings for positions having nothing to do with Google's business model as everyone understood it at the time.  And although Gates decided this was an early warning sign of Google's greater ambitions, and although he alerted Microsoft lieutenants to his thoughts, nothing came of it.  One can wonder if the world would be saying not, "I Google'd Bruce," but instead, "I Gates'd Bruce."

Last, we have the cautionary tale of applying "operational" savvy when what's called for is "visionary" perspective.  Wharton cites the experience of Coke and Pepsi in India last August when a news report broke that the country's Center for Science and the Environment had found that their beverages contained 24 times the safe limits for pesticides.   Both companies view India, not wrongly, as a crucial emerging market, with $1.6-billion/year in soft drinks sales (Coke has a 60% market share).

How would you react?

If  your answer is to form task forces, review the technical, legal, and PR issues, and commission lab tests, go to the back of the class (even though that's precisely what Coke and Pepsi did).

The challenge is not technical, chemical, or operational:  It's cultural, and it's an issue of leadership.  The facts constitute an open invitation to anti-Americanism and/or anti-capitalism and/or anti-globalization, as well as to ecological self-righteousness, and appeals to the virtues of local, low-tech, home-grown values.  Coke and Pepsi, in other words, did not have an "operational" problem; they had a massive cultural challenge.

"Vigilance" means looking for facts that do not fit your conventional wisdom.  Here's how our Wharton friends put it (emphasis supplied):

"Not surprisingly, when "we started asking investment managers, mainly in hedge funds, how they decide which companies to invest in, their response was they avoid leaders who act as operating managers, and instead focus on leaders who have the ability to find a situation where there is significant unrealized value, and then go after it.

"The special challenge for leaders is to ask questions, and more generally to create enterprises that exhibit the requisite level of curiosity about the internal and external environment, say Day and Schoemaker. This raises issues beyond leadership alone, adds Schoemaker, "such as what kind of strategic planning process is used, how well information is shared across organizational boundaries, how knowledge is tracked and managed, and whether there is a deep culture of debate and inquiry. Leaders have a habit of asking questions -- 'What happened last month that is unusual, what surprised you, what are you puzzled about?' -- that can lead to unexpected results, like the discovery of Organon's anti-depression drug."