Vigilant & Operational Leadership (Interesting Wharton Article)

Vigilant vs. Operational Leaders: Changes at Ford, the Coke-Pepsi Fiasco, and Other Management Moments
Published: September 20, 2006 in Knowledge@Wharton


As Wharton marketing professors George Day and Paul Schoemaker see it, the recent and well-publicized travails of the Ford Motor Co. offer a clear example of the distinction between vigilant leadership and operational management.

To explain that distinction, Day and Schoemaker -- building on research from their recently published book, Peripheral Vision: Detecting the Weak Signals That Will Make or Break Your Company -- have identified four leadership traits: external focus, conceptual ability, organizational role and time horizon.

Vigilant leaders are more externally oriented: They are open to new ideas, seek diverse perspectives, listen to a wide array of sources and foster broad social and professional networks. Richard Branson, says Day, is an example: The inveterate inventor and promoter -- with 200 start-ups under his belt -- is now developing alternative fuels. Operational leaders are more narrowly focused, have less interest in outside opinions and confine their networking to familiar settings.

Under conceptual ability, or strategic foresight, vigilant leaders are more imaginative and "probe deeply for second order effects," Day notes, citing as an example a CEO who looked at China's victorious bid to host the 2008 Olympics in Beijing and immediately began to consider what impact that would have on steel and cement orders. Vigilant leaders also embrace uncertainty and learn from well-intentioned failures. Operational leaders are more predictable, stay focused mainly on the task at hand, rely on past experience and try to avoid mistakes at any cost.

In their organizational role, vigilant leaders are both enablers and visionaries who create slack that allows the company to explore areas outside their main focus; operational leaders are more controlling, focus on efficiency and cost cutting and don't explore outside potential. Finally, a vigilant leader's time horizon is longer while an operational leader's is shorter.

In the case of Ford, which recently announced it was bringing in a former Boeing executive to be CEO -- replacing William Ford, who will retain the title of chairman -- the lack of vigilant leadership has long been apparent in its belated moves to reduce the company's emphasis on gas-guzzling SUVs and trucks in favor of the newer crossover models pioneered by rival Toyota, says Day.

"You can see why Ford has been addicted to trucks and truck-based SUVs. They are very profitable and Ford knows how to build them well," Day notes. But a vigilant leader in this industry would have been hedging its bets when it came to rising oil prices, "which have been on the horizon for a long time. And while Ford does in fact have a fine new crossover vehicle, it came to the party late. Toyota was first, in 1996, with its RAV4, followed by Honda. Ford could have been a player in this much earlier on." Crossovers, which are car-based SUVs, are typically lighter, quieter and more fuel efficient than the heavier truck-based SUVs. These days, they are outselling conventional SUV models.

Ford's top management, Day says, did not have "vigilant leadership, which ultimately has to do with anticipating events, seeing what is coming next before others do. You can bet that Toyota is already thinking ahead to what the next version of the car will be."

Concerning Ford's decision to bring in Alan Mulally as CEO, Day suggests the change was way overdue. "It was absurd that William Ford had so many different roles and responsibilities at the company after [former CEO] Jacques Nasser was ousted in 2001. There were some elements of vigilance to Ford's performance over the past several years but he was basically getting buried by all the problems that had been building up in the company for years. If you consider the two major leadership roles in any organization -- the vigilant leadership role and the more operational role -- Ford wasn't doing either one adequately because he was so overloaded."

As for the reception that Mulally will receive when he assumes his position on October 1, Day notes that the auto industry is "notoriously inward looking. They don't typically bring in, or accept, outsiders. So I see a real upward battle. Someone like Dieter Zetsche can come into Chrysler and succeed because he is an auto person. Mulally has great credentials as a turnaround specialist and he knows big systems, but that is more on the operations side -- making cutbacks, tightening, looking for efficiencies. It's a little less clear where the vigilance piece is."

Mulally, Day adds, "will be trying to get his arms around a firm with few degrees of freedom. Think of all the things that constrain Ford today: pensions, health care costs, union contracts, an intractable dealer network, low productivity for many brands, and so forth. Mulally will have his hands full just dealing with these issues."

On the one hand, Mulally needs to make bold, early moves, Day notes. "But we found that impending crises narrow the peripheral vision of both people and organizations -- and limit what a vigilant leader can tackle. When survival is at issue, you focus tightly on fixing the problems, and don't have either the time or the resources to be vigilant about new opportunities or to position the firm for the long term. Toyota has that luxury; Ford doesn't. Paradoxically, one path he could follow is to ratchet up the sense of crisis to force the stakeholders to finally take painful actions."

Enzymes and Stone-washed Jeans

Articles in the press routinely offer examples of instances where operational leadership prevailed at times when vigilant leadership was needed, says Schoemaker, who is research director of Wharton's Mack Center for Technological Innovation. He cites the mismanagement of airport security at London's Heathrow airport in August ("It wasn't as if this terrorism threat came out of the blue," he says), and Israeli leaders' miscalculation of the strength of Hezbollah in Lebanon.

But there are also examples where vigilant leadership has made a significant difference to both companies and consumers. He points to Denmark-based company Novozymes, a global leader in industrial enzymes, which has demonstrated "the ability to always question and provide room for disproving conventional wisdom." For example, the company substituted a few grams of enzymes for the loads of pumice stone traditionally used in the stone-washing of jeans. The use of enzymes allowed garment producers to avoid tedious work processes and minimize overuse of their washing machines.

The company also had the foresight to see that corn kernels could be converted to fuel alcohol without cooking the starch to make it accessible to conversion. "This was, until recently, considered highly speculative and at least economically uncompetitive, but Novozymes' management pushed against the conventional wisdom until a solution was found," says Schoemaker. "In less than 18 months, a market was established that now holds promise to outperform the conventional process."

Schoemaker also cites the example of Dutch drugmaker Organon (part of Akzo-Nobel). When the company was conducting clinical trials for a new antihistamine, a secretary in charge of registering the volunteers for their periodic medical checkups noticed that some were unusually cheerful. After she relayed her observation to the managers running the trial, further exploration was authorized. It turned out that all the cheerful participants were in the treatment rather than the control group. Even though the drug failed as an allergy remedy, it proved to be a highly effective treatment for depression.

And when Bill Gates was looking at Google's web site several years ago, he noticed the company was posting job descriptions for software engineers that didn't fit Google's business model, says Schoemaker. Gates, says Schoemaker, recognized this as an early warning sign that Google was moving into a new area and alerted others at Microsoft to this development. (As it turned out, no one followed up and Google became the dominant player in desktop search.)

Operational leaders -- those who are focused on the task at hand, excel at execution, and pursue clearly definable goals -- may have been effective several decades ago, Schoemaker says. "But as our society becomes more complex and cross-cultural issues become more interconnected, leaders also need to be able to see the bigger picture."

Just consider the ongoing Coke and Pepsi fiasco in India.

Ignoring the Signals

When India's Center for Science and the Environment announced in August that Coke and Pepsi's carbonated beverages contained more than 24 times the safe limits for pesticides, "these global companies faced a potential crisis in a crucial emerging market -- $1.6 billion a year for soft drinks, with Coke having 60% market share," says Schoemaker, citing figures from an August 23 New York Times article titled, "For Two Giants of Soft Drinks, a Crisis in a Crucial Market." "If you were the leader in charge," he asks, "how would you respond, considering the many other operational and strategic problems" demanding your attention?

The traditional leadership response, he notes, "calls for a quick study of the problem: Is it a real issue? If so, how bad is it? Can we fix it soon and efficiently? Can we do it alone or do we need help?" In many ways, Coke and Pepsi followed the dictates of the textbook on crisis management, as the Times article reports: They formed task forces in the U.S. and India to work on the technical, legal and public relations questions; in addition, they commissioned laboratory tests and waited with public comments until the results were in.

"This strong operational focus, however, was exactly the wrong approach," says Schoemaker. The companies got caught up in technical issues, issued defensive responses to the charges and made claims about meeting international safety standards that were hard to validate, according to the Times story. "In the process of solving the problem, they lost sight of the real danger: eroding consumer confidence ... in a critical emerging market," Schoemaker says.

By contrast, vigilant leadership addresses both the narrow problem at hand as well as the broader political and cultural context surrounding it, he adds. "Vigilant leaders would have focused on the following signals: The soft drink was subjected to a partial or full ban in multiple Indian states; some political leaders viewed this ... as an opportunity to exploit anti-western sentiments -- no doubt fueled by the wars in Iraq and Lebanon -- and environmental groups jumped on this issue to promote their general anti-pesticide agenda."

In addition, there were cultural issues. In the past, the Times article noted, Indian problems could remain localized, within a town or province, but today's media can quickly raise a local issue into a national obsession. Furthermore, silence is usually interpreted as guilt in India. "The Western model of 'no comment' until the data are in or the legal issues have been shored up is not the right response for India," says Schoemaker.

Day and Schoemaker also cite other examples, some of them taken from Peripheral Vision, in which leaders failed to recognize the signals of a changing market or culture. The leadership at Mattel, for example, focused on recovering from its "disastrous" acquisition of educational software maker The Learning Company, and in doing so, failed to see shifts in the external market, including a move by young consumers away from Mattel's Barbie dolls to the more sophisticated and multicultural Bratz dolls.

The lighting industry, including Philips Lighting, GE and Osram Sylvania, misjudged the popularity of LEDs (light-emitting diodes), which, because of technological breakthroughs, are about to change the $15 billion general-illumination market, Day and Schoemaker say. One piece of evidence: U.S. federal regulations are requiring that all traffic signals switch to LEDs by the end of this year. The industry missed the rise of LEDs, Day and Schoemaker suggest, because it was focusing on the drop in the average selling price of traditional light bulbs and the shrinking of the light bulb market from $2.9 billion in 2000 to $2.4 billion in 2003.

A Habit of Asking Questions

According to Day, vigilant leaders "can see possibilities in almost anything. Look at all the people getting into social networking. It was the convergence of technology along with a need for people to communicate." The really vigilant leaders, he adds, "are most needed in markets that are very volatile, complex and quickly changing, such as entertainment, media, telecommunications -- all the convergence industries." 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."

Vigilant leaders, he adds, "look for signals that don't fit the current problem definition and approach. They create mental and organization space to see what is not in the focal area.... In one classic experiment, people failed to notice a gorilla walking through a basketball court because they were instructed to count how often the ball was being passed. The simple task of counting bounces and passes restricts their vision so much that they don't see the gorilla at all. This is what happened to Coke and Pepsi: They missed the gorilla amid the technical, legal and PR problems of the pesticide charge."

Managing Employee Turnover

Employers may be in for a battle to keep their best workers over the next few years. Turnover seems poised for a significant increase, according to a survey done by TalentKeepers, a global employee retention firm.

The study included 547 major U.S. based firms, representing every major industry. For the first time, this annual forecast was called “decidedly gloomy.”

First, I’ll share some excerpts from the survey, and then I’ll suggest some ideas about what you can do about it.

Only 3% predict turnover will decrease for their industry and nearly half – 45% - forecast an increase in turnover. Early tenure turnover also has been trending up, with many workers leaving jobs after less than a year.

The study identified fairly definable periods in the employee lifecycle where the risk of voluntary turnover is highest. While few workers quit during initial training, which is only 1% of all turnover, the number quickly jumps to 15% during the first 90 days. Another 25% leave around 1 year into their jobs. Added together, 59% of all attrition is occurring in the first year of employment and begins declining only after the 1-2 year period. These days, no one is thinking about keeping workers forever. The new thinking is focused on extending the average length of stay.

Turnover’s impact on organizations continues to rise as well. When asked to report the areas most impacted by the loss of employees, executive cited lost productivity and service quality at the top of the list. We have continued to see these and related business issues rise to displace the typical direct “employee replacement” cost normally associated with the cost of turnover. Furthermore, based on this research, we predict that organizational productivity will outweigh every other negative impact when a valued employee quits.

So, what can be done?
If you are ready to call in your HR department to work on this problem, I urge you to take a step back and look at the bigger issue. There is no HR program that will undo what each manager will not do. In other words, it’s the employee’s manager who is responsible for orienting a new employee, making sure they are trained for their work, clear about the expectations, and the provider of ongoing coaching and feedback, that will keep the person challenged and growing.

Craig Taylor, who led the study, agrees, “Employee turnover is a business problem. No longer can the loss of talented employees be viewed as a “people” problem where responsibility and solutions reside with the Human Resources department. If a business problem was costing millions of dollars a year, wouldn’t you hold leaders throughout the organization accountable for fixing it?” Exactly.

If you organization is serious about retaining the best talent, senior management must put a priority on it. Here are some strategies that senior management can endorse:

• Hiring manager/HR conduct 60-day interviews with all new hires, to make sure they are getting adequate orientation and training. It also is a great opportunity to see if the company and job are a good fit.

• Exit interviews are conducted for every person who leaves, and copies are given to the manager and manager’s boss, who is held accountable for any negative trends. You can bet is a senior manager is questioned by the CEO, he or she will take special interest in how the leaders in his or her department are working with their people.

• Bonuses are tied, in part, to recruiting and keeping top talent.

• Employee development is emphasized. In companies where this is a priority, top talent is constantly challenged and job growth opportunities are made available.

• Performance management is a priority. Poor performers are confronted, coaching and given support to turn their performance around. But if they can’t, or won’t, they are asked to leave. They are not moved around the company to other departments, which not only weakens the company overall, it breeds contempt and poor morale among the rest of the employees. Employees want to have faith that their management has the guts to weed out those who aren’t productively contributing to the company’s goals.

• Managers administer family-friendly policies equitably (this assumes there are family-friendly, flexible policies in the first place).

• Senior management lives and strives to model a corporate culture that is based on respect, integrity, open communication and trust.

Few thoughts of the youngest commencement speaker.......

This speech was delivered during the commencement exercises of the UPgraduating class of 2003 by Mr.Butch Jimenez, the youngest commencementspeaker in the university's history. He once dreamed of doing so, and itcame true!!! :-) Students wished they had a pencil or paper to jot downnotes during the speech; some even wished they had a tape recorder. Somemembers of the faculty found his speech practical, refreshing, and funny!Butch Jimenez, head of PLDT's media and strategic communicationsdepartment, delivered this speech at the UP Diliman Class 2003 commencementexercises.------------------------------------------------------------------------By Butch Jimenez -

Better than being negativeAs college students, you're just about to set sail into the real world. Asyou prepare for the battleground of life, you'll hear many speeches, readtons of books and get miles of advice telling you to work hard, dream big,go out and do something for yourself, and have a vision.Not bad advice, really. In fact, following these nuggets of truth may justbring you to the top. But as I've lived my life over the years , I havecome to realize that it is great to dream big, have a vision, make a name,and work hard. But guess what: There's something better than that.So my message today simply asks the question, What's better than...?Let's start off with something really simple. What's better than a longspeech? No doubt, a short one. So, you guys are in luck because I do intendto keep this short. Now, let me take you through a very simple math exam.I'll rattle off a couple of equations, and you tell me what you observeabout them. Be mindful of the instructions. You are to tell me what youobserve about the equations. Here goes: 3+4=7, 9+2=11, 8+4=13, and 6+6=12.Tell me, what do you observe?Every time I conduct this test, more than 90 percent of the participantsimmediately say, 8+4 is NOT 13, it's 12!That's true and they are correct. But they could have also observed thatthe three other equations were right. That 3+4 is 7, that 9+2 is 11, andthat 6+6 is 12.What's my point? Many people immediately focus on the negative instead ofthe positive. Most of us focus on what's wrong with other people more thanwhat's right about them. Examine those four equations. Three were right andonly one was wrong. But what is the knee-jerk observation? The wrongequation.If 10 people you didn't know were to walk through that door, most of youwould describe those people by what's negative about them. He's fat. He'sbalding. Oh, the short one. Oh, the skinny girl. Ahhh, 'young pango. Etc.Get the point? It's always the negative we focus on and not the positive.You'll definitely experience this in the corporate world. You do a hundredgood things and one mistake-guess what? Chances are, your attention will becalled on that one mistake.So what's better than focusing on the negative? Believe me, its focusing onthe positive. And if this world could learn to focus on the positive morethan the negative, it would be a much nicer place to live in.Better than working hard We have always been told to work hard. Our parentssay that, our teachers say that, and our principal says that. But there'ssomething better than merely working hard. It's working SMART. It's takingtime to understand the situation, and coming out with an effective andefficient solution to get more done with less time and effort. As theJapanese say, "There's always a better way."One of the most memorable case studies I came across with as I studiedJapanese management at Sophia University in Tokyo was the case of the emptysoap box, which happened in one of Japan's biggest cosmetics companies. Thecompany received a complaint that a consumer had bought a box of soap thatwas empty. It immediately isolated the problem to the assembly line, whichtransported all the packaged boxes of soap to the delivery department. Forsome reason, one soap box went through the assembly line empty.Management tasked its engineers to solve the problem. Post-haste, theengineers worked hard to devise an X-ray machine with high-resolutionmonitors manned by two people to watch all the soap boxes that passedthrough the line to make sure they were not empty. No doubt, they workedhard and they worked fast. But a rank-and-file employee that was posed thesame problem came out with another solution. He bought a strong industrialelectric fan and pointed it at the assembly line. He switched the fan on,and as each soap box passed the fan, it simply blew the empty boxes out ofthe line.Clearly, the engineers worked hard, but the rank-and-file employee workedsmart. So what's better than merely working hard? It's working smart.Having said that, it is still important to work hard. If you could combineboth working hard and working smart, you would possess a major factortoward success.Better than dreaming bigI will bet my next month's salary that many have encouraged you to dreambig. Maybe even to reach for the stars and aim high. I sure heard thatabout a million times right before I graduated from this university. So Idid. I did dream big. I did aim high. I did reach for the stars. No doubt,it works. In fact, the saying is true: "If you aim for nothing, that'sexactly what you'll hit: nothing." But there's something better thandreaming big. Believe me, I got shocked myself. And I learned it from thebiggest dreamer of all time, Walt Disney.When it comes to dreaming big, Walt is the man. No bigger dreams werefulfilled than his. Every leadership book describes him as the ultimatedreamer. In fact, the principle of dreaming and achieving is the coremessage of the Disney hit song, "When You Wish Upon a Star". "When you wishupon a star, makes no difference who you are; anything your heart desireswill come to you. If your heart is in your dream, no request is tooextreme. When you wish upon a star, as dreamers do," as Jiminy Cricketsang. But is that what he preached in the Disney company? Dream?Imagineering. Well, not exactly. Kinda, but not quite. The problem withdreaming is if that's all you do, you'll really get nowhere. In fact, youmay just fall asleep and never wake up. The secret to Disney's success isnot just dreaming, it's IMAGINEERING. You won't find this word in adictionary. It's purely a Disney word. Those who engage in imagineeringare! called imagineers. The word combines the words "imagination" and"engineering."In the book "Imagineers," Disney 's CEO, Michael Eisner, claims that"imagineers turn impossible dreams into real magic." Walt Disney explainedthere is really no secret to their approach. They just keep movingforward-opening new doors and doing new things, because they are curious.And it is this curiosity that leads them down new paths. They always dream,explore and experiment. In short, imagineering is the blending of creativeimagination and technical know-how.Eisner expounds on this thought by saying that "Not only are imaginerscurious, they are courageous, outrageous, and their creativity iscontagious." The big difference with imagineers is that they dream and thenthey DO! So don't just be a dreamer, be an imagineer. You must have allbeen given a lecture at one time or another about the importance of havinga vision. Even lea dership expert John Maxwell says that an indispensablequality of a leader is to have a vision. The Bible also makes it very clearthat "Without vision, people perish." So no doubt about it, having a visionis important to success.But surprise! There's something more potent than a vision. It's a CAUSE. Ifall you're doing is trying to reach your vision and you're pitted againstsomeone fighting for a cause, chances are you'll lose. The Vietnam War is aclassic example. Literally with sticks and stones, the Viet Cong beat theheavily armed US Army to surrender, primarily because the US had a visionto win the war, but the Vietnamese were fighting for a cause.In the realm of business, many leaders have visions of making their companyNo.1, or grabbing market share, or forever increasing profits. Nothingreally wrong with that vision, but take the example of Sony founder AkioMorita. He did not just have a vision to build the biggest electronicscompany in the world. In his biography, "Made in Japan," he reveals thatthe real reason he set up Sony was to help rebuild his country, which hadjust been battered by war. He had a cause he was fighting for. His visionto be an electronics giant was secondary.What's the difference bet ween a vision and a cause? Here's what sets themapart... No one is willing to die for a vision. People will die for acause. You possess a vision. A cause possesses you. A vision lies in yourhands. A cause lies in your heart. A vision involves sacrifice. A causeinvolves the ultimate sacrifice. Just a word of caution. You must have theright vision, and you must be fighting for the right cause. In the end,right will always win out. It may take time, and it may take long. But ifyou have the right vision and are fighting for the right cause, you willprevail. If not, no matter how sincere you are, if you are not fighting forwhat is right, you will ultimately fail.Two final quotesAllow me to end with two quotes that I have lived by ever since I steppedout of UP. The first comes from the Bible, which says, "To whom much isgiven, much is required." Having been given the opportunity to study in UP,no doubt, much has been given to you in terms of an excellent education.Don't forget that in return, much is now required of you to use thateducation not just for yourself, but for others. And as you move up andstart reaching the pinnacle of success, even more will be required of youto look at the welfare of others, of society and of the country. Though Ihave often dreamed of addressing any graduating class of UP Diliman, Inever really thought it would happen. This brings me to the second quote Ihave held close to my heart as I traverse the destiny God has laid out forme."There is no destination beyond reach of one who walks with God." Mystanding in front of you today, as the youngest commencement speaker ofthis esteemed university in 92 years, is proof of how true that quote is.A final review:* What's better than focusing on the negative? Focus on the positive.* What's better than working hard? It's working smart.* What's better than dreaming? Imagineering.* What's better than doing something for yourself? Doing something for yourcountry.* What's better than a vision? A cause.* What's better than a long speech? Definitely, a short one.Thank you and congratulations, UP Diliman graduating class of 2003.Excellence is not a destination; it is a continuous journey that neverends."