Bursting the CEO Bubble27 February, 2017 / Articles
When you’re the CEO of a large organization—or even a small one—your greatest responsibility is to recognize whether it requires a major change in direction. Indeed, no bold new course of action can be launched without your say-so. Yet your power and privilege leave you insulated—perhaps more than anyone else in the company—from information that might challenge your assumptions and allow you to perceive a looming threat or opportunity. Ironically, to do what your exalted position demands, you must in some way escape your exalted position.
Walt Bettinger, the CEO of Charles Schwab, calls this dilemma his job’s “number one challenge.” As he explains, it takes two forms: “people telling you what they think you want to hear, and people being fearful to tell you things they believe you don’t want to hear.” Managers at all levels experience some form of this challenge, he points out, but “its grip is most intense in the top office.”
Nandan Nilekani, a cofounder of Infosys and recently a senior Indian government official, understands the dangers of this phenomenon. “If you’re a leader, you can put yourself in a cocoon—a good-news cocoon,” he notes. “Everyone tells you, ‘It’s all right—there’s no problem.’ And the next day, everything’s wrong.” And if it’s hard for word of internal troubles to penetrate the CEO bubble created by power and position, it can be nearly impossible for signals from outside the organization—especially early, weak ones—to get through. This is problematic in an era when competitive markets change quickly. When a dramatic shift is on the horizon, the first indications usually appear in ambiguous events on the fringes of the market.
In the course of conducting more than 200 research interviews with senior business executives over the past few years, I’ve come across hardly anyone who did not identify with this problem (including founders of fairly small firms). But more tellingly, I’ve also seen that at firms that are highly successful innovators, leaders are especially attuned to it and committed to overcoming it. Those executives work hard to break down the walls surrounding them. “When you’re in a box in an office, you’ve got to invent a way out of the box,” says Amazon’s founder, Jeff Bezos. These leaders do just that. They deliberately seek out strikingly different situations where they are more likely to encounter the unexpected. They venture off the beaten path and, in the process, discover challenging new questions that fuel important insights.
Framing the Right Questions
Persistent CEOs almost always get the information they request. It might not arrive as fast as they’d like, but eventually it gets there. Their bigger problem is getting information they haven’t demanded because they don’t know to ask for it. And unfortunately, it’s not just obscure corners of underperforming operations that CEOs are oblivious to. Often, it’s some brewing development that will redraw the lines of competition for the future.
One way to describe these unanticipated risks is “unknown unknowns”—a phrase former U.S. defense secretary Donald Rumsfeld made famous in 2002. As he explained: “There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know. And…it is the latter category that tend to be the difficult ones.”
Though Rumsfeld was talking about military threats, business threats that seem to come out of nowhere can likewise be the most dangerous. The worst casualties happen when a company is blindsided by innovations and new players its managers never even imagined. Just ask the executives of the GPS device makers that were rendered irrelevant by free navigation apps on phones and of the taxi businesses upended by ordinary car owners selling rides through Uber and Lyft.
“If you’re a leader, you can put yourself in a good-news cocoon.”
Often the territory of unknown unknowns can be lit up by an insightful question. As innovation expert Clayton Christensen likes to observe, “Every answer has a question that retrieves it.” But formulating the right questions is often difficult—something Elon Musk, the visionary behind PayPal, SpaceX, and Tesla, points out. “A lot of times the question is harder than the answer,” he notes. “If you can properly phrase the question, then the answer is the easy part.”
An imaginative question helped CEO Jeff Immelt find the answer to a serious challenge confronting GE. As the web began to reshape the global economy, the corporate giant’s management started to wonder how GE, a century-old manufacturer in the age of digital start-ups, could achieve greater relevance. Thanks to a strong culture that encourages fundamental questions in “moments of intense introspection,” as Immelt describes it, he and his team had the insight to ask: “What if GE were a ‘digital industrial’—and what would that mean?” That reframing opened a vast amount of unknown unknown territory to explore, because the whole notion that there could be a digital industrial hybrid had not previously been articulated. The resulting innovation, which combines physical-world expertise with big data and applied analytics to tackle the “internet of really big things,” has transformed the company.
Unfortunately, leaders can’t formulate brilliant questions at will any more than they can summon lightning bolts. But they can increase the chances that flashes of insight will occur by understanding the conditions that give rise to them and then seeking out or creating those conditions.
The starting point is getting exposure to a broad variety of constituencies and projecting an approachable attitude that inspires other people to speak up. Bettinger has a comprehensive set of tactics for doing that. First, he checks in regularly with important stakeholders—employees, owners, analysts, and clients. Whenever he meets someone from one of those groups, he asks this question: “If you were in my job, what would you be focusing on?” This query is designed to unearth opportunities and threats that haven’t occurred to him, and because it’s worded so that it’s not about him, people are much more likely to volunteer information, he says. On frequent visits to work sites away from headquarters, he makes a point of telling employees that his biggest personal challenge is isolation and asks for their help. To ensure that the people he manages aren’t withholding or sugarcoating information, Bettinger requires them to write what he calls “brutally honest reports” twice a month, offering observations in five areas, including “what’s broken?” (He also urges them to follow the same practice with the people they lead.) And to help institutionalize a probing mindset at Schwab, each year he invites several employees who brought something potentially consequential to his attention to fly out and spend a day at headquarters in San Francisco—“not as a reward,” he says, “but as encouragement.”
Other leaders might not be so thorough but have come up with their own ways to field under-the-radar ideas and information. During the internet’s early years, Marc Benioff traveled the world seeking new insights from dozens of strikingly different people. That journey led him to a question that opened up a pivotal unknown unknown: “Why aren’t all enterprise software applications built like Amazon? Why are we still loading and upgrading software when we have the internet?” The answer inspired him to launch Salesforce, now an $8 billion business. No wonder he and his senior leaders now regularly go on global “listening tours,” looking for weak strategic signals. Inside Salesforce, the senior team also participates in Airing of Grievances, a companywide chat group. This group serves the same purpose as Bettinger’s brutally honest reports, delivering raw, unadulterated early-warning information 24/7 to the C-suite about what’s not working and why.