This article also appeared in Finweek Magazine in their 27-June-2013 issue

As leaders, how do we improve our ability to spot what’s happening around us before others do? Vigilant, curious leaders recognise and act on the opportunities, threats, new ideas and novel business models emerging on the periphery of their business.

Back in university, I cycled everywhere. Too often motorcar drivers and their passengers would simply not look out for cyclists on the roads, leading to accidents that could easily have been avoided.  I can remember clearly one time I was cycling up a steep hill by “standing up” on my bike. If you’ve ever cycled, you’ll know this manoeuvre takes lots of balance and concentration: even the slightest obstacle can cause you to lose your balance and fall off. As I precariously approached the stop street at the summit of the hill, a car overtook me and stopped at the intersection. Without looking, a woman in the left front passenger seat opened her door to get out. By that stage I was directly alongside the vehicle. Unfortunately it was too late for me to stop, so I collided heavily with her open door. You guessed it: my bike stopped, but I didn’t. I shot through her closed windowpane, shattering glass everywhere, and landed face down on the tarmac. I’m not sure who got more of a shock: the woman or me. She bent down to check if I was OK, saying over and over again, “I’m sorry, I just didn’t see you.”

It was broad daylight, the sun was shining in a cloudless sky, I was wearing fluorescent clothes and I wasn’t in her blindspot. How on earth could she not have seen me?

It comes down to focusing on your immediate surroundings and blocking out the things in the periphery that you don’t expect to see.

To explain the science behind this, way back in 1804, Ignaz Paul Vital Troxler discovered an optical illusion now known as Troxler’s Fading. When you focus intently on a specific point, after roughly 20 seconds, an image away from the focal point, in peripheral vision, will fade away and disappear. Peripheral vision is that part of vision that happens on the outskirts of your gaze.

If you ask people why CEOs get fired, many will tell you that it is because of the company’s poor financial performance under that CEO’s leadership. But according to LeadershipIQ.com, that’s not the real picture. Their ground-breaking study of 1,087 directors found that almost a quarter of CEOs (23% to be more precise) get fired for denying reality, for not recognising and adapting to the shifting business landscape around them.

It is called the disappearing periphery. If you focus intently on the centre, you don’t see things on the periphery anymore. It is precisely this effect that can cause CEOs not to recognise what is happening around them, or motorists not to see cyclists. Too much inward focus and you’ll miss the signs that your business environment is changing and your company isn’t changing with it.

At a recent thought-provoking strategy workshop at GIBS aimed at C-suite executives, Dr Paul Schoemaker of Decision Strategies International gave five reasons why companies get blind-sided:

1. Reactive leadership: focusing too narrowly on the existing business. Not enough curiosity about the new opportunities and threats, innovative ideas, new competitors and novel business models happening on the periphery;
2. Flawed strategic planning: planning inside-out instead of outside-in. Too many companies have a short-term focus, driven by pressure from shareholders to show growth in profits. This creates a cost-cutting mentality, with cuts in R& D and freezes on hiring, leaving the company ill-equipped to expand into new areas of innovation when the landscape changes. Add to this a fear of cannibalising your own cash-cows with disruptive, new products or services, and company collapse becomes inevitable. The newspaper industry is a classic example of exactly this;
3. An inward-looking culture: with leaders being unwilling to listen to scouts or junior staff reporting the trends emerging on the periphery;
4. Too little information-sharing throughout the company: If you look closely enough, you’ll see many opportunities and threats embedded in weak signals around you: these can be technological, economic, societal and political in nature. So why then are companies and their leaders often caught by surprise? Because someone in your network or company knew about a surprising observation, you didn’t know they knew, and they didn’t know you needed to know. It comes down to communication; and
5. The structure of the organisation: silo-ed, hierarchical and top-heavy, instead of flat, lean and customer-centric.

One such inward-focusing company that got caught out was Mattel, the world’s largest toy maker. Mattel’s slim, blonde, Caucasian Barbie had monopolised the doll industry since 1959. That was until 2001, when MGA Entertainment launched their sassy, multi-ethnic Bratz dolls. The new kids on the block were an early success, notching up some $1bn in annual revenue and eating into Barbie’s market share. How did Mattel react? Like many big players, they used strong-arm tactics in an attempt to crush their competition. Mattel took the much smaller MGA Entertainment to court, tying them up in legal conflict for some seven years. It started in 2004 when Mattel claimed that one of its former staff members, Carter Bryant, had dreamed up the sassy Bratz dolls while working for Mattel, and that his move to leave and take the concept to MGA was tantamount to theft. Fast forward to 2011, when a US federal judge ordered Mattel to pay MGA Entertainment over $309m in legal costs. In 2010, the appeals court judge asserted that Mattel was out of order in trying to push Bratz out of stores. “Mattel can’t claim a monopoly over fashion dolls with a bratty look or attitude, or dolls sporting trendy clothing – these are all unprotectable ideas,” Chief Judge Alex Kozinski said. So after seven long years of legal battles, David triumphed over Goliath.

The question is: as leaders, how can we avoid being Mattel? How can we improve our peripheral vision?

The key is to cut back on focusing inwardly on your company, and to focus more on what’s happening around you, often in unexpected places. Why? Because the more you focus internally, the less peripheral vision you have, and the more signals you could miss.

Vigilant leadership requires constant scanning of the environment. Schoemaker highlighted five areas that leaders should be scanning:

1. Customers and channel members;
2. Competitors and complementors;
3. Suppliers;
4. Emerging tech and scientific developing players; and
5. Influencers and shapers.

Curiosity, constantly asking questions, and an insatiable quest for new and better solutions. Leaders with these traits have stronger peripheral vision.

As a leader, you don’t need to have all the answers – wisdom doesn’t only reside at the top. Because they interact regularly with customers, suppliers, thought leaders and competitors, often your staff on the front line know what the issues are and how to solve them. You simply need to ask them. So as a leader, don’t be afraid of asking your more junior staff for their input. It will also help you to identify the emerging talent in your company.

Procter and Gamble is a fantastic example of a vigilant company acting on early warning signs in their external environment. In 2011 their Febreze fabric freshener became one of the company’s billion-dollar products. But thanks to a canary, Febreze almost didn’t make it out of the starting block. Wharton’s Professor George Day recounts the story: “Soon after its launch, an Internet rumour that Febreze caused the death of a pet bird went viral. Anonymous additional comments on the web blamed the product for the deaths of other pets, including dogs and cats. It was the kind of rumour that kills products and severely damages corporate reputations all the time. But (thanks to their vigilant monitoring of early warning signs on the periphery) P&G heard it early, and took action. Apparently they were able to identify the source, and determine that the canary in question died of old age.” The organisation was also quick to add a “Pet Safety” page to its website that tackles the rumour head-on. The American Humane Association and the American Society for the Prevention of Cruelty to Animals (ASPCA) carried out investigations and issued statements dismissing the myth. Febreze now bears an ASPCA seal of approval.

In the words of Charles Darwin: “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.” A very accurate description of the business world, don’t you think?