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Friday 31 July 2015

The Power of Asking Pivotal Questions

In a rapidly changing business landscape, executives need the ability to quickly spot both new opportunities and hidden risks. Asking the right questions can help you broaden your perspective — and make smarter decisions.

Good strategic thinking and decision making often require a shift in
perspective — particularly in environments characterized by significant
uncertainty and change. What worked in the past simply may not apply
in the future. Asking “what if” questions about the future may create
discomfort, since answers are often not obvious. But asking such
questions also forces you to step back and challenge current assumptions
that prevent you from seeing breakthrough solutions. This article builds
on our new book, Winning the Long Game: How Strategic Leaders
Shape the Future
,1 by focusing on the art of asking pivotal questions
to improve strategic decision making. (“See “About the Research.”)
By presenting six questions that challenge executives to incorporate
broader perspectives, our aim is to stimulate out-of-the-box dialogues
that help leaders make better choices and find innovative solutions
sooner.

Are You Solving The Right
Problem?

Back in the 1960s, IBM Corp. had the opportunity to buy or license
Xerox Corp.’s new reprographic photo process. IBM hired the
consulting firm Arthur D. Little to answer a key question: If a more
reliable, cheaper and faster process for photocopying were available,
how many more copies would people make in a given year? Since
copies in those days could only be made from an original specimen,
ADL set out to estimate the number. Both companies framed the
problem too narrowly as “copies from originals,” ignoring a new
segment of the market that turned out to be many times larger
(namely, copies of copies of copies).2 This huge, overlooked
opportunity could only have been foreseen if different questions had
 been posed. IBM might have owned this new revolutionary
technology if the key question had been framed as “how might the
new Xerox process change when and how people make copies, and
what might this grow to in total number of copies made in future years?”
The questions leaders pose sometimes get in the way of solving the
right problem or seeing more innovative solutions. They are often
too narrow, overly protective of the current business, or assume that
the old habits, business models and regulations will remain largely
intact. At Google Inc., CEO Larry Page challenges leaders to
anticipate the future better by not just asking what is or likely will
be true, but what might be true, even if unexpected.3 The matter of
“what is the right question” should be much more central when
leaders tackle complex and important decisions, especially in an
era of profound change.

Think Outside In

Question One: How well do you understand the implications
of broad market trends and less visible undercurrents for your
business and for upcoming strategic choices?
Entrepreneurs like
Elon Musk from Tesla Motors, Steve Jobs from Apple and Jeff Bezos
from Amazon became known for spotting unmet market needs and
figuring out how to serve them profitably. The best entrepreneurs
excel at peeking around the corner and seeing the future sooner.4
We’ve found that leaders can learn to anticipate better by simply
being more curious, looking for superior information, conducting
smarter analyses and developing broader touch points with those
in the know.
In an interview on CNN, Musk was asked where his forward-thinking,
innovative ideas come from. He replied, “Just trying really hard
— the first order of business is to try. You must try until your brain
hurts.”5 Ever since he was in college in the early 1990s, Musk had
a vision of commercializing electric vehicles for the mass market and
was questioning how this could be achieved, given the historic
pushback against this idea. He mused that getting into the electric
car business was probably “one of the stupidest things you could
do.”6 (Even Toyota Motor Corp. chairman Takeshi Uchiyamada,
 known as the “father of the Prius,” had reservations about electric
cars: “Because of its shortcomings — driving range, cost and
recharging time — the electric vehicle is not a viable replacement
for most conventional cars.”7) Musk saw electric vehicles as the
future, but if their development was left to traditional car companies,
he thought it would take a long time.
Musk’s view, “the industry was operating under two false premises:
One, that you could not create a compelling electric car; and two, 
that no one would buy it.”8 The challenge was to demonstrate “that
electric cars can be a mainstream product and to reassure consumers
that infrastructure can be developed to give them the freedom and
reliability of a regular car.”
9 Well before others, Musk saw the
possibilities and asked different questions. Although this story is far
from over, Musk’s vision has struck a chord with consumers and Wall
Street. He expanded his enterprise to include global distribution and
battery manufacturing shortly after the Tesla Model S was rated the
number one car ever tested by
 Consumer Reports in 2013.

The Challenge

Strategic leaders are focused on the future and are masters at asking
discerning questions and exploring ideas and options that are outside
the mainstream. They are wary of status quo views and prefer honest,
transparent questions that focus on how much, or how little, is really
known about the issue at hand. Many studies emphasize the
importance of strategic thinking and anticipation, while also
lamenting the shortage of leaders who do this well.10Those who miss
the early signals often come late to the party when customer tastes are
changing or when nontraditional competitors are preparing to disrupt
or blindside them.
To protect themselves, companies must keep an eye on innovations
from both existing companies and startups. Some of the ideas could
become game changers, and you may have to team up with the
innovators, as a number of big pharmaceutical companies have done
with biotech companies.

Tips and Pointers

1. Learn from startups. What are they doing and why? What do they
see that you don’t? Examine their moves to detect market shifts and
emerging opportunities from the outside in.
2. Go to conferences outside your function or industry. In its “
Connect + Develop” innovation program, Procter & Gamble Co.
reaches out to companies outside the consumer products industry to
share lessons and explore joint challenges.11 Follow events in other
regions and sectors, even if they seem unrelated to your business at first.
3. Leverage current networks and join new ones. How might you
engage your existing networks more systematically to stay on top of
new developments? Join interest groups in adjacent businesses or areas
to expand your worldview and examine questions you don’t typically
consider.

Explore Future Scenarios

Question Two: How thoroughly have you analyzed major external
uncertainties and future scenarios that could significantly impact
your business decisions?
 Leaders must not only understand the deeper
trends but also the key uncertainties that can rock their world. One way
to do this is through scenario planning and war gaming.12 For example,
a pediatric hospital in the U.S. Midwest was grappling with
rapid 
consolidation in its market. Larger hospitals focused mostly on
adult
patients and were actively looking to merge or to form
strategic 
alliances. In anticipation, the CEO of the pediatric hospital
engaged his 
board in a simulation, presenting them with a hypothetical
scenario: a 
merger between two particular adult-patient hospitals. He
asked board 
members to identify potential alliance partners, decide on
an action 
relative to competitors and assess their hospital’s readiness to
execute 
the plan.
Then, the CEO introduced a second scenario: a disruptive technology
coupled with onerous new legislation. The exercise spurred new
questions and helped the CEO crystallize a plan. The CEO determined
that, if certain adult hospitals merged, the competing pediatric hospital
would likely want to merge as well. Shortly thereafter, when two
adult hospitals in the region announced a major consolidation, the CEO
and his board were prepared to act. They proposed a partnering
arrangement to the other pediatric hospital and were able to stay ahead
of the curve.

The Challenge

Developing different views of how the external environment may
change allows leaders to better determine whether the organization
has sufficient strategic flexibility to succeed. Scenarios can pick up
early indicators about how emerging technologies or social trends
might 
disrupt your current business model, how customers’
preferences may change or why new regulations could alter your
industry.
13 Asking what could happen in the future involves
imagination and curiosity. It pays, for example, to ponder how and
where a well-armed rival could attack your business.
Even though good tools exist to raise important questions about future uncertainties, time-pressured
executives occupied with putting out fires or exploiting short-term
gains aren’t always receptive to them. For example, for several years
leading up to the U.S. subprime mortgage crisis that began in 2007,
the investment community overlooked or largely ignored the possibility
that the subprime mortgage boom might go bust. In a congressional
hearing in the fall of 2008, Standard & Poor’s president Deven Sharma
claimed, “Virtually no one — be they homeowners, financial
institutions, rating agencies, regulators, or investors — anticipated 
what is occurring.”14 Yet leading economists, including Paul Krugman
and Robert Shiller, and savvy investors, such as Steve Eisman and
John Paulson, had been sounding the alarm.
15 The intriguing question
is not why top executives at large rating agencies failed to acknowledge
the elephant in the room but why some investors and analysts spotted
the elephant sooner than others.

Tips and Pointers

1. Identify weak signals at the boundaries of your business. Strategic
leaders ask questions about the external business environment that
have far-reaching implications and then ask team members to scout
the periphery for emerging trends.
2. Conduct war games to assess the perspectives of competitors
and stakeholders.
 Gauge their likely reactions to novel opportunities
or threats.
3. Analyze rivals, especially nontraditional ones, and examine
which of their moves puzzle you — and why.

Be a Contrarian

Question Three: Do you regularly seek out diverse views to see
multiple sides of complex issues, and do you purposely explore
important problems from several angles? 
A persistent problem for 
many teams is promoting diverse thinking and creative friction. Leaders
must always ask if the team has sought sufficient contrarian input and
been exposed to all sides of an issue before reaching a decision. This
can counter the tendency of many team members to go along to get 
along. Offering contrarian views is particularly essential when tackling
major strategic decisions in an uncertain environment.
To promote diverse thought, Hala Moddelmog, former president of
Atlanta, Georgia-based Arby’s Restaurant Group Inc., a fast-food
chain with about 3,400 locations, surrounded herself with colleagues
of different races, geographies, socioeconomic classes and personality
styles. “You really don’t need another you,” she said. Staying open to
different viewpoints helps ensure leaders are not unduly hindered
by 
decision traps and can instead open their eyes to information or
solutions that they may not have previously considered.
16
Research shows that creative tension promotes better idea generation
and group problem solving.17Constructive dissent and debate
encourages people to reexamine current assumptions to make room
for creative thinking. John Lasseter, chief creative officer at Pixar,
Walt Disney Animation Studios and DisneyToon Studios, has
practiced a powerful form of team challenge. Each morning at Pixar,
the team working on a movie would review their previous day’s
output and explore how to improve. They were asked to provide tough
questions, offer honest critique and put alternatives on the table.18
This practice was based on the belief that team decisions were superior

to any individual’s, but only if you pushed people out of their comfort
zones. Some team members had to get used to being challenged and
critiqued, but most came to see how the product and decision improved.
Author Malcolm Gladwell has noted that the best entrepreneurs and
innovators are usually quite disagreeable — they love debate. He has
gone so far as to argue recently that an important role of senior
management in “creating an atmosphere of innovation is allowing
people to be disagreeable.”19 This echoes an idea philosopher John
Dewey presented in 1922: “Conflict is the gadfly of thought. It stirs
us to observation and memory. It instigates to invention. It shocks us
out of sheep-like passivity, and sets us at noting and contriving
. … Conflict is a sine qua non of reflection and ingenuity.”20

The Challenge

The opposite of using questions to promote divergent thinking is to
coalesce around shared viewpoints or succumb to groupthink.
Amazon’s Jeff Bezos decries “social cohesion” as the “cloying tendency
of people who like to agree with each other and find consensus
comfortable.”21 In response, he says he tries to create a culture at
Amazon where leaders challenge decisions they disagree with, “even
when doing so is uncomfortable or exhausting.”
Bezos isn’t the first business leader to value dissent. As chairman of
General Motors Corp., Alfred P. Sloan Jr. told senior executives at the
end of a board meeting, “I take it we are all in complete agreement on
the decision here. … Then I propose we postpone further discussion
of this matter until our next meeting to give ourselves time to develop
disagreement and perhaps gain some understanding of what the
decision is all about.”22 Of course, how conflict is handled differs
strongly by culture. Finding the right balance between encouraging
people to express diverse views and not offending others requires
cultural sensitivity, especially in multinational settings. The benefits
of frank debate can dissipate quickly if they trigger resentment or
backstabbing.

Tips and Pointers

1. Foster constructive debate in meetings. Help leaders and team
members to get used to a more candid dialogue with creative friction
about ideas.
2. Keep teams small. Amazon forms task forces of just five to seven
people, which makes it easier to test ideas and guard against groupthink.
3. Push back when consensus forms too quickly. Insist on alternatives.
Like GM’s Sloan, challenge teams if they agree too fast on a complex
issue, and ask them to reflect more deeply and develop constructive
disagreement.
4. Use devil’s advocates. Before meetings, ask someone to prepare
the case against the prevailing view, and rotate this role. Train people
to question the status quo and get them to appreciate the benefits of
such questioning.

Look for Patterns

Question Four: Do you deploy multiple lenses to connect dots from
diverse sources and stakeholders, and do you delve deep to see
important connections that others miss?
 As the then-CEO of DuPont,
Charles O. Holliday Jr. picked up several weak signals in the fall of 2008
that helped him prepare his company for the deep recession that
followed. While visiting a major Japanese customer, Holliday learned
that the CEO had instructed his staff to conserve cash, an indication that
the company was seeing or expecting a decline in profitability. That got
Holliday’s attention, both in terms of the potential for weaker economic
conditions and specific fears about DuPont’s own cash position. Upon
his return, Holliday sought to get a fix on DuPont’s financial resilience.
The leadership team found that the initial signs of weakness were
spreading to the broader economy and beginning to affect DuPont’s
business across the board.23

But how big a problem would it be? Holliday learned that reservations
at the Hotel du Pont, located near the company’s Wilmington,
Delaware, headquarters, had dropped 30% in 10 days, which was
highly unusual for the end of the year. He also discovered that many
corporate lawyers were settling disputes rather than exposing clients 
to the financial uncertainty of a trial. And several U.S. automakers,
huge DuPont paint customers, were scaling back on production
schedules. Holliday wanted to know why. The answer wasn’t
complicated: Orders for new cars were dropping as the number of
U.S. mortgage foreclosures increased, and the economy was going
downhill.

The Challenge

What was impressive about Holliday was his ability to amplify discrete
data points, connect them and take decisive action. Combining seasoned
intuition with vigilant questions, Holliday figured out that his company
was about to hit a wall. To test his fears, he engaged his team and asked
for candid feedback. His team put a plan in place so DuPont would be
ready if financial markets hit rock bottom.
Leaders are often limited by selective perception and seek information
that confirms what they wish to believe. Unlike Holliday, most don’t
ask tough questions because they filter out weak signals that don’t
fit 
their mental models. When faced with complex issues and
conflicting information, it is easy to fool yourself: If you torture the
data hard enough, it will confess to almost anything! At Eastman
Kodak Co., for example, leaders failed to ask the right questions soon
enough to fully understand and act effectively on the signs that
photography was rapidly moving to digital. This misperception reflected
middle management’s belief that digital technology was inferior to film
and top executives’ belief that the demands of Kodak’s shareholders
mattered more than those of its consumers and engineers.
24 These
flawed assumptions allowed Kodak to continue deluding itself about
the urgency for change for much too long.

Tips and Pointers

1. Look for competing explanations to challenge your observations.
Engage a wide range of stakeholders, customers and strategic partners
to weigh in.
2. When stuck trying to recognize patterns or interpret complex
data, step away, get some distance and then try again.
 Sleep on the
data, since the mind continues to process information when resting.
Each time DuPont’s Holliday took a break, and then reengaged, he
got a deeper understanding and asked better questions.
3. Use visual graphs or flowcharts to juxtapose the larger picture
with the individual puzzle pieces.
 Pattern recognition is easier when
all the information is clearly laid out and presented in different ways.
Try to leverage the power of visual thinking.25

Create New Options

Question Five: Do you generate and evaluate multiple options
when making a strategic decision, and do you consider the risks
of each, including unintended consequences?
 It may seem obvious
that leaders should examine multiple options before making a big
decision. Yet in the heat of the battle, few leaders actually engage in
creative options thinking. A common refrain is: “We don’t have time,
we’ve got to move.” Research shows that when people feel pressed
for time, they become less flexible and will much prefer certainty to
ambiguity. Ambiguity aversion is typically heightened in crisis
situations and can lead to cognitive myopia, a narrow focus that can be counterproductive.26 Weathering storms, real or metaphorical, requires
strategic leaders to counter this ambiguity aversion. Asking good
questions about alternatives or unintended consequences, even if done
quickly in a crunch, will provide a wider-angle lens to include the less
obvious and potentially more strategic course of action.
When people feel pressed for
time 
they become less flexible and
much prefer certainty to ambiguity.
Ambiguity aversion is typically
heightened in crisis situations and
can lead to cognitive myopia, a
narrow focus that can be
counterproductive.
When a devastating storm hit the annual Sydney to Hobart Yacht Race
in Australia in 1998, nearly all of the more than100 yachts that started
the race were either trying to outrun the storm or heading directly for
the shore. A notable exception was the crew of AFR Midnight Rambler.
They asked a critical question in the midst of the life-threatening storm:
Are there other options? Rather than getting ahead of the storm or
racing to shore, the Midnight Rambler saw a third possibility: sailing
directly into the storm. Although it was a nonconventional choice, the
Midnight Rambler crew concluded that it would be the safest and the
fastest option. They also believed they had the skill to execute this 
bold
plan. The Midnight Rambler not only survived traumatic moments; it
won the race. Many boats were capsized and destroyed, few finished
and six sailors tragically died.
27 The Midnight Rambler had the smallest
boat and fewest resources. But its crew was the only one to ask a crucial
question in the face of the storm: Are there creative options?

The Challenge

Major disruptions, such as the appearance of new or unexpected
competitors, often lead to quick action with little reflection — akin
to the fight-or-flight response of animals. When we are under the gun,
we frequently cut corners. This makes us prone to the traps of narrow
focus and inside-out thinking that limit choices. We rely too much
on ourselves or on an inner circle. This can blind us to possibilities that
reflect outside perspectives and potential consequences for customers
or external stakeholders.
In 2011, Netflix Inc., which had been very successful with its DVD
rental-by-mail model, added a second delivery system based on Web
downloading. To be competitive, CEO Reed Hastings decided
to 
unbundle the streaming service from the traditional model and offer
it at a lower price. However, the combined fee for both
subscriptions 
ended up being 60% higher than the original service. This
infuriated consumers. In the following year, Netflix lost 800,000
customers, and its stock price fell 65%. By not asking the right questions,
Netflix failed to fully explore options that might be more flexible and
user-friendly. Although Hastings quickly owned up to the mistake and
publicly apologized, the episode caused a lot of grief for both customers
and the company.

Tips and Pointers

1. Rather than presenting binary go/no-go decisions, reframe a
situation to always examine several more options.

Always ask, “What else might we do?”
2. Use impromptu meetings when time is limited to generate more
options, including unconventional choices.

The Midnight Rambler crew did this during a major crisis.
3. Review alternatives based on clear criteria and rank options
accordingly.

Clearly define decision criteria, make them explicit, weigh them and
then score each option against the criteria to identify the best choice.
Be disciplined when it comes to making tough trade-offs.

Learn From Failure

Question Six: Do you encourage experiments and “failing fast” as
a source of innovation and quick learning?
 David Ogilvy, the
advertising genius, purposely ran ads that he and his team did not 
believe
would work as a way to test their own theories about advertising.
28
One of the experiments they tried was the famous Hathaway shirt
advertisement featuring a man with an eye patch. This version of the ad
(there were 17 others) was an impromptu experiment whose success
took Ogilvy by surprise.
29 The ad, in fact, was a brilliant success, ran
for a long time and received several industry prizes.
Biologist Max Delbrück, who received a Nobel Prize in 1969, believed
in “the principle of limited sloppiness.” He advised his students to be
sloppy enough in their lab experiments to allow for the unexpected,
but not so sloppy that they could not identify the reasons for their
anomalous results.30Case in point: the eccentric Scottish scientist,
Sir Alexander Fleming, who received a Nobel Prize in 1945. His peers
considered him brilliant but somewhat sloppy. In 1928, after a long
summer holiday, Fleming returned to his lab and began gathering
up the contaminated petri dishes for a good scrubbing. Suddenly,
he noticed something different about one of them: There was a halo
where a blue-green mold appeared to have dissolved the bacteria.
Many biologists might have missed the small irregularities, but
Fleming knew bacterial growths as an artist knows the color spectrum;
in fact, he had occasionally shaped colonies of Staphylococcus into
portraits of his coworkers. His keen perception and curiosity led to the
first breakthrough in what later became the wonder drug penicillin.31
Talking about and even celebrating failure has become central to the
folklore about entrepreneurs. Sara Blakely, who founded Spanx Inc.,
a fast-growing maker of slimming undergarments and other apparel
based in Atlanta, Georgia, got the idea for the company’s products from
her own dissatisfaction with the undergarment options available on the
market. She credits her success in part to a question her father used to
pose at the dinner table when she was growing up: “What have you
failed at this week?” The message she got was that failure wasn’t
about making mistakes — it was about not trying new things.32

The Challenge

Learning from mistakes has much to do with a leader’s mind-set and
the questions that he or she asks both before and after an unexpected
event occurs. Strategic decision makers abandon the pursuit of perfection,
allow some room for well-intentioned mistakes, and examine what
went wrong and why. What matters is how well a team learns from
setbacks and what mode of inquiry it allows. The best teams try to fail
fast, often and cheaply in search of innovation.33
Few leaders are willing to give more than lip service to failure; most
corporate cultures view missteps as crippling rather than as sources of
innovation. Only in Silicon Valley, perhaps, do people wear their failures
with pride.34 The “blame” culture that permeates most organizations
paralyzes decision makers so much that they don’t take chances and
they sweep missteps under the rug. Many companies don’t learn and
adapt fast enough from missteps, as we saw with Blackberry, Nokia
and Microsoft in their early responses to the iPhone.
To help a team learn faster, leaders must (1) frame mistakes as valuable
learning opportunities; (2) respond to failure as temporary, isolated and
not personal;35 and (3) emphasize that learning from a decision is a goal
in itself.
In the U.S. and Israeli militaries, after-action debriefs have become the
norm.36 Debriefing in the Israeli military is so highly valued that
everyone is graded on this skill, including their ability to create a climate
that accepts mistakes as natural and a source for learning. This
background training has spread beyond the military to Israel’s venture
community. Nearly all entrepreneurs in Israel have served in the military,
since such service is mandatory for both men and women. These shared
experiences, especially tolerance for failure and after-action reviews,
have helped Israel become a technological innovation hub.37

Tips and Pointers

1. Shine a light on mistakes as sources of new learning. Blakely of
Spanx grew up in a home where her parents admired her for trying
and failing. She incorporates this view into her leadership philosophy.
2. Conduct after-action reviews to extract insights. Define mistakes
and successes in terms of process rather than outcomes. Teach team
members to ask questions that elicit learning rather than defensiveness.
3. Publicize stories about failed projects that led to innovative
solutions.
 Praise those who learned from their errors and try to extract
learning from near misses.

Start With Questions — Not
Answers

Typically, we don’t judge leaders on the quality of their questions, nor
do we design our educational systems or corporate training to develop
this crucial skill. If anything, we do the opposite. Television game shows
reward contestants who know answers to preset questions — and usually
very trivial questions at that. Having encyclopedic knowledge may win
you a million dollars on a TV game show or yield good grades in
school, but it won’t necessarily make you successful in today’s complex
business world. In changing environments, the big prizes go to those
who ask better questions and learn faster. In organizations, this comes
down to leaders teaching and coaching others to think more strategically
and ask deeper questions. If you think like everyone else, you are likely
to be average. The best strategic thinkers, leaders and entrepreneurs
distinguish themselves by how they frame decisions, the kinds of
questions they ask and their mode of inquiry.38

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