On his last day of work as chairman of Microsoft, Bill Gates made a profoundly important statement about leadership. He said, “When we miss a big change, when we don’t get great people on it, that is the most dangerous thing for us.” Reading between the lines, we sense that Gates is referring, at least in part, to Microsoft’s delayed response to the Internet and paid search. Then came Google.
One way to look at leadership is to view it as the business of responding to three types of adaptive challenge: the opportunity, the threat and the crisis.
1. An opportunity is an adaptive challenge that offers potential benefit to the organization with no potential harm.
2. A threat offers potential harm and no potential benefit.
3. A crisis offers certain harm.
With opportunities, leaders must interpret emerging and probable forces and their likely impact on their organization. With threats, leaders must respond to imminent danger. And with crisis, leaders must confront the facts of damaging impact.
Opportunities come in two varieties — “far and foggy” and “close and clear.” Far and foggy opportunities are distantly separated from the organization and naturally offer a low level of clarity. They conceal potential gain, making it a greater risk for a leader to respond early. Circumstances are underdeveloped. Outcomes are uncertain. We’re looking at possibilities rather than facts. High uncertainty always keeps an opportunity in low market demand. As a result, responding to far and foggy opportunities can be either genius or folly.
The financial meltdown was caused in part by sophisticated financial institutions gorging on collateralized debt obligations laden with sub-prime mortgages. Why? Because the complex securities appeared to represent a promising investment opportunity — a far and foggy opportunity. In this particular case, the opportunity was beguiling. Not certain how to assess and manage this elevated class of risk, many investors proceeded, even without any sense of clarity. Others saw it as a signal to avoid.
Most opportunities tend to be far and foggy. Distance shrouds potential reward and yet others see potential reward in uncertainty. Once an opportunity becomes equally visible to competitors, potential rewards diminish or are lost altogether. For example, a first mover may exploit an underserved market and accrue substantial rewards initially, but those rewards will dilute as competitors also move in. With the categories of adaptive challenge in mind, let me explain two common patterns and one rare one.
Linear migration. Some adaptive challenges follow a pattern in which they transition from far and foggy opportunity to threat, and from threat to crisis, along an defined path as they approach. An example of linear migration is the appearance of mini-mills in the steel industry. In the 1980s, thin-slab casting technology allowed mini-mills to enter the steel industry from the bottom of the value chain, producing low-end bar products from secondary steel. Over time, these producers gradually migrated up the value chain and displaced higher-cost integrated capacity in flat-rolled product categories.
Fleeting appearance. A second pattern involves an adaptive challenge that appears briefly as an opportunity and then vanishes. Whereas some adaptive challenges begin at the periphery as far and foggy opportunities that continue an inbound trajectory toward the organization, others appear briefly as close and clear opportunities and then disappear altogether. This pattern is based on a non-repeating combination of timing and circumstance. Unless exploited to competitive advantage, fleeting appearances are usually lost forever. For example, in February of 2008, Yahoo CEO Jerry Yang refused a $43-billion offer from Microsoft. Now the company is worth half that amount and Yang is no longer CEO.
Sudden disruption. Finally, adaptive challenges can suddenly appear as a threat or even a crisis, with no early warning signs. An example of sudden disruption was the seizure of a unit of the American food company Cargill operating in Venezuela. With almost no warning other than a sudden dispute over price controls on rice, the government announced the expropriation of the plant. Thankfully, this pattern is rare.
My advice: Hunt in the land of opportunity.
Timothy R. Clark, Ph.D., is an author, international management consultant, former two-time CEO, Fulbright Scholar at Oxford University and Academic all-American football player at BYU. His latest two books are "The Leadership Test" and "Epic Change." E-mail: trclark@trclarkpartners.com