In a special edition of the AFP Conversations Podcast, Jim Kaitz, president and CEO of AFP, speaks with Amy Edmonson on the value of successful teaming in a crisis. Novartis Professor of Leadership and Management at the Harvard Business School and author of The Fearless Organization, Edmonson will appear at AFP 2021 as the Tuesday Keynote speaker. In this interview, she provides a preview of her upcoming session, providing concrete tools that leaders and their teams can use to innovate in the face of disruption.

Kaitz: Let’s talk about your new book, The Fearless Organization, as it primarily focuses on the concept of psychological safety and the context of the work environment. Could you define what you mean by psychological safety? Is building trust the same as psychological safety?

Edmondson: Psychological safety is a sense of permission for candor. It is an environment where people believe that their voice is welcome – whether it is good news or bad, mistake or question, brilliant idea or stupid one.

Building trust and psychological safety are close cousins. Trust, strictly speaking, pertains to expectations about another person or another entity. Can that other person or entity be trusted to follow up, do what they said they would do and act in my best interest? Psychological safety describes a climate or environment where I feel comfortable. In a way, it is more self-referential. I feel comfortable bringing my true thoughts forward. That said, psychological safety is certainly thought of as a blend of trust and respect. When mutual trust and mutual respect are present, it is a psychologically safe environment.

Kaitz: From the perspective of a leader, is psychological safety something that is part of the organization’s culture that must be established at the top vs. building trust in a more one-on-one relationship? Does senior leadership need to embrace psychological safety in order to be effective?

Edmondson: The answer is somewhere in between. Trust is right on the local, dyadic level but psychological safety tends to vary across groups, even within the same organization. It is a “leaders-in-the-middle” phenomenon. However, starting at the top or having the most senior executives in an organization modeling the behaviors that give rise to psychological safety is powerful. If that behavior is already in place, then continue moving forward by developing the skills of your leaders in the middle and build that muscle for candor.

Kaitz: Our members are finance professionals, and I know at Harvard Business School you deal with finance all the time. Finance always wants to understand the return on investment; how is this going to benefit the organization? From your perspective, I suspect making an investment in psychological safety takes time and must be built into the culture of an organization. With that kind of commitment, what are the measurable results? What is that potential return on investment to that organization?

Edmondson: The biggest return on investment is the failure you do not experience, the scandal you do not experience or the major risk management failure that does not occur. I have studied those issues in financial service organizations and, of course, it is visible when organizations have the big failure or scandal. From a distance, we all look at that organization and say, “Too bad” or “How did that happen?” We often fail to realize that just before that came to light, the organization was seen as a superstar and high performer. Well-led firms know that there is risk around every corner. This case could be part of a risk mitigation strategy to create psychological safety in an organization, which could be considered the negative side.

The positive side of the case is psychological safety as a key determinant of innovation. Organizations need people to speak up with half-baked ideas that turn into good ideas when others weigh in. Innovation comes from the integration of diverse perspectives, which does not happen without a high degree of psychological safety. There is also the case for unlocking the promise of other kinds of diversity, not just expertise diversity but demographic diversity, which is an even more important topic.

Kaitz: There is a new McKinsey & Company article that talks about the CFO’s role in talent development. In order to create an environment of learning and building talent, finance must play a significant role in the organization because they control the budget. Finance needs see the benefit in budgeting for professional development, talent acquisition and upskilling. To create that kind of learning environment, how does psychological safety play into it?

Edmondson: Learning is central, and it is the heart of the matter. In fact, I did not set out years ago to go study psychological safety – I set out to study the learning organization. I wanted to understand the mechanisms that allow organizations to learn or not learn in a changing world. The research literature clear on why organizations do not learn and the barriers to learning but was less clear on what it looks like when they are learning. My discovery of the real differences across teams within the same organizations was that the teams that were leaning were trying new things, communication, testing, and catching and correcting errors. They had an environment of psychological safety. We cannot learn unless we have an environment that allows us to take risks; learning is always somewhat interpersonally risky because it requires us to do something we are not good at yet or try something new that might not work.

Kaitz: You are speaking to an audience of finance professionals who are trained to have analytical skills. However, you also want to look for people that are going to be creative, have intellectual curiosity, and tell a story with numbers, none of which are traditionally taught in terms of skill sets. If a leader is going to create this psychological, safe environment, what are some of the attributes that leaders must demonstrate to give permission for people to ask questions and feel comfortable in an environment where stakes are high? There is a natural fear of, “I don't want to make a mistake so I would rather keep my mouth shut.” You talk about this in your book. What are some tips you would give leaders on how to give this permission?

Edmondson: The first piece of advice is to talk openly and repeatedly about the nature of the environment in which you are operating. We live in what is being called a VUCA world: volatile, uncertain, complex, and ambiguous. If more senior leaders call attention to the uncertainty and opportunity we face, it is ours to catch and create if we can figure out how to do it. It is not a negative message but a hopeful message; acknowledging uncertainty creates a rationale for why you are interested in people speaking up. Senior leaders need to recognize that the default mindset for most people is assuming senior leader have all the answers. Believe you have a rock-solid strategy and that what you are really looking for is order-takers and executors. You have to constantly counteract that default message with a new and better message: “I need to hear from you. We have an opportunity. We have uncertainty. Let's tackle it together.”

The second piece of advice is model a good example and acknowledge your own shortcomings. With a smile, acknowledge all the things you got wrong and the things you got right, and understand how much excellence in today's world looks like an iterative process of getting there rather than getting the perfect answers.

Kaitz: My next question is in terms of leadership and demonstrating their own vulnerability. It is hard for leaders when they do not all the answers. Yet, you are a proponent of self-reflection and of leaders demonstrating vulnerability to create an environment where people are willing to speak up. There are a lot of failures in that regard. What are your thoughts?

Edmondson: Vulnerability is a demonstration of wisdom because we are all vulnerable, especially things outside of our control. This past year has made that vulnerability very clear; none of us knew 14 months ago just how vulnerable we were to a particular virus that would change everything. We are inherently vulnerable individually and collectively. Strength comes from being aware of that vulnerability, being honest and transparent, and inviting others in to tackle whatever is coming at us, together.

Kaitz: Are there any companies, you do not have to name them, that demonstrate psychological safety well or have had a competitive advantage by giving people the ability to speak up? Or have you seen a tangible example of the benefits of the environment that you described?

Edmondson: I will first note that it is rare, maybe even impossible, for an organization to be 100% psychologically safe; it is more of an aspirational goal. With that in mind, and with the very real risk that no company is perfect, some companies have gone out of their way to build in mechanisms and attitudes around this topic.

One company that famously comes to mind is Pixar. While they are in a different business than financial services, it is still high-tech and complex, and historically these businesses have winners and losers. Creativity is fraught and not everything is going to land. Nonetheless, Pixar produced 17 or 18, maybe even 19 by now, hit movies in a row. From a performance, commercial and critical standpoint, they are extraordinary. However, they are way out on the performance spectrum in their industry of creative entertainment. How does that happen? They start with the shared recognition that all their movies are bad at first. The only way they end up being good is because we are relentless in speaking up about why the movies are bad. All of the ways that that scene falls flat or the character is not believable is baked into their processes and culture. It is modeled at the top by project leaders, so a lot of effort has gone into it and it paid off.

In a very different context, there is the Toyota production system. Decades ago, and before I started writing about these topics, they baked in mechanisms and cultural messages to let every single team member know that they are a hero when they speak up with a problem. Keep in mind that that is not quintessentially Japanese, which is an important point because they accomplished that through leadership effort. They had top-down invitation mechanisms, processes, and structures to build in the notion and the permission for iteration and speaking up.

Kaitz: There are individuals who want to be in this kind of organization but have a fear of speaking up. If you are the manager, how do you manage that individual? On another side, how do you manage an individual that has a lot to offer but is reluctant to do so?

Edmondson: It is worth noting that psychological safety encourages two sides of the same coin. My emphasis has been on psychological safety because of the opportunity to create more of a sense of permission for candor. However, it does not imply that once you have psychological safety it is going to be easy for everyone, introvert or not. It always takes a little bit of saying to yourself, “I hope this is going to work,” when something might be seen as a stupid question or half-baked idea.

It is always easier to be quiet than to say something that might offend or reflect badly on us. However, the major overriding force is that we care about the goal and shared enterprise. Especially the more reluctant speakers, there is power in a good question. I am willing to do uncomfortable things because what we are working on together matters. We need to create these opportunities for people without implying this it is supposed to be easy and comfortable. Be clear about the purpose and the why.

Kaitz: Someone in the audience may be listening and say, “This is going too far. At what point does this just allow people to go on and on? We must eventually make a decision and not every good idea is a great idea.” I am asking thing because it is in your book about framing difficult discussions and boundaries around psychological safety. How would you help frame psychological safety for someone with this mindset?

Edmondson: This is the risk that comes with talking about a single factor that you believe is an important factor. People misunderstand it to be, “This is the silver bullet. This is all you need.” To be clear, psychological safety matters in today's work environment, particularly in financial services because of all the many risks and opportunities that lie there. However, do not abandon the discipline to have good discussions, stay on track, stay on time, and stay on topic. If you do not understand something, have the discipline to ask some to explain further. If you must make a decision by the end of the meeting, have to set boundaries. There are many processes, rules, and norms that your clients already have in place. Use them and take them seriously, but do not let interpersonal fear be the rate limiting step. Let discipline and purposefulness be the rate limiting step.

Don’t miss Amy Edmonson’s keynote presentation at AFP 2021. The early registration deadline is through June 25. For more information, visit AFP2021.org.