Innovating Leadership:
Co-Creating Our Future

Resources:

Otto’s landmark book is The Essentials of Theory U; it’s available in paperback at https://amzn.to/4aA4N4v, and as an audiobook at https://amzn.to/4tH38mu.

You can also learn more about Otto on his website at https://ottoscharmer.com/, or through his nonprofit at https://www.presencing.org/.

Our host Maureen Metcalf posts a newsletter every week on LinkedIn. You can subscribe here.

Maureen’s latest book is Innovative Leadership & Followership in the Age of AI. The Kindle version is available at https://amzn.to/44buVz8 .You’ll find further details about it at https://bit.ly/LeaderInAI. Her other 10 books are available on Amazon here.

Other episodes you’ll enjoy:

– Leadership at the Edge of Uncertainty with Helle Bank Jorgensen

– The End of Stability: Leading in a Disrupted World with Bob Bush, Jr.

– Leaders Need More Values with George Limbert

Guest(s):

Guest(s) Bio:

Otto Scharmer, a Senior Lecturer at MIT and Founding Chair of the Presencing Institute, has dedicated the past 20 years to helping leaders embrace cross-sector systems transformation.

Through his bestselling books Theory U and Presence (the latter co-authored with Peter Senge and others), Otto introduced the groundbreaking concept of “presencing” — learning from the emerging future.

He co-founded the MITx u-lab, which has activated a vibrant worldwide ecosystem of transformational change involving more than 260,000 users from 194 countries. In collaboration with colleagues, he co-created global Action Learning Labs for UN agencies and SDG Leadership Labs for UN Country Teams in 26 countries, which support cross-sector initiatives for addressing urgent humanitarian crises.

Born and raised near Hamburg, Germany, Otto’s early experiences on his family farm profoundly shaped his vision. From his father, a pioneer of regenerative farming, Otto learned the significance of the living quality of the soil in organic agriculture, which inspired his thinking about social fields as the grounding condition from which visible transformations emerge. Like a good farmer who cares for the soil, Otto believes responsible leaders must nurture the social field in which they operate. He emphasizes that shifting our economic operating systems from extractive to regenerative requires innovations in leadership support structures for shifting mindsets from ego to eco. Building that infrastructure is the purpose of the u-school for Transformation.

Transcript
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Maureen: [00:00:00] Hi, welcome to Innovative Leadership Co-Creating our Future. I’m your host, Maureen Metcalf. I’m the founder and CEO of the Innovative Leadership Institute. And a fellow with the International Leadership Association. This podcast is part of a series hosted in conjunction with the International Leadership Association.

I am delighted that on our show today is Otto Sharmer. Otto is a senior lecturer at MIT, and the co-founder of the Presencing Institute. During this discussion, we’ll talk about his latest book, “The Essentials of Theory U: Core Principles and Applications”. So Otto, I’m delighted to have you join us. Do you wanna tell our listeners what is Theory U and what is presencing?

Otto: Thank you Maureen, for having me on. What’s referred to today as Theory U, how I came about was really following and listening to innovators in society. So in business and science and other sectors. And listening to them, what I realized is [00:01:00] when they have a safe space to share their own story, it’s a deeper narrative than the usual innovation and leadership story that’s conveyed to us when we go to business schools or other places. That really brought me into the realm of Theory U. It was really by listening to the practitioners of the field. I remember one situation: In the early years, so once I developed the framework a little bit, I went around to places, across sectors and across countries and cultures and you know, showed up, shared a little bit the findings, and then basically listened to people –what stories they had in terms of this deeper territory of leadership.

I remember there was one day I did one of these sessions in Vienna, so there was one very experienced practitioner who was sitting there and who was really quiet the whole time. So he didn’t participate in the conversation, so I had no idea what he thought. So when everything was done and over with, I went up to him and said, “Hey so what do you think?” [00:02:00] And then he went quiet for a moment, almost as if he was moved by the conversation, he said, “Well, it wasn’t that everything you said was radically new to me. I just didn’t know that I know. I just didn’t know that I know.” So that is, for me, being an action researcher, the highest currency possible. That’s the highest compliment. What I try to do is not come up with fancy new concepts.

That creates more confusion in a moment where we are already confused to begin with. What is my highest goal, if you want, is offer perspectives or distinctions that help us to make visible what we already know, what we already know in our best moments, in a moment of transformation, in a moment of creative breakthrough.

And then if you have that framework, what was implicit before you can become more aware, and therefore you can use and leverage your own best experiences that you have as a leader [00:03:00] more intentionally and more consciously going forward. The whole thing really came together through listening.

Maureen: One of the things I love is that you have practical processes and approaches that it’s not just something I read in a book and say, “Oh, wasn’t that nice,” but I can actually take action based on it.

Otto: That’s true. Theory U is really two things. It’s a framework that offers a new perspective on leadership and on transformational change from a systems perspective. And the other one is, it’s a method.

It’s like how, okay, so now I know the different layers or states of awareness that a system can operate from, but how do I move from one to the others? As leaders, of course, that’s ultimate the question. And as change makers, that’s ultimate the question we all are resting with.

That’s actually the main part because the framework was already there pretty much. It keeps evolving, but pretty much in the first stage. But then where the main [00:04:00] effort is going is refining methods and tools that allow you to operate from a different place.

Maureen: Can you walk people through a little bit of what is this method and what gap does it fill that others have not yet addressed?

Otto: Okay. So let’s start with just one data point, which was really instrumental for me in investigating and exploring this deeper territory of leadership. So in the early interviews that I did that I already mentioned, one of my interviewees was the late CEO of Hanover Insurance, Bill O’Brien.

He went through his experience of leading transformational change, the episodes that were successful and those that were less. And then reflecting on all his experiences, his personal experience in leading transformational change with this line, he said, “The success of an intervention depends on the interior condition of the intervener.”

So in other words, the [00:05:00] success of what I do not only, depends on what I do and how I do it, the process that I use, but depends on the inner place from that I operate.

But what do we know about this inner place, the source dimension of what leaders do? So that was one of my points where I woke up, and another wake up point that I had is because I’m an action researcher, I helped a lot of leaders and change makers progressing with their initiatives for many years.

One of the things I have been constantly coming across is this, and I’m sure it will resonate with many of the listeners here, which is: the kind of changes that most people find themself confronted with in these days, is by and large challenges of disruption. Is one thing, right?

But then what we got from the traditional change management and management tools is another thing. And [00:06:00] between those two things is basically a gap, an abyss, right? And that’s where you are as a leader. So in other words, there’s a real misfit between the traditional toolkit of change management on the one hand, and the real challenges of disruption we face on the other hand. And I was always interested in how we can operate in the context of such an abyss.

And what I learned by in part my own experience but mostly by, by listening to others and being part of practical change initiatives, is that when you face a moment of real disruption, what happens is that all the traditional navigation instruments, right, the exterior navigation instruments that you tended to operate from stop really working or stop working well, and then what you are left with is: your inner knowing, right? It’s your capacity to [00:07:00] sense, to connect with emerging future possibilities. Disruption basically means the future is going to be different from the past. So how can we as leaders develop learning practices and learning infrastructures that not only reflect on the past — that may be necessary, but it’s never sufficient when you deal with disruption — but also that allow us to sense and actualize emerging future possibilities. And that’s really what Theory U does. And the main point about Theory U is that to do that, you need to rely on not only the knowing of your head, but also the knowing of your heart and the knowing of your hands, which is the learning by doing. So in other words, when you deal with disruption and the only intelligence you rely on is the one that resides above your neck, that’s a problem because our open mind is brilliant, iQ is brilliant, but it’s only looking one direction, which tends [00:08:00] to be the past. If you want to connect with emerging future possibilities, you need to develop your sensing capacities.

You need to get out of your own bubble. You need to put yourself into the places of most potential, and you really need to engage in deep listening and deep dialogue and really using your feelings, not as traditional emotions where you just react inward, but as organs of perception, where you sense into how other communities, how other people, how other stakeholders are sensing and experiencing the situation.

So empathy, compassion, and courage as core capacities that we need to practice as leaders when we deal with challenges of disruption. So what does it take to, to respond to challenges of disruption? And the answer from a theory U perspective is it takes a journey. A journey that impart is an outer journey [00:09:00] that is moving you to the edges of the system, but to significant parts also is an inner journey.

An inner journey of opening the mind, opening the heart, opening the will, by which I mean seen with fresh eyes, empathizing with the capacity to see a situation through the eyes of your stakeholders and feel what they are feeling, and then “open will.” What is that? That’s basically letting go and letting come, right?

The capacity of letting go of everything that isn’t essential and tune into that what is wanting to emerge.

Maureen: Walk us through a practical example for listeners who were saying, “Okay, I think I got it, but let me hear an application so that I can ensure that I grasp it.

Otto: Sure. So the shorthand of the U process: if you wanna really boil it down to just four words or eight words, uh, you could say it’s seeing [00:10:00] it, sensing it (which is feeling it), and then being it (really connecting with what it is that is wanting to emerge), and then doing it or co-creating it.

So that’s in a nutshell the journey and it can happen in many situations. For example, I am teaching half term class on that here at MIT and one of the things that has surprised me most is –because most people say, yeah, so you’re either a good listener or or not so good listener, and we tend to take that for granted– and what I’m almost shocked by is how much, in fact, you can profoundly shift your mode of listening in a matter of weeks. And what it takes is practice. So it’s like two or three things, what it takes, number one, a tool, right? In this case, the tool is to [00:11:00] differentiate four different levels of listening.

Level one is projecting your old stuff. Level two is kind of, uh, factual listening: You notice what’s interesting, what’s new kind of, uh, disconfirming data. Level three is empathic listening: You use your heart and you begin to see or sense the situation through the eyes of another. And then level four is generative listening, which is really kind of, you move into the co-creative realm kinda where something new is being born one way or another.

Think about a great coach, right? What a great coach would do for you. That’s usually related to level four listening. So that’s the distinction part, element one. Element two is that you practice that and that you review your daily levels of listening. You take just five minutes in the evening and you review the day by asking yourself, “How many hours did I spend on level one?”

Just only noticing what I already knew, right? What percentage of my time did I spend on level two? Paying attention to what’s [00:12:00] surprising, what’s new? Level three, empathic listening, sensing, seeing a situation through the eyes of another or even level four. So that’s kind of element two, and element three is that you have a small group where you can practice level three and four.

What’s shocking to most people is how quick, how deep you can go if you just build the container condition in the right way. So container condition is, um, lingo that facilitators use, as some of you will know.

And what it really means is like holding space. So it’s kind of how you move into a space, kind of the arrangement. The holding space can be physical, it can be digital, can be ground rules, right? Also like a commitment, whether or not it’s a safe space, where it’s confidential and whether or not you practice deep listening with one another.

So that’s kind of the holding space. If you go to the Presencing Institute website, his clinic is the [00:13:00] tool. So there’s a tool section and it’s, it’s all open source. And so that’s where you have a 60 minute process that in a very reliable way, if you have four or five people to do that together with, brings you into an experience that is very reliably level three and four, and you do that for a few weeks.

Then you are listening and the way you pay attention to the wall is changing. And then you can say is significantly deepened. My listening is different and the way I pay attention is different. But that’s maybe not that big a deal. But when you think about that, right, when you’re listening and the way you pay attention is different, it means that your experience of the world is different.

And when that is different, it basically means everything is different. So it is a profound shift that can happen in a relatively short amount of time if only you put into place this kind of enabling infrastructure that I just described to you. And that’s [00:14:00] an example of how you can apply theory, methods, and tools on a level that is both leadership level, but it’s also very personal because it immediately shifts the way you relate to other people. Of course there’s a whole systems equivalent also for that. So for example, I am currently running, um, intervention also with a number of UN organizations. There’s a whole system level. It really starts with the individual. It starts often with listening, as I just described. And if you wanna sum up that approach in a slogan, many of you may remember kind of from school philosophy, class Descartes: I think therefore I am. So that’s not exactly what Theory U does and says; Theory U says, “I pay attention this way, therefore it emerges that way.” So Theory U is drawing our attention that what happens in a [00:15:00] conversation, what happens in the world around us. What happens in a dialogue that I have with another person is a function of the quality of attention that I bring into the world. It is a function of the quality of listening that I apply to a situation.

So what Theory U does is really highlighting the hidden agency we often have as individuals, but also as teams and as on a collective level that if not highlighted, remains unnoticed and also unused.

Maureen: I think about using something, a process, very similar to Theory U when I was helping a client solve a problem about saving money.

It was a restaurant chain and they were trying to manage costs as everyone does, and one of their recommendations was cutting the food allowance of employees. So at that point in time they had unlimited meals. The proposal was cut what they could [00:16:00] eat. And then in through this deep listening and taking the perspective of the stakeholders, what they realized was their employees are not just high school kids who go home to their parents’ house, but they’re heads of households and the food they eat at work is often the only food that they’ll eat during that day. Through that deeper sense of essence and looking at their values and who are we, the people running the organization in this context, they took a very different course of action.

So that sense of listening in their highest values, not just from the perspective of finances, caused them to take a very different course of action. And to me, that was an example of listening more deeply and generatively, emerging as the organization they wanted to be where people chose [00:17:00] to work there and were dedicated to the organization because of who they are collectively and who they are choosing to be going forward.

Otto: No ab Absolutely. I think that is very applicable and it brings to mind what often is a problem when we look at examples of leadership failure, right?

Leadership failure is basically, you know, at the root often is disconnect with reality. Leaders disconnect with reality. Divorced from reality, divorced from data, and divorced from listening to data. So listening and paying attention to data, even though we may not like what the data is trying to tell us, is really at the core of all leadership and the lack thereof is at the root of all leadership failures, particularly when you happen to operate in a moment of disruption.

Maureen: Otto, especially as you talk about consciousness and leaders and awareness: what is different [00:18:00] now and what is required more from leaders now? What is changing with regard to leadership?

Otto: I think what the, um, current moment is changing about leadership is it’s just highlighting things that were already clear before. I think one is certainly that we all need to learn how to create these safe spaces where you can experience embodied forms of learning, where you can experience social resonance. So I feel how another person is feeling and where you can connect to emerging future possibilities, how to do that online. We know it’s more difficult online than, uh, being in person, but that’s what we are dealt with.

So I think that was one. Another thing we are seeing is that if you are a leader and you lead a moment of disruption, just minding your own business is no longer good enough. You are responsible for the wellbeing of your community [00:19:00] because you are a big part of what determines the wellbeing in your own ecosystem.

So paying attention to the bigger picture and also taking a stand in situations where maybe years back we would’ve said, “Well, that’s not my business.” Because if the wellbeing of the community , the foundations of how we operate, is at stake, then you need to take a stance. And if you don’t take a stand, then that’s a statement, too. So if you are a leader who happen to be at the helm in a moment of disruption, part of your job is to pay attention to the larger situation and to be responsive to that.

The first time I really saw that firsthand. That was in 2008, right after the financial crisis. I was working with a global company that was hugely disrupted in many of their global markets by the, uh, financial [00:20:00] crisis. Basically going from 120%, uh, close to zero, and adapting to that and so forth.

Being engaged with, uh, leadership or part of the leadership system, what I, um, found fascinating is that the same situation– so it was one company facing one situation, kind of this challenge of disruption back then– had very different impact in different parts of the organization. So in some groups, in some areas of the organization, you could see that leadership was rising to the occasion.

You could see that the morale was going up and that people really worked together in more co-creative and more right inspired ways than they had been actually doing before. That’s really kind of this rising to the occasion, not as one individual, but really as a leadership system as a distributed phenomenon.

So in my view, the essence of leadership is really the capacity of a [00:21:00] system to sense and step into the future and shape the future. So that was parts of the organization. Then in other parts of the organization, you could see the exact opposite. So the same situation resulting in people retreating, being frustrated, confused, not knowing how to respond, and so the morale was dropping at the other end of the scale.

What I learned from that microcosm was that experience is not what happens to us. Experience is what we do with what happens to us, so how we respond to what happens to us, whether when I apply an open mind, an open heart, and open will, for example, in a leadership situation where no one knows what’s going to happen tomorrow.

Am I visible to my team? Am I reaching out? Am I leaning into that situation? Or do I pull [00:22:00] out and pull myself out of the situation, avoid the contact, the difficult contact with the front line, and then, am I back office, try to develop some analytical frame and so on. So it’s kind of in a place that we operate from, whether we kind of lean into something or whether we, uh, move more into a freeze reaction that has such a big impact on the reality that we create in our own organization. When you now abstract from that, so that really is an example for what matters, right? In a moment of disruption is whether you have the capacity to lean into and sense into what is wanting to happen and then go with that or whether you are basically move into the opposite direction, whether we have a freeze reaction that is understandable that your system is doing in order to protect you, right? Because maybe it’s, it’s too much, but which then results in some of the [00:23:00] phenomena that I just described.

And then maybe the last example or thing I would like to highlight in the situation we are in is that leaders I believe need to create a holding space. And in fact, creating holding spaces is maybe one of the most important capacities that leaders need to develop in these days.

And here’s the data point. The example: when COVID hit in March, 2020. At the Presencing Institute, we created a rapid response that we called Gaia as an acronym for Global Activation of Intention and Action. It was basically something very simple. We said, look, every other week we’ll come together here.

We have like a 90 minute session, and you’re invited to just lean into the current moment. That’s all we do, right? We use mindfulness practices, we use social art practices, we use dialogue. We put people in small groups, and we invited them [00:24:00] to basically connect not only with the outer story, what happens to them, but linking that with their own inner resonances and questions they have in the current situation.

We did that over three months, basically like 13 weeks I think, all together. We had 13,000 people participating, 7,000 of which really came regularly, and then, you know, some people dropping in and out, and we had a very significant number, I think it was over a third, talking about life changing experiences, particularly in regard to the holding space.

Kind of to realizing that what they thought was just their own personal private experience was shared by so many other people around the world. And that was really an eye opener to me , because we really didn’t take people through a very elaborate journey there, right? There was a little bit of that, but it was mainly creating a holding space that would allow [00:25:00] them to connect to each other, and yet it was transformative to, to thousands of them.

So it means a third. So that’s I think an example for this holding space, right? Which almost looks like nothing; most people don’t even notice what a good holding space is. But we all know what a holding space is when it’s not there, right? What a bad holding space is. So people are frustrated, confused, low commitment of energy, all the, um, people dropping in and out, and there is no shared energy. There’s no shared attention, there’s no sense of co creativity, there’s no sense of agency. Also, all of that, in my view, is a function of the holding space. So to sum that up, I would say from a theory U perspective, the quality of results that we see in a business, that we see in an organization, is a function of the quality of relationships among the people who [00:26:00] operate in that system. And the quality of relationships among people is a function of the holding space that we put into place. That’s why this holding space, the container conditions, the inner and the outer conditions that we bring in as leaders are so critical and that, that would be the last thing I say the 2020 moment has taught us in terms of leadership.

Maureen: What I was taught in traditional leadership is it’s more about what I do, not who I am. And for many people this is a first time, they have had to show up differently so that their people could engage with them. That the level of authenticity when we’re working from home, and you can see kids running in and out of the room, or you can see my home at this moment, and that’s just the concrete reality. It doesn’t talk about my hopes and fears and my dreams for the future and my values. The [00:27:00] emotions that were, when I started working, seen as unprofessional to share at this point in time, that sense of who I am and what I bring to the container also really matters.

Otto: That was in fact kind of the main theme that came up in these Gaia gatherings, right? It’s almost as if you create a certain atmosphere and, and of course as a leader, kind of how you show up, right? So the examples that you share and also the frameworks that, that you introduce, give permission or not.

And I’m quite aware that part of the impact that Theory U has had is that it is a framework that gives permission to both the outer and the inner reality. That is applying science and observation both to the outer data, but also to the inner data, which are our feelings. I remember my, um, mentor here at MIT saying everything that you experience in a [00:28:00] situation is data.

Everything you do in terms of diagnostics is an intervention, right? Everything you do is an intervention and everything you experience, right? All your feelings and all your senses is data about the situation. And I think when we talk in leadership about refined practitioner development, it is about reading these subtle data with more skill, right?

Paying attention to them with more skill. And when you create a container that gives permission to bring the interior dimension of leadership into a situation, it is a game changer, right? Because it allows a whole other level of creativity and co creativity to come in that you do not get when you just refer to external data.

Maureen: It also then requires me as the leader to clean up my feelings, to be clear about what’s [00:29:00] prompting a feeling. So if I’m angry, make sure that if, if I’m feeling anger and I’m interacting with someone, that anger is actually related to that person, not something that’s happening with my mother at a distance or that as leaders, we have a responsibility to be effective with our inner tools.

Otto: Yeah, it can be emotions or negative emotions. It can be the voice of judgment that we have against others, against ourselves, can be the voice of cynicism. Or the voice of fear, right? I think we all know these voices very well.

Organizational life is filled with them, and the key for leadership is making them visible. Becoming aware of them. So you can make a conscious choice and you are not just unconsciously, uh, driven by them. Coming back to your earlier question, uh, presencing. So presencing is the capacity to [00:30:00] sense and actualize the future as it emerges, it’s the capacity to lean into the current moment with an eye on what is it actually that’s, uh, wanting to happen. And in that way, you can say the essence of theory-based leadership is leading by letting go and letting come. Right? Letting go of what no longer is essential and leaning in more into what is wanting to emerge in a situation in a constellation or a live constellation that you are facing as a leader.

And bringing in the more personal dimension and the interior dimension into that. If you begin with your leadership team to have conversations on that level too, it opens up a whole other level of trust and of co creativity. And that’s where I find, particularly in these moments of disruption, where we can find a source of confidence and a source of [00:31:00] individual and collective agency that is so much necessary right now.

Maureen: Otto, it has been such a joy to have this conversation with you, and so I appreciate your willingness to take this amount of time to share with our listeners your latest work.

Can you share with them your website and where else they might learn more about Theory U and Presencing?

Otto: Very happy to. So there are two websites. The first one is otto sharmer.com. So that’s just my name, that gets it to my homepage. There are a bunch of blogs and other resources, uh, you can find there.

And then the other website is presencing.org. There’s obviously a link on my homepage also to that. But presencing.org, it’s with a C in the center. Presencing from presence. Dot org is institute that is developing the methods and tools. If you go to the resource section there, you find a whole bunch of methods and tools [00:32:00] in other ways of capacity building opportunities, including the uh, U Academy.

So you find that there, and including on the free online offerings through edX, kind of the Ulab offering, which really has open access to the whole foundational set of methods and tools. So that will be the ULab class on the edX, uh, learning platform. So those are the two main ones.

Maureen: Thank you.

Thank you for sharing time with us, sharing your wisdom with our listeners, and for the brilliant work you continue to do in the world.

Otto: Thank you so very much Maureen, having me on. And what I forgot is if there’s one book I would suggest go directly to the Essentials book because it’s shorter, it’s more accessible.

That’s probably the best short entry.

Maureen: Cool.

Otto: Thank you. Thank you.

Maureen: We’ll talk to you again, I hope.