Inside CVC: Sensing the Emerging Future: Otto Scharmer on Theory U, Deep Listening, and the Inner Conditions of Leadership

Otto Scharmer is a Senior Lecturer at MIT and the originator of Theory U, the foundation of U-Path. In this conversation, Otto walks Philipp and Steve through what it actually means to lead from an emerging future rather than the past, and why that distinction matters more now than ever.

They dig into the four levels of listening. Downloading. Factual. Empathic. And the one most leaders never reach: generative. Otto explains how the quality of your listening determines whether a conversation produces something new or just recycles what everyone already knows.

The conversation also covers his new book's seven practices for transformation, the social soil metaphor rooted in his family's biodynamic farm in Germany, and what boards need to change in the next twelve months to lead through disruption rather than react to it. Including why knowledge, comfort, and action are all overrated, and what to cultivate instead.

If you work in leadership, governance, or organizational change, this one will shift something.

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Transcript

Welcome to inside CVC, the podcast that brings together leaders in innovation and capital investment to explore the trends shaping the business of corporate venture capital. I'm your host, Steve Smith, and together with Philip Wildman, we're speaking to corporate investors, entrepreneurs and ecosystem builders. Driving the Future of Innovation inside CVC is brought to you by Path Advisors, helping corporations and startups unlock sustainable growth through strategic partnerships. To learn more, visit ups.com. That's the letter U hyphen path dot com. And to catch up on all of our episodes, search inside CVC on your favorite podcast platform or visit ups.com forward slash podcast. In this episode, we explore what it actually takes to lead from the emerging future rather than the past, and why the inner place a leader operates from determines the quality of every decision they make. 

Our guest is Otto Scharmer, senior lecturer at the MIT Sloan School of Management, founder of the Presenting Institute and author of theory U. His latest book introduces seven practices for transforming self, society and business, grounded in over two decades of work with leaders and organizations around the world. In this conversation, we discuss the two sources of learning every leader draws from and why most organizations are stuck on the wrong one. How the quality of listening shapes the outcome of every conversation and every decision. What the social soil framework means for boards that want to drive real transformation, and the three things leaders consistently overrate and the three they underrate. Here's our conversation with Otto Scharmer. 

Otto, welcome to inside. CVC, how are you today? 

Very good. Uh, glad to be speaking to you. 

Why don't we start today's conversation? Could you give us a grounding on what theory you is? Explain a little bit its background. Sort of it's it's catalyst and so forth. 

Theory you is essentially based on a on a very simple observation, I made this observation when I interviewed one hundred and fifty leaders and innovators who created in their field business and. Science and technology, new things. And what I noticed is this. There are two sources of learning and two sources of leadership. One is the past and the other one is the emerging future. And pretty much all our institutional processes of learning and most of our leadership processes are based on the first one learning by reflecting on the experiences of the past, perhaps kind of extrapolating trends into the future and so on and so forth. Yet when I talked with the real innovators, I noticed that's not what they do. They operate from a different source of learning and leadership. And that is, you know, by sensing and realizing an emerging future. And when I say emerging future, I don't use the word, uh, the way it's often used, which is the future is something out there. It's a different time. Uh, perhaps like twenty fifty, twenty, seventy, perhaps even a different place and some different people. Well, the main thing that I learned from innovators is this. The future is utmost personal. It's something that happens here and now because it is a possibility that looks at me because it depends on me to manifest. So the emerging future is a possibility. It's a potential that looks at us because it depends on us to manifest. That's really kind of that insight and that kind of repetitive theme that I came across by, um, listening and working with these innovators really set me on the path, which is what does it take to learn and lead from the emerging future? And that's basically what theory you is theory you is the, the, um, the answer to that question. And it basically says, right, you know, what it takes is a journey, a journey that's both an outer journey and an inner journey and the inner journey, you know, um, you know, goes through, um, you know, accessing some deeper sources of knowing. So, um, theory, you in a word is shifting our in a place of learning and leadership. From reflecting on the past to sensing and realizing emerging future possibilities. 

I'm curious how much in that requires or do you believe is is partnership and conversation? And I ask that intentionally, because what we're hearing from a lot of folks recently that we're speaking with is boards and leaders are are going through this very disruptive time, this very rapid time of lots of acceleration. And in some cases, we're hearing that those leaders are making bets and decisions exactly on what you are are talking about, unless around rolling up their sleeves, sort of finding partnerships and connecting with people that have have other outside perspectives. And so I'm curious how much you think going outside and, and talking and speaking with others is, is fundamental to theory. You. 

I think it is absolutely fundamental. And I didn't say the EU is just an inner journey, I said. Theory you is. What does it take? It takes a journey that both is an outer journey and an inner journey. And the outer journey really is, to your point, kind of. It's essentially getting out of your own bubble and listening to, uh, putting yourself into the places of most potential and listening to the voices that are at the edges of your system. So it's kind of really leaning into these, um, can be inside your own industry, it can be outside kind of what, whatever these places are that can teach you about the situation that, um, and how it's how the situation you are currently in is going to unfold. And so that's the outer part, right? And, um, the inner part is how you listen, right? Because kind of just going to the places of most potential doesn't help if you just, you know, if you're not open, if your listen is not open. So, um, the inner part is really about, um, listening with your mind and heart wide open, right? Kind of mind open essentially means suspending your habits of judgment and, you know, listening with, you know, looking with fresh eyes and listening, um, without preconceived notions and judgment. And, um, you know, open heart means essentially in a multi-stakeholder world that we live in, um, having the capacity to put yourself into the shoes of the key stakeholders you're dealing with and begin to see and sense and with sense, I mean, feel right, kind of, it's a feeling knowing what it looks like and feels like from their angle, right? And then return to your own position. So it's kind of this, um, as we navigate these, uh, new difficult and disruptive territories, we need to have a sense of the, um, the, the constellation of partners that's coming together and to navigate these situations, well, you need to have a feeling what it looks like and feels like from their angle. Thank you very much for coming on the show. It's true pleasure. Um, as you know, uh, the company I formed called Upass, you know, is very much rooted around theory. You, um, the work I've done doing over the last ten, fifteen years around transforming companies. Uh, when I built my own company, I couldn't find any better framework, uh, bring really the self as well as the external environment together to, to drive true transformation. So honored to have you. Thank you for, for your time. Um, I know you wrote a new book and, um, the new book is, talking about, you know, seven practices for transformation of self, society and business. And what I love to do is talk a bit about, you know, these different concepts and tools you're, you're highlighting in the book and to help our audience to, you know, maybe take some of these things into their day to day, but hopefully invite them into a set of multiple conversations in the future to help them with their transformation. So could you maybe start, um, help us understand what are these seven practices? And, um, yeah, what, what, what, where did they come from? What are the experiences behind them? Yeah. So maybe to start with, you know, because kind of, so they're, uh, what kind of practices? There are social practices, right? And what does that mean? So basically the book, the new book, um, is based on. So we have, you know, um, made um, theory you what I just outlined kind of learning and leading from the emerging future. And, um, the main source of inspiration for me is the place I grew up on, uh, which is a farm in Germany, uh, outside of, uh, you know, thirty miles north of Hamburg and, uh, in northern Germany. And some seventy years ago, my parents, when they were young, uh, converted that farm from that family farm, from conventional agriculture to, uh, regenerative, organic, biodynamic, and, um, growing, growing up on such a place. What's the number one thing you learn from your parents, particularly from my father? It's this that the quality of everything you see growing, um, um, Um, you see growing kind of, um, above the soil is a function of the quality of the soil. And, um, fast forward thirty years and so thousands of miles away from the farm at MIT and seemingly doing very different things in reality, when I now think about that, I'm still doing the very same thing, right? Just that in my case, and perhaps also in your case and in our listeners cases, um, we are not doing, doing dealing with the field of agriculture or the farm, the field of the farm. We're dealing with social fields. And in social fields, we also have two main components. It's kind of what's visible, the visible part of the system above the ground. Uh, and that's kind of usually when we talk about social systems, that's what people mean. It's, practical results, it's processes, it's structures and roles and so on. And then there is, um, the deeper conditions, the less visible part. And that's what, what, um, what I call social soil and what that really is, it's the quality of our relationships and the quality of our awareness or consciousness. So there's seven practices are, um, you know, just as the, the farmer on, uh, needs tools like the plow or the chisel plow to cultivate the land social farmers, by which I mean, all of us need methods and tools, practical methods and tools to cultivate the social soil, which is the quality of our relationships and our collaboration and, you know, and interaction. And that's kind of what these seven practices are referring to. And one example is, is listening, right? So listening is not just a small thing. It is, um, you know, something we, each of us is doing like sixteen plus hours a day. And when I observed listening, I just saw something, uh, you know, made a very basic observation pretty early on, which is, uh, what people call listening. They're very different qualities. We call it all listening, but it's like really, you know, it has drastically different outcomes, practical outcomes. And I mainly saw four different qualities of listening. The first one is what I call downloading. So let's say you sit in a meeting and somebody is presenting something, there is a discussion. It could be a board discussion or something, and everything that happens is pretty much, you know, um, is pretty much meeting the expectations that you had, right? That's when you are downloading. So there's kind of nothing new. I'm not saying it's good or bad. It's just. I'm just saying it's like one out of four. And if that's your only one and you are a leader in a time of disruption, that's a problem. Because by definition, downloading means there's nothing new entering your universe of thought. Your universe of cognition, all you see is what you already know. It's limited by that. So basically the the outcome here is reconfirming what you already know or expected to see. Um, level two is what we call factual listening. And for that kind of the, you know, we need to activate our open mind kind of kind of really seeing with fresh eyes. And the outcome often is disconfirming data. We see something that we didn't expect, we see something new and we see something can be disconfirming what we expected to see and all science, all scientific training guides us to lean into our disconfirming data, because the disconfirming data of today is the source of tomorrow's innovation. So so that's kind of what usually we do. That's number two. And you know, in science that may be enough. But in leadership today there's two more levels we need to develop mastery in. So level three is empathic listening. And that's what I already mentioned before. It's essentially you put yourself empathic listening means you can't put yourself into other people's shoes of your stakeholders shoes, kind of you. You're able and a decision making situation to sense the impact, to sense the situation, kind of from the viewpoint of all your key stakeholders you're engaging with. So that will on average, So you factor this knowing into your own decision making premises. Kind of. That's kind of what makes them more effective. That's level three. But the most important one is level four. And that is what I call generative listening. And so, so the outcome of level three is, you know, it's not just seeing new stuff. It's kind of seeing from a new perspective. So it's a, you know, you add a new perspective to your understanding of a situation. And level four, generative listening is really listening, uh, in a way that's holding the space for, uh, emerging new possibilities for something that wasn't there to emerge. So you're listening for, uh, a dormant possibility for that to, uh, to manifest, to crystalize. So, um, that's so what's an example? It's kind of a great coach, right? A great coach. When I, uh, a great coach is not just listening to me with empathy, right? And, you know, participating in all my suffering and what's not working and so on. No, a great coach is attending to my story from a different place. And the place is who I could be tomorrow, right from my best future potential. Right. And that's of course, what also great leaders do think about Nelson Mandela, kind of think about other great leaders, kind of you can do that on the level of a country, on a level of a company, on a level of a team level for listening is, uh, listening in a way that is meeting the emerging future in the moment, right? So, so that is really, um, you know, uh, allowing, you know, and how do I know whether I have listen on level four? Well, there's a very simple criteria, right? Is there at the end of that conversation. Right. Is there. So you have a sense of something is being born there. So so there's kind of could be an idea, could be a perspective, could be a sense of direction. So has their conversation, uh, created something that wasn't there at the outset? Or was it just kind of a, you know, re, you know, um, reconnection with existing perspectives. So that's kind of really the level. It's the generative space where something new is being born. And that of course, for everything, innovation and everything, disruption and everything, you know, leading in moment of disruptions is a critical condition. And what it means really on the side of listening is really holding the space, because you cannot force this kind of process of something new being born, but you can hold the space for that. And if do that, you do that skillfully. You're much more likely to move into this deeper space of surfacing, right? Emerging future potential. So that's an example of, you know, how, um, in one case, listening, uh, can make a big difference. And the bottom line here is really something very simple. Listening is not listening. The outcome, the practical outcome of listening and whether a conversation turns boring or exciting and, you know, uh, combative or co-creative is a function of your quality of listening, in other words, is a function of the inner place that you operate from. So, so Otto, thank you so much for, uh, going into, into that, um, in the, in the work you're doing with, you know, corporates, leaders, different communities, um around um theory you and if you, if you, you know, take a, you know, take a step back from, you know, the seven practices and just for our audience, the seven practices are becoming aware, listening, dialogue, presenting core imagination, co-creation and ecosystem governance in the work. What was the biggest aha moment coming when you work with with leaders, um, around these, these areas and they say, oh, I have never thought about it this way. And this is kind of like really helping them to get to breakthrough. I would say, um, so in working with leaders over the years, one of the consisting, um, experiences I had is. That the levels of listening and the levels of conversation make a huge impact because, um, they are so universally applicable. So I have heard from leaders who were in very difficult. Management and leadership situations that just by um, you know, with high. Stress and downsizing and you know, doing more with less resources and. You know, so many, many of the listeners, I'm sure are familiar with these environments right now where they felt that, um, uh, holding the space for their teams in a different way and these very difficult and challenging business environments that we are now in, um, has made a big difference. So in other words, what it means is holding conversational spaces and, uh, operating from levels of listening that basically shifting from level one and two, which is, you know, on conversation that would be downloading, you know, being just polite phrases or, you know, debate towards dialogue as a process of thinking together, which kind of is the other side of really kind of empathic listening and generative conversation or generative listening, kind of the level for that shift, um, allowed, um, in very challenging situations, these teams to respond and much more co-creative ways. So listening is one of the themes that I, um, so often I hear this, so after I experienced these different, uh, fields of listening and fields of conversation, um, I try to do that more intentionally in my stakeholder meetings. And what I'm noticing is I'm less reactive. I'm less likely to jump into it in a, in a traditional reactive way, and I'm more intentional in choosing when and how I'm intervening. And I'm better in holding spaces that, you know, allow the perhaps the collective intelligence that I have in a group to show up rather than just have like a series of individual statements, which may be from very smart people. But the collective IQ then often is, is, is pretty low. So that's probably when I just think back, what is it that I actually hear from people that is a consistent message, um, that I hear. And, um, I would say it comes also after, you know, so, so the cases I'm referring to is when these people went through a mini training. So it's not because what makes the difference? It's not just, okay, I get the concept and now I try to do it. No, you need to do it. You need to experience it once, right? And often you need a structure like a process that puts you really into that place, like, like a case clinic or something. You need it like a, like in any kind of tool you need, like a mini training and practice field, a safe environment where you do it first and then you apply it Monday morning. So it does need practice, it does need tools, it does need repetition, it does need feedback. But, um, you know, through, you know, if you have the structured environment, I'm very encouraged and surprised how fast you can make how much progress there. And that gives me, um, a lot of hope. And, um, so the way maybe to close with that, that what brought me into this, because what we talk about. You know, just to level it up to, to the bigger picture, um, a little bit when I so one of my interviews, the late CEO of Hanover Insurance, Bill O'Brien, so, so he shared with me all his successes and failures of leading transformational change in his, in the context of his own organization. And that summing up his experience, he said this the success of an intervention depends on the interior condition of the intervener, the success of an intervention, the success of what I do as a leader depends on the interior condition of the intervener. It depends on the inner place that I operate from. And when I heard that, it was really like as if a, you know, a light bulb went off because I realized that in management and leadership research, we know everything about what leaders do. We know a lot about how the processes that they use. But what this guy was talking about was not the what, not the how, but a deeper level, the source, right? The inner place, the interior condition that we are operating from. And today, I would describe kind of the source territory with three capacities, which is or three intelligences, you could say. It's kind of the opening of the mind, the opening of the heart, and the opening of the will, aka our capacity to access curiosity, compassion, and courage. And that's kind of what. So the four levels of listening, you know, is, you know, basically level one is none of these instruments are open. And then level two is, uh, you know, the first one is open level three, kind of the first two. And the last level of listening is kind of with all of these inner instruments of knowing, being open, kind of that's basically the theoretical grounding, but it's really all grounded in listening to practitioners and their reflections on their best practice. What happens on Monday morning when these things are implemented? What happens when the social soil begins to improve from all of these skills and these different levels of listening? What happens on Monday? That, of course, depends on the context. But I would just say start with the most basic thing. We are present. When you are a leader, you're always on broadcast, regardless whether you meet your team in person or online, Basically, people look to you to get a sense of what kind of day they are going to have. They're going to have, and it is the quality of your presence. It's the quality of your attention. It's the quality of your listening that makes all the difference. So what is what is different Monday morning is how you are present to the situation, how you connect to the situations you are facing, and then how you hold spaces for different type of conversations to, to take shape. I would say, um, that is, um, that is definitely kind of, um, one change that if sustained, uh, can make, um, different, uh, a big context. The other aspect is to our earlier point that, you know, um, theory you and this kind of innovation journey of going into, you know, a process of co sensing and deep sense making and co-creating is really experimenting and prototyping and learning by doing so, it basically is a rationale to get outside of the hamster wheel, right? It's a rationale to get outside of our bubble, to go to the edges of the system and to invest into our co sensing capacities. For the last question, I tease out a little bit of your thoughts and view from a board perspective. If you if you implement all the things you're writing about in the book and the work, and imagine you would be sitting on a board, what are some of the non-negotiable commitments a board would need to take in the next twelve months to, to really move towards the four point oh, and how can they measure it? I would say Four point zero board. Um, so it starts with yourself. Your own level of listening, right? It starts with the quality of conversations that you have. And so level three and level four, um, conversation basically means dialogue and generative dialogue. You need to create spaces for that. It's not like rambling down a long list of reports and you know that, that you then approve. Uh, no. You want to lean into what you don't know, right? I would say there is in everything organizing, um, and everything management today, there are three things overrated and three things underrated. The first thing overrated is, um, knowledge. It pains me to say that because, you know, half my life is organized around creating knowledge, but but it's, uh. It's true. Right? There's many things we don't know. In particular. We don't know the future. No one knows, right? What the world will look like by the end of this year, let alone the the end of next year. And yet we need to take decisions right now. So overrated knowledge was underrated. Not knowing. So what we need to cultivate is our capacity to lean into not knowing, right? And that is our quality of listening. And that has to do with, you know, accessing our humility, right? Kind of showing up and asking questions from where we truly don't know, right? So that's a leadership capacity, I would say, both for the board, but also for all of leadership. The second thing overrated is comfort. Underrated, you know? So and what's the problem with comfort? Everyone knows that in leadership training, right? As long as you're inside your comfort zone, you're not learning anything new. That has the chance, the chance to actually change your real world behavior when you're in a challenging leadership situation. So what's underrated discomfort. So what's a leverage point there? Um, you know, uh, strengthening your emotional resilience, right? And the last one is perhaps the most, um, confounding and disturbing for, for the listeners, which is overrated action. What's the problem with action? Well, if there is a challenge and I immediately jump to action, what is it I'm going to do? I'm going to react. And you know, sometimes that may be appropriate. But if that's the only mode we have, it's probably the only thing everyone agrees on today. So if you react, um, you know, in an instant, it means you react on the existing patterns. And if there's anything people agree on today is kind of that more of the same is not going to cut it. So what is then the gateway to really a profoundly different response and action? And that is stillness. And stillness is the gateway into all deeper sources of knowing. Stillness is the gateway to profound innovation. So what is it that a board should be able to do right in the face of challenges, right? Kind of strengthening our capacity to access stillness, to access discomfort, and to access not knowing? I think these are critical process capacities for each individual board member, but also kind of for the whole leadership team. And with that kind of rebalancing, I'm not saying knowledge and comfort and action is not important. I'm only talking about a rebalancing here. So if we have rebalance, these three things I think will be more likely to respond in ways that are less habitual, that are less reactive, and that at times lean into the not knowing in a more, um, effective way. That's this week's episode of inside CVC. As always, thanks for listening. To catch up on all of our episodes, search inside CVC on your favorite podcast platform or visit update.com. Forward slash podcast.