Companies fail for many reasons, but some high-profile ones, like Kodak and Blockbuster, do so by ignoring the fact that their business models have become irrelevant.

As a leader, you need to be aware of how your business is situated in the market, what your customers truly think about your company, and the bad news your employees may be keeping from you. Hal Gregersen, executive director of the MIT Leadership Center, writes in Harvard Business Review about the pitfalls of CEOs who are "sheltered from the reality of their business."

He writes, "This dangerous 'white space' where leaders don't know what they don't know is a critical one. But often, leaders--especially senior ones--fail to seek information that makes them uncomfortable or fail to engage with individuals who challenge them. As a result, they miss the opportunity to transform insights at the edge of a company into valuable actions at the core."

You need to establish a candid culture, one in which your employees can be honest about the bad news--whether it's the fact that your technology is outdated, or that customers dislike the experience of using your products or services. Nandan Nilekani, an Indian politician and entrepreneur, tells Gregersen it's easy and comfortable to wrap yourself in a "cocoon" of good news. "Everyone says, 'It's alright, there's no problem,' and the next day everything's wrong," says Nilekani.

You can avoid the cocoon by pushing the limits of your own comfort. Start asking uncomfortable questions--ones that you wish you didn't have to know the answer to. You also need to open yourself up and let your staff know they can ask you anything and challenge your ideas. Gregersen says you might not like what you hear, but "it's better to have the option to change your path now versus learning too little, too late tomorrow." Here are more tips to help you prevent your company from suffering the same fate as the Kodaks of the world.

Look for bad news.

No one wants to spoil your fantasy that you run the best company in the world. If people are afraid of giving you bad news, as most employees are, you must teach them that you don't shoot the messenger. To start things off, you need to start asking yourself hard questions, and then foster an environment in which any employee can challenge your decisions and tell you exactly how things really are.

This isn't going to happen on its own. You need to go out and find the bad news. "I consciously go out of my way not only to create an open culture for people, but also having lines of communication to a very wide set of people, because the bad news may not come direct," Nilekani says.

Talk to your customers.

Perhaps the greatest source of honest feedback and criticism lies within your customer base. "I've had many situations where customers had a direct line to me and would call up about something. I would know about a problem [first]," Nilekani says. "So I think it's important to be that lightning rod that attracts feedback both good and bad."

Create a brain trust.

The "two-way flow of information," Gregersen writes, "is often at the edge of a leader's day-to-day reach." If you want to stay ahead of the curve, you need to be constantly challenged: Does your strategy hold up in the marketplace? Does your product or service actually address demand?

A good example of how to accomplish this, Gregersen writes, is provided by Pixar co-founder Ed Catmull. He built the Braintrust at Pixar, a special group within the company in which employees felt comfortable enough to speak their minds. "A hallmark of a healthy, creative culture is that its people feel free to share ideas, opinions, and criticisms," Catmull says.

Published on: May 7, 2015