Episode Transcript
[00:00:00] You.
[00:00:05] Good morning, everyone.
[00:00:08] Today I want to talk about two things. First of all, thank you for all the great feedback on the podcast. I got a lot of positive feedback on this, so I'm going to keep it exactly the way it is, 20 to 25 minutes total, no ads, and just to a point. And I'm going to start interviewing people all more as I get some great guests. This week I was in New York at a really interesting conference, introducing the dynamic organization research, talking about talent mobility, talent marketplaces.
[00:00:39] And then on Friday, we had this spectacular jobs report of 275,000 jobs created, unemployment at 3.9%.
[00:00:49] And I want to give you this story of what we've learned in summary. So it's going to be a relatively brief conversation, but something that we've written about. You can get this in our research. We can go into great detail with your c level execs. So there's two big parts to the story. The first is the job market. The labor market is shrinking. Now, it's not shrinking in every country yet, but it is in many countries, and it will in every developed country over the next decade. That means, and the reason for that, of course, is the birth rate, baby boomers retiring, people deciding they want to pull up part time. Some of it is the response to the pandemic. And including in that issue is the fact that skills are changing so fast. So even college kids are having a hard time finding a job that pays a reasonable wage because their skills are not keeping up with the skills that you guys need in your companies. 53% of college grads are now underemployed. So it's a very strange situation we're going to be living with, by the way, for a long time, at least 20 years. So this isn't a temporary effect. Number two, that means that companies are going to have to differentiate themselves by speed, time to market, and productivity. You're not going to be able to just hire, hire, hire to grow. Now, companies try that, but they usually are sorry, because when you hire, hire, hire, you lose what is called talent density. And I'm writing an article on talent density, so you'll be able to read more about it. But essentially, the quality of your team goes down when you hire quickly because people can't get trained. They don't understand the business and the products and services and the competitors, and you tend to relax your hiring standards because you're in a big hurry and you end up with a bell curve organization that doesn't perform very well. And as you'll hear about when I talk about talent density, the real statistical model of a high performing company is really not the Bell curve. It's the Pareto curve, where 20% of the people do 80% of the work, or 10% of the people do 90% of the work, or 5% of the people do 95% of the work. Something along those lines. So you don't want to end up in that bell curve situation, because then you have to do performance management layoffs and you end up with just a moderate to low performing team. How do you deal with this? Well, I think the biggest issue that's changed in HR, going back to all the things we've done for years, is that business change itself has changed. Now, let me explain what I mean by that. Most of the change studies and research and consulting firms and so forth have really designed around episodic change. We hire McKinsey, or we come up with a big strategy change. We do an M A. We go into a new business, we plan this all out. We hire a bunch of people, we buy a bunch of new software and hire a consulting firm if we need it. And we turn on or flip or go into this change mode to do this new thing. And that goes on all the time. Every time you launch a new product, every time you go into a new business area, you move to recurring revenue, whatever, you're going to go through that. But that episodic change is not really the change. The change is going on continuously on a regular basis. And most of the change issues are not at the strategy level. They're at the front line. If you look at what's going on in retail, if you look at what's going on in media, if you look at what's going on in transportation, in hospitality, we're going to have the Chro of Marriott at irresistible, and you're going to hear a story from him that's very different than you might have imagined. Their strategy to respond to the pandemic had to do with leadership at the front line, not leadership at the top. I mean, look at what's going on at Boeing. If Boeing did a good job of listening to the frontline workers in the 737 plant, they wouldn't be in this crisis. And I can give you many, many more examples of this. So the business change that we're dealing with now is not just disruption in the sense that 45% of ceos think their business is going to be gone in ten years, but that we have to listen at the front line. We have to activate employees, we have to empower mid level managers and even frontline managers to make changes. And we have to engage people in a constructive way and give them the authority and the power to speak up. That's different from hiring a consulting firm or a PE firm and doing a bunch of things at the top. Now, the reason the PE firm approach works is that companies do become very bureaucratic. Their revenue per employee goes down, their efficiency goes down, their productivity and innovation goes down, because they're using the old industrial model. The old industrial model was higher to grow, and we don't need that anymore. In fact, in many ways, it hurts you. I think we're in a world where smaller companies going to outperform big companies. Google, for example's biggest problems right now are not the technology or the market. They're so big, I'm not sure they're able to make decisions fast enough. If you look at meta as an example, the reason they laid off 22% of their people is they made a very strategic set of decisions on what not to do, and their stocks shot up. And now they're really sort of a darling of Wall street. The most striking example of this, the company I'm writing about is Netflix. Netflix is the only profitable streaming company. They're very profitable. They only have 13,000 employees. They are a $250,000,000,000 market cap company. Their revenue per employee is almost $3 million. It's almost twice that of Google, or almost ten times that of Disney. Of course, they don't operate theme parks and things like Disney. And they're the only company that's really made the streaming business work. And they're moving into lives. They're moving into a whole new area. And the way they do that is not by staffing up, but by focusing on the density of their talent. And I'll give you one clue to density. Talent density implies that the quality of your overall team is not going to ever get worse. It's going to get better over time. And in order to do that, whenever you hire a new person, you can't wait a year for them to be productive. You want that new person to be additive or multiplicative to the team you have. So the concept of talent density, as Netflix has implemented in recruiting, is that each individual new person should bring something that makes everybody else more productive at their jobs, other than just offloading work to them. New ideas, new skills, new approaches, anything that you feel will change the nature of the group to make it more productive. The other thing that goes on in companies like Netflix is amazing. Amounts of candor, feedback, honesty. Netflix doesn't even have performance management. They have lots of feedback. They have 360s. They rotate people around. They're a meritocracy, and they're not afraid to let people go if they don't feel they're increasing talent density. They use this idea called the keeper test. Would you keep this person if we had a layoff? And if not, then let's let them go now, give them a nice package, and move on. So these are all fundamental concepts for this new dynamic model that we're going to need to live in as a business. Now, not every company is as dynamic as other.
[00:08:33] Well, educational institutions are suffering a lot right now, but if you're a government agency or a utility, it may not be happening as fast, but it's happening in every industry. We also found from the research that dynamic companies are team centric. They are comfortable with an operating model where managers manage projects, not people. As they used to tell me at WL Gore, managers manage work or projects. People manage themselves. That's the concept they use. They might have a squad structure, like Spotify type of structure, where you have managers of people and managers of projects that are different. By the way, one of the people I spent a lot of time with last week was Alex Badenach from Telstra, who was the chief operating officer at Telstra and taught me a lot of what I learned about agile and business. What they did at Telstra. Telstra is the at T of Australia. They were having financial problems and various other challenges, and they decided to go essentially agile. And what they did is they broke everybody into teams and quads and tribes, and they had people working on projects versus line managers managing projects, functional managers managing organizational teams of job functions, and changed the way people were paid, changed the way people moved around inside the company and implemented a much more learning oriented culture. And she said, we did this with no new technology. They just used off the shelf tools to do this. And what she said happened. And this is really one of the biggest issues I think we're going to have to face in the next couple of years is we had to change the financial model because unfortunately, if you want to make your company more agile and you want to move people around and you want to give people more responsibility and remove the manager roles and flatten the organization, you're going to run into the finance system. Because the finance system allocates budget based on an industrial model. Your headcount, your budget, belongs to you as a manager. And if that person moves or spends half their time on something else. You're paying for them. And so you, in a sense, as a manager, are going to suffer at the end of the year when they look at your numbers. Well, that has to change, too. The CFO and the financial systems embedded into the ERP have been designed around labor as an expense.
[00:10:58] Labor allocated to job functions and job hierarchies, and revenue and product not associated directly with labor. Unless you're a professional services company.
[00:11:10] We don't necessarily correlate or assign or allocate labor costs to each individual unit. We allocate it to groups of units and big organizations. So we can't manage financially, people moving around in and out of different groups. Well, you got to get over that. In fact, what Alex told me, and I talked actually to some other people about this, actually, Patricia Frost from Seagate, is if you think about the military, which is the most agile organization I can think of, where people are constantly moving in new directions and working on new things. Every human being in the military is paid for anyway, so nobody worries about cost. They worry about mission. And that's the way we want to run our companies. We want to be able to say, hey, that product group is overstaffed. Let's get a bunch of people out of there that we don't need to use there. Maybe we'll shut that thing down and let's put them over here and allocate them by skills to these different projects. And regardless of the fact that maybe the manager who owned them before isn't going to give away their budget, that's not really relevant. We're paying for them anyway.
[00:12:13] My belief is that you have to think of human capital as an investment anyway. But anyway, that's another issue. The next issue that comes up in this new dynamic operating model is leadership. If you look at the leadership models and the leadership behaviors of the companies that are dynamic and moving very fast, usually they're CPG companies, some tech companies, some healthcare companies, other industries. Their leaders are change leaders. They're leaders that are good at driving change, at implementing change, at explaining change, at giving people a sense of energy and vision, and seeing the future and being able to get you there in a confident way, and pushing and pushing and pushing in a way that people come along with you. That is not an execution oriented leader. Execution is needed. There's operational skills needed. But in this day and age, what our research found was that it is the transformation skills that are actually, by far, adding more value in organizations. So that's another thing to think about in your leadership model in your leadership development process is, are you teaching people how to deal with this dynamic organization model, how to deal with change at the front line, how to deal with empowerment, how to deal with vision and inspiration and those things that are needed? The other thing that comes up a lot in this research is the need for inclusion and diversity, and I want to spend a few minutes on that. I had an interview yesterday with a really interesting reporter at Bloomberg on this topic. In my early career, in the late seventy s and early 80s, we had affirmative action. So diversity was a mandated initiative within the company. And where I worked, things were pretty diverse. Actually, it worked really well. Now we're in a different world. We've essentially outlawed affirmative action. Everybody's kind of tired of diversity topics. There's a lot of right wing people that don't even like the idea of it. And even though the world is actually becoming more diverse and the need for diversity in business is even greater. We just finished International Women's Day yesterday and the DEI function is getting blown up. The DEI strategy is not. And so what's happening to companies, the number of people with roles as heads of DEI or chief diversity police, as I like to call it, is going away. It's not disappearing, but going down. And the initiatives of diversity and inclusion are going into leadership development, management development, hiring pay, fair pay, promotion, succession and business strategy. And when I say business strategy, what we really found in our DEI study, and we're going to be redoing it this year, is that the companies that are the most diverse and inclusive are diverse and inclusive for business reasons. They have decided that they have to operate that way because they're global, because they're selling to multiple customer sets, they're doing business in different places where there's diverse candidates for hire, et cetera. They're not doing it to be nice or to look good or to get on some diversity award. And in a world of a dynamic organization, you have to be inclusive. There's going to be some young whippersnapper person who's going to have this great idea and you can't just ignore them because they may be smarter than you in some area, or there might be some older person who's been around the block that nobody listens to, the guy in the corner that's kind of doing his job and everybody ignores him or her, who actually knows what to do better than anybody else because they've been through this before and nobody's listening to him. Or when we move somebody from product group a to product group b. Product group B says, well, we don't know you, so we're not going to really pay attention to what you. Because we're kind of a little team here already. I mean, these are the things that get in the way. I was talking to somebody about layoffs and restructurings the other day, and I've been through four or five of these, and one of the things that happens when companies go through changes is senior leaders are very stressed. They have lots of decisions to make, lots of people decisions and business decisions, and they tend to fall back on the people they know. They rely on the people that have been christened in the past to be really good executives or really successful or whatever, and they keep giving the responsibility to the same people. This is what happened at IBM when I left in the 80s. They had this group of executives under the John Acres regime before Gershner came in, that had been running these particular businesses for a long time, and they never changed. I mean, just IBM. They were like gods. And some of them fell behind just because the nature of the market. So we have this general tendency amongst many people to work with people they know, work with people they like, bring their team with them from place to place. That gets in the way of being dynamic. You're losing opportunities for new ideas, you're blocking people from new positions, and you're holding things back. So these are the kinds of things we talked about in this meeting, and we had some very significant companies there, a lot of very senior people. And the general agreement was that when you start to operate in this dynamic way, and by the way, the talent marketplace, technology is one of the big pieces of this, as is talent, intelligence. The opportunity you have to change and grow and evolve is tremendous. And what is the core to this, your mission? Somebody has to keep track of the mission. What are we trying to do? Where are we trying to know the guy? That astounds me at this, obviously, Mark Zuckerberg is doing very well at the moment, but is really Bill McDermott over at Servicenow. I have never seen a guy who is more successful at communicating a vision in a real actionable, practical way that gets everybody on the same page as to where they're trying to go. That company, which was not a very big company five years ago, is one of the rocket ship enterprise software companies. In fact, maybe the most successful one I've had a chance to get to know in a long time. And I think a lot of the reason for that is they have this dense talent strategy. They have a leader who can show them how to get from point a to point b. He's a very, very good communicator. They're a very inclusive organization. It's a meritocracy. And they are not afraid to do something new if it involves going into an area they're not comfortable with. AI. They have very interesting AI strategy that's coming along very, very well. We're doing some interesting things with them. So these are the things we talked about this week. I will just summarize with this. In a world we're living in now, where the economy continues to grow, we have this very constrained labor market. Everybody's trying to build new skills based systems, and the pace of change is accelerating, and the nature of change is moving and shifting. You have to think about these things, and you have to be willing to challenge some of the old fashioned HR practices that we had. We're going to talk a lot more about this at the conference in May. I really want to encourage you to sign up if you're going to come, because we're going to run out of room pretty fast. We're way ahead of last year's registrations. We have an amazing group of people coming. One of the people that I'm really excited to meet is the head of the HR act in Europe, the AI act, excuse me, in Europe, the regulatory head. He's going to be here to talk to us along with Keith Saunderling from the EEOC. We have a great bunch of senior leaders coming, some amazing stories of all the other things we've been talking about all year. Okay, let me stop there. Have a great weekend. Talk to you guys next weekend.
