Dave Ulrich

Dave: You know, one of the most fascinating things we published in HBR about a year and half a go, in the magazine, we had data from Korn Ferry of the 15, I think it was, dimensions of a CEO, and they have a huge dataset, so we looked at the top 20% or 10% of CEO’s, here’s on 15 dimensions, their profile. We compared that profile with a head of HR, they had a manufacturing, the head of IT, the head of marketing, and the head of HR. Here was the shock, the profile of the CEO’s who were most effective matched the head of HR more than any other function. Heads of HR, who are good, in the top 10 to 20% have the same leadership profile as CEO’s. More than marketing. More than finance. More than manufacturing. More than IT. Good HR people are really great business people.

Peter: That’s great. I mean, I love that research. I hadn’t read that article, and I will.

Dave: I should tell you HBR didn’t like the conclusion, so they turned it from a full article to a research note in the magazine, because one of our conclusions was, the top HR people, who also know business well, to be a CEO you’ve got to know finance, you got to know strategy, you got to know customers. Our argument was, the top HR people who know those other business requirements are the next generation CEO’s. That’s a long step. We ended up getting cut from an article to a research note, because they didn’t like our conclusion-

Peter: Why do you think they didn’t like that conclusion?

Dave: I think it’s a big stress for people to say when you’re beginning to look for your next pool of CEO’s, obviously look at folks who come through marketing, folks who come through finance, but also look at folks who come through HR, and the data was so fascinating that the skillset of the best CEO’s matched the skillset of the best HR people. I just think it’s a fascinating time for HR. Businesses, I’ll give you the quick headline, businesses win today when they have an access to capital, but you know what? Almost everybody in capital markets can find it, Kickstarter and other things.

They win when they have a great strategy, whether it’s blue, pink, orange, or yellow, you’ve got have a great strategy, but most businesses can figure that out, how do I win? Business win when they have great systems. They have great platforms for technology, and operations, but most can do that. The most difficult thing to copy, the most difficult thing to differentiate, and around strategy execution, that you know better than I by far. Here’s organization of people. That one’s tough. You could copy access to capital. You can copy strategy. You can copy platforms for technology and systems. It is really tough to copy organization of people.

Peter: Interesting. Micheal Mankins from Bain and Company, was recently on this podcast. He wrote Time, Talent, Energy, and he was making exactly the same argument, that there’s no longer a competitive advantage to financial markets, or capital markets. That really the competitive advantage is can you harness your time, talent, and energy more effectively than your competitor?

Dave: It gets really interesting. What does that look like? That’s the issue that we created in 1990, my first book, probably still the best title and book that nobody has read, it’s called, Organization Capability, but let me share some research we did in this Victory Through Organization. I’ll pull us back to this book. One of the fascinating questions, if you hold up five fingers on your left hand, you have talent, I have five great people, in your right hand you have a closed fist, so we began to ask the question, which one of those matters more for business results?

Is it the talent? The war for talent has been going on since 2000, the war for talent is a great study by McKinsey, is it these five individuals, or is it the organization? It’s the fist. Is it the system. Is it talent or team work? Is it people or processes? Is it workforce or workplace? The cool thing is we finally got data. We got 1200 businesses, we measured business outcomes on six dimensions, then we measured for those 1200 businesses, the quality of people in the business, the left hand, and we measured the quality of the department, the organization. When I teach, I often ask people to divide 10 points, which of those two, the talent, or the organization has the most impact on business results? Our results actually shocked me. Four over one, organization. Eight to two, organization has four times the impact on business results than talent. In order to fight a war, you need the people. You need time, talent, energy. In order to win a war, you got to have organization. That good people don’t win.

Then, we started to study this, and I’ll be quiet in just a minute, is that true, not just in organizations, but elsewhere? We looked at sports, which is a great case study, and in almost all sports, in team sports, in soccer, the winner of the golden boot is on the team that wins the World Cup, 20% of the time. In hockey, the leading scorers on the team that wins the Stanley Cup, 20% of time. I love basketball, in basketball the winner towards the most points is on the team that wins the NBA championship, 20% of the time.

In movies, the winner of the Academy Award for actor or actress is in the movie of the year, 20% of the time. I even studied Spice Girls and if you’ve ever looked at me, that’s a stretch. A band out performs the individual soloist, 80% of the time. You know what’s fascinating? Is there’s a lot of push in the HR field about, we deliver great people, amen. Amen. You’ve got to have people, but it’s the organization that ultimately wins in the marketplace.

Peter: Two questions about that, Dave. One, is how are you assessing the talent of the people versus the talent of the organization?

Dave: We have measures, and that’s the beauty of big datasets. We have 4,000 HR professionals, we measure their competence on 123 items by their associates, so we have metrics of what set of skills do these people have, that self report, self report is very dangerous. We have 28,000 people who measure their skills. Then, we measure the quality of organization. How well does the organization deliver this set of capabilities? So, we have measures of capability as well as measures of individual competence.

Peter: The second question is, what constitutes the organization, beyond a collection of talented individuals?

Dave: This is such a cool question and it’s one I’ve played with for a long time. I think there’s three ways in organization. Way one, is you look in organization you see the morphology, you see the structure, you see the roles, you see the boxes, you see the charts, when we tell people, draw an organization almost everybody draws boxes and arrows. That’s the re-engineering work, that’s the restructuring work, that’s the de-layering work. Way two, is alignment. You have the Jay Galbraith’s Star Model, which is so good, or the 7-S model, the McKinsey Work Health Model. You have an alignment model.

Way three is organization of capability. Jay Galbraith, just before he passed away, and I’m so sorry he couldn’t get this, he said, I have five points in my star, but what I’m really after, is what he called, Org Design Criteria. Well, those Org Design Criteria are the capabilities to an organization. I love Marriott Hotels, because their capability is great service. I love Apple, because their capability is design, is in innovation and design. I love Amazon, because their capability is consistent delivery. Organizations are not structure, or alignment systems, they’re capabilities, so we look at an organization and try to do capability audits. What are the capabilities or organization needs to win in this marketplace?

Peter: What have you found? We were talking briefly about big datasets, and data, and you found some interesting data about data.

Dave: We did. Let me get that with two ways. We identified 12, we wrote an article in HBR called, Competing Through Capability, and we kept pursuing that. We did a fascinating, again, study, and we love the data across these businesses, we looked at here’s 12 capabilities the company has, and here’s how well they do them, so you’ve got effectiveness and impact on the business. What we found is one of the capabilities that was the most critical in business impact was what we call, external sensing, or data, we dug into that, and what we found was today in the HR field, in the information field, the shiny object is analytics.

A few years ago it was some other stuff, but today, it’s my new shiny object I’m going to put an ornament in my house it’s analytics. When we did our research, we found that HR people, or business people, and organizations that did data didn’t produce better business results. It’s really counterintuitive. We finally have done analytics on analytics, and they don’t produce business results, unless its external information. That the goal of analytics is to provide information that has business impact, so we said, real quickly, there’s four ways of analytics.

One is a scorecard. I wrote a book with great authors, an HR Scorecard in the 90s, today that would be an atrocious book, because HR’s not about HR. Second, analytics, give me insights, that’s big data, that’s good, but it’s still inside the company. Third, analytics unless we make smart intervention, that’s better. Fourth, analytics should start with business impact, because it’s about external information that drives the business. If I’m a Marriott Hotel, and my goal is service, I want to know how customers measure guest experience. If that’s the business impact, then I look at HR data, what would be the data that would drive that customer or guests experience, or increase our net promoter score, but I don’t start with HR data, or HR insights. I start with guest experience.

Peter: Got it. Defining the outcome that you’re trying to achieve and then only looking at the data that either supports or detracts from it.

Dave: Yeah. Let me give another one, that’s so cool. You, and many of us have been excited about leadership, and finding what’s an outcome a company cares about? Well, we care about our stock price. There’s a resounding dot. So, when you look at market value you get an interesting quirk, two firms in the same industry have the same earnings, but they don’t have the same stock price. Why is that? Well, one of the issues is, a big field called intangibles, so a company says, I tried to increase my stock, that’s how I make money, that’s great.

I have intangibles. I have a great strategy. A great plan. A great industry position. That’s great. But, what we discovered in a lot of our research is one of the drivers of that important outcome is leadership. So, in another piece we’ve done, we’ve created a leadership capital index that you can now go in and move these index, measures your financial business discipline. Am I going to give my investor and the discipline with their financial returns? We can now measure your leadership capital and show an investor that the quality of leadership has an outcome on the results that investors care about.

Peter: I want to circle back to something that you said, that is, I think both profound and leaves me curious, which is that great HR people have the same profile as great CEO’s, and that HR people really should be a funnel to CEO’s, and I’m going to link this to a couple of chapters in your current book, because my two favorite chapters in some way were chapter six, where you talk about the credible activist, and chapter seven where you talk about the strategic positioner, You are not talking about them as models, you’re talking about the competencies that in order to really get a seat at the table you have to be a credible activist.

In order to do something with that seat at the table, in order to make an impact on the organization, you have to be a strategic positioner. I’m wrapping all of this into my question, which is, of all the CEO’s I know, have met, have worked with, which has got to be in the hundreds, I’ve never met one who grew out of HR. My question is, what can we do to close that gap? What can we do to show up powerfully in an organization with all of the capacity and capability that we have, whether you’re in HR, or in another part of the organization, and given that most organizations are matrixed, these days and that your power comes from personal power more than positional, what are some of the things that people could do to really show up powerfully in their roles in the way that they could line up to be CEO, or they’re acting like CEO in a way that’s supportive of the organization?

Dave: Two caveats, before I answer that. The first one is, I’m going to pushback a little bit on the assumption, I think sometimes people say, if you cannot become CEO you don’t have impact. I think that’s really false. I think it almost belittles the role of chief HR officer. Good heads of HR have incredible impacts around talent, leadership, organization that helps companies win, and you don’t have to lead the function to be good. Second, there are tons, but we have Lisa Weber, that head of MetLife. We have Mary Barra the head of General Motors. We have Nigel Travis, the head of Dunkin’ Brands. We have Anne Mulcahy, who is the head of Xerox. We have Bernard Fontana, the head of [inaudible 00:17:35].

There are cases where heads of HR have moved, Bob Wright, who was at NBC, the head of NBC, but that’s not the goal. The goal is to get HR professionals, who have insights that help the organization win. We think they help an organization win with insights on three things. One, is talent, and our research shows organization matters more, but it would be hard for, well, maybe for you, but if I took myself and 10 other people and was on a soccer team, no matter how good we worked as a team we wouldn’t win the World Cup. I’m just not that good of an athlete, so you’ve got to have good talent, and you’ve got to have committed talent. You got to have engaged talent.

You also got to have great organization. You got to build systems and capabilities that make the whole more than the parts, and you’ve got to have great leaders, who have great vision, and pertinacity, and HR folks bring insight into those skillsets that help organizations win. When they bring those insights, they help the discussion focus on what needs to happen and turn strategy into results. This is your area, where you’re so good and written about it, is strategy is not strategy execution, if I can quote someone, is not a strategy problem, but a people, and I would add an organization problem. That we know where we’re going, the problem is getting the organization and people together to make that happen.

Peter: I love that. Thank you, and thank you for the correction. I have to expand the number and provenance of CEO’s that I know, but I also really take to heart what you said, which is that a powerful, impactful head of HR, or frankly, a senior leader in the organization, no matter what they are, is critical to moving the organization forward if they have the right kinds of competencies that can add the impact, and take their function and apply the knowledge and capability of their function to the outcomes that the organization needs to achieve. Talk just a few minutes about this credible activist and the strategic positioner, because getting to the table is important and then what you do there is important.

Dave: Again, the place we like to start, and you’ve done this same work, and again, the place we like to start is in outcome, what’s the outcome we’re trying to create? And, there’s three in HR. This isn’t just HR, it’s any staff group, or even business leaders. One outcome is getting access to the discussion, that’s getting to the table, the metaphor, being seen is credible. What we discovered is, you’re not given access unless you’re a credible activist. What that means is people want to spend time with you.

I can assume, Peter, you’ve had experiences where you coached some of these great CEO’s and they begin quickly to connect with you, they trust you, they see you, you’re credible, but you also know how to push them. You’re not just a [inaudible 00:20:40] person [inaudible 00:20:41], your somebody who has an accuracy, has a point of view, you’re willing to be proactive. What we found is HR folks who are credible activists get invited to discussions. Then, the second question is, now that I’m in the discussion, what’s an outcome? Who do I represent? Who gets better, because I’m in the room? Who’s improved?

What we discovered is there is stakeholders to an organization, some of those stakeholders are the employees. If HR is involved in business dialogue at the table, the metaphor, and they want to serve the employees, stay a credible activist. I’m the voice of the employee. I help the employee get heard in the discussion, but if HR wants to serve the customers, the investors, their communities, the business stakeholders, they’ve got to shift gears. Credible activists get you in the room, and it lets you serve employees, but to serve those business customers, you’ve got to be a strategic positioner, and here’s what that is, again, I’m synthesizing a lot, here.

One, you got to know the business. You got to know the language of business, finance, marketing, strategy. Two, you got to know how your company makes money. What’s the money proposition? What’s are strategy? How do we win? Where do we play? Number three, you’ve got to really know your stakeholders. Who are our key customers? Who are our investors? Who are our communities? What do they want? How do we win with them?

Four, to be a strategic positioner you’ve got to know the changing business contents. What are social, technical, economic, political trends that will give us opportunities in the future? When HR people can work up those four stages, the first one is just knowing the language. You got to know business. You got to know strategy. You got to know stakeholders and then you’ve got to see what that future looks like, so that you can help us play to win. Those strategic positioners deliver value to customers and investors in unique ways.

Peter: I want to give a shout out to your business literacy test, which you have on page 156 – One of the big questions I have is, to what extent is this developable? I mean, in what way can you, David McClelland, who, I don’t know if you knew him-

Dave: I know that everyone knows his work, it’s phenomenal work.

Peter: Everyone knows his work. He was asked, once, can I develop achievement orientation in people? Can I develop the drive to achieve in people, and his answer is still one of my favorite answers of all time, which said, you can teach a turkey to climb a tree, but you’re better off hiring a squirrel.

Dave: That is so good.

Peter: Sometimes there’s squirrels you have to teach to climb a tree. People have the capability, but they still need the development, but you create this framework, or a series of questions that say, you know, here are some things you should be looking out for that can help you to understand the field that you’re operating in. My question, in terms of development, is you can gather all this information, and you can see the data, but trends aren’t always so simple to interpret, and I’m wondering whether you’ve noticed anything about the people who are most successful at doing that.

Dave: Your questions are so good, we could go hours with this. Let me try to replay back your question, two points, real quick. Point number one, McClelland was so smart, I never had the privilege of meeting him, but everybody who’s popular has read his work and I know grounded in his insights, there is research, nature versus nurture, born verses bread, and in general the research is 50/50. I like to talk about the nature stuff, what your born with is a predisposition. Many people have done the Myers-Briggs introvert, extrovert. I am predisposed to be an introvert, but I can learn the skills of an extrovert, so that 50/50 is so helpful, that’s the turkey, squirrel question. You’re predisposed to be a turkey or a squirrel, you can learn some of the other skills.

Second, in learning the other skills, the other 50%, sometimes you need framework, and I’ll do it with an anecdote. We were with a group, recently, and we said, when you look at the changing marketplace for your industry, what are the trends that are weak signals, that are happening? The group came up with 10 of them. All 10 were around technology. Internet of things, digitalization, new technology, and I said, you know you’ve done brilliant job going deep into one of six trends.

That’s why, and I don’t care if you call it step, or steep, just call it something. You know, there’s also trends in your industry around social trends, lifestyles, around family, urbanization, religion, wellbeing, diversity, there’s technical trends, there’s economic trends around global markets, and new competitors, new economic cycles, there’s clearly political trends, you cannot turn the television on today and not recognize political, regulatory shifts. There’s environmental trends around social responsibility. Community. There’s demographic trends around age, education, and millennials. This group, immediately turned to technology, because it gets a lot of air time, and you missed a whole bunch of stuff. When we look at SCPD, we gave that to business leaders when they visit a country or when they try to go into a new market, is to say, look at the weak signals in these areas, that enable you then to begin to predict what you could do differently.

Peter: I imagine that the more time you spend both playing with it and talking with people about it the more clarity you end up getting to some degree.

Dave: That’s really fun. What’s fun about weak signals is they’re weak signals. For example, social trends, if I’m in the beverage industry, people want food that has less calories, so the governor, or the mayor of New York had even tried to prescribe some of that, so how do I begin to play in that space, if I’m in a carbonated beverage space? Because that’s a weak signal that’s coming out. I got to say this thing, I was going to say it earlier and I let it go, because I was talking too much. In the world of data and information there’s two kinds of data in the world.

Some of the data is called structured data, it’s problem solving, it’s statistics in a spreadsheet. I love statistics, my PhD is basically statistics, I did numerical taxonomies. I love data, it gives me insight, but 80% of the data in the world is mysteries not puzzles. Its unstructured observation. Good HR people should not only be analysts of the statistics, I can do the analysis and figure our insights, we should also become anthropologists. A great anthropologist looks at stuff other people don’t see, and they begin to look at weak signals.

I think you spend, in fact, I’d love to ask you, Peter, weak signals is you hear something and it just goes ding, ding, ding in your head and it may not have a lot of data, but it’s a note, it’s an insight, it’s an observation and you go, holy smokes, I got to dig deeper into that one. I’m jealous, Peter, of your job, you get to talk to smart people all the time, I bet once in a while you hear something that just goes, whoa, that’s a good one, and it may not be data based, in terms of traditional and empirical data, but it’s an observation that just grabs you. Does that resonate with you at all?

Peter: It resonates with me from this very conversation.

Dave: Well, don’t me as the conversation. By the way, this is why I’d love to be in the field. I was talking to a head of HR, he came into HR from manufacturing, and operations, and he said, Dave, every change effort, and again, you would know this in your strategy work, has an S curve, you start small and you move up, and you flatten out. He said, I’m new to HR, but in my 30 days, all my HR people have talked about is talent, talent, talent, talent, I think we’re 70 to 80% of the S curve, we know where to find people, we know how to bring them in, we know how to orient them, we know how to pay them, we know how to train them.

And, he said, here’s my problem at [inaudible 00:29:13], if we don’t change our culture, we’re going to have great people, that was my left hand with five fingers, who don’t work well together, my right hand is a fist, and he said, on the culture curve we don’t even know how to think about it, yet. We’re 10% up. He says to me, why do HR people spend all their time on talent, when we’re pretty good at it and almost none of their time on culture? Inside my head was going, bing, bing, bing, bing, duh, and he just, Paul, is his name, he captured for me some of the issues I’ve been ruminating on. That for me is the 80% of data that’s found in observation. We need to learn to become anthropologists who observe what other people experience, but don’t get recognized.

Peter: It’s great. I’ll give you one, actually, that’s been simmering with me-

Dave: Oh, I’m waiting for that. Yeah.

Peter: Everyone has always been busy, but the level of busyness that I’m seeing in organizations, right now, and the multiple priorities, the overwhelming things that people have to do, and the overwhelming number of priorities that people have is leading to a situation where, and it’s not that people are hiding behind multiple priorities, it’s that the priorities are hiding them, so everybody’s working very, very hard.

They’re all accomplishing something, but because of how busy they are, and because of the multiple priorities, that all of the work they’re doing isn’t moving the ship forward. It’s related to what you were talking about in terms of talent versus organization, that you’ve got incredible talent working on important problems, but because none of that work is clearly, effectively aligned and because everyone can be so busy on real priorities, but they differ from each other, that the organizations are struggling to move forward.

Dave: You know, somebody could draw a lot of arrows, and then put a big arrow around it that gives you an integrated overall focus. That was the joke, that’s you work and it let you know I did a little homework with you-

Peter: Thank you. I’m seeing it even in clients that we’re working with, now, that were working with the big arrow system, and I’m still seeing how extreme this problem has gotten and how the necessity to say no to things seems to be a critical strategic capability.

Dave: There’s out there this complicated scene of complexity and confusion, you just seen it. The next question is who have we seen, you or me, that seems to manage their way through that? The next question is, Kurt Lewin once said, and it’s brilliant, nothing is as useful as a good theory, so don’t just jump to a practice. What’s in an approach to managing that, and one of the approaches is your big arrow, take a big arrow and have a shared purpose with different agendas, that’s great. Are there three or four others?

Then, we begin to search through. For example, I love you question, and I don’t have an answer to it, but one of the pieces is the economist that want to know about price, Herb Simon, satisfice, F-I-C-E. Not everything worth doing is worth doing well. Somethings are so important to do, they’re worth doing poorly. So, when you’re overwhelmed with to dos 60 to 70% are worth doing poorly, just get them done. Now, I’ll stop with that. What we’re trying to illustrate is listening as an anthropologist to a problem that doesn’t have a solution, and then beginning to create some ideas that may help us resolve it. That, for me, is great external sensing, and great HR focus, and great business leaders both tend to have that knack.

Peter: Dave, I could talk to you for hours. I try to keep these podcasts to less than 30 minutes, and we’ve hit the mark, but I want to certainly continue this conversation and maybe we could have you on the podcast more in the future, but also outside the podcast I’m happy to continue it. His book, his most recent book, is Victory Through Organization: Why the War for Talent is Failing Your Company and What You Can Do About it. Dave Ulrich, thank you so much for being on The Bregman Leadership Podcast.

Dave: What a privilege, Peter, to connect. May we both learn from our future.

Peter: I hope you enjoyed this episode of The Bregman Leadership Podcast. If you did, it really help us if you subscribe on iTunes and leave a review. A common problem that I see in companies is a lot of busyness, a lot of hard work that fails to move the organization as a whole, forward. That’s the problem that we solve with our big arrow process. For more information about that, or to access all of my articles, videos, and podcasts, visit peterbregman.com. Thank you Clare Marshall for producing this episode, and thank you for listening.