Change Management (Global leader of McKinsey Organization Practice)

Leading large-scale change at your business is urgent, but how do you overcome the challenge change management presents? 

Interview with McKinsey & Company Global Leader Bill Schaninger, coauthor of BEYOND PERFORMANCE 2.0A Proven Approach to Leading Large-Scale Change (Wiley, July 11, 2019) about:

            • How to know when your company is ready for large-scale change
            • What’s wrong with most approaches to change management
            • What companies can do today to flip their odds of success
            • Why organizational health is more important than ever
            • What behavioral science biases leaders must guard against when building their change management vision

About Bill:

“Since joining McKinsey in 2000, Bill has focused his work on driving large-scale organizational and cultural change for diverse clients across North America, Europe, and the Middle East. An expert on the role of culture, values, and leadership in improving business outcomes, he helps top executives enhance organization-wide management effectiveness.

In his advisory work, Bill has helped CEOs, government ministers, and other top executives assess organizational health and lead initiatives to improve it. He also brings strong experience in strategic human resources, helping organizations understand how to create world-class talent systems and winning workforce dynamics.”

Meet Bill Schaninger, McKinsey senior partner

Michael: Hi everyone. Today we have an exciting and very interesting guest. Bill Schaninger who is a senior partner at McKinsey and is the worldwide leader of their organization practice. Thanks for joining us Bill.

Bill: Well, thank you. I’m really happy to be here.

Michael: Fantastic! So, maybe just as a start, give us a brief overview of your background, where you studied and so on, so the audience gets familiar with who you are.

Bill: Right. Well, I’ll tell you. If you listen to me and you would think that applies to McKinsey you would get the wrong impression. I’m rather atypical.

Michael: Yeah. Why is that?

Bill: Well. I don’t have a particularly prestigious degrees. I have a lot of degrees but not from our core schools. I went under undergraduate I finished at a place called Moravian College.

Michael: Okay.

Bill: Which is a new liberal arts school. Sixth oldest in America – 1742. Notable because we were the first to enroll women. And when we educated Native Americans we educated them in their language, not ours. So, I’m obviously very proud of that Institute.

Michael: Yeah.

Bill: I’m a Trustee there now. So, you know, the difference. It has a seminary. So it was.. when I was going there it was very much in the liberal arts tradition. My undergraduate degree is in business administration but that was after two years of forcing me to think a little bit. And then I went and my first job was I ran a residential psychiatric treatment center. A unit there so I’d like..

Michael: You run a residential psychiatric treatment center?

Bill: So think about when.. I had four.. I’d four or five units over my time there.

Michael: Yes..

Bill: As young as 8, as old as 20. In many cases, court-ordered. In fact, the majority of cases court-ordered and rather than going to detention or somewhere else. It was usually kids who were dually diagnosed. It’s some combination of a, you know a psychological deficiency or say a cognitive deficiency or just came from a brutal background.

Michael: Yes.

Bill: You know so I’d have staff and I’d have the kids.. and you know what social worker who is there to make sure that we were doing okay.. and yeah I did, I did that for like five years. But now while I was doing that I discovered that I was surrounded by really smart people, way smarter than me. Who all wanted to have a big impact in the world. But we were terrible at running the place.

So, you know, passion only gets you so far. So then I figured okay I’ll go back to school full-time at night. Back to Moravian, because it was both here where I live and and close to where I was working and I just started going to school full-time at night I take classes, Monday, Tuesday and Wednesday you know 3-3.5 hours a night and just started working on an MBA. And when I was doing that.. I really came around to this idea that plans are great and I’m really interested in how people make money.

Michael: Yeah..

Bill: But plans are just plans until people start behaving differently.

Michael: That’s true.

Bill: And so that really turned me on to the organizational part of it.

Michael: Yeah.

Bill: This was 1996 and I made a decision to go back to grad school. So I went to Auburn because there were some really, really good faculty then studying change or behavior and I got another masters and a PhD and it was effectively org side taught in business school.

Michael: So you never came from a sort of traditional business background. You started with an interest of people.

Bill: Yes. Yeah. I was always interested in making money but it was how people were involved in making money, you know.

Michael: Yeah but that’s interesting you know, a lot of people when they when they go into business they start from the business side and they figure out they need to understand people, and they kind of do a few courses and so on but you started from the people-side.

Bill: Yeah, yeah. That’s right.

Michael: And then you figured out you need to have some structure to this, and then you picked up the business skills, I am guessing.

Bill: Well Yeah. I mean look. I was.. because of the work I was doing I was fascinated whenever I’d look at something and say “why wouldn’t otherwise a well-intended person be doing something that seems so counterproductive” and I wanted to understand that. And then I want to understand what the company did and what leaders did that encouraged or disappointed that.

Michael: And so what was your PhD in.. what was your thesis.

Bill: Well, officially it’s a PhD in management. My.. my.. dissertation was on why people go above and beyond at work.

Michael: Oh that’s interesting.. and what did you find?

Bill: Well, so I was studying what’s called social exchange relationships. So, you know, obviously there’s the basic economic exchange, which is I do something and you pay me. In a straight quid pro quo. Social exchange is a little different because that is a give and a get between you and your leader (leader-member exchange), you and your teammates (team-member exchange) and then we created a construct called org-member-exchange, which was this idea of what the company is doing for you and what you’re providing the company.

Michael: Yeah okay.

Bill: So these things like loyalty, extra role behavior, you know, contribution, influence. Things like that right. It’s basically, the people you see that get the best.. the best projects, have the ear of the boss. You know, that sort of stuff. In other words.. the respect, the trust. It’s understanding that dynamic and then what you can or cannot do that increases the likelihood that people gonna give discretionary effort towards your goals.

Michael: Wow. You are really into organizational thinking. It’s not something you just picked up and decided to specialize in Mckinsey. That is where you are started from.

Bill: That’s right. That does make it a little atypical, right? I came with the org stuff first and then learned.. learned the broader.. with a broader range of topics that I would cover as a generalist partner at McKinsey.

Michael: So why did you, how did you end up in McKinsey? Did you go straight to MicKsney, from a PhD to McKinsey?

Bill: I did but in a rather backward manner. So, in 1999, I was out on the market. I was so ABD on with dissertation. I had my data.. wasn’t done yet, I was looking for teaching jobs. And in The Chronicle of Higher Education there was an ad there for an academic fellowship with McKinsey in Boston. But then their org design practice.

I sent my CV to them. And I had a pretty good run of publishing, you know, as a PhD student so I was feeling uh.. you know, pretty buoyant about my prospects. They responded and said “Hey, that’s really nice but we were actually looking for like.. a full professor who has a reputation. But Uh.. we liked your resume so we hope you don’t mind we sent it to our colleagues in London who are hiring.”

Michael: Yeah.

Bill: And they rang me up and then the.. our normal.. our normal cycle was what six-nine months maybe for recruiting. Mine was about six weeks.

Michael: Wow.

Bill: You know, two trips to London. A seemingly endless string of interviews and I joined the org practice in London August 1st 2000.

Atypical growth to McKinsey Partnership: From Specialist to Generalist

Michael: So, that’s interesting. You’re the only person I’ve ever met from McKinsey who starts off by saying they have a atypical background where you don’t have.. I think the words were to use is an elite background. I’m not sure if I remember correctly. Most people will be the opposite.. And then you do interviews with you.. You apply in the United States.. but they send you to London. You get the role and then you start working in London as a generalist? Or do you go straight in the org practice.

Bill: That’s especially no. It’s not. Again. Here’s something atypical. I started as a specialist.

Michael: You started as a specialist?

Bill: I started as a specialist but was elected as a generalist.

Michael: Because most people, they usually start as a generalist and then they end up maybe specializing later. Well, you have to at a certain point. Dealing with a certain group of clients.

Bill: Yes yes.

Michael: But you started as a specialist. And then you could have picked up generalist skills as you went along.

Bill: Yes, yeah. Exactly right.

Michael: Very unusual. You must have had some really good mentors making sure you..

Bill: Well, I really did. I mean, the guy who.. the guy who would run the practice for.. I don’t know eight years. I had just joined the year before and you know he.. he had an MPhil in psychology. He was really interested in us bringing more rigor to our organization work. Less interested, as we like to say, “less interested in making things up.“

Michael: Yeah.

Bill: And more interested in being grounded. And so, it was a nice.. it was good timing and if you look across my 19 years probably every person you would ask about me would say uh I’ve been fixated on leaving the world of hand waving, and bringing good theory and good science to what we do, not as an academic exercise.

Michael: I like what you are doing.

Bill: ..to improve our problem-solving.

Michael: So, you’ve only done interesting based on the work I’ve seen org design change work in some places they call it transformation and so and most of this was global or out of based in London?

Bill: Or so.. let’s see.. first 4 years were in London and then I moved back to the States, and then I helped open the Philly office in 2005.

Michael: So you have helped open the Philadelphia office.

Bill: There was 12 of us.. Yeah. Initially, That’s right.

Michael: Oh wow. That’s different.. a different hat you were wearing.

Bill: Dramatically different. I mean, I went from London which was the second-largest office in the firm and at that point the seat for our managing director, Ian Davis, to an office that had a fraction of a floor and twelve people sitting around at one table for lunch. So that was a little different.

Michael: So, what was the reason to leave London, because London is a good office? Why would you leave?

Bill: Exactly. Spectacular office.. And, to this day, it’s my favorite office.

Michael: It’s amazing. Just the city of London is amazing.

Bill: I loved it. I lived at the ones with bridge, right next to the ship and..

Michael: Yeah?

Bill: And you know.. Peter Hain.. the guy who was the …you know.. in charge of the House of Commons, he lived above me.

Michael: Yeah.

Bill: And I had a glorious life there with the wife and a young child. So my then wife, her father got sick and I really wanted my son to be able to spend some time with his grandfather before he passed.

Michael: That is the reason to move.

Bill: I probably would not have left if that had not happened.

Michael: Wow. And what’s your favorite English food?

Bill: You know.. I really like.. I really like.. pies. Honest.

Michael: Oh.. pies.. steak and kidney, chicken and mushroom.

Bill: Yeah. Yeah. I think they’re great. But, you know, if you’ve really pressed me I’d probably say a Sunday morning fry up.

Michael: Yeah. So you.. have you taken a partial liking to drinking warm beer?

Bill: I don’t mind it. I mean.. I do this youngsbury was a mile away and so the special and triple ‘x’ were always insanely fresh and pulled on an engine.. (not clear) and it is just really good. In fact.. I reject.. funny enough that you say that.. I reject Guinness cold.

Michael: Really? So now you have been completely converted! (chuckles).

Bill: Completely! in fact my daughter.. my daughter who just turned 11. Gets really irritated with me when I say “Hey, where’s the loo?”

Michael: (chuckles).

Bill: “Dad! You’re in the US.”

Michael: You never hear that in an American.

Bill: No. No … So anyway.. Atypical.. But you know what’s interesting.. you picked up immediately that I joined as a specialist.

Michael: Yes.

Bill: At that period of time.. you know.. there were some differences in social rights. If you were a specialist versus a generalist. That was not lost on me. And I recognized that, you know, when we immediately went into a downturn I was never ever gonna be on the beach because whether you’re cutting cost or trying to grow, whether you’re trying to change culture or trying to improve talent, you always need to address the org stuff.

Michael: That’s true.

Bill: All I had to do is be good at org and I could do that anywhere.

Michael: You know.. but.. that’s interesting because what you said.. you are a specialist who became a partner.

Bill: As a generalist partner, yeah.

Michael: That is a very unusual path. I mean, most people when you speak to them they try to avoid the specialist path because they think it can never be a route to the partnership.

Bill: Yeah. Exactly right. I mean.. it was my ticket to play.. in case my core situations were right up. I ended doing a ton of Operations work in refineries and chemical plants because.. you know.. mistakes happen usually when there’s a bad mix between people and machines.

Michael: Yeah.

Bill: Culture matters quite a bit in safety, reliability, quality and making money, funny enough.

Michael: So, you do all these refinery work from Pittsburg?

Bill: Well, initially from London because we were doing it there. And then when I moved to Philadelphia. I lived north of Philadelphia, east side of Pennsylvania. I flew to Houston, flew to San Francisco. I mean I got my first million miles on Continental.

Michael: Yeah.

Bill: Because I would I would go.. I would go where the.. the plants were.

Michael: So you moved to the US just to travel even more, basically.

Bill: Yes. Well.. During that period of time, in fairness, we hadn’t yet bought our house. It took about six months. So, I was avoiding living with my in-laws, so there was the motivation.

Michael: (chuckles). That’s Funny.. Funny and true. So you rent Pittsburgh. You were building the office. You obviously found a.. I wouldn’t say a niche. I know people have referred to organizational work as a niche. To me it’s not a niche.

Bill: Yeah. I think it’s ubiquitous.

Change management challenges

Michael: Yeah, I mean you know, every company is trying to figure out how to .. an organization is not just about where you place people, which is what a lot of people think it’s about all org and design and org planning. To me it’s about people how people interact.

Bill: Exactly right. I mean.. we take the broadest sense of it. You know we’re the Warner Berg (12.42) org system kind of thinking. You know.. I studied under a guy named Achilles Armenakis.. who have really broad and expansive view of change and the whole org system.

You know, so the people, the structure, the processes and how you make decisions, how allocate the talent, who you pick.. so you know.. the instrument we wrote, the organizational health index, that was a colleague and I wrote that in 2002, from the get-go we were determined to be able to model the whole system, right? Not just the.. not just an impact on the employee.

Michael: Wow, so you were building the Pittsburgh office. Obviously building all capability in Pittsburgh as well. So what happens there.. from there. How does your career develop?

Bill: So I moved.. I moved to open Philly because it was next to Wharton in to end of 2004.

Michael: Yeah.

Bill: But when I was still in London, we had the downturn. Right, because of dot-com crash. And.. we were looking back at some of the things we’d written and said “oh boy, we really picked some doozies here.” You know..

Michael: Yeah.

Bill: And that led to some soul-searching around the idea of what did we get wrong? So we went back to In Search of Excellence.

Michael: Can you give me some examples of some of the things that could have been done better?

Bill: Well, let’s just.. let’s just look at.. If you can look at these books. We wrote two books at the end of the 90’s – “Creative Destruction” and “War for Talent. ” Good books. Destruction was… [about] dynamic allocation of capital. And War for Talent.. was a really good treatment of how to.. how to handle talent like we do. So if you lined up and you were a talented knowledge core company like we are. It was perfect. If you weren’t that – challenging. There is a common company in terms of cases in both those books – that was Enron.

Michael: Yes.

Bill: Right and uh.

Michael: As a common case around 2000. That’s true.

Bill: Yeah, it was common. And so then, you know, when we went back and looked at In Search of Excellence. There was an interesting case highlighted there and it was more than one.. you know.. they had several.. one of them was Atari.

Michael: Yes.

Bill: 6 months after the book came out they were burying games in the desert.

Michael: Wow. So that sparked your thinking then maybe you need to think about it a little bit differently.

Bill: A little bit.. I mean, we were pretty sure we were getting it wrong. We weren’t the only ones, you know.. the FT, Forbes, Fortune, Wall Street Journal. Everybody had fallen in love with the “we never missed a quarter” kind of thinking.

Michael: I think Enron was on the cover of Fortune 6 times or something..

Bill: Ugh Yeah. It’s remarkable, right? And obviously we had ties because of the legacy of our alumnus who were there.. you know.. I’ll tell you what was interesting.. was.. when we got to the point in that era most children know that when you have a positive times a positive that it is a positive, but when you have a positive times a negative it’s a negative. And during that era you had a positive multiple times a negative profit number and it came out still positive in terms of valuation. That is some unusual math.

Michael: Yes. It’s unusual. It’s frothy (not clear) math as they would say.

Bill: I mean.. we all.. we all deluded ourselves there, right. So anyway, that led to us saying “let’s have another look.” So, we went back to the list from “In search of excellence” and then we looked at the list that Jim Collins and Jerry Porras had.. you know.. in the first Collin’s book and just cuz the math is gonna work out right, we’ll say there was 51 companies total. When we rolled it for until 2001. We said what happened.. Well a third of them didn’t exist and a third of them were really struggling, and a third were doing great. And you look at the basic difference between the ones that were still thriving or “excellent” as everyone’s calling them and the ones that went away, it was one really simple thing. The ones that went away got caught in the trap of myopically focusing on quarterly performance.

Michael: Yes.

Bill: The ones that thrived said they performance matters to us too. But we’re gonna really pay attention also to how we get that performance. How we run the place. And that was what we would later label “managing for performance and health,” which was the essence of the first book.. you know.. landing this idea that truly long-term sustainable competitive advantage comes from putting equal emphasis on performance and health.

Michael: Now that’s interesting that you bring that up. Because I have read your book “Beyond Performance 2.0” that you wrote with Scott Keller who I believe he’s a colleague from Mckinsey as well, right?

Bill: Yes.

Michael: What’s interesting in that book.. is that the entire premise of it is that you have to balance health and performance to be truly sustainable if you want to be successful.

Bill: Yeah.

Flipping the odds of success (change management)

Michael: Now do you not feel that there’s an absolute obsession today with performance at the expense of health. Because if I just pull up Bloomberg now and I look at all of the headlines, just talk about performance. It’s almost as if the entire investment community, while they want sustainability, they seem to reward performance.

Bill: Well, I think we’re in the waning days of that, honestly. I mean you know.. if you go back to like 2005 when you first started seeing the rise of long term capitalism, long term investing. you know.. our then managing director, Ian Davis, initiated this idea of organizational health. you know.. We’ve been talking to him about it. We’re increasingly seeing investors who recognize that they’re not gonna.. you know.. the multiple they’re paying when they buy now means they actually have to improve the company and if you’re gonna have to improve the company, you’re gonna have to change how you run the place. I mean..

That’s the essence of it right? The first book really was landing that idea, the second book 2.0 was ten years on. We had clients saying “hey, we buy this idea” of.. you manage for performance and health, or in plain language, you manage for “how you’re gonna make money” and “how you run the place.” But this change in “how you run the place stuff”. It’s actually really hard. So spend a little more time on that please, like.. how do you actually change how you run the place. So that was really the impetus for the second one, right? It was a real double click on we’re gonna remind you a little bit about performance and health. But really, we’re gonna spend a lot of time on “how do you actually change it?”

Michael: So, the message is the same, but it’s about getting people to see how to do it.

Bill: Yes, because most people.. fail miserably.

Michael: I heard statistics in the book and I’ve heard the statistic before that something like thirty percent of change effort works.

Bill: Yeah, that’s right and it’s been stubbornly stuck at that. I mean you know in the.. the Kotter and Heskett book in the early 90s you know.. they had reported only it seemed like about thirty percent actually delivered on what they were supposed to. Then you saw a series of other similar explorations stubbornly stuck around thirty, including like three of ours. We’ve noticed in the last several years that if it involves a restructuring, the numbers probably.. actually in the lower 20s at the end of restructuring. So you know.. one of the big insights for us was after we produced the first book we started tracking clients who were following the recipe of the prescription. And those who weren’t.. And when we finally got the data back we’re like “oh boy! okay well.. let’s A) make sure that we remind everyone we’re not being self-serving. We’re not playing funny math. We’re reporting the facts.” People who follow the prescription, their likelihood is success is 79% on 30, so it’s better than flipped the odds.

Michael: But if all companies worrying about performance.. wouldn’t it mean.. that focus on performance as a competitive advantage will eventually erode?

Bill: Well, monolithically on performance. It goes away because you’re not paying attention to things like.. are you keeping the entire place aligned on what you’re asking them to do and why they’re doing what they’re doing. You know.. are you really honing in on the right way, the right balance of controls and the right balance of focus and executio?. And are you actually making sure that you’re not just doing a different version of yesterday? You know.. you have your eyes on your customers and competitors, and you’re in your partners in your ecosystem and.. can you actually change on the fly. I mean.. There is an underlying premise here with these leaders that are going to be successful now – don’t just run the place, they’re also capable of changing the place while they’re running the place. Nobody gets to call timeout.

Michael: Right yeah.

Bill: Well.. you gotta be able to do both.

Michael: I mean.. I can’t think of any company today that can just say “we’ve developed our plan, we have a strategy, we’ve made the changes we need, let’s just sit back for the next 2 years.” Change is continuous. It has always have been ever-changing.

Bill: I mean, look, you’re picking up on one of the basic mindset shifts which is stop treating it as an event.

Michael: Exactly. It’s the normal course of business.

Bill: In fact we’ve gone now when we talk about establishing what the value agenda is.. when we’re trying to figure out critical roles, we break it up into four chunks. If you were going to change anything in the business.. business as usual how do you disaggregate value. Now let’s look at all the things you’re doing to improve or change the business. Okay. Let’s add those up. Now what would be net new in the next three years. It’s not there today but you’re counting on it being there. And then what are the roles that actually protect you and.. where it may not be a direct line on P&L but its direct line to risk mitigation. And then we add those up so that we can get to the critical roles. That’s proven to be a really critical.. really critical move here which is.. don’t try to do everything for every role. But do know the roles that portion risk and value (not clear). (21.16)

Michael: And so I say things have changed in consulting recently but isn’t that very hard to sell today? Well maybe it’s not to get clients to bind to the idea of change being a continuous capability they need to have.. for lack of a better word.

Bill: You know.. I think it depends on whether or not they’re in going assumption is it’s something to endure or it’s something that’s going to be liberating in a natural part of what of their evolution.

Michael: That’s good. That’s true. And you think some clients today buying into the fact that this is just the way it has to be.

Bill: I think those that view it as an aspiration and they’re working towards an aspiration except that it’s going to be. Those that view it as a deficit. They have to avoid going out of business. They have to fight off, you know.. an attacker or whatever they’re looking for it to end. Particularly cost programs.

Michael: Yeah do you find that differences between change programs in the US, Europe, emerging markets or do you find that it doesn’t matter that the themes are roughly the same everywhere.

Bill: It’s a mix of both. Right. I mean.. the human condition of accepting change in workplace is actually pretty consistent.

Michael: Yes, there’s a lot of resistance. I think we can start there.(chuckles).

Bill: Well at the bar.. the bar.. is there.. The bar is there for the leaders to hit on why anyone should do anything different and it’s up to the leaders to create those conditions.

Michael: I was reading your book and one thing that struck me is a lot of change books you read.. when they talk about change as if it is a company-wide epic event led by the CEO – which is true. But what you’ve done is.. you have brought it down to a series of interactions between individuals and what you say is that when a company is going through a change it cannot leave its employees behind. It needs to work with them, talk to them and that’s really unusual because most books teach change as a set of management practices that you need to implement as opposed to a set of discussions you need to have with the employees and try to figure out where there are and how you are going to take them along. (23.11)

Bill: We like.. we like.. you know tools and assets and ways of thinking about things same as the next person but that doesn’t get it done. That’s just a way to help problem solving. I mean here’s the thing… we’ve you know how people will humanize their pets, right?

Michael: Yes. Yes.

Bill: Okay, we like to humanize organizations. It says if the organization has purpose.

Michael: I like the analogy a lot. I’ve never heard about that before.

Bill: It’s a construct. It’s a group of people that that organization isn’t going to change if the people don’t change. People are individuals that’s why you have to go to the eye level. So yes you can write a plan for the whole thing that broadly guide it. Setting the aspiration for performance in health but at the end of the day if the people don’t change. How they think and behave doesn’t… it just doesn’t work.

Michael: Now that is so obviously intuitively correct but why do so many executives not see. Is there a reason? Are they under pressure?

Bill: Well, I mean.. what do many people do with things that they find unpleasant or they’re .. they’re afraid of a being unpleasant?

Michael: Okay. Don’t do it basically.

Bill: They don’t do it. Or they just assume that they can shout louder and people are just gonna behave.

Michael: Yes..

Bill: Plus.. let’s think about the opening.. the opening things that we’re suggesting people do. You don’t start with the deficits. Start with the aspiration. What would be really exciting on the performance front and how do you want to run the place. Then take an honest cold hard look say.. “All right, how are we really doing” and then “okay so what does that require – that requires leaders to have humility” and say “I know oh we’re not good enough we got us in this position” and then it requires courage to put down tried-and-true patterns of behavior – habits. Things that make them uncomfortable say “I’m gonna have to be something different” because that clearly isn’t working. (24.49)

Change management: organizational and cultural change implementation

Michael: So.. going back to the first time you and your team, I’m sure quite a few people contribute to this thinking, the first time when you started rolling this way of approaching change out at clients. What was the experience? Was it easy to do?

Bill: In the early days.. people wanted to treat health as if it was cereal. So you did performance first? Then you got around to thinking about health. Which meant it never happened or we don’t have time for that. We can’t staff resources against it. “Yeah Yeah Yeah. But we gotta get the cost out”. The biggest thing in the early days was.. we were so enamored with landing the idea of performance and health. We missed the opportunity to say you know.. the way you work on performance is actually working on health. If you just change the language to say “you know, when you’re trying to improve performance, you are running the place. So surely, we can change how we run the place while we’re changing how we make money”. It’s when you combine them, your pursuit of a new approach to procurement, your pursuit of a new approach to pricing, implementing a different way of running your equipment if you are bringing lean. That requires setting direction, making sure individuals know what they’re on the hook for, motivating them, tracking how it is going.. you know your operating measures, managing risk. You’re doing it anyway. so why not put them together and say “the way we pursue performance improvement is how we’re gonna run the place and that’s how we’re gonna change it”. We are not gonna treat it like this thing on the side.

Michael: So the big shift is.. company is ..doing this anyway. They have to do it anyway, so rather than saying it’s something we have to do six months from now let’s find a way to combine it. Because you have to do it anyway.(26.17)

Bill: A hundred percent and you know what that does. it stops making it an HR issue. Keep it separate. It’s over in the culture ghetto.

Michael: You raise an excellent point. Why do people think change is an HR issue in the first place?

Bill: Oh because it’s a HR’s job to deal with everybody’s crap.

Michael: Employees to be more productive, more fullfilled, more innovative, more engaged, sounds like something that the line management and executive..

Bill: Good thing.. I mean the single most remember we talked about my dissertation. Right? The single most important relationship at work is between you and your boss.

Michael: Exactly.

Bill: It’s the insane amount of variability in performance. So aren’t you the one who’s running the place? So you should be the one changing.

Michael: So.. there are some good examples of companies that have rolled this out well.. that you are allowed to talk about.

Bill: I can give you examples of it without naming them.

Michael: Yeah, that’s fine.

Bill: Look I’ve got a nice run of really interesting organizations you know.. a global mining company, global refiner, power.. you know.. a federally owned power utility. You know.. really interesting places. The common denominator.. and all of them.. was.. it was high stakes you know..

Michael: Mhm.

Bill: Either you know one of them had declared force majeure on their commodity product. One of them had an environmental disaster – flooded a valley with you know.. stuff coming out of one of their power plants. Bad things right or one of them was actually frankly close to going out of business. So in all cases, they were at a pivot point. A point where they could no longer ignore it and they can no longer think they’re doing what they did yesterday by just trying harder how’s gonna get it done. At that moment.. at that moment they were also able to say and.. you know.. we.. we can’t just do it like we did do it.. we have to do something else and that something else was both (1) How they prioritized their effort and their capital towards performance but also (2) how they prioritize their most important capital, human capital and reallocated the team.

Michael: It’s a burning platform for the lack for the better word.

Bill: Well, you know.. it’s interesting. great point. That has been the mantra for a long time. We’re increasingly seeing that even in situations where the place is going out of business if you get them to fixate on what it would be like when it’s great it works dramatically better. We learned this from medicine by people who have had heart conditions. (28.34)

Michael: Yes.

Bill: All you do is say to them ”if you don’t stop smoking, you’re gonna die” they go back to smoking. If you say to them fixate on what you’d really like to do, “I’d like to walk my daughter down the aisle. I’d like to see my son graduate”. dramatically higher stickiness of the behavioral change.

Michael: Oh so.. moving away from the deficit mode to.. a more aspirational positions.

Bill: A hundred percent. A hundred percent, right?. And so.. you.. you don’t stop them. So as long as you’re working towards the aspiration you can keep going. If you’re in the deficit model as soon as the dragon is no longer coming to eat you ou’re like.. ”this is over now right?”.

Michael: Right.

Bill: And two years later you’re back doing the same thing.

Michael: It’s also scary to have a deficit model. Nobody wants to be part of this. It’s not fulfilling. It’s not uplifting.

Bill: No, I think we confuse love of the hero in an actual crisis like coming back from a natural disaster or a fire or something like that. We like that because it’s said.. it’s this stuff.. that’s galvanizing and story-telling.. That’s not a business model. It’s a reaction to a crisis you know.

Michael: Well, that’s true. That’s a very good point. When you let emotions dictate things.

Bill: Uh huh. A hundred percent.. it is well.. it’s.. listen it that’s why it’s psychology.

Michael: Yes okay. So.. so clearly there has to be this aspirational, powerful messaging that needs to be, I’m guessing, driven by the CEO in his board.

Bill: Necessary but not sufficient. You need you.. need them the started.

Michael: Yeah.

Bill: But increasingly you can see that the cascade doesn’t work. And then in an environment where the social network is dramatically faster and dramatically more fluid than the formal network. You need to know who the opinion leaders are on the organization and start having them be the conduit. You can’t count on the cascade anymore. (30.14)

Michael: So give me an example of it. How would that work? Is that something that.. that way that works best or is it just something that..

Bill: They’re not. It’s really interesting you can take one question and randomly send it around to the whole company and saying “hey, when someone’s going on – you don’t understand. Who do you pick up the phone to call?” and say “hey what do you think is going on here?” Also known as whose opinion do you trust or value. Give us up the ten names – every time a new name comes in, that person gets the question. If a name comes in that you already seen it, they get a tick mark. We leave it open for ten days and woola~ you’ve mapped the watercooler. You know.. people go to.. to figure out what’s going on. Some people are dramatically more important to the water cooler.. than others. You need to know who they are because they are most certainly talking about you. It’d probably be better to those people you to talk to about.

Michael: So those are the ones you focusing on those influence. For the lack of a better word. (31.01)

Bill: Yes.. so yes the CEO needs a well-constructed message. Yes, increasingly in today’s environment needs to be multi-stakeholder. Yes, he has to be super consistent. He or she excuse me, super consistent and their direct reports super consistent. But it does not penetrate deep into the soul of the organization without the people who actually control the cafeteria. Who actually control the water cooler. They’re the ones that you need talking about.

Michael: Yeah, so the CEO needs to craft the message but the people need to be reinforce the message need to go all the way down the organization.

Bill: 100 percent. A 100 percent. And we talked about five sources of meaning in the book and that say “Hey, don’t just give somebody that the corporate story. Talk about how it impacts the customers. Talk about how it impacts the employees. Their team’s, their businesses, the communities you work in. Be human about it. Acknowledge that people are going to have different sources of meaning. Different motivations. If all you do is give them the stock price or the profit story, you’re going to lose 80%.

Michael: Okay so that’s one.. So let’s get it a message and bringing it down the organization in the human way that’s relevant to the person.

Bill: Plug it.. plug it into the broad.. plug it into the broad coalition.

Michael: Okay so that’s one. So is it anything else that’s common to be successful change models?

Bill: Yeah early on.. early on the CEO figures out that he actually needs a small army. Ahh.. so he involves people in the planning. It’s not a small group or just one or two with the consultants.

Michael: Yes.

Bill: I mean there is a basic.. there is a basic.. phenomenon here that you know.. if I build a lego model and give it to you you may look at and say oh it’s nice but.. if it drops.. it drops so what its not my model.  if I give you a Lego kit and you build it, you’re way more interested in keeping that thing together.

Michael: I remember in the book you had an example of Indra Nooyi, that the head of Pepsi, writing personal notes to the spouses of the executive team because she realized that made people more bonded. I have never heard of a CEO writing messages to the spouses of the executive team. (32.56)

Bill: I think good ones do.. the good ones do have personal touches. I mean you know.. there was a while where we were encouraging a CEO that in the course of like their ELT meeting it’s something truly exceptional came up.. they would FaceTime the employee live from the room.

Michael: That’s impressive because you know most executives want to be scripted and prepared but to FaceTime live that’s..

Bill: That’s great right it’s authentic that’s like raw footage is it’s so much better than the super polished stuff. If you’re trying to create intimacy.

Michael: The polish things don’t always work because there’s no sense of vulnerability. You know the CEO you are talking things that.. things that are not working very well but you want to deliver the message, people believe that a man actually took the time to do this or a woman has took the time to do this.

Bill: I think there’s something around the humility point.

Michael: Yes.

Bill: Which is being willing to say to people. “you know what? I don’t actually have all the answers”. I know. This is what we know. We’re aspiring to do.. that we’re working out right now. How we’re gonna get to it we’re gonna keep involving it review”. But then you also have to say to the employees “now you have a choice. If you only ever want me to bring you all the information it means you will never be involved. But if you’re willing to accept some ambiguity. We can involve you because by the time when you start getting involved, we’re not gonna have all the answers. That’s what we need your help for”.

Michael: I think it also inspires employees when they know that the people they look up to also don’t have the answers, right?

Bill: Well you’d hope, you’d hope, right. (34.18)

When you start change management programs you need to think about how you going to tell the story

Michael: Well that is true. Well, I remember.. I think its page 132 of your book. I like.. I like the way you broke down the components of a great story that a CEO and his team and the people below him need to tell because I feel that.. is part that is almost missing when people start these change programs. They forget that you need to think of how you’re gonna tell the story.

Bill: Well, it is a story right. I mean, you know, we had something called a placemat which we use for the logic, the structure.

Michael: And I also saw that. That was very clever to just bring it all onto one page because if you can’t get it onto one page you probably don’t know what you are doing anyway. (34.55)

Bill: 100%. I mean literally, this was this was.. I was.. I was with a.. an aluminum company in the Pacific. And you know.. we had it for the whole company and then each plant had one and we were sitting at dinner with a guy who I had served as a refinery manager in Gulf Coast and he was hired by this place. I said “hey, you got it. you got to spend more time with your crew.. and by the way if.. you can’t flip this place and explain what the hell you’re doing. It’s too complicated. I mean come on man.. you’re like up near Papua New Guinea. You got people who live in a company town. This is their life you better make it simple. You’re just gonna freak them out.” That was the logic and in this story was the humanizing part of it. You know.

Michael: Yeah I mean.. the page is a very clever page because I think that a lot of times we forget the importance of a story. The other thing I realize is that you.. know there’s a game that teenagers play whereby you whisper a word in someone’s ear you keep on whispering into them.

Bill: Pass it down the alley.

Michael: Yeah. Exactly. I feel when you’re developing the message as a CEO. You’re gonna remember there’s gonna be a lot of room for misinterpretation. You’ve got to build that in and make sure that it’s very clear what you’re trying to do.

Bill: Again, you don’t trust the cascade. You assume they’re gonna get it wrong.

Michael: Yeah exactly.

Bill: That’s why and that’s why.. you need the influencers.

Michael: Yeah, but you know that’s the part that’s always missing whereby a lot of executives just assume that the organization is going to get it. If they say it enough times. (36.17)

Bill: Yeah. I mean how arrogant is that. You’ve been thinking about something for months. You say it one time and of course, you’re so brilliant in your composition that another person if he hears it for the just 30 seconds ago should immediately be jumping up and down and genuflecting and tell you how great you are. (36.35)

Michael: Exactly. You know.. even if employees. Even if it’s not even the message is clear. I mean there is example you have in the book about the monkeys.

Bill: Oh yeah. yeah. It’s a bit of a parable actually. But yeah.. social imprinting is a real thing.

Michael: There’s a first time. I think is it.. I forget who.. you quote. Was it Ram Charan?

Bill: Yeah. It’s a parable taken from a book that’s intended to highlight this idea of social imprinting.

Michael: I thought it’s a great example because it’s exactly the way humans behave if you condition a group of humans to behave in a certain way, they’re gonna act that way no matter what else you do until you recondition them.

Bill: Yeah that’s right. I mean, it’s like Pavlovian on the psychosocial level. You know.. which is even if you take away the stimulus, they’re still gonna assume it’s there.

Michael: Exactly because they… it’s like shock therapy, right? If you keep on shocking someone they going to be afraid, right?

Bill: Right. It’s corporate flinching. They’re gonna think.. they’re gonna think the punch is coming.

Michael: Exactly, this is the thing.. is that because of all these pressures and shareholder demand and investor demand and so on, a lot of companies forget that if you just invest in making sure the message is heard and the message is understood. The return is much bigger than ignoring this because a lot of companies from what I’ve seen change management there as what it is called is just a number of promotional emails they send off. A few videos they put together and then it’s a kind of a tick the box model when they say we sent five emails about this we’ve done change management, right?

Bill: Yeah, unfortunately. (38.10)

Michael: But it.. for me change management is have the employee behaviors changed. and if the answer is no then you haven’t done any change management.

Bill: Yeah. I mean look. I would even say it’s one step further which is have the employees changed how they think and behave.

Michael: Yeah, exactly. Think and behave so that they are not just doing something because you told them to do it but because they understand that a new way, new mindset that is required.

Bill: I mean.. the real test is when you stop watching..

Michael: Yes.

Bill: And they keep doing it.

Michael: Yeah, I mean when a company talks about culture. I always.. My personal view is that forget about what they say on their website. Just look at the way they pay people. Because if they incentivize people to do things that are different from what they want them to do then that is going to be the default. They’re going to what they are incentivized to do.

Bill: Well, that’s even if you’re even hoping that the incentives are coherent.

Michael: Which is usually is not, right?

Bill: It’s usually not. I mean the rise of the.. rise of the balanced scorecard and you know.. many KPIs meant that usually there’s a lack of coherence actually.

Michael: So you feel that even today because a balanced scorecard is old. We are talking about on early nineties. I think. Even if you have a ..a balanced scorecard. You still feel that.. I’ve seen it but are you saying that right now companies are still getting their incentive structures..

Bill: Well .yeah. Most.. most confused.. incentive pay is supposed to be for behavior and performance above and beyond what is expected. Your salary is for delivering what is expected.

Michael: You know this is something I preached so often. You don’t get an incentive for what you’re expected to do.

Bill: Exactly right that’s.. that’s what you’re.. so that’s why you know when people talk about oh they.. they build in the budget for incentive. Well then just make that their base pay. I mean that’s like calling it it’s like calling a cost-of-living increase a merit increase. It’s not merit. It’s not based on merit at all. It’s based on being alive. (39.56)

Balancing performance and health

Michael: Yes. Exactly. That is true. That is true. But let me circle back to health and performance because it is the most important concept. Everything else is built on this, right? You use an analogy.. that we also use.. whereby we talk about an athlete who may be performing very well. Pumping great speeds but it’s not quietly chugging away cigarettes and drinking a couple of bottles of whiskey at night. So that it doesn’t impact the performance immediately but down the line the health is going to deteriorate.

Bill: Yeah.

Michael: So the analogy you’re using is.. Health is the lead indicator for performance? Right?

Bill: Right, yes the math backs that up.

Michael: So now a brilliant analogy. I think it’s probably the best analogy using these medical terms. But how do you feel organizations are able to track their health?

Bill: You know, it’s not that hard actually. Yeah.. really.. isn’t.. I mean.. that was you know.. when we wrote the organizational health index in 2002. It was to measure just that. It was to measure that you know..

Michael: Now – consulting tools have developed so far that it’s easy. Give an example. So if you’ve been going to an organization. What are the top three or four things you would look for to see if they were a healthy organization? (41.05)

Bill: Well.. I mean.. one I do actually like to look at the results of the survey.. Okay. So I do run that but if I’m looking for indicators, right? Things that like evidence.. you know.. you might walk around. I would get a sense of their employer brand. Get a sense of their customer brand.. get a sense of the relationship between their appraisal rating and pay. And I’d get a sense of whether or not whether or not.. they.. when they leadership team gets together whether they’re spending time talking oh they’re spending time.. deciding

Michael: But don’t you think you need control. You need to run here.. because what I’ve seen it especially.. in tech for example, right. When a tech company is doing really well even if it’s got corrosive leadership, if people are getting paid well, it’s growing a lot, people seem to say things are going well but when the stock tanks and growth stalls, seems that company changes viewpoint. Isn’t that something.  (42.00)

Bill: So that’s.. that’s what you’re highlighting.. is a reason against the small.. small surveys. You might look like the twelve question types. As a general inflation bias or general depression based on how it’s going in general.. is a problem there. you know.. Ours is just under a hundred questions and covers a thirty seven different practices.

Michael: Right.

Bill: So they don’t.. they aren’t impacted that way. That’s the beauty of the measurement. There are some things that you’re just you know.. the question is so narrowly constrained. It is just.. Do you see this happening or not.. Now there are questions- general questions around quality of decision-making that you could say “yeah okay that one.. that one you don’t might bleed in a bit.” But we ask specifically questions at the end like “hey, over the last year is it the worst, same or better. And when you answered that “what were you thinking about?” So because we both prime the pump for responses by grouping like items together. And we give the person the opportunity to give that.. sort of.. overall assessment.. I feel pretty good about teasing out the halo that you’re describing.

Michael: In the book you used the example of Jim Cayne when he left Bear Stearns. he saw tears in the eyes of people. I remember reading an article.. where actually quoted that ..where actually said that.. but then when you interview people who watched him leave, they had a completely different reaction. That’s an example of the bias you are talking about.

Bill: Yeah. Yeah.. and look one of the things is sometimes the actual score isn’t nearly as important as the variability underneath the score and the patterns of this score.

Michael: Or the rough direction of where they are going.

Bill: Uh ya. We spend time asking is it working. You know.. the nine boxes, the outcomes which are agreement questions. But two-thirds of the survey is the management practices. It’s just behavior. “Do you see this behavior or not. That’s way more telling. I give you an example. It’s a human example. So I wrestled my whole life.

Michael: You wrestle?

Bill: I through and including through college. .

Michael: Yeah.

Bill: Like collegiate wrestling right.

Michael: Okay. Okay.

Bill: Like Olympic wrestling. Right. Not professional wrestling. And so I’m a little over six foot two but in my freshman year college, I would wrestle at 177 pounds. Most days I would walk around around 190-192. So my rule of thumb was, if I was 12 pounds away from the weight three days out, I was okay. I could get down and make weight. I was solving for making weight and I was good enough to be there not great.

Michael: Yeah.

Bill: But if I ever ran against an opponent who was around my ability but never let his weight get more than three pounds over. He always won cuz he was in way.. way better shape when we actually walked up a mat. That person was solving for the match. I was solving for making the weight. And so I would do these feast and famine things. You know.. up and down and I do think.. I do think you know.. this idea that the perception and what matters.. what it was. I would go, it was great. I am.. I’m not wishing weights gets going okay. Where the real thing is – no it’s the match. It’s what’s actually going on, right? That’s what.. that’s what matters. The people who are able to change their mindset about what matters and what’s important. (44.48)

Michael: The change and depth of function.

Bill: A 100%.

Michael: ..while optimizing.

Bill: Think about all the places who track behave.. they track activity.

Michael: Yeah.

Bill: Not the result. And tell they have a system. Wouldn’t it be useful to know both the result and how you got there? Like people who tell you they made their maintenance budget, but don’t bother tell you that they deferred a bunch of maintenance.

Michael: Yeah, an example of this is the rankings for things.. you know. Rankings of universities and so on. They track the inputs but they don’t retract the outputs as well and I.. and I see what you’re saying. It’s about figuring out what it is you want to measure and measuring the right thing. But do you think it’s easy to get companies today to do this? I mean.. It’s been hard forever. When I was there. It was hard. It’s easy to get a company around the table and say ”you know what.. we need to focus on..” I’m gonna use this term loosely because that’s the term people understand. On all these soft stuff items. Is there today a greater appreciation for the soft stuff items?

Bill: You know I think the environment right now, where you’ve seen the extra emphasis on purpose and broad stakeholder and the emphasis around the differences in the generations. Millennials and the ones behind them. I think in a minimum it’s more present in the consciousness.

Michael: Okay, so that at least company or employees amenable to its importance.

Bill: Yes. yes. I do think there’s more of a sentiment awareness. Now, whether or not they accept how much work it takes. like.. you know.. going to the gym once doesn’t make you Hercules.

Michael: Yes.

Bill: You know. I.. do you think there’s a little bit of a laziness sometimes and why can’t just.. why can’t they just be done? You know sometimes, right because it’s a little uncomfortable. You’re forced to actually talk with people about things that might feel a little difficult like.. how you are in control and influence but.. but if you know.. I mean.. the data is the data. If you’re willing to take it on and willing to stick with it. And really work it.. it’s gonna work but it is hard work. There’s no shortcut.

Michael: Yeah. And it’s really difficult to change the culture of the company. I mean.. It’s one of the most difficult things that you could ever do right?

Bill: Absolutely. Well look.. people want the shortcut right? They’ll say.. oh.. we can only focus on one or two things. Okay.. something as complicated as tens of thousands of employees working around the world who would otherwise be doing what they want to do. Do you really think one or two things is going to change the place?

Michael: Yeah.

Bill: Like it makes belief.

Michael: In the book, you use a good example of I think it was East Timor whereby one of your colleagues.. I think.. was driving through East Timor and they saw a lot of rusted earth moving equipment that was donated by and.. I think it was.. the Chinese government, but even though.. the right tools that have arrived. the country didn’t have the capability to actually do something with that.

Bill: You have to be able to use it right? (47.29)

Michael: Yeah so.. what I’ve seen in consulting is a lot of obsession with getting tools because you can measure, you know.. you can say that “well today we taught employees five tools” but there’s less emphasis on whether the tools are being used.. and being used correctly.

Bill: Well and used correctly right? you know. I mean I was.. I was at a chemical plant where one of the plants, the.. the outside operator first one has to check gauges.. has to wear a hood and you know.. because they need to be able to have clean air to breathe.

Michael: Yes.

Bill: And their their rounds were moved on to a handheld device.

Michael: Yeah.

Bill: So that all the data was available to the engineers back in the headquarters. All seeming to make perfect sense. So when we were looking at it, we noticed.. we noticed that all the submission of the data was coming in at exactly the same time which meant that the operators are filling it in.. in the shed, not out at the face where they were taking the readings because.. you know.. you’d walk from thing to thing they’re big.. they’re big gap, right. So we said “hey guys what’s going on here? We just spent like 40 million on this system” like.. “oh yeah yeah yeah.. let me.. let me show you about that.. so here’s the handheld. hold it. I’ll go ahead and put the hood on. Someone in procurement got polarized lenses for the hood. And they didn’t bother to talk to the people who actually did the work.. and let them try it out.. so they hid their KPI of getting a price reduction and they bought it… It bore no resemblance to whether or not the outside operators could actually use it.  .

Michael: The checking of KPI is the overall goal right?

Bill: If you allow people to do it, they’re gonna solve for themselves. .. you have to have an aspiration that has meaning to enough people that they were suborn their own needs in pursuit of something bigger.

Michael: It come back on the earlier point we are discussing. They’re probably being remunerated whether they hit or not based on their KPI only.

Bill: Wellm even if it’s not remuneration sometimes it’s just ease and identity. I’m gonna do it my way.

Michael: Absolutely. A lot of times people do things that because of maliciousness but because it’s just easy for them to do it right?

Bill: Uh yeah. It’s a concern.

Michael: And we always assume that oh this employee has done this something evil but people are busy.. they’re tired. Just want to get home at five o’clock and live a normal life.

Bill: Absolutely right.

Bill: You know, we spent time there in Chapter two. you know.. on assessing you say.. like why wouldn’t otherwise a well intended person not be doing what seems obvious. 

Michael: Yeah. Because its not obvious to them, right?

Bill: Yeah and sometime in their minds like I have a good reason. I’m not allowed. I can’t. I won’t. If it’s I’m not allowed, they believe it’s not their job or they believe that they’re about to violate a social norm. It’s like that’s not how we do it around here which feels too risky. you know.. If they’re saying they can’t and they’re saying “hey I don’t have the time or I don’t have the resources” what they’re really telling you is “your list is not the same as my list and unless I’m forced to. I’m gonna keep working my list, Thanks.”

Michael: Yeah, i remember.. Back when i was doing all these things I remember speaking to these employees in a state-owned bank and the bank had brought in their sixth CEO and something like five years and he had launched another change program. And I remember asking his employees. you know why are they not excited about this? right? and then they said “well it’s the sixth program in the last five years”, right? We don’t know what will happen. It’s hard to get motivated about something that changes every few months. And that is one thing that consultants but also executives tend to forget is that employees have been there a long time. They don’t know whether this is anything new.

Bill: Absolutely right. It may be new to you. It’s not new to them.

Change management and motivation

Michael: Exactly so.. so.. you come in there as an executive you probably have a great career but if you completely  fail someone’s gonna hire you and give you a golden parachute. As the.. as Joe Smith who has got three kids and he’s saving for their education I mean he’s just got to survive the day versus trying to.. throw his hat into something. And I think that’s always a difficult disconnect. How do you motivate people who have been through this for so many times?

Bill: Well you could start by acknowledging that stuff didn’t work in the past. We are back to the humility thing again. Don’t act like people don’t have memories, you know.

Michael: Yeah.

Bill: How much it didn’t work. If you want people to believe that this has a chance at least start with acknowledging what didn’t work before and how this is different.

Michael: Yes. I like that. Do it without throwing everyone under the bus.

Bill: Hey we gave it a go. We thought what’s gonna work. It didn’t but we’ve learned from it. We gotta do different.

Michael: Yeah it’s also about listening to employees about what they think needs to be done differently right?

Bill: 100 percent! yeah exactly.. exactly right.. I mean.. It is the whole idea of listening. It’s a really interesting thing right. If you’re just waiting your turn to speak, you’re going in with an assumption that you have something to tell as opposed to something to ask and learn.

Michael: Yeah, you know. It’s interesting how you’ve talked about listening. I’ve only done one implementation engagemenet in my entire life and that one thing that struck me about implementation is that.. you’ve got to talk to people at least seven times to get them to change their behavior. So it’s not an engagement where you go in there, you do it the analysis, you present to the executive team and then you’re done. In implementation, you got a seat there, you gotta keep your door open, talk to the ‘person A’ the first time. Follow up with them, delivering the same message in a different way, a second time, a third time, a fourth time and a fifth time and only then do they trust you and start changing.

Bill: Well that’s even the trial, right?

Michael: That’s right. They may not even..

Bill: We delude ourselves a little. You know.. there was some academics named Meyer and Alan.

Michael: Yeah.

Bill: Through ahh.. in the 90s we’re writing on commitment and said hey not all commitments created equal. You know we’re often.. you know we want people to think this is the next best thing since sliced bread. For some people it’s just continuance commitment, they’re doing it because they need the job. On others do its just because all their peers are doing it, right? It’s like a normative thing. Very very few out of the gate are like.. oh my God this is so amazing.. I do it even nobody was watching.

Michael: Yeah.

Bill: We act like people should be there to start. You’re just trying to get adoption. Just try it and with the belief that if it works and they get reinforcements and recognition and you’re making it easy to do it then they’ll start grouping into it. But we have a completely delusional sense of what people are going to adopt and how quickly. (53.30)

Michael: Yeah.. I mean..  how tiring it was to talk to so many people. it’s.. it’s really tiring to just talk and try to convince someone.. and that’s when you’re doing it one-on-one, right I mean.. Imagine an executive who is relying on his team to implement things. But he doesn’t the ability to talk to everyone 1 on 1. It’s incredibly difficult, you have to be creative and you’ve gotta understand it’s gonna take a long time just to ..you know.

Bill: Let’s talk to everybody.. but the people who control the water cooler.. talk to everybody.

Michael: Yeah but even for them. It’s hard.

Bill: Of course it is. You need to give tools .It’s just.. It’s a reinforcement, right? I mean why.. why when you see a product online, you may not even give it a second glance but when you see that it says that five people that you know who your Facebook friends have reviewed it. You’re like six times more likely to buy it.

Michael: Yeah. The power of referral from someone you trust.

Bill: Exactly, right.

Michael: It’s basically what you’re saying. You basically want management’s idea to be referred by an ‘influencer’ what you call watercooler.

Bill: A 100 percent. Reinforced and suggested.

Michael: Now that makes sense to anyone.. but if you read a lot of management literature there’s a lot of emphasis on change being driven top-down versus this concept of cultivating these influencers.

Bill: Well the people who are buying a lot of those books are in fact in the senior roles and so there’s a.. there’s a bias to talk about the primacy of those roles. Like I said they’re.. they’re necessary, they’re not sufficient.

Michael: That’s a very very good point to bring up because one of the things I notice about the book which I really liked is that, it’s written in a very practical way.. whereby you talk about just about.. Every article in Harvard Business Review and so on. It’s written for senior executives on how he develops a plan. But your book straddles that plan into how do you actually get this to be rolled out, right?

Bill: Well. That was the intent, right? I mean it’s a pretty accessible guide to successfully changing how you run the place.

Michael: Yeah because you know, I can imagine a senior manager or even a middle manager reading your book and saying.. you know.. I can actually do some of these things because they’re not too theoretical, there are actual steps here. I made some notes here, a page 132, for example, there’s a great way I can break down the story. There’s one way and how you.. lock-in influences and so on.

Bill: Yeah.

Mass Personalization that will encourage Behavioral Change through Technology

Michael: And I think it achieves that. So.. let’s just circle back here, right. So you.. in Philadelphia, you obviously no longer are you still running the office or you’re now fully involved now in building the organizational practice.

Bill: Oh yah. I was just one of the people who opened it. I wasn’t.. wasn’t running it and I’ve always played more of the organization practice. you know.. leading that..

Michael: Okay and so what’s the next steps in these thinking and the organizational practice. Where are you going with this now? Obviously, there’s much more to be done.

Bill: Yeah.

Michael: What do you see as the next frontier?

Bill: I think.. you know.. I think there’s something really interesting coming out what we’re calling mass personalization to change. So how we can create a personalized and customized and configured experience of change for every individual.

Michael: That sounds difficult. How would you do that?

Bill: Well. We’ve been talking about performance and health, right? Yeah so if you were to draw a 2×2 grid and across the top it said TNH and on the left you put an O and I for an organization and individual. The upper left is where most people spend their time, how are we going to make money? The upper right health and organization, how are we going to run the place? It’s we.. it’s.. it’s you know.. it’s for the monolith. It’s overall, right? treating the average as representative of everyone. But how do you bring that to life well then how we’re going to make money disaggregates in the roles and people occupy those roles. So, what if we just make sure that every person knew what their jobs to be done were. What were the critical five or six things that they need to do to really nail the value? What if they were really clear on their spot in that placemat that we talked about. That they had a personalized placemat.

Michael: MMhhmm.

Bill: Now you’d know that all of their activity was focused on what mattered and, over on the lower right – how do I have to think and behave to bring this to life? That whole thing that you’re saying about how you’re gonna run place different? It always requires people’s thinking and behaving differently so can we get super specific? So we’ve built an app to help bring this to life for every employee and then we asked them “Hey, this thing that you’re being asked to do seems pretty straightforward why aren’t you doing it?” and when we get a handle on “not allowed”, “can’t” or “won’t”. You know the blocking mindset so then we can match the behavior we want them to do with the blocking mindset they have and actually give them a really good nudge. Not an act. Not a reminder email. A nudge.

Michael: I mean we assume that they are using your app, doesn’t it?

Bill: You can we can track.. you know.. what is great about apps.. you know when its on, you know it’s running, you know when they’ve opened it and then we can measure all the people around you telling us whether or not you’re changing your behavior. it is remarkable..

Michael: Let’s say it’s an organization. Let’s say sixty thousand people.. I mean.. it’s gonna be hard to get.. I mean.. I’m guessing it’s gotta be hard to get a high adoption for the app.

Bill: Yeah. I’m not sure. I mean most people read emails on their phone now. You know I mean could be.. you know when there’s structural things like shift work, people who don’t have company phones things like that. That can be a little harder you know.

Michael: The goal is not to get everyone to use it but enough people.

Bill: I would love – out of the gate to start with everyone who’s in a critical role. Everyone who’s involved in all the transformation and all the influencers. I would start with them and then work my way around.

Michael: That makes sense to me because then that’s easier to manage. If you need to.. to make contact with someone, you can do that. Yeah that makes sense.

Bill: I mean.. we just added a couple weeks ago a social wall. So someone say “hey I’m working on bottom-up innovation. I’m having a hard time. Who tried anything?” people can throw it up and say that they’re not and people can like it.. you know.. kind of recommend it and broadcast it. And it’s interesting how recognition from your peers is unbelievably reinforcing. I mean we can see that when somebody gets recognized by one of their peers. Their likelihood of a jump in behavior the next week goes through the roof. (59.20)

Michael: So now all this app work that’s currently being done within the firm?

Bill: Yeah.

Michael: So, this is merging of all the digital analytics were concern being brought to be an organizational design organization. (not clear)

Bill: That’s right. design work. digital work. capability building and any or.. or org psychology.

Michael: You know it makes sense and you bring the best of the phone from different places together to solve.

Bill: That’s the intent anyway, yeah.

Michael: Well it seems to be working and in this particular example. It seems to be working.. It makes sense as well because a lot of times when you see  firms talk about building apps. It’s.. as if the app is the goal but here, the app is a subordinate. It’s there to help people. They’re engaged.

Bill: It’s merely a conduit merely. A conduit. That’s all.

Michael: Yeah but it makes sense right because then you can push notifications to people. I mean if you’ve got the right..

Bill: So this.. this is really interesting. One of the features is the person gets to set when they receive their push – Sunday night, Monday morning, Tuesday at lunch. Well, the analogy I use because I just turned fifty right. So I’m old enough to remember these things. When Netscape had communicator and navigator they were the dominant browsers before. One of the things that was always cool was when the next version came out you downloaded. It you’d sit there for a half hour and configure it. Where which pane is gonna be your email, which PSNR gonna be a calendar, where’s your ICQ feed gonna commit. the minute you configure something to your liking, you are a multiple time or likely to keep using it.

Michael: That makes it interesting.

Bill: That’s why we make this thing configurable.

Michael: So now you are collecting all these data which means that – collecting all these data and you obviously bring this all into McKinsey which gives you more granular ways to cut and see what people are doing. Like a circle.. reinforcing circle here.

Bill: That’s the hope.

Michael: Well it’s a good start, right?

Bill: I mean the OHI has over six million people are taking it and closing in on three thousand companies. That’s a nice base of feeling comfortable that when we assert something about how.. how you run the place, impact performance we know that.. It’s not a belief. It’s not an assertion it’s not marketing. We know it. We’re hoping to do now in the individual level is at a similar level of understanding in depth around how different approaches to nudges impact people based on their own personality.

Michael: And I love the way you use the word naturally because it’s exactly what it is you’re trying to nudge people to modify their behavior.

Bill: That’s right it’s not a nag. it’s not a reminder email.

Michael: Yeah. I forget what economists call it but you’ve got to find a way to get people to change their behavior without making it you know.. obvious. You trying to get them to change their behavior because then they.. you throw them off balance (not clear).

Bill: Well, they might actually react really badly to it right. I mean.. people who are normative and have a high sense of social responsibility. The last thing they want to see is a league table.

Michael: Yes.

Bill: That’s gonna turn them off It’s competitive. But if you say to them “hey, you know seven.. seven of your colleagues have already done this. You know you’re gonna be able to finish it up” they will immediately be mortified but they’re letting their colleagues down.

Michael: Yes. Yeah that’s – it’s almost a gamification kind of model.

Bill: It’s just matching. It’s matching your interaction with the person to whom that person actually is and not assuming the average works for everyone. It doesn’t.

Michael: Yes it’s.. it’s like the way banks used to do microfinance. If you land money to six friends and one of the friends knows that the other five is paying on time, they want to also pay on time, right?

Bill: Yeah they don’t wanna be the odd one.

Michael: They don’t want to be the odd one out. It’s not shaming them. But it’s making them aware.

Bill: Well it’s pride. I mean you are directly going after pride there.

Michael: Yes, but you’re not doing it in an abrasive.

Bill: No! No. no. no. You’re tapping into the person’s motivation.

Michael: Exactly you are figuring out what.. do they want to be known for and nobody wants to be the one who’s not doing well.

Bill: That’s right.

Michael: I mean. You’re showing them where they actually. You are doing in a good way. Our discussion, we’ve never spoken once about organizational structures which I think is good because whenever people talk about org design they always go to organizational structures or organograms and so on which is really out, I mean you need those things but it’s not what drives a healthy organization..

Bill: Yeah I don’t think so. Look. I think it’s.. It’s an interesting. it’s an interesting tactic to group together activities and try to get one up you know an economies of scale.. skill or scope (not clear).

Michael: Yeah. Yeah. Organograms is more like a financial statement it is the snapshot in time and it doesn’t tell you how to pull your resources and allocate capital and so on.

Bill: No. right. I mean you really do need to understand how you’re gonna make money before you allocate the two kinds of capital, financial and human. And that’s an interesting aside I know where I know we’re coming close to time here. But as an interesting aside, all of our governance systems are set up to monitor the capital that we’re long on – and which is money. The capital we are short on – people, we ignore. And we can barely get people to pay attention to it. That makes no sense.

Michael: Yes, in terms of time. I do have additional time where I’m touching a few more points. How are you doing the time?

Bill: I have.. Hold on. I want to understand what time it is. I want to make sure I understand.. where will we go to? where we going to.. that half past.

Michael: Yeah. How does that sound?

Bill: Yeah yeah. If we can go a little shorter fine. But yeah.. that’s fine.

Change management and motivational core of individuals

Michael: I got few more points that we’re quite interesting and make sure that the audience is aware of it. Okay. So good. We are talking about organizational structures, you know it’s a snapshot. It doesn’t talk about allocation of capital. You talked about them. you know.. One of the most important assets we have which is ..I don’t want to use the word human capital- it’s too obvious.. but let’s just say it’s people, right? So motivating them and so on.. you then see.. you.. in the way you’ve written about organizational thinking. it’s… it’s very much tied in to the original work you did for your PhD and your first work which is about motivating people and getting the most part out of it. I mean that’s the way I’ve seen you interpret organizational thinking.

Bill: Well – I mean at its core you are trying to get people who otherwise would do what they want to do what you want them to do given the way you want them to do it when you want them to do it. I mean.. if that’s not calling for motivation. I don’t know what is.

Michael: I mean what you doing.. going what you’re doing.. is you’re going back to why an organizational team was put together in the companies.. to get the most out of employees right? The job was not to put organograms and then build something.. (1.05)

Bill: That’s right the belief said – is these people working together in concert to a common end will accomplish something.

Michael: MM..

Bill: That’s the intent.

Michael: Yeah I mean.. that’s you know.. that’s the right way to do it. so.. other area that I like the book talked a little bit about how this kind of thinking can be used to motivate countries and the reason I want touch on that is we have a lot of listeners in emerging markets who sit on boards of state-owned companies and so on. Is there any particular insights you’ve seen.. around how this applies to state-owned companies or so?

Bill: Sure. yeah. I’ve served them. I’ve served them.

Michael: Good.

Bill: I think you know.. let’s say you may be constrained by the extent to which you can differentiate through incentives or you may be constrained in terms of formal consequence management but you know it’s still there. Influence, power, recognition, working on work that matters. Working with people you like, right? You know all that.. all that kind of stuff is still there. People when they get up in the morning regardless whether they’re going to a government entity, a state-owned enterprise, a private, or a public enterprise. No one gets up in the morning says ..well I’m gonna be really horrible today. That’s not how it works. We spend too much time at work. No one wants hassle. so the game you’re playing is.. how can you get people lined up on doing what you’d like them to do and get to at least some kind of a common agreement about how much effort it takes? You know a standard, right? Well that’s but that’s the essence of it, right. That’s why you’re trying to create an environment. That’s the whole point of the influence model. .

Michael: A government entity, a state-owned enterprise, a private, or a public enterprise.  It’s still a business and serve fundamental things.. all things is required.

Bill: You’re trying to have an impact. You have a budget. You have a bunch of people allocated against it. Your financial capital against it. It’s the same idea.

Michael: It doesn’t matter whether you’ve got a boss who just happens to be.

Bill: It just changes how you keep score that’s all.

Michael: Yeah so what you saying is that the way to motivate humans is going to differ by culture and region but the principle that you have to motivate the employees is still the underlying premise.

Bill: 100 percent. A 100 percent.

Michael: And those tools and principles are broadly the same, right. You gotta identify what people know what they need, know what they want, to find a way to give that to them.. in a way that’s beneficial to the company.

Bill: I mean right.. I mean.. the beauty of this.. is it holds true everywhere.

Michael: Mm.

Bill: Say where you’re going to go and make sure it’s really attractive. Take a really honest look about where you are.

Michael: Which is basically capitalism, right?

Bill: Right figure out what skill.. what skill you need to close that gap and figure out how people have to think differently to help close that gap. Structure set of activities to make sure you make the environment really conducive to them changing. Pay attention once you hit go whether or not the darn thing is working. So you can course correct along the way and then while you’re doing it as soon as you find something that works. Change the formal system don’t make this the event make it how.. you run the place. Repeat.

Michael: I think that’s a good summary. Bill, thank you so much. I really, really enjoyed speaking to you. I enjoyed the book as well and..

Bill: Well thank you. I really had a good time. I’m glad.. I’m glad we did this.

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