Transcript

Episode 121: How Global Companies Adapting to Succeed in the Face of Ongoing Disruption—with Jim Hemerling

Deb Zahn: I want to welcome you to this week's episode of the Craft of Consulting podcast. So as a consultant, one of the things that you have to do is you have to help the organizations and companies you work with embrace that things aren't going to go back to normal, that we live in a radically different world. They can still thrive, but there's going to have to be fundamental things that they do differently, and it's going to be our job to help them figure out how to do that.


So I brought on someone who just was a co-author of a book that is exactly about that topic. It's Jim Hemerling from the Boston Consulting Group, and he is one of the co-authors of Beyond Great: Nine Strategies for Thriving in an Era of Social Tension, Economic Nationalism, and Technological Revolution. I just read this book and there are a lot of things to consider in terms of how we can help the folks that we work with, not just get through until the next time of stability, but understand a fundamentally different world. And that's going to require different things from them. So let's dive into it. I can't wait to get started.


Hi, I want to welcome to my show today, Jim Hemerling. Jim, welcome to the show.


Jim Hemerling: Hey Deb. Absolutely delighted to be here with you.


Deb Zahn: So let's start off. Tell my listeners what you do.


Jim Hemerling: Well, I'm a senior partner, Managing Director in the Boston Consulting Group, and I've been doing this for about 30 years and still pinch myself. It's hard to believe that I get paid to do what I absolutely love.


Deb Zahn: That's wonderful. I know that in addition to the work you do there, you also recently co-authored a book, which I just read and love. So I'm delighted to have you on. Tell folks what the book is, and why did you folks write it?


Jim Hemerling: Well, the book is called Beyond Great: Nine Strategies for Thriving in an Era of Social Tension, Economic Nationalism, and Technological Revolution. And the reason we wrote it is if you think about it, if you go back, let's say 20 years ago-ish, there was a playbook that most companies operated by. And the playbook essentially was focused entirely on your shareholders. Deliver great products at a low cost or try to leverage economies of scale somehow to get to low cost. That was essentially the playbook. And all of that played out in an environment of relative stability.


If you fast forward today, of course we're living in a completely different world. A world that is constantly being disrupted by the forces of social tension, climate change, economic nationalism, and also of course, while technology has been with us for a long time, it really has amped up. Or as Satya Nadella would say, we saw in two months, really two years of technological revolution. And so the world has been disrupted. And so what we thought is, look, we need a new playbook and we need to help business leaders understand how to operate in this new environment. And so that really is what the new playbook is about. And at the high level, it essentially is, don't just focus on shareholders. Focus on all stakeholders, including your customers, your employees, your suppliers, and of course, the impact on society more broadly, while also of course delivering for shareholders.


It's also about not just products but thinking about great solutions, experiences, and outcomes for customers. And it's not just about the economies of scale. It's also about being resilient, being fast, and being agile or adaptive. So that's in a nutshell, that's essentially the book, and why we wrote it.


Deb Zahn: And just so nobody thinks that this is a Cliff Notes book. This goes deeply into all of those areas, which was phenomenal reading it. And the reason that I think it's essential to talk about this is, the consultants that are listening are going to have to hear and be supporting companies who need to operate in this environment. And the more we know, and the more we know about other examples, the more helpful we're going to be to help them thrive. But let me ask a super naive question. I'm definitely not this naive, but I'm going to ask anyway. It's because I've heard this actually from folks is, well, the pandemic's kind of wrapping up...Shouldn't we just hold on a little bit longer and things will return to normal, and then we can go back to business as usual? So why is that the worst idea ever?


Jim Hemerling: Well, interesting you use that language, business as usual. A few years ago, I had the opportunity to give a TED Talk, and it's Five Ways to Lead in an Era of Constant Change. And at that time I said the metaphor that oftentimes companies used for transformation was that transformation was like a sprint, usually in response to a performance crisis or a bottom line problem, companies would stand up a transformation. They would execute some initiatives, and then they'd go back to this wonderful state, business as usual. Well, of course that world is gone. And even at the time, I said, we've entered a new era of always-on transformation, where the metaphor is really more like a triathlon.


Over the years, I've competed in a number of triathlons. And the reality is, I'm not very good. But I do have one distinct capability. I am remarkably fast at finding my bike. By the time I finish the swim, all the other bikes are already gone. And sadly, that is actually true. If you look at triathletes, the best ones are almost always people that were competitive swimmers. But the point being is that the metaphor of triathlon is really much more of the world we live in right now, which is that no sooner do you finish the swim and then you have to jump on your bike. Then you finish your bike. And then you got to start running. And by the way, it doesn't even end there. So what I would say is the evidence is overwhelming that we are in this era of constant change or constant disruption. And it does require that companies really embrace the reality of always on transformation.


Deb Zahn: And the book goes into three areas quite deeply, which is how companies grow, operate, and organize themselves. So what I thought I would do is touch upon at least one aspect of each one of those. And actually you gave a little preview of one, but let's start with the one that actually warmed my heart when I saw it, which is doing good as a path to growth. And so, I want to hear from you a little bit about what that is, and in particular, how companies can truly embed that into who they are, what their core business strategies are and not the side salad. That's what our foundation does. Or even the performance version of, we issued a statement check. But how do they really do good as a way, not just to do good, but also to support what their goals are?


Jim Hemerling: Yeah, no, I love that. And the introduction to the book was, the chapter was called, Great is No Longer Good Enough. And then, what we do is, as you said, we've set up then, OK. If you need to go beyond great, how do you do that? And it's thinking about these three different aspects: growing, operating, and organizing. So in growing, consistent with what I was just saying, it really starts with the idea of being a purpose-driven organization. And most organizations now have embraced the idea of the importance of purpose, or as Simon Sinek would say, start with why. But I would say, or Daniel Pink, looking at what millennials are looking for: purpose, mastery, autonomy, but purpose again. And BCG actually has a firm called BrightHouse, and they work with organizations every day, helping them to discover, articulate, and activate their purpose.


So this is something that companies have really taken to heart, but we still find that there is a big difference between what we call surface purpose, which is just articulating a tagline and maybe making a nice video, and really driving purpose deeply into the core of what you do. And so what we talk about in the book, and as you know, you've read it, Deb, what we talk about is real examples of companies. Companies like Natura, the Brazilian cosmetics firm that is now the world's fourth largest cosmetics company after their acquisition of Avon last year, or companies like MasterCard or Microsoft that are all saying, no, no, no, it's not enough just to do CSR off to the side. We need to think about how we can leverage the assets of our company to actually do good and by doing good, then being able to grow through that.


So if you think about the example of MasterCard for a moment. MasterCard, of course, is a financial institution. And so how could they leverage that? Well, one of the biggest challenges in the world is financial inclusion. The people that are at the bottom of the pyramid that don't have access to banking services or lending. And so what they've said is, that's our business, so we're going to reach out to those people and to become more inclusive. And so basically going into the bottom of the pyramid and making financial services available to them. Or you think about a company like Natura, Natura with their origins in Brazil. What they've said is in two ways. Their founder Luiz Seabra said he believes in the interdependency or the interconnectedness of everything. And he believes in that on both a human level, but also in humans interacting with nature.


And so what they have said, and by the way, they've really put their money where their mouth is because they are the first major public corporation to become a B Corp. And all of their leaders are compensated, not just on financial performance, but also on the impact on society. And in the core of their business, on the one hand, it is the millions of sales consultants that sell their cosmetics products. How do they actually build into and enable them to become independent entrepreneurs and to help them to become financially independent?


It's also thought that many of the ingredients they source for their products are from the Amazon. And so they have made it their personal commitment to do good to the environment in the Amazon, and to make sure that all of the sourcing, all of the partners that they work with, commit to doing that in a way that is sustainable. And also thinking about circularity and packaging, how do they make sure that they're not contributing to environmental waste to the very packaging they use in their products? So anyway, those are a couple of examples of companies that have really taken to heart the idea of going beyond surface purpose to embed purpose deeply in what they do, and making sure that they're benefiting not only their shareholders, but also all stakeholders.


Deb Zahn: Yeah. I liked in those examples how it wasn't just, and we're now going to change this practice, but that everything they do is tied back into compensation. How they function and operate all different levels. And that's where it gets into the DNA, as opposed to, it's a statement. It's a little nice thing that we do over here, but no, there's a way to do it to where it's actually real.


Jim Hemerling: Absolutely. And that's the core. It's at the core of their business.


Deb Zahn: I like that. So one of the other things that you talk about in terms of operating is to engineer an ecosystem. And so I wanted to dive into that a bit because as it says in the book envisions a dynamic delivery network of partners from a variety of different industries. So what is that? And what's different from what we have today?


Jim Hemerling: Yeah. Great engineering ecosystem. So let's take it as another specific example here. Let's take the example of Volkswagen. Volkswagen used to define their business as being a manufacturer of automobiles, a car company...and of course that's what everyone thinks about them as being. But a few years ago, they decided that they were going to redefine the nature of their business and their value proposition to their customers. To go from being a car company, to being a mobility company, and to think about what are the bundle of solutions and experiences that are required for a person that's thinking about anything related to movement, to mobility, in terms of understanding where they're going. Looking for different vacation destinations. Thinking about how to manage any problems they may run into when they're traveling. But thinking about mobility much more broadly. Once they decided that that's what they needed to deliver, then they stepped back and they  asked how. How do we deliver that?


If we try to build all the capabilities required to do that on our own, it will take forever. And so what they said, if we're really serious about moving fast, then what we need to do is build an ecosystem of partners that will enable us to knit together these integrated solutions and the experiences to deliver on mobility for our customers. And consequently, they ended up developing a network of about 60 partners that each bring a different capability to the puzzle that they're trying to stitch together. And so that really is the idea. And then of course, it also requires that leadership and management learn how to manage this integrated network...this ecosystem.


By the way, many of those partners, in some cases, may compete with Volkswagen. They may compete with each other, but they also collaborate. And so what they've had to do is basically develop a whole new way of working, of how do you orchestrate the interactions with all of these different partners in a very dynamic way, in order to deliver the service that they're trying to provide for their customers. So it really is a pretty fundamental change to how you think about both. It's no longer just the resources in the four walls of the company. It is extending that, but it's also changing...how do you think about operating?


Deb Zahn: I also like how it's talked about. It's not any more a zero-sum game where you're just trying to squeeze as much as you can out of your partner so that you gain at their expense. Talk a little bit about how this ecosystem, in order to achieve balance as you would in any other ecosystem, has to benefit everybody that's involved.


Jim Hemerling: Yeah. And so that's the thing. It usually starts with some form of a big, hairy, audacious goal. A BHAG of we're going to make a leap forward in the value proposition we have for our customers, and then thinking about, OK, who needs to be part of that. But then you're absolutely right, Deb. You need to make sure that it works for them. That’s a really the classic example of a win-win-win, where it's a win for, in this case Volkswagen, for the partners, but also very importantly, for their customers. And so I think what you need to do is, it starts by getting everyone literally on the same page of what we are trying to accomplish. And then there's actually a number of different ways that you can actually engage with those different partners.


In some cases, it might be just a typical joint venture arrangement. In other cases, it might be a service level agreement. In other cases, it might be taking a minority equity stake in the company. And so what we're finding is companies are experimenting with very different, call them ways of contracting for those services. And then also thinking about how you get the different partners to work together toward the outcomes that you need. A lot of it is in the mechanics. And that's why even that chapter of the book talks a lot about what we've learned by working with a number of companies in how they not only created, but then managed in a dynamic way, this set of partners.


Deb Zahn: And when I was reading that part, I was thinking about that versus monoculture. Because I garden, of course, and grow vegetables. I was thinking about farming. And I know John Deere was one of the examples you talked about. But in monoculture, there's a weakness inherently built into it because if anything, and you can try and prop it up, you can try and do a number of things, but those weaknesses can easily be exploited. They can easily lead to disaster if anything goes terribly wrong. But an ecosystem is inherently different if done well because particularly if it's a balanced ecosystem. Because if there's trouble in certain areas, they're not by themselves. They have those connections with others and can help through that partnership to make sure that everybody's OK.


Jim Hemerling: Well, I love that example, and it ties back to what we were just talking about, Natura and wanting to have sustainable development as they work in the Amazon. Or even I'm thinking of that great movie, Kiss the Soil, that talks about when you do farming the way we traditionally have done it. You basically end up destroying the very soil. But if you come at it more as a dynamic ecosystem where you need to think about the benefit of bringing different crops with different characteristics together, you can end up having much more sustainable farming. And of course, as the movie says, a huge positive impact on climate. So I think it's a great metaphor actually, of the benefit of an ecosystem.


Deb Zahn: I kept envisioning the soil food web over and over again because I was trying to explain to my nephew at one point. He was like, no, it's just the component parts. I'm like, that's not how it works. But that's fabulous. So let's talk a little bit about organization. There I want to dive in a little bit deeper because a lot of consultants work with organizations that are very attached to their org charts. Not everybody's even moved to a matrix system. Some are still back in the traditional hierarchies, and you're talking about something very, very different. So what are some of the more resilient companies starting to move towards in terms of how they organize themselves?


Jim Hemerling: Yeah. But I'm glad you mentioned matrix. The matrix has essentially been the dominant form of organization for decades, and everyone knows the benefits that you are attempting to get from a matrix, which is basically, you're trying to get economies of scale while also having a degree of focus. But it also, as most companies realize, there are many downsides from it. And over time it tends to lead to a lot of bureaucracy, and the cost overwhelms the benefit of the matrix. But that was really honestly, about the only thing available, if you will, in terms of the design of organizations for decades. What's so exciting in the realm of organization consulting, which is actually what I primarily focus on, is we've seen three fundamental new ways of thinking about organizations and your ability to combine them is leading to some powerful innovations in organization.


So those three, what are they? First of all, and by the way, the chapter in the book is called Get Focused Fast and Flat. And those three words hint at those three revolutions that we're seeing. The first is get focused on the customer. So most organizations, even when they thought about a matrix, it was typically geography and some definition of product interfacing with functions. But what we're seeing is companies like Unilever are saying, and by the way, Unilever has been a quintessential multinational company for years, they used to define their organization primarily by geography and product. But what they've said is, no, no, no, it's got to be about the customer. So what they've done is they've moved to having 240 customer category business teams. So think about these as fairly empowered teams that are right at the rock face with customers. Their objective is how do we innovate and deliver value added services to our customers faster than even just the local companies that are operating in individual countries.


So that's the first idea, is really to get focused on customers. And companies are coming at that in different ways. One of the other ways that companies come at it is through something called the customer journey. So think about what is the journey that the customer takes, end to end? And then how do we realign the organization against that customer journey? Basically meet the customer where they are, customer back. So the customer is the first one.


The second one about being fast really takes us into the world of agile, and agile ways of working. As we know, agile has been around for decades, but primarily limited to software development. But what companies have found over the last few years is the same concepts that work well in software can actually be scaled to the organization more broadly. So basically, what are those concepts? Well, you want to have cross-functional teams, so make sure you've got the right people together.


Then you want to be focused very clearly on value delivery for the customer or the user. You want to be working in iterative sprints. So don't wait six to 12 months before you deliver something of value. No. Think about how we deliver something every two to four weeks. And by the way, one of the huge benefits of that is it also de-risks the execution so that it breaks this constant challenge of how do we do something that's innovative without breaking the company. You're also getting real time feedback then, empirical feedback from customers and users that you can use to enhance the offering. And you need to do all of this through really empowered teams, teams that are empowered to make decisions and to deliver.


So that's the middle part of this. And so in the book, we talked about many different companies, companies like ING out of the Netherlands, that are saying we need to pivot from being a bank to being a technology company with a banking license.


Deb Zahn: I loved that quote, actually. Talking about turning things on its head.


Jim Hemerling: Totally. And then the third element, Deb, just quickly, is the idea of being flat. And what do we mean by being flat? Part of being flat is literally reducing the number of layers between the CEO and basically the frontline folks that are interacting directly with customers. Part of the reason organizations are slow is because you have to go up and down through the hierarchy. But part of being flat, as well, is to think about how we can leverage technology to operate horizontally. And so we're seeing companies that are thinking about the power of technology, and by the way, many of the companies that are on the leading edge in doing this are actually out of China. Some of the leading technology companies. Yeah. Interestingly in our practice area meetings, for years, and by the way, I used to lead for seven years, our greater China practice. And in China, what we would do is we would always look, call it to the west for the best practices, and then bring those to China.


Now, in our practice area meeting, I can tell you, we are sitting there taking notes from our Chinese colleagues who are working with the leading edge Chinese companies. Companies like ByteDance, who is the parent company of TikTok because what they've done is they've figured out how to leverage technology in order to have horizontal collaboration across these agile, very customer focused teams. So you're basically getting the best of both worlds. Customer focus, agile teams leveraging the economies of scale and capabilities through technology. So that's the idea, get focused fast and flat.


Deb Zahn: I love that. And it actually reminded me, before I became an independent consultant, I was at a small, now larger national healthcare firm. And we were flat as anything. We had a layer above and then everybody who went out and did things to make good things happen for our clients. And we self-organized. And we were very fast at coming together and saying, how do we solve this problem for the client? And so, if folks are wondering, well, how can this work? Because we're used to hierarchy. We're used to the matrix or whatever that version is. I've experienced a slice of it. If you set it up correctly and it's enabled by the right technology, it's actually not that hard. It's freeing. And you end up giving the client or whoever your end user is, the customer, something so much better than you could get if you had to go through layers of bureaucracy.


Jim Hemerling: Yeah, no. And it's interesting, you talked about having experienced this in a smaller company. What we're really talking about through these different approaches, is how do you do this for very large companies? How do you get the elephant to dance, as a metaphor? It's one thing to do it in a small startup company in Silicon Valley, but how do you do it at scale with a big global company? But that's what's exciting, is these new approaches allow us to actually break the compromise that was embedded in the classic matrix organization.


Deb Zahn: Now let's, I do want to dive in because we got to talk about always on transformation because as soon as I saw that term, I felt really tired. I personally got exhausted. But I know that you talk about that, and why it's important. But also ways to do it where you are not creating transformation fatigue, you're not burning through talent. So what does that mean and how practically can that actually look like?


Jim Hemerling: Yeah. I love that you brought us there. And that's one that's near and dear to my heart, actually, even in my TED Talk a few years ago when I mentioned that idea of always on transformation. I literally did, as I say in the TED Talk, I mentioned it to my wife and she said, wow, that sounds exhausting. But my response to that is yes, it is exhausting if you continue to try to execute transformation the way we have. So the key here, and by the why, the initial breakthrough in thinking for me was when I had the opportunity to work with Microsoft. And you know, when Satya Nadella in 2014 became the new CEO of Microsoft, he embarked on a very ambitious transformation. But what was so inspiring is the challenge he had to his leadership team and the organization, to reimagine the approach to transforming.


And the approach essentially comes down to three elements: the head, heart, and hands. So thinking about the head of transformation is sort of the thinking part. It's envisioning the future, a digitally enabled, growth oriented future. Aligning around the big rocks, the priorities, getting the leadership team to communicate a compelling case for change around that vision and the big rocks. That's essentially the head of it.


I dropped down to the hands for a minute. The hands is, of course, a metaphor you have to execute. But it's not just execute. It's execute and innovate with agility. And what I was just talking about, the power of agile methods also works incredibly well if you apply them when you're transforming a company, the same concept. By the way, one important element of the hands is also to develop the capabilities of those hands and investing in the upskilling of the people that are expected to work in new ways with new technologies, but then the heart.


And this is what really has differentiated the approach that Microsoft has taken from many other companies. And what's striking is we had the opportunity not only to work with Microsoft, but to see other companies. We did a survey of 108 companies that have been transforming. Two very important takeaways from that survey: one, the companies that lead with head, heart, and hands have a much higher likelihood of sustaining performance improvement. So head, heart, and hands. It really works. But the reality is, what is most often neglected is the heart. And what is the heart? The heart basically comes down fundamentally to a few things. One, it is to focus on purpose. It is to really give people a sense of meaning, why are we doing this? The second is to have an empowering culture.


And in Microsoft's case, they've put a huge amount of effort into transforming their culture. There used to be a meme of the Microsoft culture going back about 10 years ago. The meme was everyone pointing at each other, shooting at each other with guns. That was the culture when Satya became CEO. What he has done has fundamentally transformed that culture, with a growth mindset at the core, but also being customer obsessed, collaborative, leveraging diversity and inclusion, and also making a difference for society. So culture, also wellbeing,


Deb Zahn: Actually, can I jump in? Because I don't want to distinguish, so the pointing guns at each other, and then I feel like the next evolution was a foosball table and ping pong table, but not honoring outside of that. And yeah, a snack bar. But you're talking about something really different. You're not talking about fun toys and just an open environment. You mean something deeper than that.


Jim Hemerling: Much deeper. And to get everyone aligned around that compelling purpose, to empower every person and organization on the planet to achieve more, that's Microsoft's purpose. But then, to re-imagine the culture where people live day-to-day, an empowering culture where people can do their best work. The heart is also about caring for the wellbeing of people, their physical, emotional, and social wellbeing. And one of the things I will say, Deb, that I've been very encouraged by during COVID, many leaders have instinctively done that. They've actually cared for the wellbeing of their people, partly because we had to, but also because there was just this crying need to do that. The question then is, will we continue to focus on the wellbeing going forward? But the last thing I would say is, at the heart of the heart, is how do leaders lead?


And here, what I'll just leave you with is, what we've done recently is a survey of several thousand people. And we asked them, what are the qualities that characterize a beyond great leader? And what they came back with is two very striking conclusions. One, leaders need to lead with their head, heart, and hands. But two, the most important thing is to lead with their heart. Those were the attributes that were chosen more often than any others. And what do we mean by that? Well, we mean recognition. Take the time to actually see what people are doing. To demonstrate that you appreciate that. And to reward it.


It's also about empathy, putting yourself in the shoes of the people you're working with. It's about listening, not just talking. It's about investing in the development of your team. And interestingly enough, it's also as a leader...it's about being self-reflective and thinking about, am I leading in the right way? So I think we now just have, to your point, how do you overcome what could be the inevitable exhaustion associated with always on transformation? It really comes down to making sure that you're leading with your head, heart, and hands.


Deb Zahn: And when you include beautiful things like empathy, then you will pay attention to fatigue. You will pay attention to whether or not folks feel exploited. You'll pay attention to all of that. That's wonderful.

So I got to tell folks, there is so much more in this book that is worth diving into. So Jim, where can folks find you and find out more about how to dig into this topic?


Jim Hemerling: Well, you can always find us on the BCG website, which is accessible to everyone, and I would encourage you to do that. And you'd very quickly get from that to the link or just Google as we all do, Beyond Great. And you'll immediately go to our book, or you could just Google my name, Jim Hemerling and you'll get there as well. There's many roads. They'll all get you to Beyond Great.


Deb Zahn: And we'll put some of those roads in the show notes, and I did watch your TED Talk. So we'll put a link to that as well.


So let me ask you this last question, since we're talking about heart as well. When you're out doing all this great stuff, how do you bring balance to your own life so that you can continue to contribute?


Jim Hemerling: Well, Deb, thanks for asking that question. Let me just, first of all, say that I don't think I've always been an exemplar of that. Consulting is a pretty challenging profession. We're a very client driven organization and we try to go above and beyond to deliver for our clients. And at times what that means is, you're going to burn the midnight oil and also we travel a lot in our profession. And so I would say it's inherently, there are some challenges in getting balanced. But I would say a few things as I reflect on that. First of all, I feel that what I do is important work. I feel that I've had the opportunity in my career to, as we call it, chart your own path.


And for me, the energy that I get is really around people. And so, I'm part of the leadership of our people and organization practice. And in that I get to work on awesome topics like designing effective organizations, working with leaders, developing cultures, working on change management, thinking about the future of work. All of the things that actually help people to have a meaningful, purposeful life in the organizations they work on. And so I get a lot of energy from that. I feel privileged to do that. And then, one of the benefits of COVID has been this amazing opportunity to work virtually. And so, of course that's come as a cost as well.


And we're now moving back into a hybrid way of working, and like many other companies, we're experimenting with that. And particularly our younger people are just clamoring to have more in-person experience again. And so we are definitely, from an apprenticeship perspective, we're definitely moving back into a hybrid world. But I actually really believe that the future of consulting will be even more positive than it has been as we figure out how to work with clients in a way that's most effective, being there in-person at times, but then also leveraging technology to be there virtually. So I think it's a very exciting future and I'm certainly very energized about that.


Deb Zahn: That's wonderful.


Well, Jim, thank you so much for being on the show. I appreciate this and there'll be links to all this good stuff in the show notes.


Jim Hemerling: Awesome. Thank you so much, Deb. Really appreciate it.


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