Putting the Purpose in Strategy (w/ Tom Malnight)
June 28, 2021
My guest this week is Tom Malnight. He took time to speak with me from Lausanne, Switzerland, where he serves as Professor of Strategy at IMD Business School. We live in an era when time-tested business practices are all of a sudden being called into question. The same goes for strategy; that nebulous part of the planning process that asks you to take a 30,000-foot view then bring it down to actionable outcomes. The fact is, there are as many theories on strategy as there are organizations in need of one. Some take it seriously, employing high-paid consultants to produce thick and colorful playbooks that are then left unopened. Others try to make it sound simple. Remember Jack Welsh, GE’s notoriously outspoken former CEO. He once famously said (and I quote): "In real life, strategy is actually very straightforward. You pick a general direction and implement like hell." That might have worked during the 1980s and 90s. In fact, by all traditional measures, it did work. GE’s revenues grew five-fold under Welch’s leadership. Today, however, running a business is more nuanced. Stakeholder Capitalism is far from straight-forward. Just how strategy has changed and how companies are failing to adapt is the subject of this week’s conversation. And wouldn’t you know, Corporate Purpose is playing a big part.
0:00:05.7 Tom Malnight: Any time youdo a purpose journey, you have to work at two levels. You've gotta work at theengagement of the organization, which is really listening to and empoweringthem, you've also gotta work with the leadership team, because at mostcompanies, the leadership team is one of the biggest barriers, because... I'vemade it because I know the answers. I'm successful, so listen to what I tellyou to do. And how do you get people to be focused more on shaping, whatthey're creating in the future together with the organization as opposed tothem managing a business in a silo and delivering their numbers?
0:00:41.7 Steve Stine: That was thevoice of Tom Malnight. He took time to speak with me from Lausanne,Switzerland, where he serves as professor of strategy at IMD Business School.We live in a time when time tested business practices are all of a sudden beingcalled into question. The same goes for strategy, that nebulous part of theplanning process that asks you to take a 30,000 foot view, then bring it downto actionable outcomes. The fact is there is many theories on strategy as thereare organizations in need of one, some take it seriously, employing high-paidconsultants to produce thick and colorful play books that are then leftunopened. Others try to make it sound simple, remember Jack Welch, GE'snotoriously outspoken, former CEO. He once famously said, and I quote, "Inreal life, strategy is actually very straightforward. You pick a generaldirection and implement like hell." That might have worked during the1980s and '90s, in fact, by all traditional measures it did work. GE's revenuesgrew fivefold under Welch's leadership.
0:01:42.2 SS: Today, however,running a business is more nuanced, stakeholder capitalism is far fromstraightforward, just how strategy has changed and how companies are failing toadapt is a subject of this week's conversation, and when you know corporatepurpose is playing a big part. We'll get to it, but first a word about oursponsor, Quilt.AI, a mission first technology company that helps largeorganizations use the internet more purposely is looking to reverse fracturesin society and generate empathy while helping organizations understand theirconsumers and beneficiaries much better, they give time and money to causesthey care about and in service to people and planet. Inside Asia is pleased tobe associated with Quilt.AI for more information, do check them out atQuilt.AI. Now, here's my conversation with Tom. Professor Tom Malnight, thankyou so much for joining us on Inside Asia.
0:02:36.1 TM: Thank you for havingme.
0:02:37.6 SS: I'd like to speak toyou as somebody who's a professor of business strategy, about changes you'veseen in the way that corporations think about strategy. What can you say aboutthat?
0:02:48.0 TM: Okay, first of all,let's just go back a little bit. The best way to think about how... Thinkingabout strategies change, actually to think about how our frameworks forstrategy have changed, which really kinda give us the tools to think about,what is strategy? And really there was a plethora of frameworks that werelaunched in 1960, '70s '80s, '90s, which unfortunately still impact ourthinking. Remember, how many times, Steve, have you done SWOT analysis?
0:03:13.8 SS: Too many times. Waytoo many times.
0:03:15.9 TM: Welcome to the 1960s.
0:03:19.5 TM: The thing is, it wasintroduced then, but it's still not used well, it's a great framework, but thetrouble is, is when we talk about it, we say, "Okay, what are yourstrengths? Our people are our strengths. Our brand, our strength. We don'treally use it to challenge our thinking, it's really just kind of somethingthat we have there, and when we talk about What are our opportunities andthreats, it's really just kind of looking in our world today from inside ourcompany, what could they be, they don't really look at the big issues.
0:03:43.2 SS: So is that becausethey've misunderstood it, they misunderstood what you mean by SWOT or is itjust they're feeding into it the understandable aspect versus the things thatare not understood.
0:03:55.3 TM: What you have to lookat, Steve, is that companies have a tendency today, when they think strategy,you think inside-out, today-forward, and the challenge we're gonna be talkingabout through this whole thing is how do we start to think outside-in andfuture-back. Just too often today, what we're gonna find is that companies arereally trapped in formulas from the past, or trapped in investment costs ortrapped in things that they've done in the past as opposed to thinking aboutwhat they're gonna do to get successful in the future. So really, one of thebiggest things I hope we're gonna spend some time talking about is how do wefree up the energy and the mind space of executive really to think about whatkind of a business do they wanna create for the future? Not how do they protectthe past.
0:04:38.1 SS: Well, Tom, why isthat? You raise a really interesting point. So much else has changed,technology, operations, we have... How many different frameworks and changesthat we had on processes, business process change, and why is strategy caughtin the past. What's going on with that?
0:04:54.8 TM: Okay, remember there'sa couple of other frameworks we should go through, one is that how many... Doyou remember your industry analysis, your five forces industry analysis thatwas there?
0:05:01.9 SS: I feel I'm back atschool. I like it. No, tell me. Refresh my memory.
0:05:06.3 TM: But that assumes thatindustries are stable and that there's lines between industries, but that's ourthinking, because even if you go today, that thinking of industry still takesforward today because people say, What industry am I in? And they think about,How do I fight for market share in this old industry? So a concept that goesback a long ways is still impacting how we think. How about your corecapabilities? Remember those?
0:05:30.0 SS: I do, indeed. It'slike a walk back in time.
0:05:34.8 TM: But the trouble is, isthese are still the things we think about, these are still the elements tothink about when we talk about strategy, but we're talking about, in the past,they used to be kind of a stability that was there. Industries were stable. Capabilitieswere stable. The thing that's happened in the last 20 years is everything hasstarted to become much more dynamic, remember we started to talk about thisVUCA world, this volatile, uncertain, complex, ambiguous world that we're in.All of a sudden things started to change rip rapidly, and what happens is thecompanies that are really still trapped in these stable formulas as opposed tothese dynamic formulas are the ones that really get trapped, and you put on topof that, which even makes it worse, is the short-termism, the obligation todeliver quarterly results.
0:06:21.0 TM: That also just, itstrips out the ability of companies and executives to think, to thinkstrategically, but also to think about where they're gonna go and what they'redoing. So we're really dealing in this world that's focused so much today onprotecting the past as opposed to shaping the future strategically, and most ofyour re-engineering frameworks that you're thinking about and things like thattoo, they're still internally focused, they're focusing on optimizing what wedo today, not creating the future. And they're not shaping the future. Where isgrowth come from today? Growth doesn't come from fighting for market share andold mature industries, growth comes from creating markets. Where does growthcome from? It just comes from making a better product or having a biggerimpact. Growth comes from creating a market, from creating impact, not thetraditional lenses we had on what makes a business and what makes a strategyand how do I deliver my short-term quarterly results.
0:07:18.0 SS: Yeah. It takes me backto the mid-1990s when I was at Price Waterhouse as a strategy consultant, andwe were called in to do nice, tidy, thoughtful, illustrated strategic decksthat laid out a five, 10, sometimes even 15-year plan against which everybodywould applaud, be happy and celebrate in the possibility, and where would itland up on the shelf. Nobody really deployed it as a strategy, they tookinspiration from it, but it didn't feel like it was a working living document.Today, the impression I have, Tom, is that many companies have even thrown thewhole idea right out the window, they don't even think about it, think of it,they think about tactics, or they think about responses, or they think aboutagility, there's different languaging around this. Where along the way, didstrategy get lost and how do we bring it back in a meaningful way?
0:08:10.3 TM: See, first of all, Idon't think strategy is lost, I think the ability of executives to thinkstrategically has been lost. A lot of it has to do with your old X days ofbeing a consultant and the old ass days of being an academic and trying topitch that we have the answers. It's funny because when you work with companiestoday, the amount of passion and the amount of creative thinking that exist inthe companies themselves is so high, but it is so shut down because we're notused to... We're not used to engaging and listening to our employees, we'reused to... What we do is we send out a smile sheet, we call it an employeesurvey, and people say, Are you happy or not? We listen, we don't... We saywe're gonna empower our people, but we put so many controls, top-down controlsand hierarchy controls on. As someone who has had a lot of years working withcompanies the passion and the power and the ideas are inside of theorganization, the problem is that the leaders are the ones who trapped them andwho hide them and don't bring them out and actually disregard them, which iseven worse.
0:09:20.3 TM: I can't tell you howmany times we've had discussions with doing a survey inside of a company,talking about what works and doesn't work and things like that, and executiveswill say, "I know exactly what I should do, but I know if I wanna meet myobjectives, my metrics, I have to do the exact opposite." So the way wemanage employees, the way we manage people in our companies today shuts downtheir passion, shuts down their ability to contribute, and that's where we gettrapped, and that's really the problem we're facing.
0:09:50.2 SS: So is this because ofthe imposition of the system of shareholders or Wall Street or your investorsto say, "I need and expect a certain result, and therefore as long as youget that, everything else is nice to have, but don't bother me with it."Or is it because time is a factor? Now, there's no beginning or end to a weekor to a day, and therefore there's just not enough time to debate or extract orexplore what the larger or broader organization might bring to bear.
0:10:20.4 TM: First of all, you'reright that the short-termism and the short-termism through the shareholderfiduciary responsibility is a big issue, but the thing is, I can also tell youas many times as we work with family companies, they have the sameshort-termism. So it's not just the shareholders, but there is a logic aboutthis, but I'm successful if I deliver my quarterly results or my results andthings like that. And the thing is, people don't recognize that the metrics...Financial is just an outcome. It's not a goal. Financial results should be theoutcome of you actually having a strategy of meeting a need, of growing, ofcreating value. And by the way, if you do that, what do you do? You deliveryour financials, but when the financials become the objective, that's when weshut down people's brains, that's when we move them into a tactical point ofview. And the thing is, remember also, Steve, one of your debates we've alsooftentimes had in the role of strategy in your PWC days, do you have... What'smore important today short-term or long-term? Trouble is both of them are.
0:11:28.2 SS: Yeah.
0:11:29.9 TM: That both of them are.But the reality is, is that the weight goes to the short-term and not the long,and the troubles is the companies who are too... In a dynamic changing world,the companies who are too focused on the short-term don't keep up with thechanges that are happening outside.
0:11:45.2 SS: And I guess equally,it's true those who become too strategic or overly focused on the long-term,miss the near-term opportunities and make it bizarre.
0:11:53.3 TM: Or say, either that orthey hit a wall before they get there, or even worse, you're right, what theydo is they... The long-term strategy is not about exiting your core, goodcompanies never exit your core, but you transform your core. Your core is yourbase that you're working from, but I can talk to company after company that weworked with that when you look at the core what are the wasted resources thatexist inside of a core today, it's not just financial, it's also the time ofpeople, it's the mindset, so what are we wasting today, when we're having thisshort-term focus, we're wasting time, resources, mindset, and really the energyto grow. So in the short-term, yes, we've got the results, but we also have tofree up and transform this capacity to get ready for the long-term, 'cause ifyou don't, you're gonna be stuck in the past.
0:12:43.2 SS: How did we get here?What happened? What changed along the way?
0:12:48.2 TM: I think what happened,first, the short-term shares and the stakeholder thing really had a significantimpact, and then I think we had too many consultants and academics runningaround with answers.
0:13:00.5 TM: And I think what we'vetaken away the ability of is really to tap into the creativity and passion andenergy of our own people and strategically, because I think strategy is movingcloser to the desk and it's becoming more dynamic so that it's not... Everystep you take creates an opportunity. So you're dealing in a space of learning,and opportunity as opposed to execution. And I think when you're dealing in aworld of options and learning and energy, it needs to be more... It's not likeyou do a strategic plan, you're one... When we talk... We'll talk later aboutpurpose, purpose is not a plan, purpose is a journey. Purpose is not somethingthat has a set of metrics that you're gonna deliver one year, three years, allof those booklets that we used to put in under our binders.
0:13:45.6 TM: That's not how wemeasure them, because we measure it through creating learning and we'recreating options and staying ahead of a changing market as opposed to kind of,Okay, what's your results? That's not the metric.
0:13:57.6 SS: And you've tapped intosomething and we will return to it in just a bit, and that's it, everybody isrushing to figure out how do I measure and monitor and report my results versushow do I get in the right mindset to begin with in order to make the changesoccur. That's what I'm seeing. Are you seeing the same thing?
0:14:14.9 TM: Once you definemetrics, you shape behaviour, and you shape what people do, and the trouble is,that's where the danger of the financial metrics come along because realise...Let's just talk again about the difference between short-term and long-term.Short-term metrics oftentimes are dealing with things that aren't known, a lotof the metrics for short-term are more financial driven, not just incrementalfinancial-driven, but they should be significant step changing financial aswell. But when you deal with longer-term initiatives, there the objectives arenot financial, the objectives are, for example, learning or creating an optionor building something new, or building a platform or these types of things. Soif you take long-term initiatives and measure them by short-term metrics, youkill the long-term, but it's very uncomfortable for companies to say, I have adifferent set of metrics, or my metrics are not financials, they're learning,and how do I manage in that environment? And particularly when you're managingthose longer-term initiatives, we call them marathons, but that's fine, whenyou manage those in the longer term, that they're really about a much moredynamic way of interaction and learning and change as opposed to theshort-term, which is much more about an execution mindset.
0:15:29.4 SS: Yeah. Do you have animpression in some ways, some executives are saying, "If we measure this,I can avoid the flack I'll get by actually investing in purpose in a thoughtfulway, and therefore I'll be able to stave off any attacks I get from people whoare more quantitative or financially driven.
0:15:48.3 TM: A lot of the work thatwe're doing now on purpose with companies, actually, one of the key things is,is actually to share it directly with the board of directors, because I thinkalso what our experience has been that even boards of directors are looking formore long-term thinking inside of companies, but not the classic formula typeof long-term thinking, but when you get down to... And when we get down toreally creative long-term thinking about how we're gonna change and redefine acompany that actually there is an interest in that, because that is whereyou're gonna get the growth, that's where you're gonna get the profitability,that's where you're gonna get the impact, that's where you're gonna meet all ofthese discussions that we're hearing in these worlds today, but the questionis, that's not as easy, you don't just hire an outside somebody to come in andgive you this booklet that you put on the shelf, it takes real work. It takesreal thinking. It takes time, it takes energy in order to do that.
0:16:42.6 SS: Let's come back towhat you've said a couple of times, which I think is really important. I don'twanna lose this, is that this idea of the power of your own people, theinternal knowledge and passion and interest enthusiasm that exists, and thefact that it's been buried or kept under thumb for reasons which we candiscuss. What does that look like Tom, how do you actually extract that andallow it to make its way and flow through an organization?
0:17:11.5 TM: First of all, when wework with companies, all of these things for me about employee surveys andthings like that, again, those are smile sheets, we're asking what we wantanswers to and things like that, we're not listening to them. And the realchallenge is when you're engaging an organization, it's not about giving them aquestionnaire, it's really about engaging in dialogues with them because... Andgiving them the opportunity to hear and be heard and to learn and shape andthings like that. We say, "Think outside the box, but then we never giveanybody time to do that, blah, blah, blah, we heard that. When we work withcompanies, the first thing we start off with is we call it diagnostic phase,and it's really quite challenging because you actually go off and interview 30,40, 50 people in the company and you run a series of listening workshops whereyou give people the opportunity to talk and you don't give them answers.
0:17:58.0 TM: The Listening workshopwould start off with something like, Tell us what's working today, and why,Tell us what's not working today and what are the barriers, What's yourambition for the future? If you really wanted to move faster, what would youneed to do, not from the top, but you talk to people in the organization, andthe answers you get from them, you see, you can feel the passion that they havefor the organization, but then the biggest challenges, you turn thesediagnostics and you take it up to challenging the leadership team, and becausethe leadership team is not necessarily comfortable hearing some of the commentsthat come out there... I can remember in one company we actually went to theleadership team and we said, "Based on results of our diagnostics, youhave to realise the company is succeeding in spite of you, not because ofyou."
0:18:43.1 SS: [chuckle] Hard tohear. Hard to hear.
0:18:45.4 TM: But it's also real,but then you actually go back on the data, and the leadership teams themselvesare also looking for direction. Leadership teams are also looking for, whereare we gonna go? They're looking for... Most leadership teams basically aresets of silos, each executive running their business, their area. And thisidea, you ask, what's the collective accountability of the leadership team?There's not usually. What's the collective agenda of the leadership team?There's not one. You can't expect the rest of the organization to be alignedand working together if the top team is not.
0:19:18.9 TM: So once you startworking with them, then you say, Okay, what are the issues; if I'm gonna engagethe organization, what are the issues that matter? And typically we'll come upwith, with the leadership team, four, five different topic areas, but reallyfundamental issues that are about the company. And then what we would do, andwhat we find to do, is take some people in the organization and let them go offand learn. We have a divergent phase that these people go through. And whatthey do is they go off and they visit it. Let's just say the topic is customercentricity, how is it changing. Go listen from other companies, don't dotactical within your own organization, go learn what's the best aboutcustomer-centricity, or disruptive innovation, or data as a strategy, orpurpose as a strategy. Learn outside and then bring it back in. And once youlearn, then challenge your own organization. But use your own people tounderstand it and learn it.
0:20:17.4 SS: Well, you're raising areally interesting point, because engagement is a big problem, even more so nowwith Covid, where you find these numbers and these surveys, and a lot ofemployees are saying, I feel detached, I feel disconnected, I'm not sure I'maligned with the company, I'm not around groups anymore, I feel a little bitlike removed. And so I'm hearing you say this could be a double-edged benefit,by not only going and tapping the knowledge and insights and capabilities, but,by virtue of doing that, re-engaging your people to participate in the growthand the future strategy of the organization.
0:20:53.7 TM: It's not just toparticipate in it, it's to feel that they're contributing too. And employeestoday do not wanna be executors. Employees today actually, more and more... AndI don't care if this is just young or media or what age; this age groupdifference, I don't usually find it. They want to contribute to creating something.
0:21:12.9 SS: Why? Why do they wantthat now and they didn't necessarily want that before?
0:21:17.0 TM: They did before, but Ithink it's becoming stronger, and I'm not... It's a good question about why. Idon't have a good really answer yet in terms of why, but I think it's alwaysexisted, but I think that it's... I think now there's the frustration of nothaving been listened to for so long, or being put in these areas, is reallybringing it out more. But I think... I find that people care dramatically aboutthe company that they work for, and if they don't care, then they basically...Then they become much less effective in contributing. Do you want people's timeor do you want their passion? Do you want them as an executor or do you wantthem as a thinker? Do you want them as a creator or do you want them assomething else? Where we get the power from our people is really from when wetap into this energy and passion and creativity. But the trouble is, is so manyof our systems, we have such a mindset of control, a predictability of all ofthese things that we were talking about before, that we really just sap theenergy out of our own organizations.
0:22:22.9 SS: Yeah, yeah. You did astudy about 10 years ago, you made some interesting discoveries, interviewing agroup of high-growth companies from around the world. Can you tell us what youfound and what's come from that?
0:22:36.4 TM: We did two studiesactually. Our first study we did was we actually went off and interviewed 150CEOs around the world. And basically that was all focusing on, What are youdoing to shape the future of your company? And, by the way, I think about 30 ofthem... No, 40 of them were from Asia. So a lot of the 150 was fairlysignificant. And we basically, talking to the CEOS, we came up with basicallythree big challenges that they face. The first challenge is this ability to rethinkthe future. Because so often we're so trapped in, again, internal view of theorganization, that people talk about... People will list the trends, but thenyou say, Okay, what does the trend mean in terms of how the world you'reoperating in is gonna be fundamentally different in five to 10 years from now,and what are you doing to get ready? Really rethinking that future.
0:23:24.0 TM: The second one reallyhad to do with redefining what the ambition is. And ambition, I mean both whatand why. And there was this logic of saying, "Is our ambition onlyfinancial or is it something different? How in this changing world, what doessuccess look like for us in the future?" And really coming to grips ofwhat success looks like. And the third part was really about reshaping how youwork. Because you can't separate future strategy without organization as well.And right now, even how we work, even if we... And we'll talk about this, I'msure, going forward when we talk about purpose... Reshaping how you work withcustomers. Do you focus on a customer as a transaction or a life-longrelationship? Do you focus on how you work today just as kind of thisexecution, short-term mode, or do you look at it differently?
0:24:18.9 TM: So that came out ofthere. Then we did a second study where we looked at 35 companies acrossdifferent industries that had... These companies had a five-year CAGA in excessof 30%, and we were really trying to understand what were the factors behindthat, and we came up with four factors. Our first factor was kind of outside-inthinking, which is predictable, that means just moving away from thisinside-out, outside-in, really kind of being ahead of what's happening in yourmarkets as opposed to constantly reacting to it. A second one was ecosystemsthinking. This idea that companies can do everything themselves and they haveto own it and I have to control it, as opposed to I'm part of this biggersystem, is also something we found was very limiting. The third one wasdisruptive innovation, which was really kind of being disruptive or beingdisrupted, it's a choice. And the fourth had to do with purpose. And purposewas the one that surprised us.
0:25:13.6 SS: Yeah, why did itsurprise you? Well, you didn't know it wasn't coming up in dialogue, or it wasjust early days or it seemed too sentimental? What was it?
0:25:21.7 TM: Well, I mean forpurpose, remember, okay, there's three different levels of purpose. There'smany different lenses that we have when we think about purpose. The first levelof purpose is kind of individual purpose. So individual purpose, it helps eachleader by, What's important to you, and how do I actually define your ownpurpose, and purpose working with other individuals; so it's very much of anindividual element. And so individual purpose has been around for quite awhile.
0:25:46.4 TM: Purpose from a secondlens is really from a marketing strategy point of view, which is really, okay,About my business today, how do I deepen relationships, how do I build relationsabout my business today? And things like that. What we came up with purpose wasfrom a strategy point of view. And from a strategy point of view, we arelooking at how does it take shaping the actions and decisions of a company overtime to fundamentally redefine the business and the value proposition and therelationships? So when we were looking at purpose, it wasn't kind of theclassic definitions of purpose that existed, it was kind of looking at purposestrategically. And how does it transform a company, how does it change thebusiness. That's where we were surprised, because it really became an importantlens for strategy that we found, as opposed to this kind of a marketing orindividual leadership activity.
0:26:39.2 SS: Can you give us anexample of an organization that was embodying that?
0:26:43.5 TM: Even in the HBRarticle, which we sent you and which I'd encourage others to read if youhaven't, one of the examples we use is Mars Petcare. Now, Mars Petcare is a successfulcompany. Most people think about Mars as a chocolate company, it's actuallybigger in pet food. At that time, they were very much about dog food, and theyhad a small veterinary operation, but then the questions started to become,okay, what... Their purpose was really, How do we make the world better forpets? Because they actually believe pets have an impact on society. Pets havean impact on people, on comfort, on empathy, on loneliness; there's so manyelements that pets impact our society, so how do we make the world better forthem? And what they did is they really took that seriously. And it's not justfood that makes a difference, they also then they expanded very much in termsof building pet health as well. And they started really building a pillar onpet health. And then they started building a pillar really on, How do I makepet ownership more convenient? How do I make pet ownership...
0:27:43.7 TM: Make pet cities morereal? How do I take this whole... If we believe in pets, it's not just sellingdog food, it's actually how do I make the pet healthier and the pet owner lifebetter, and things like that. But by doing this, they redefined their business.On the core business, their food, they went from traditional food, going toindividual food, nutrition, really kind of using that to redefine even theircore. But then they built this pet health model. The pet health model combinesveterinary and food together, it's not two separate pillars, it's how do thosetwo work together to create something. And then you add in on top of that petownership, and how do I grow pet ownership? That's where you start to see thismultiplier coming into play. But by doing this transition, Mars had more thandoubled its business and it more than tripled its growth rate.
0:28:38.4 SS: Because it was gettingin touch with what the end user really wanted versus what I have to sell.
0:28:44.3 TM: Exactly, and becausewhat impact I can have. A lot of it, it's not just about me, what I can sell,it's fundamentally how can I impact... How do I impact the life of a dog? Howdo I impact the life of an owner? How do I impact the life of... In a city? Youshift from focusing inside-out what I do, to selling it in a transaction torelationships. I mean, one of the things that was most interesting for them wasa change in even how they thought about using data, as part of thistransformation. Because typically the way you use data is what I do is Imeasure transactions, performance, cost efficiency, and things like that. Theystarted to ask questions like, What's the lifetime value of a pet? And whereare the value points throughout the pet's life, and where are the needsthroughout the pet's life, and how can I actually serve those needs? And thenthey created what they called the customer journey value map. So, where am Iimpacting the pet throughout his life and what types of impact... Where's myimpact footprint? And they started looking at things like different types ofbusiness models, what types of different business models does it create tocreate this impact? And how do I make...
0:29:53.4 TM: How do I make astronger science care... Scientific basis for actually driving pet, and drivingpet health and ownership and things like that. So they took all these differentlenses by using data that reinforced this belief that they have.
0:30:07.6 SS: Tom, this must beoverwhelming for your traditional sales guy who just said, "Hell, I justsell pet food. Why are you now asking me to think about the life, about thevalue chain of a pet and the value it provides and the whole bit?" It mustrequire an organization to get inside and help people understand that it's okayto go ahead and be a bit imaginable, to go and explore some ideas and not beheld accountable. Is that what it takes? And then at the end of the day, forthese strategies to work, they have to be nailed down; there's gotta be stakesin the ground and you've gotta work it back. Tell me how you get thatorganization from old-school sales guy to new innovative, think outside thebox, let's do a thousand things instead of three things.
0:30:55.4 TM: There, Steve, you'rewrong, because the passion actually to make those change is actually in thepeople, and it's just letting it down. You never wanna work for Mars Petcare ifyou don't love pets; you don't even wanna go there. But because they do lovepets, the people that they're attracting to their business, to their industry,who wanna contribute to this and be part of it, is amazing. Their ability to bean attractive employer is just shooting through the roof. But it's also... Anddo some time, go on Mars, the Executive Team website, and you'll see all thepictures of all the top executives there. And they'll be a senior, senior,serious executive, serious executive, serious executive, and then you'll seePaul with his dog sitting there. Because it's a belief, it's a passion. Andthat's when... Remember we talked about bringing your passion back into that,and bringing compassion into what you're doing. But it's not just pet food, Imean I can tell you other examples. We did work with a dental company. And isdental company just helping somebody go to the dentist?
0:31:53.4 TM: No, it's aboutsomebody's confidence. It's about somebody's ability to feel confident ofthemselves. It's not about just dental care, it's also about oral health,that's, how do I help people stay ahead. It's about something there. Let's goto another industry. Let's go to tractors. I mean, a tractor, is a tractor justmaking... The questions I asked, were they, Can I make a cheaper tractor? Andcan I add a few more things? No, the purpose of a tractor is to help farmingand nutrition. So how do you get people thinking about not just adding afeature onto my tractor, but how do I help and think about, How do I makeefficient farming, or how do I help contribute to sustainable nutrition? That'swhat people believe, and that's what people wanna contribute to, not justreducing the cost of a tractor by 10%.
0:32:37.5 SS: Maybe this is wheresomething is gone awry, because if you think about the roles andresponsibilities that have been meted out by organizations to individuals,"You do X in the back room with accounting and you gotta make sure thosenumbers add up each week, and then you can go home," how do you get aperson like that to say, No, it's more than that. Are you suggesting that everyperson who takes a job is doing it in order to be part of the purpose of thatorganization? Aren't there a large percentage of people who are just in it forthe paycheck? And if so, how do you inspire them to think and act differently?
0:33:12.4 TM: But that's what,remember I said before, that I think that when you start to release passion, itactually increases.
0:33:16.8 SS: Okay.
0:33:18.9 TM: We're working at onetime now with an an insurance company, and it's not necessarily a leading edgeindustry, but all of a sudden you start to talk to these people in theinsurance industry, but how do you get people to think about, How are wedealing with mental health issues today? Because of all of these issues thatare facing us today. And do you wanna make a policy or do you wanna basicallyhelp people's lives? Or think about things like, We're experts in risk, and howdo I take my expertise at risk and not use it as just saying yes or no onselling a premium, to help people live in a more dynamic world, in achallenging world? This is where you do find the passion of people, but you'vegotta give... You can't just impose purpose and say, "Okay, I'm changingyour job now, can you all of a sudden think about risk?" You've got...That's where the... Remember before, we talked about engagement, people have tobe engaged in the process of defining it. It can't be you or me as a consultantor an academic coming in and saying, This is the answer.
0:34:19.9 TM: No. They've gotta bepart of creating that answer and be owning it and actually be part ofcontributing to shaping it, because that's where you build this engagement andownership to go forward.
0:34:30.4 SS: It sounds like it'sthe way you ask the question to people within the organization to draw fromthem what they really care about, where they can really get involved, and wherethey could do something about it. Because it's... At the end of the day, it'salmost dangerous if you raise people's expectations to say, We can and shouldbe differently, you generate some excitement, people are re-engaged, and thenyou don't deliver. So how do you bring that all the way through the system? Isit a matter of connecting individual purpose with organizational purpose? Sotherefore you're getting some time and attention to every individual, to say,Where can you and do you feel like you might like to play a role here? Insteadof imposing the idea of, Boy, it sure would be great if you participated inthis way.
0:35:17.8 TM: Realise, first of all,purpose at most companies still unfortunately today is words on the wall.
0:35:24.0 SS: Mission statements.
0:35:26.3 TM: Mission, blah blah,whatever they wanna say. They're basically looked at with cynicism and thingslike that. But when we talk about purpose and where it actually becomes at thecore of strategy, that's when you actually start to say, no, it shapes actionsand decisions for going forward, and we're gonna engage our people in ourorganization around it, and we're gonna make hard decisions and choices aboutwhat it takes to do that. So it's really part of this thinking and engaging.But any time you do a purpose journey, you have to work at two levels. You'vegot to work at the engagement of the organization, which is really listening toand empowering them; you've also got to work at the leadership team, because atmost companies the leadership team is one of the biggest barriers. Because,"I've made it because I know the answers. I'm successful, so listen towhat I tell you to do." And how do you get people to be focused more onshaping what they're creating in the future together with the organization, asopposed to them managing a business in a silo and delivering their numbers. Soyou have barriers at the top, you have barriers in the middle part of theorganization.
0:36:32.0 TM: But remember, one ofthe biggest powers of purpose is breaking all of those holding onto the pastformulas that we've talked about before. Because so much of our organizationstoday, how much are we focused on complacency in organizations, how much are wefocused on the sum cost that we spent before and how do we get returns on sumcosts? You know, how exhausted are organizations with just initiative overload,because everybody... We just keep launching initiatives without any idea ofwhere we're going. This risk aversion; there's so many things that we do incompanies today to hold them back. We need something to get them to beenergized and believing and working on going forward. And again, it's neverexiting your core business, but even rethinking your core business about whatyou really want to do and where you want it to go and how do you free up time,resources, energy, how do you start that bigger impact on the core, all ofthose things are really strong for an organization.
0:37:29.8 SS: You know, Tom, you've,again, raised a really interesting and important point here, which is, if youthink about it, over 30, 35 years, those people who are running majororganizations around the world got there by acting, behaving, performing acertain way, which is based on this old model, this model of to succeed is tobasically be aggressive, is to get to the top, to demonstrate that you know andthey don't, and the others don't, you know better than they do. And then it'salmost unfair, to some degree, to then ask these same people who've been handedthe gauntlet, to say, There it is, congratulations; to say, Oh, by the way, nowyou fundamentally have to rethink and change who you are, how you operate, howyou engage, and, by the way, your job's on the line? How do you get thesepeople who've been placed into that mold to break the mold and thinkdifferently, particularly when it comes to purpose?
0:38:25.5 TM: When we talk aboutengaging executives and executive team, remember we talked about engaging teamsto go off and learn and bring it back, one of the key things we do there isactually have sponsors on the leadership team. Because the thing about top executivesis they're really actually quite a lonely job, and there's not really a lot oftime for them to think and experiment, because you have to know the answer.
0:38:48.6 TM: You're getting paidthis high salary, so you should already know. But how do you give CEOs and howdo you give top executives also the ability to think, to experiment, to option,look at different kind of scenarios and options and think them throughtogether? We don't give those executives also the time to think. So how do you,as part of a purpose or whatever else you're doing on strategy, how do you givethe executives also the time to learn and to think and to explore? Because bylearning... This again, we just finished something with a dental company; thebest session that we had with that team was actually the leadership team wherethey came together and actually agreed on something about a path for theirbusiness to go forward, and then shared it with the board.
0:39:37.4 TM: But if you look atwhat happened during a period of time, for them... Give your executive team theability to think outside-in, future-back. Give your executive team the abilityto think about shaping the future, not just delivering today. Give yourexecutive team... And what is their passion? What do they believe? What'simportant to them as individuals? What's important to how they're gonna definesuccess? 'Cause the success of a leadership team is not just having deliveredbudgets. The success of a leadership team is having changed the company andcreated something better than they took over.
0:40:16.4 SS: And there's the rub.Time and investors, the two entities which actually are creeping in on everysenior executive's life, and says, Well, you need to take more time and paymore attention and ask better questions, and, by the way, where is that reportand where are the results?
0:40:33.8 TM: And where's yourquarterly result. And where's your quarterly result and...
0:40:37.9 SS: Yeah. Yeah.
0:40:38.0 TM: Etcetera, etcetera.
0:40:40.2 SS: So it does suggest tome that boards have a role to play here. And boards, as being on top of theorganization, guiding it with thought and wisdom and integrity would say, Weunderstand that we're gonna have to probably take a little bit of a haircuthere, we might lose a point off our margin, but if we just allow the team to goand do something on the side, we will get a multiple on this if we do it well.Is that a fair statement? Does that seem to sound right to you?
0:41:08.5 TM: If you talk aboutsomething like purpose, purpose is a critical enabler of long-term growth andlong-term profitability. Without understanding the why, without having impact,without the things we've been talking about, you can't have... If you're justfighting for market share, you're fighting for profitability, optimizingcurrent business, that's not alone... That's not gonna provide long-term growthand profitability. It provides quarterly, but not long-term. If a board doesn'town this ability of where we... We're gonna deliver today, we're gonna be hardin doing that, but that just allows us to play the game. Short-term allows youto play the game, it doesn't allow you to win. The whole thing is, How do youactually create this, where we're going and how. Purpose, in terms of redefiningthe business, the value proposition, the relationships are critical enablers oflong-term growth and profitability, and that's where the board has to take aresponsibility as well.
0:42:02.5 SS: Tom, I feelre-educated. I will never think about strategy the same way again. I thank youso much for your time, your thoughts, and let's keep talking.
0:42:10.7 TM: Let's keep talking.Thank you very much, Steve.
0:42:17.5 SS: That was myconversation with Tom Malnight, Professor of Strategy at Swiss-based IMDBusiness School, and a clear advocate of the power of purpose. Ourconversation's a wake-up call for organizations and leadership teams that stillthink the old way of doing business is good enough. What Tom is talking aboutis an overhaul of the corporate mindset. It seems unfair really, particularlyfor senior executives who've achieved their current status by doing things oneway, only to be told to do things entirely differently. At the point end of anyorganizational agenda is strategy. That used to mean taking time out at thebeginning of each year to plot the company's relative strengths, weaknesses,opportunities and threats. That faithful SWOT analysis was, in theory, a way tocover your bases and plan your next move in a marketplace that at one point intime was challenging, but largely predictable. My, how things have changed. Ifyou're still practising strategy the old way, it's time for an upgrade. A newset of practices and principles are displacing the traditional notion of whatgood looks like. Careful planning, cost controls and financial incentives tomotivate your top team are no longer enough.
0:43:29.3 SS: In the new world,agility, risk and lateral thinking are the stuff of strategy and ultimatesuccess. The markets are presenting us with example after example of howcompanies that challenge their own existence, and enlist and empower their ownpeople, are the ones that rise above the fray. Tom says that strategically whatmatters today is summed up in four key factors. First, outside-in thinking,which means anticipating market demand, not reacting to it. Second, ecosystemthinking; it's about greater reliance on partners and resources that sitoutside the organization. Owning and controlling every asset makes less sensenow than ever before. Third, practicing disruptive innovation. In Tom's words,you can either disrupt or be disrupted. Last, and what proves most surprising,is purpose. Not the "Let's all feel good and make your employeeshappy" variety, but rather the kind that goes at the heart of what makesthe organization tick. Getting there means committing to a process thatunearths and embraces the best ideas from one's own people.
0:44:33.6 SS: That sounds simple,but it's shocking to see how few organizations actually take the time andinitiative to find out what people really think. And even those that do, fallshort when it comes to then putting those good ideas to practice. Today'sorganizational paradox is this. Not enough time or attention is given to peoplewho have the potential to bring a strategy to life, and yet failure to taketime will almost certainly ensure the organization's demise.
0:45:00.8 SS: Now imagine this. Whatif by taking the risk, investing in a process, and seizing upon a commonpurpose that motivates and engages employees, and organization can achieve newheights, both in the contribution it makes and in the profits it generates. Ifthrough this effort the world gains a more purposeful and meaningful corporateplayer, then you might say everyone wins. Pipe dream? Perhaps. But the onething we know about human capital is once activated there's no holding it back.People are the power behind the machine. Technology and processes are mereenablers. Nothing has changed here; we simply forgot that the most criticalpart of any successful business is the people. Maybe it's time to get thatback. Still not sure? Then heed the words of Peter Drucker, pioneer of modernmanagement theory: "Culture," he said, "eats strategy forbreakfast." That pretty much sums it up.
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