market value of hr leadership

Episode Aired on March 20, 2019

Dave Ulrich, ranked as the #1 management guru by Business Week, profiled by Fast Company as one of the world’s top 10 creative people in business, a top 5 coach in Forbes, and recognized on Thinkers50 as one of the world’s leading business thinkers.

In this episode Dave reveals:

  • The secrets behind what makes an effective HR leader
  • Key factors that are restraining HR departments from experiencing growth
  • Tips to help leaders sustain their HR departments and accommodate to future changes

Show Transcript

Amy Dufrane: We welcome to today’s podcast, Dave Ulrich. Dr. Ulrich has been a significant thought leader in management and HR for a number of years. He has published more than 25 books, written more than 200 peer-reviewed articles, and has really been a thought leader and a driver for what great HR looks like. Dave has spearheaded the HR competency framework for which many organizations have based their foundation of HR on. Dave talks about the future of work and what he’s seeing in the number of discussions that he’s having with organizations and individuals on advancing the profession of HR and a business.   We’re excited to share our interview with Dave with all of you. It was an enlightening discussion, and Joe and I wished that we had more hours to share with you the great insight that Dave has around HR. Dave, thanks so much for joining us today. We’re so excited to talk to you. We are really looking forward to the discussion today about talking about the future of HR and about what you see as you’re traveling the world globally, talking to not only HR leaders, but business leaders. Thanks for being here. Dave Ulrich: Thanks Amy and Joe, what a delight to spend a little bit of time with you. Thank you so much. Amy Dufrane: Super. I’m going to ask you some questions about some of the research that you and your colleagues have done at RBL that has really shaped the HR profession. You’ve been called the father of modern HR and the HR thought leader of the decade. You’ve focused on HR outcomes, competencies, practices. I’m really interested in the research that you and your colleagues at RBL have done regarding competency. I know this research has spanned decades, and if you can talk a little bit about this and why people should care about this work, and then if you can highlight in particular what competencies that HR leaders have and the preparation of the future of work. Are those competencies any different from what and who you’re talking to in the business community about what competencies they need as we’re evolving into this fast-paced changing world that we live in? Dave Ulrich: Amy, what a great question. The answer is in books Let me try to make about four points quickly. Number one, HR is not about HR. It’s about adding value to the business and to the stakeholders in a business which includes obviously employees or customers, investors, communities and organization. Number two, for HR to add that value requires a lot of different things. One is you must have the right HR organization, the right HR department, but you also have to have the right HR competencies. A competency represents the knowledge, skill or ability of an HR professional, and there are competency models out there obviously that, Amy, you and your organization and other organizations have put out. Number three, it’s not about the competencies because HR is not about HR. The competencies are not about the skills of the HR people. It’s about how the skills of the HR people will help deliver outcomes that matter, and so in our study, we looked at three outcomes. Will the HR person be seen as an effective HR contributor? Will you as an HR person be seen as effective too? Will you add value to customers and investors and the organization? Will you add value to keep stakeholders? Number three, will you deliver business results? We get frustrated a little bit with leadership and HR competency models. They get all excited about a set of competencies, but they don’t talk about the outcome that comes from those competencies. Number four, we have collected enormous data. We have seven rounds of data over 30 years to figure out which HR competencies have outcomes that seem to matter. Our approach to data, and there’s a lot of data approaches, is that you need other people to report on your competencies because we judge ourselves by our intent. We do a 360 to the extent to which somebody demonstrates the competence. We have 123 items. We factor analyze them. We do all kinds of statistics that will bore you. It bores me to tears and I like statistics. It would help anybody who’s listening to sleep very fast. Here’s essentially what we found in our last study, the seventh round, if you want to be seen as effective as an HR professional, the competence that seems to drive that the most is called credible activism. Building a relationship of trust, that’s credibility, but being an activist, having a point of view, taking a position, challenging, disagreeing when you need to. If you want that for us, that gets you quote at the table. That’s an old HR metaphor but it’s real. It gets you in the dialogue. You want to be in the dialogue. I got to want to have you there. If I build that relationship through the trust that I build and the positions I take, I get invited to discussions, but that’s not what has the other impact. If I want to then while in those discussions create value for customers, for investors, outside company, I have to become what we called a strategic positioner. This strategic positioner is somebody who not only understands business literacy and how the business makes money and customer expectations but can help position a business to win. Then the third outcome we care about is business results. We have an index of six items about what does a business do to deliver its financial and business results. The competence most critical for that is paradox navigator. Paradox navigator is fascinating. We don’t agree. We appropriately disagree without being disagreeable. For example, if a business has focused on the long term, we bring in short term. If a business is focused on the future, we bring in the heritage of the past. If a business is focused on inclusiveness, we bring in diversity. If a business is focused on diversity, we bring in inclusiveness. We navigate paradox intention that enables organizations to change. I gave a long answer to your question. Number one, HR is not about HR. Number two, we have to see the outcome to comes from HR that helps us succeed. Number three, those outcomes require a great HR department. Number four, it requires some powerful HR competence. It’s those competencies that we’ve studied. Joe Mechlinski:  Wow. Dave Ulrich: Joe, I love the wow. That was just so impressive. I I need to send you a thumbs up. Joe Mechlinski: I’ll be honest, I’m not easily impressed. I mean, I think the breakdown of those three areas, the credible activists, I mean, I think that’s something. When I’ve encountered organizations, the word activist has got a little bit of radioactivity to it, but at the same time, I love the contrarian thought process of how does an HR leader executive sit at the table and get to the same relationship that the CEO has with the CFO? I could see how these three things could really play a huge role in that. As you guys have done the data, seven rounds now, over the last 30 years, what are some other hopeful moments that you’re watching in HR to catch up to people or organizations to catch up to the way that you were thinking? This could be either a really interesting case study of an organization that’s knocking it out of the park or maybe just a subset, a story or two around how you’re seeing this actually play out, because those three pieces that you’ve mentioned I think are pretty amazing, which is why you’ve got the wow from me just in reactionary time. Two, it’s like, “Okay, so if that’s true, who’s doing this and how’s it going for them?” Dave Ulrich: It’s always tricky to name organizations because from the foundation work of in search of excellence, you named 42 firms and 14 are still there. Until about a month and a half ago, we all would have named GE, and suddenly, GE gets criticized. Frankly, GE hasn’t turned stupid in the last month. General Electric is a great company. General Electric has legacy, great HR professionals. They’ve obviously missed some market opportunities strategically that’s affected them, but what we’ve seen is in a business setting, when the business says, “I need to win in this changing marketplace,” we’re being disrupted through technology. We’re being changed in so many ways. In every industry, from transportation to healthcare to education, what’s it going to take to manage that disruption? The answer is not just the strategic redirection. I saw a brilliant presentation by Michael Porter recently where he laid out the strategic redirection in a disrupted economy, new technology changes. I think to some extent, whatever color you want to call that, blue ocean, red ocean, purple ocean, pink ocean, we can anticipate what that ocean will look like, but we don’t know how to float in it. The answer to the disruption is not accessing money. We can get money. It’s not defining our direction. We know we’re going to have digital, artificial intelligence, robots and chatbots. We know we’re going to have technology. What do you do as an organization to play and to win? This is where we see the HR people stepping up. One of the dilemmas we’ve got, I’ve got, maybe you’ve got, I know in your books, Joe, it’s always a dilemma to which are the companies that are doing shift? One of the things we’re learning in the books we’re writing right now, new companies seem to do this better, so you’ve got the hot new company’s like Google, Amazon, Apple. I think the most exciting companies in the world are in China, Tencent, Alibaba, Huawei, Haier, Supercell, DD. These companies, the average founding age was 1997. They’re only 20 years old. At age 20, I thought I knew the entire world. Now a few decades later, I realized my 20-year-old kids and grandkids don’t know the entire world, and so SHIF is difficult with a company that’s got a tradition. That’s where the HR stuff becomes so powerful. Can we help a company like GE reinvent itself? They’ve got a great head of HR who’s doing some of that. Can we help a company like Unilever? I’ll name some companies that I think are doing this well. Reinvent itself to find out how they have to win in a new branded market. Can we help a company like Mars that’s not publicly traded but private reinvent itself in a tough market where some of Mars traditionally has been candy and sweets? That’s not the market that’s going to grow anymore, so how do we reinvent ourselves? Can we in a company like McDonald’s at 60 years old reinvent ourselves? Their HR people are doing an incredible job. They’re building leadership and HR systems to get reinvented. Those are the kinds of challenges that we see companies wrestling with. I’ve given you some companies in some context, Joe, probably not very good. In your work, Joe, on SHIFT, and I love the word shift and I love you have said it in your writing shift happens, which is very clever. Sometimes, you even smile as soon as I say that. I find it easier to start a new company like Tencent in China or Alibaba or even Facebook than it is to shift or transform an old company. Geez. You look at the news. Toys R Us, Sears, Woolworths, JCPenney, retail gone, automotive getting shifted by Tesla. I mean, shift sounds cool and the new companies don’t have to shift. They start new, but that shift is where it gets, I think, difficult. Anyway, just some observation. Joe Mechlinski: No, that’s great. My quick comment would be when you think about those new companies, it’s always easier to get it right the second time or the next time. I think you’re 1000% right that the legacy companies, it requires this transformation from inside. Us as human beings, we don’t do that also well unless we’ve got a gun to our head. I think that that urgency that you companies coming out of Israel and a figurative and literal gun to their head, it’s one of the most innovative places on the planet because they have to be. I think that’s the interesting mindset. If you look into GE or some of the companies that you’ve referenced, they’re just really good at, I think, tapping into that type of fortitude. Thank you. That was a great answer. Dave Ulrich: One of the things you said that really triggers to me is, it used to be you change when there’s a crisis. That’s the gun to the head. I think in today’s world, that’s not going to work because by the time that crisis hits, somebody is disrupted and displaced. I think the gun to the head must be seen as market opportunity others don’t see. Good is the enemy of great. You don’t want to be average at everything, and great is the enemy of change, because when a company is great like GE, they begin to look at themselves inside, not outside-in. Amy, when you talk about what’s one of the trends in HR, we see so dramatically the focus being outside-in. For me, that’s not a gun to my head. It’s an opportunity to shape a new identity, to shape a new culture. If I wait until there’s a gun to my head, I’ve almost waited too long because somebody else is going to get there. It’s saying, “What’s that opportunity space that technology is going to create? How do I leap into that space?” There’s an old movie, Harrison Ford, one of his I can’t remember his movies, but he’s walking across a cavern discovering one step at a time and having this big cavern that he falls into, one of the Indiana Jones movies. I think that’s the organizations that we want to see in the future. They jump out to create and anticipate. They don’t go after market share. They go after market opportunity. HR then plays a key role. What do we need in terms of talent? We don’t want to hire [inaudible 00:16:45]. We want to hire who our future customers might enjoy. We don’t want to pay for past performance. We want to pay for risk-taking. We don’t want to build an organization that’s structurally bound. We want to build an agile cliff, whatever you want to call it, organization that moves with anticipation. That outside-in logic I think helped organizations transform from the outside-in. Anyway, Joe, I just really liked your metaphor, and thank you. Amy Dufrane: Think about the anticipation, I was reminded of a study that the Conference Board DDI and EY just did talking about the shift in HR. They’ve done this study in 2004. They did it again in 2017, and they saw a 45% decrease in the number of leaders who saw HR as anticipators. I think about this and think about what you just said that HR needs to be anticipating. How do we help HR practitioners to anticipate the future? How do we get them engaged and involved in that? I mean, that’s a dramatic decrease in what business leaders are seeing HR being able to do. If you’re looking at this outside-in approach, and I know, Dave, you’ve written a book on outside-in, how does HR do this? What do they do to become and enhance this skill so that they can be a business partner in the anticipation of the future? Dave Ulrich: Well, first obviously, Amy, and I’ll say it before you say it, and you’ll just say amen, they need to get certified at HRCI. I obviously have to say that three different times. By the way, I’m going to now push my assumption there. I think certification is the front door, not the back door. I think it’s the door of entry, and anyone who says, “I’m certified. I’m now ready to play,” I would challenge you. I think certification is like getting a driver’s license. It’s like getting an attorney’s license. I trust the attorney because he or she is certified. They passed the bar. Now comes the more difficult issue of getting competent. What I think we need HR people to do is to get much more comfortable with the stakeholders being outside HR. For example, I did a session with the Conference Board yesterday on what is business partner next generation. One of the questions for business partners is who’s the customer of HR or the client of HR? Who’s the key stakeholder? In most cases where you ask that question, the answer continues to be the employee of the company. My response is true but incomplete. HR obviously serves employees. We build their wellbeing. We build their productivity. We build the environment. The words we’ve been using lately, we help them believe become and belong. We create meaning. We create growth. We create community, but I think the real customer of HR is the customer of the company or the investor of the company, which could be debt or equity or parent firm. I think our job in HR is to continually understand that context in which HR works because that’s what the business is about. One of the pet peeves I have is there’s a lot of push right now on employee experience. That seems to be the new word du jour I think of employee. I went through about four or five of those books and probably 20 articles recently, and I didn’t find almost anything about customer experience. The best thing you can do for an employee in a company is build a winning organization. How’s that for being blunt? If you don’t build an organization that wins, the employee is not going to have a job or they’re not going to have opportunities. The best thing you can do for an employee is know who the customers are, why they’re buying, what they’re looking for in the future, what investors expect so they’ll fund your company. When you know those things and can translate them back, for example, 90% of companies have a leadership competence model. They’re everywhere. They’re pervasive. They’re cool. Only about 20% build those competency models with customers. What a disaster. I mean, I want you to have… We were with an oil services firm. We want innovation. No, the world of customers doesn’t want your oil firm to be innovative. They want you to be predictable, and so you’re doing these socially desirable things that are not what your customers want. Boy, do I wish we could get HR people more focused on customers outside and on investors. When we do that, then I think talent, compensation or designed communication, career, all the HR practice areas get aligned against the right set of criteria. That was a long answer. Joe Mechlinski: No, that was great answer. I could listen to you all day. I can tell Dave, because you don’t regurgitate based on whether it’s just your experience and all this massive research and the actual work product you developed. I think what I love about the tone and tenor of your voice is it’s a get stuff done to keep this on the right side of the no-curse words interview today, but I really do. I think that chutzpah, that hustle, and again, I’ll go back to the word activists, I really think that’s a smart mindset if I’m an HR right now, because to your point, you can get caught up in the tactics of HR and all the good things to do, becoming certified certain competency models, all that stuff makes sense. But your third piece that you talked about with just how does this relate to business outcomes, so what do you think is missing there would be my question? Why don’t organizations not follow to get over to the goal line of why the employee experience must map to at least the customer experience in some philosophical way on a bad debt? Dave Ulrich: It would be fun Joe to ask you. You’ve done a number of books and you’ve written a lot of blogs. What percent of new insights do you need every year or year and a half to stay fresh? I’d ask the same of Amy. Obviously, you’re both a joy. I have not worked with you. I have deep, deep respect and affection. That’s probably the right word in today’s world, but Amy, I have deep respect and affection for you. One of the reasons is, and Joe, I’ve read your work to get brief, your learners. For me, I’ve got to have 15 to 20%… That’s not right. 20 to 25% new material every 18 months. I see a lot of HR people saying, “Oh, it’s comp season again. Let me do what I did three years ago.” No, and by the way, you don’t start over. That’s equally stupid, but am I getting fresh? Am I new? It’s one of my frustrations. I was about to write a blog. I really like HR, but there are two or three frustrations that gnaw at me, and a lot of people critique the old world rather than create the new. “Dave, we don’t like your 1997 HR champions model.” I’m going, “You know what? Neither do I,” because in 1997, Netscape was the browser of choice and it’s gone. I hope in HR, we’re continually re-inventing. Joe, I pushed you. I hope your new books are… I like this. When I teach, I teach 125% of what I know. I’m trying to explore. Here’s what I know. The world is disrupted. AI is changing the world. We’re going to see robots. You shared with me a report about the employees of the future. It’s going to be a new employee, a new set of skills, a new culture. Can we create that re-invention within HR so that we stay ahead of the curve? I’m optimistic. I see more HR people doing that than not doing it at leading firms, but if you want to find some bad HR people, I can give you a list. I can give you a list. If you want to write an article about why I hate HR, I can headline that list with some incredibly well-intended people who are living out of the past, but if you also want to write an article about where HR is headed, I can also help you plan that list, which is where I’d rather play. I’m going to use one other metaphor. A lot of people, if they’re prophets, they say the world is doomed. You’re on the way to hell because you’re not living well. I’d rather be the prophet who says, “There is a pathway to heaven. Here’s how to get there.” I’d rather look at what’s right and what the opportunities are that’s ahead. I see that. Again, Joe, I see that in your work. We haven’t had the interpersonal relationship. I clearly see that with Amy, that HRCI is not trying to… I’m going to certify you to do what HR did in 1970. Well, that’s just silly. We’re going to certify you to what HR should do in 2020, and we’re going to try to get ahead of some of that game. Amy Dufrane: That’s right. Joe Mechlinski: That’s pretty profound, and we both have a deep affection for Amy now. Look at that. Dave Ulrich: Thank you for getting me equally in trouble. Joe Mechlinski: Well, I thought we were going to have podcast gold here when you were going to start rattling off the people that are totally screwing this up. I mean that would be… I can see Amy’s face now. We wouldn’t do that in this podcast. I’ll have Dave back on SHIFT happens, and we’ll have a totally different conversation about this, and we’ll just help people left and right. Amy Dufrane: No, I think we all know and have seen visions of HR gone bad for sure. I want to shift gears a little bit. As I’m thinking about leadership. I know you’ve done some research around the leadership capital index. I think that this is really in the realm of looking at businesses from a different perspective and for leadership through investor expectations that realize that market value of leadership and how investors and boards and raping agencies evaluate leadership. I think that what you created is something that didn’t get picked up. I think there’s a lot of credibility there as others much more mergers and acquisitions that are happening. How do you assess that value of leadership as you’re looking at the true value of a company? If you could talk… I know you’ve done tons of research, and I’m asking you a big gigantic question, but I think it’s really interesting and it’s worthy for you to touch on just a little bit around that leadership capital index and how you developed it, and how can people use it? Dave Ulrich: I love the long question. I love the six words that you said, “It did not get picked up.” It didn’t. The logic of leadership capital is simple. How do you know if you have the right leadership in a company? I said about competencies. Are we including customers? We also with a resounding duh said, “You’ve got to include investors.” A piece of an investor confidence, either debt or equity. Your debt rating equity is your intangible stock price or your parent company giving you a disproportionate amount of money. Part of their confidence in your future earnings is the quality of leadership. Duh. We begin to say, “Here’s a simple question. Look at the development of leadership through the eyes of investors.” If you’re doing a leadership competence model or a training program or a leadership 360, are we doing with our leaders what would give investors’ confidence in our future? That’s the simple question. When leadership development is looked at through the eyes of investors, it begins to change a few things. For example, we love authenticity. That’s nice. We want leaders to be authentic and honest and credible, but we want leaders who build on those strengths to strengthen others. An investor says, “Yes, I really like you.” Joe and I both professed that Amy. We really like you, but that’s not all I wanted an investor in Amy. I like you because not your personal style, but you make others better. It’s not that you have strengths. Your strengths strengthen someone else and they deliver value. We went through, and this is… I won’t bore you with details. What is it an investor could look at that would give them confidence in the quality of leadership for future success? We found there were some individual things and there were some organizational things without… There’s the kind of detail here, but it’s like a Moody’s index for leadership. Moody says, “I trust that you’ll make money in the future because your loan process, your capital process, your capital allocation. At the individual level, we looked at, “Can you shape strategy? Can you get things done? Do you manage people well? Are you able to nurture others? Do you adapt to the situation?” At the organizational level, do you build a culture? Do you build a system of accountability? Do you manage information? You create the right systems, and we can now begin to codify and measure, “Are leaders doing things that give investors’ confidence in their future success.” Finally, we went through a whole bunch of investors and we said, “What do you look at when you have confidence in a firm’s future?” 35 to 40%, now our regressions were precise, but that’s silly. It’s not that precise. 35 to 40%, do you have a track record of making money? If you don’t make money, it’s going to be hard to invest in you. 30 to 35% is what was called the intangibles like strategy, brand, systems, and 25 to 30% was leadership. Now, what I like about that research is that it’s not just me speaking off the top of my head. Leadership is not the dominant thing. We’ve got to be able to make money, be disciplined. We’ve got to have strategy and systems, but leadership 25 to 30% is a chunk. It’s a chunk. That’s not a very technical word, but it’s a big chunk of what it takes to give investors’ confidence. Most HR people I have found are not playing in that space. They don’t know their firms price earnings ratio. They don’t know who their major investors are. They don’t know their investor criteria. I would hope that once certified by HRCI, I’ve got to say that three times, we can move into this other space and begin to create real value, because a quick anecdote. A company asks us to do leadership training. I looked up quickly. The company was worth $10 billion in market value, and they were trading at a 20% discount to their industry average. For the same dollar of earnings, they were getting 20% less market value. That’s $2 billion, and so I said to the head of HR, “Your leadership team in part is being discounted $2 billion by the investment community.” The head of HR said, “Oh my gosh, that’s negative. That’s bad news. We can’t share that.” I said, “What? Are you nuts? That’s public data. You don’t only need to share it. You need to run into it. You need to go to your executives and say, “We’re trading at a 20% discount than our competitors for the same earnings.” You’ve taken earnings out. Maybe it’s not 20%. Maybe it’s 10 but you the top leadership team, you’re costing this company a billion to $2 billion in market value. We’ve got to fix that. The HR person said, “Well, I can’t let you share that with the executives.” “Are you nuts?” By the way, if they don’t know it, they should be trading on 50% discount. They should not only know it, but they should be fighting to fix it. That’s what we’re trying to do in some of the leadership work we’ve done with leadership capital.   Amy Dufrane: I mean, I think this really shows you that data around HR as the anticipator and HR as the driver and HR as the strategist really being there. These are practical examples of how HR can run into things. How can you embrace these findings that you have and then have a seat at the table and be talking about these with your colleagues? Spot on.   Joe Mechlinski: That’s awesome. I also love the… You said it about seven to ten minutes ago, which was how much new information do you let into your sphere or your rotation of growth. Given who you are and what you do and how amazing everything that you’ve said today is, and I do really mean that, I’m not just blowing smoke. What do you do to stay fresh? I mean, what are those things that keeps Dave sharp beyond drinking your own Kool-Aid and looking at your own stuff? You sound like someone who really does seek out as a sponge these learning opportunities. Is there an app, a book, a conference? What’s the rigor look like for you or the protocol look like for you, Dave?    Dave Ulrich: By the way, Joe, I’d love to ask you the same. I try to source people who I really admire as thought leaders. As soon as I start to name them, I’m going to get in trouble, but I’ll name some, Jeff Pfeffer, a brilliant, brilliant thought leader. I know I shouldn’t go here. Lynda Gratton in the UK, Gary Hamel, Arthur Young in China. I am so selfish. I tried to do books with all those folks so that I pick their brains. I also try to go to companies and say, “Don’t tell me the problems that are easy.” We have a little institute. We have an RBL institute through our consulting firm with about 35 companies. We have a CHR raw session twice a year where we say, “Come to that session with nothing, and we have no agenda.” What’s on your mind that scares you about the future. The head of HR, “When you look to the future of a retail firm, a lodging firm, a transportation firm and a manufacturing firm, what is gnawing at you that you don’t have a sense of? With great candor, people lay out ideas that are just concerning them. I love to be that anthropologist who just listens and observes. I get a little worried by the time something is published in books… Joe, I love your books, but by the time it’s published, it’s often two years old, and so I’m starting to use LinkedIn and social media and saying, “I’m going to publish every Tuesday.” Then I start to look at comments. Now, some of the comments are just they’re gracious and kind. Some of them are silly, but some of those comments pushed me to say, “Wow, I didn’t think about that.” I’m constantly trying to do some of that work to see what we’re doing. I know you’re running out of time. I see we’re listening. You’re not seeing the middle fingers of Amy and Joe going up and down. By the way, you guys are so fun. I could spend hours learning from both of you. Joe, just to say I’ve not had time with you personally. I’ve read through some of your work the last 48 hours and just really appreciated your work on the workforce of the future and where it’s going. Amy, obviously, I’m going to get emotional almost. When times were tough, friends step up. You have stepped up with me and I’ve hopefully stepped up and supported the work you’ve done at a professional as well as personal level.   Amy Dufrane: Yes. You have been a great inspiration not only to me but to many business leaders out there who you’ve served, and I do think you given up yourself in many, many ways. We appreciate the time that you’ve spent with us today, and we look forward to continuing our conversations together and hearing more about the future of HR. We appreciate your time, Dave.   Joe Mechlinski: Thanks.   Dave Ulrich: I appreciate it very much. Have a great day for both of you. My thanks to you both

Resources Mentioned