Why You’re Managing Talent All Wrong

Kara Miller:

Welcome to Instigators of Change, a Khosla Ventures podcast, where we take a look at innovative ideas, the people who come up with them and those who invest in them. I'm Kara Miller. And this week, what if the way we teach people running businesses to manage those businesses is wrong? The author, former business school leader and longtime CEO advisor, Roger Martin, worries about how we now deal with one of the most valuable assets around, talent.

Roger Martin:

They want to be treated as a unique and valuable human being. They want more to be treated special than to be purely highly compensated. And I think if you looked at yourself, you'd say that about yourself, right?

Kara Miller:

Roger Martin, former Dean of the Rotman School of Management at the University of Toronto talks football, Aristotle, Steve Jobs and why you've got to manage talent right to succeed. That's coming up on Instigators of Change. When you talk to Roger Martin, boldness is valued, which I discovered when I asked him about his critique of how we train business leaders. Martin has, of course, run a business school, but his writing and his speaking, they seem to indicate we're getting this whole thing wrong. We may be showing business leaders how to focus on the realities of the past instead of the possibilities of the future.

Roger Martin:

That is correct. And you almost sound tentative in saying that, like it's sort of, is that sort of, kind of what they're... No. That is exactly, precisely what they're taught. They are taught to optimize what is.

Kara Miller:

Which is to say that Martin, the author of a slew of books, including most recently A New Way to Think, doesn't want to dance around the issue. "Business schools," he says, "And future and leaders, they're taught to make the best of the situation in front of them and often just grind out every last penny from the current setup." And that's a problem when it comes to imagining how the world could be different.

Roger Martin:

There are two big activities. If you want to be prosperous for the long time, you have to optimize what is, because if you don't, then you're going to be inefficient and somebody will optimize better than you. And you need to create what does not now exist. And if you do those two things as a company over time, you can prosper over a long period of time, rather than just come up with some nifty idea, optimize the hell out of it and then go out of business. And the business school world grotesquely over indexes on optimizing what is. And it gives only a passing kind of nod to creating what does not now exist.

Kara Miller:

That can lead to short-term cost cutting at the expense of long-term, big thinking. And it can lead to huge mismanagement of talent, which Martin says can ruin an organization. "It's the big thinker," as he points out, "People like Steve Jobs, who aren't content to ring a few more cents out of what currently exists." They want to fundamentally reshape the future. "Consider," he writes, "Airbnb, which offered up a new model for vacationing."

Roger Martin:

When I wrote that I had never met the co-founders of Airbnb, but I was in a little dinner in Denmark where I met one of them, Joe Gebbia. And I asked him, "Was there anything critically important about having gone to RISD, Rhode Island School of Design, that helped him create Airbnb?" And the answer was music to my ears. He just simply said, well, for all of his four years at RISD, he kept being given challenge after challenge of creating something that does not now exist. And so he said, "That was perfect practice for doing Airbnb." And that's, in my view, what we've got to balance at business school.

Kara Miller:

But we haven't been getting the balance right, Martin says, which affects the way the whole business world thinks, even folks who didn't go to business school. How do we turn things around? Well, I don't want to preempt Martin here, but suffice it to say the solution's kind of retro.

Roger Martin:

The biggest difference that I would love to see in business is to go back to Aristotle, the guy who created the scientific method, the first data analyst, because data analytics is a huge thing in the world of business now. It's kind of the coolest thing. That, combined with AI, machine learning, it's all data and data analytics. That's the coolest stuff. And way back when, 2,500 years ago, Aristotle laid down the foundations of that. He was the first human being to kind of address the question of, how can we understand the causes of the effects that we see? And he said, "Well, what you do is you do kind of experiments and analyze the data to be able to say this causes that." And then we went into the Dark Ages and bad things for a while and reemerged and people sort of think about the scientific method being created by Bacon, Newton, Descartes, Galileo 2,000 years later, but they were actually formalizing what Aristotle said.

Roger Martin:

And because the scientific revolution was important and it really kind of enhanced standards of living and the way we did things, it sort of took over, and increasingly has taken over fields, including economics, including business, including epidemiology, a whole lot of fields. But what people ignore whilst doing that is a warning that Aristotle issued 2,500 years ago. So we've adopted his method. But he warned, he said, "There are two parts of the world. There's a part of the world where things cannot be other than they are." And that would be like if I hold a pen in my hand and let go of it. Then what'll happen? It'll drop. It dropped last week. It dropped a hundred years ago. It'll drop next week. It'll drop a hundred years from now. It'll drop in Fort Lauderdale. It'll drop in Boston, et cetera. That is what Aristotle referred to as the part of the world where things cannot be other than they are.

And he said, "In that part of the world you use my scientific method." But Aristotle also said there's another part of the world. It's the part of the world where things can be other than they are. So the example I give is smartphones. How many smartphones were there in 1999? The answer is zero. The first one was in 2,000. How many are there now? 4.4 billion, last time I checked. That's part of the world that can be other than it is. And you know what Aristotle said there, the inventor of science? "Do not use my method there." He was not equivocal, at all. And we've ignored his advice. What he said in that part of the world, you must imagine possibilities and choose the one for which the most compelling argument can be made. So what did Steve Jobs spend his entire career doing? Imagining possibilities and compellingly arguing for them. And what did he end up doing? As he said, he dented the universe, which is interesting.

It's consistent with, I don't know if he was an Aristotle fan or not, but it's consistent with Aristotle said. He said, "In this part of the world where things can be other than they are, it is the job of human beings to be the cause of the effect they want to see. In the other part of the world it's to understand the causes so you can optimize to the causes." So you can see MBA education has evolved to be for the part of the world where things cannot be other than they are optimizing what is, when, unfortunately, lots about business is in the can part of the world, where things can be other than they are.

Aristotle said, he was very clear on it, the rigorous methodology there is imagining possibilities and choosing the one for which the most compelling argument can be made. We don't do that in the business school world. We just don't. We say the only decisions that you make that are good decisions are ones that are based on rigorous data analysis.

Kara Miller:

It's interesting too, because I think about when you talk about the smartphone, I mean, there were companies that knew about touch screens. Their employees were working on them. And this is before people really had touchscreens. And they were like, "I don't see it. People are very happy with tiny keyboards on their phones. Let's stick with what works and what people like."

Roger Martin:

Yeah. I agree. And then let's optimize the production costs of a tiny keyboard, the radio phone that goes inside it, all those things. Yeah. And again, I'm not for a moment saying that the people who go to business school are incapable of creativity or not interested in creativity. All I'm saying is they're not taught methods for being creative. They simply are not. Now, at the fringe, an elective in second year maybe will bring in some practitioner from the world of design to teach a course. But it's a fringe activity. The core activity is how to use data analytics to optimize what is.

Kara Miller:

There's a bunch of areas that you write about where you think things should be different and people should look at things differently. And I want to talk about a couple of them. One is how you deal with talented people and what those people are looking for in a job. I just wonder if you can talk a little bit about how the thinking has evolved on talent over time. Having talented people in your organization, is that something people gave a lot of thought to 30 years ago? How do people think about it now? That sort of thing.

Roger Martin:

Sure. Well, I think kind of the rise of talent as, if you will, an important factor of production is only kind of been recognized over the last about half century, since the '70s. Historically, if you think about kind of the history of business, it was a battle between capital and labor. Who was going to get the money? And when the Industrial Revolution came and we needed huge scale manufacturing, that required lots of capital. All these excess farm workers were moving to the cities for jobs. And capital was in the cepher seed and could grind down the wages of labor. And then that got so bad that in 1935, the US government intervened and created the National Labor Relations Board, National Labor Relations Act and labor kind of battled back and was doing quite well until about 1960.

And then capital battled back by sending jobs to first Sunbelt states, right-to-work work states and offshoring it and automating, et cetera. And I would argue that by 1980, capital had definitively kind of beaten back labor. But what capital didn't notice is during that time a third factor of production arose and became more powerful. And that was talent, which was as distinguished from labor, where labor, at the extreme, one worker is fungible with another worker. With talent, there was something very special about each that made them hard to replace one for one. So in the movie business, you can have a Julia Roberts picture. But if she's not willing to be the lead actress in it, you can still film the movie, et cetera, but it won't be a Julia Roberts' movie. Or same with football. You can have Aaron Rodgers as your quarterback, or you're going to run a different offense if you don't have him as your quarterback. That became evident only in the '70s.

And it's interesting, a bunch of things happened at the same time during the '70s. That's when we had free agency in baseball, in 1975. That then spread to other sports. That's when we had the Raiders of the Lost Ark deal that George Lucas got 50% participation in the gross profits of the movie. That's when Two and Twenty formula for investment management became popular. That's when CEOs' salaries accelerated. It was all in the decade of the '70s, where that happened, where talent became ever more important as a productive asset. Intangible assets became more important. The building of brand, patenting of things, technical wizardry, all of those things made talent important. And what arose during that period, and it really was kind of CEO compensation was a big piece of it, was, well, you just have to pay to get talent. Talent will go to where it's paid the most.

And I think we've just gone overboard on that. Does talent need to be paid? Sure. Talent works super hard to be that unique, skilled entity that is required to do something. So if you're a quarterback, you practice throwing footballs long and hard, improving your footwork, your vision, all of that kind of stuff to be great at your position. So you do want to get paid. But I think that the business world has sort of missed out and stopped thinking about talent as human beings. And that's not the only thing that motivates the vast majority of human beings. What I think motivates human beings and is revealed in how talent operates is that they want to be treated as a unique and valuable human being. They want more to be treated special than to be purely highly compensated. And I think if you looked at yourself, you'd say that about yourself, right?

You want people to recognize the talent that you bring, give you opportunities to express that. If you've got ideas, you don't want your ideas to be dismissed. And you want to be patted on the back, even though people could say, "Well, why does she need pats on the back? She knows she's successful. I should pat on the back other people who don't know yet that they're successful." No. Talent says, "I worked hard to be unique and I want to be recognized for that." So treat them special and you'll attract and retain them. Pay them a lot and they will just go to whoever is the highest bidder.

Kara Miller:

Let me zero in on a couple of interesting cases of talent that you talked about. You've already mentioned Aaron Rodgers. But talk about why Aaron Rodgers to you is an interesting case of talent and what it is talent looks for.

Roger Martin:

Sure. Well last summer, essentially Aaron Rodgers and his team of his entire career, the Green Bay Packers had a big spat, where Aaron Rodgers, who'd been their quarterback for 17 years and MVP three times, Super Bowl MVP, kind of went all pro many times, and a loyal Green Bay Packers guy, doesn't go to all the spring kind of training type activities until he's absolutely forced to, which is a new thing for him. And he starts talking about the fact that he may retire. He may want to play with another team. And he is, his previous two contracts, he was paid the highest of anybody in football. So if you have this if-you-pay-him-enough-talent-will-go-wherever-they-want philosophy, that wasn't what Aaron Rodgers was so mad about. What was he mad about? He was mad about his ideas being dismissed. And he talked about it.

He said, "I said, wow, this tight end is great in the offense. I really him. And the next day he was traded to Buffalo." He said, "So I'm not going to talk about those any anymore, because my guys get traded." And the things he wanted management to think about in terms of building the offense around him, they would just dismiss him by saying, "You're a football player. We pay you to throw the ball. We make the decisions about who plays around you."

Kara Miller:

Hmm. You interestingly contrast this with Tom Brady, who now plays for the Tampa Bay Buccaneers. And he seems to have a lot of sway in terms of the decisions they make. So here are two well-compensated people, but their ability to have impact or feel like their ideas are valued seem very different.

Roger Martin:

Yes. Yes. And I think what happened with Tom Brady is that, I think, earlier on in his career, he was just in a learning mode and he was willing to go along with anything. But toward the end of his career with the New England Patriots, I'm speculating some, but I think his feelings changed. And, yes, you're absolutely right. He had more sway with the Tampa Bay Buccaneers. Went there and won a Super Bowl with them. So again, I don't want to say compensation doesn't matter. But I think you have to have a much more sophisticated view of what attracts, retains and motivates talent. And it's never dismiss their ideas, never block their progress and never pass up the chance to give them a pat on the back. If you do those three things, talent will say, "This is a place I want to be. I want to take what I've built over my life and apply it to you, your organization, because that's the way you're treating me."

Kara Miller:

Now, I'm guessing people who manage other people at football teams and otherwise are thinking, "Well, okay. Yeah, but on any given football team, there's a lot of talented people. On any team there's a lot of talented people, probably. Well, they might all want different things. How do I listen to all of their ideas, especially if their ideas cannot possibly align with each other and make them feel like, yeah, yeah, I'm going along with what they want me to do?"

Roger Martin:

Yeah. No, I think it's a more complex managerial equation. So in this talent era, it's much easier when the number one asset that you're using to be productive is cash. It doesn't talk back. It's generic. A buck is a buck is a buck. And so I think executives got used to the fact that if they had capital behind them, they could be in charge of making all the decisions. And if all they had was capital and labor, and labor was relatively fungible, and so if somebody gets kind of upset and doesn't like it, you say, "Well, goodbye. And we'll get another one like you." So I think we're into an era where managing is much more challenging.

That having been said, remember, I didn't say do what they say. I say, just don't dismiss them. You're going to have to have a conversation with them. And I think everything is pointing in the direction of talent getting ever more important. The world is awash with capital. So capital does not distinguish you anymore. What is going to distinguish you as a company more and more is talent. And what's going to happen is you're going to have to make more decisions on what kind of talent you can use to build together into an organization.

Kara Miller:

I want you to tell one more story of talent. But this is not a football player. This is a engineer, a top engineer, who worked for the company WebEx. His name is Eric Yuan. Really, very highly valued at WebEx. How is that a story of mismanaged talent?

Roger Martin:

Sure. So Eric Yuan, an immigrant who took forever to, kept trying and trying to win the lottery to get American citizenship came and-

Kara Miller:

I think he had eight denials of getting from it, yeah.

Roger Martin:

Which is great. I mean, it shows something about talent. They are not going to be blocked at accomplishing what they want to accomplish. So he goes to WebEx, kind of as the lead engineer of WebEx. WebEx gets bought by gigantic Cisco. And he's the lead engineer at Cisco and responsible for WebEx. And this is all according to him. And Cisco may say, "No, no, no, no, this never happened." But according to Eric, he said, "Wow, this platform is now getting kind of dated because it's purely desktop and there's going to be much more mobile use. We've got to re-platform this, rewrite the software so that it is mobile friendly." And in all of its wisdom, Cisco management says, "No, that's not necessary and it'd be too expensive." And that's a fatal mistake with talent. It's blocking their path, because what he wanted to do was rewrite it for the modern era.

And so kind of what did he do? He did what talent does, which is find an environment in which he or she is unblocked. And unblocking meant founding Zoom and crushing WebEx. I mean crushing them. WebEx is just barely relevant anymore in conferencing. I think it's emerging as a two-way race between Microsoft Teams and Zoom. That's what happens when you block the path of talent. Talent will not allow its path to be blocked. And I think it's a cool story that he didn't allow the path to coming to the United States, because that's where he wanted to apply his trade. INS could block him, whatever it was, seven or, I forget, seven or eight times. And it was like, "Well, I guess I just have to try again." That's a great, in many respects, comprehensive story of, in this case, disastrously bad talent management.

Kara Miller:

Let's go a little bit further down the chain. This kind of connects to what we were talking about at the beginning, the question of how much you pay people and what business school teaches you about that. I have seen organizations where the thinking is offer people very little money, because whatever, people are replaceable, people are interchangeable. It always seemed, I have to say, quite costly to me though, to be replacing people, both because there's a lot of institutional knowledge that's lost when somebody walks out the door. But then also, the people left behind who have very little capacity at that point to do extra work, because they're one person down, then has to start hiring and looking at resumes. There is a cost. There's, for sure, a cost, because it doesn't take you no time and you're being paid for that time.

Roger Martin:

Yes. But it's way harder to calculate. You couldn't be more correct. And a wonderful professor at MIT named Zeynep Ton, has written about this in a book called The Good Job Strategy. But that is a harder to calculate cost than the easy cost to say, "Oh, if we pay people 50 cents an hour less and we have a hundred thousand people, that's this amount of money." So you're right. Companies fool themselves on that front. And Zeynep, in this great book, just kind of shows that the companies that say, "No. Nope. We're going to minimize turnover by having happy, well-paid employees that we train kind of once, although ongoing, they get more training, but we train to be an employee kind of once and then they stay for forever, because they get paid well and it's a great environment," that's the smart strategy.

And it's getting smarter, I believe, every day as more and more jobs, people recognize, are not generic. There may be a generic aspect to it. But is the Costco butcher, if he decides to leave, yes, we can get another person called a butcher, but does he know the whole client base that comes in and exactly what they need? No. So more things have the attributes of talent with each passing year than before. And so those companies, I think, that say, "We'll minimize labor costs. And if we get some churn, big deal," they're just doing, interestingly enough, bad analysis. But they're analyzing the simple and ignoring analyzing the more complex.

Kara Miller:

What is the cost of that do you think to businesses, to productivity, the sort of world you think about?

Roger Martin:

I think it's huge. I mean, and Costco has kind of got a great example of benefiting from this. While the rest of retail has, to a great extent, disposable employees, low-paid, precarious employment, Costco's chock-a-block full of people who if you were to walk up to them in the store and ask them, "Yeah, do you like working for a Costco?" And it was, "Yeah, absolutely. This is what they do, da, da, da, da, da." And you can just feel it. Or at least, I don't know, maybe I'm just a Costco kind of-

Kara Miller:

Devotee!

Roger Martin:

Devotee. I mean, whenever I walk into Costco, I'm happy to shop there. And you sort of say, "But isn't it this big cinder block kind of thing with the racks going all the way to the... It's not like Nordstrom's or something." But it's the people, in there, are all happy. And it's not because they're given illicit drugs. They're happy because they are paid well, treated with respect, there's promotion from within, they have exciting, interesting jobs and Costco has won gigantically. And I think any company that doesn't do that is just leaving something huge on the table and probably going to disappear in due course as more and more companies kind of understand that there's this more complicated formula for managing taking care of people. How many people have ever said to you, in some context, "But Kara, that's business, this isn't personal, this is business"? And I think that's just-

Kara Miller:

I don't know. I don't know that I've been told that a lot, but maybe a few times.

Roger Martin:

A few times, but just think about what it means. It's sort of like, "For whatever I'm talking to you about, Kara, you should suspend humanity, your humanness, so that you can understand my point of view here."

Kara Miller:

Right. There are two different realms. There's the human realm and the business realm.

Roger Martin:

Right, right. But last time I checked, that business realm seems to be chock-a-block full of people, customers, employees, et cetera. So how can you just suspend humanness because you're in this realm called business? I mean, I think that's one of the great fallacies of business. No. If you use human rules, how about the Golden Rule, I think you're going to get farther than if you use non-human rules. And a non-human rule is, my relationship with you as an employee is how much I pay you every week. Is that really how humans interact with other people? That it's just about one single criteria, one number? No. Humans are complicated. They have a lot of interests, emotions, needs. Why don't you treat them humans? How about that?

And I would argue Costco treats them absolutely as humans. And that's why Jim Sinegal, the long-time CEO, he's not anymore, he would just be mobbed when he went into the stores, because everybody wanted to shake his hand, say hi to him, whatever, because they adored him. Why? Because he treated them as he would want to be treated himself.

Kara Miller:

To take a step back, I wonder why is it that CEOs in different areas hire you a little bit like a doctor to come in and diagnose a problem, but almost certainly about a company that they know more about than you do?

Roger Martin:

I think it's because most of them, if they've gotten that far, have gotten there in one industry and sometimes in one company. And this is where, if you will, kind of my model of this is different than the entire strategy advisory industry in the '90s, mainly. During the decade of the '90s it went from being generalist in terms of industry to unbelievably specialized. So you came into whatever, McKinsey or BCG, into their automotive practice or their pharma practice and you did nothing but that for your entire career. What that means is that you're kind of going in and saying to the CEO of a pharma company, "I kind of know more about what you should do in pharma than you do." Which I've always thought, "Gee, are the absolutely best pharma companies going to buy that service?" And the answer is no.

So what I do is I will only work for one company in an industry. I do not believe in working for everybody in an industry. One company per industry. So I don't know, I think I'm advising, I lose track, 13 or 14 CEOs now. And they're all in different industries. And so what I think they're interested in is, what's happening in other places in the world? What do you see across that are general things that you could bring to bear on this specific industry to add value? So I think that's the why.

Kara Miller:

How much do you worry that people who came up in an industry or who are immersed in it now, can't see other kinds of solutions that you can see? Or that somebody coming in... Do you know what I mean? How much do you worry that people get bound by the sort of little box that they live in? It makes it harder to push a business forward.

Roger Martin:

Yeah, for sure. And then that's, in some sense, why I do what I do. The easiest thing for me to do would be to say, "I'm going to be a pharma guy," or whatever guy. But I do what I do, because I worry about that particular problem. The modern kind of world of business does demand some of that narrowing. If you want to be a CEO, you've kind of got to stick to things for long enough to work your way up the long ladder to the top. And so there is almost a requirement to do that. Now, again, I think the smartest CEOs are the ones who, they'll belong to industry kind of groups, a business round table or something, where they rub shoulders with people in entirely different industries and become friends. And some of them will have little groups of people from non-competitive industries where they'll take the opportunity to get outside of their own box.

So I think you can do a lot to improve that potential structural shortcoming. Or you could ignore it and just say, "Hey, I know everything there is to know about what to do in pharma. And I'm going to do that the best of any pharma company." And then if somebody discovers something from telecom or whatever, that would be really relevant, then you might end up at the back of the pack, but you don't worry about that until it happens.

Kara Miller:

A final question. When you talk to business leaders, what do you feel like their biggest concerns are right now? And how have you seen that kind of change over time?

Roger Martin:

Yeah, it certainly changed over time. I think now, DEI is a thing that concerns the most in a way that sustainability did 10 or 15 years ago. We've now, in some sense, the world and the business world as part of it, have converged on standards. If you make a iron clad pledge for carbon neutrality by X, or you sign up for the United Nations Science-Based Targets kind of approach, and say, "Scope three science-based targets, we're going to commit to that by X," the business world has figured out how to respond super responsibly to that crisis.

I think we're 10 or 15 years behind that on DEI. I think of the executives I work for as fundamentally goodhearted people who want to do right by that. But it is not clear what a corporation should do on diversity, inclusion, equity. They know the direction they should be going. But the how and how much, et cetera, that is kind of an emerging we-got-to-figure-this-out challenge. So I think that's on the minds of the CEOs that I work with.

Kara Miller:

Hmm. Actually, let me just quickly come back to the question I asked you at the beginning, which was sort of about companies cutting wages, or a business leader coming in and reducing wages, but not necessarily getting a lot more productivity or growth out of a company. Do you think that business is concerned right now about income inequality? And maybe even as a bottom line issue for business, the more people who don't have much, the fewer customers there are for your business.

Roger Martin:

Yeah, absolutely. I mean, I don't even think it's even that instrumental. I think they would agree with you. But they'd say, "No, it's dangerous and problematic, the rising income inequality." It would be part of a broad definition of the E in DEI. It's not the only piece of it there. There are distinct pieces. But no, I think there's a lot of concern. And I think it is less clear today than it was 20 or 30 years ago when 20 or 30 years ago, they would've said, "If we, as business in totality are doing better this year than last year, chances are the median, if you're American company, the median American family will be doing better." Now, it is not clear that if we're all doing better and the economy is expanding, it may all end up in the pockets of hedge fund managers. And the median family may be struggling. That, I think, is now a profound worry of a lot of CEOs.

Kara Miller:

Roger Martin is the former Dean of the Rotman School of Management at the University of Toronto. He's the author most recently of the book, A New Way to Think. Roger, thank you so much for being here.

Roger Martin:

I would do it anytime, Kara.

Kara Miller:

And thanks to you for listening. If you want to hear another perspective from somebody who thinks deeply about the ways in which business leaders can be better managers, check out our recent episode titled, Should You be Radically Candid at Work, in which we talk with Kim Scott, author of the book, Radical Candor: Be a Kick-Ass Boss Without Losing Your Humanity. And of course, subscribe to the show to get new episodes every week. I'm Kara Miller. Instigators of Change is produced by Matt Purdy. We will talk to you next week.