Norm Smallwood’s brilliance is blinding! You’ll know as you read this interview – the wealth of leadership wisdom, strategic foresight, and transformative insights shared by Norm Smallwood—a luminary shaping tomorrow’s leadership landscape–will completely reframe how you look at the modern workplace! Every answer crackled with such wit and wisdom, that it felt like unearthing buried treasure. Each point is a gleaming gem – practical, actionable, and bursting with fresh perspectives.
The HR Digest: How did your journey in leadership and business development shape your perspective on organizational change over the past decade?
Many years ago, I heard Dave Packard, one of the founders of Hewlett-Packard, say that death and taxes were the great constants of life. Packard argued that while death and taxes were minor individual events, the great constant was change. His insight remains relevant even more so now.
In the last 5 years, there has been a tsunami of change driven by the COVID pandemic, regional wars, divisive politics and inflation. Consequently, like countless others, I now work primarily from home, engage through platforms like ZOOM and Teams, frequently order Doordash and get my news from multiple sources.
The ability to manage change determines the fate of any organization. Companies that effectively manage change thrive, while those unable to do so ultimately fail from irrelevance.
Effective leaders articulate the need and the response to this constant change and communicate with employees who are fatigued and skeptical of the demands placed on them. Leaders have two fundamental ways to convey the need for change. First, good leaders can articulate the need for change because the organization is on the brink of failure- cost reductions, reputational crisis, shift in customers and so on and seek to manage those changes. Secondly, great leaders communicate a need for change based on their vision of a better future and inspires people to change to become better. This second type of change management is critical because it creates meaning and purpose around the other challenges.
The HR Digest: In your book, you discuss unique leadership competencies and how leaders connect employees to customers. How can these competencies drive positive change within an organization?
When Dave Ulrich, Kate Sweetman and I wrote The Leadership Code, we described two types of competencies- foundational and differentiating. Foundational competencies represent about 60 to 70% of what any leader must master to be effective. We labeled these foundational competencies the “leadership code”. They include 5 domains:
- Shape the Future: Strategist
- Get Things Done: Executor
- Engage Talent: Talent Manager
- Build the Next Generation: Human Capital Developer
- Invest in yourself: Personal Proficiency
These foundational competencies are the pillars of what any leader should know, be and do. These foundational competencies provide the framework for selection, development, assessment and rewards. You can use the Leadership Code competencies or you could map your current competency model and align it to the leadership code competencies to ensure comprehensive coverage with your own model. When we map existing competency models to the Leadership Code we often discover one or more competency domains entirely absent, while others may be over or underrepresented.
Dave Ulrich and I write about differentiating competencies in our book, Leadership Brand. Differentiating competencies are those that make your leaders unique from leaders in other companies. They are unique because they are derived from your firm brand. Your firm brand is what you want your customers to know your business for. Walmart wants customers to know them for low prices, Singapore Airlines customers know them for customer connectivity, Apple customers perceive innovation and Fed Ex customers expect speed.
However, identifying a desired firm brand is not enough. You must make that brand real to your customers and to your employees. Leaders play a pivotal role in connecting customers and employees around the firm brand. Southwest Airlines’ firm brand, for example, is cheap, fun, and on time. Southwest selects, develops, retains and rewards leaders based on these differentiating competencies. These differentiating competencies drive positive change because customers receive the desired brand experience at every touch point and employees know what is expected of them.
“Companies that effectively manage change thrive, while those unable to do so ultimately fail from irrelevance.”
The HR Digest: Your current work focuses on increasing business value by building strategic HR and leadership capabilities. Can you share specific examples of how these capabilities have measurably impacted market value?
Over the last four decades, drivers of market value have shifted significantly. In the late 1970s 95% of market value was derived from earnings. Fast forward to the 2020s, and earnings now account for only 15 to 20% of market value. This highlights a notable shift, with up to 80% of market value being intangible! We have done multiple studies with investors reflecting the increasing significance of intangible value, detailed in publications such as the Harvard Business Review article, Capitalizing Your Capabilities (Ulrich and Smallwood) and CFA Magazine, The Leadership Gap (D Ulrich, N Smallwood and M. Ulrich).
So, what comprises intangible value? First, a company must deliver consistent earnings as the table stakes for intangibles. Investors can’t trust a company that doesn’t deliver earnings. However, only focusing on earnings leaves a huge amount of unrealized value on the table. Second, there must be a clear and compelling business strategy. Third, technical capabilities must be built that are consistent with the business strategy. Fourth, develop your human capabilities represented by leadership, talent, organization capabilities and supportive HR systems. We find that these human capabilities represent 25 to 30% of total intangible value.
By explicitly developing and then communicating investments in human capabilities to investors, a publicly traded business can increase its price-to-earnings multiple resulting in substantial financial value. Two companies in the same industry can have similar earnings but different market valuations, emphasizing the role of intangible factors in influencing investor confidence. To illustrate, let’s say that Company A and Company B both have earnings of 10. Based on the amount of investor confidence in the future, each company has a different multiple represented by investor confidence in the future of each company. For example, Company A has a 10 multiplier and Company B has a 20 multiple.
So, Company A has a 10 multiple giving them a 10 (earnings) X 10 (multiple) = 100 market value and Company B has a 20 multiple giving them a 10 (earnings) x 20 (multiple) = 200 market value. For every $1 of earnings that Company A has, Company B gets twice the value based on investor confidence in the future of Company B. Clearly, HR has a key value creation role in this world of intangibles.
In our work at the RBL Group, we have seen companies focus on increasing their human capabilities and get rewarded with a higher P:E multiple and higher levels of engagement from leaders and employees. We worked with a global hotel chain after it was divested. Investor confidence was at an all-time low with most analysts calling for their customers to sell the stock. We worked with them to reduce costs in order to get the company to industry parity. Not surprisingly investors wanted the hotel senior leadership team to continue with even more cost reductions. Instead, our approach was to gather data from their customers and communicate that back to investors.
Rather than continue to reduce costs, leaders communicated to analysts, investors, franchisor’s, and employees that they had reached parity in their costs with other hotel companies and were now going to focus on customer service. They were clear that they wanted a customer value proposition emphasizing customer connectivity rather than lowest price. Two specific customer initiatives were described and a promise was made to continue communications about the impact of each of them. The result of this transparent communication, based on customer feedback, swayed investors and resulted in an across-the-board increase in confidence. Analysts switched from Sell to Buy on this stock and the price earnings multiple increased almost thirty percent.
The HR Digest: Your involvement in The RBL Group is significant. How does the collective of management educators and consultants contribute to driving transformative change within organizations?
Dave Ulrich and I cofounded The RBL group in December 1999. We have co-authored seven books together and he is the undisputed heavy-weight champion of thought leadership in human capability. And, more than that, he is a great friend. It has been awesome to witness the growth of our company since its formation, from co-founding alongside Dave Ulrich to building a global team of educators, consultants, and support staff at The RBL Group who collectively enable us to drive transformative change. I am particularly grateful for the collaboration and expertise of my partners at RBL- Dave Ulrich, Ernesto Uscher and Joe Hanson and our consultants and support staff who have played crucial roles in our global success. This diverse and dedicated team of people allow us to deliver incredible value to our clients. I am thankful for the contributions of each team member, including those in North America, Singapore, Copenhagen, Miami, and others worldwide, whose efforts collectively shape the high-quality and high-performance standards we uphold.
Transformative change requires an organization to change not only how it operates but, even more importantly, how people think. To change how people think, they must deeply understand and own the changes. Many of our competitors use an expert model which requires large teams of consultants to do the work. At the end of the engagement, those consultants are the ones who are most committed to the recommendations rather than the leaders of the organization accountable for implementing the change.
At RBL, we use a collaborative process as we engage our clients in large-scale change. The RBL approach is to charter an executive team within an organization to sponsor the change and a design team to work with our experienced consultants through the details of the recommendations and implementation of the change. Our consultants provide a clear process, frameworks and tools. Changing structure, systems, capabilities and coordinating mechanisms alone, is not enough to drive transformative change within an organization. During the change process, and after, we provide education for all leaders and HR professionals. Without education and guidance throughout the change, people are asked to redefine how they work and think without getting the requisite tools and support they need.
“Differentiating competencies are those that make your leaders unique from leaders in other companies. They are unique because they are derived from your firm brand.”
The IR Digest: Can you share a personal success story where your leadership approach played a pivotal role in overcoming a significant organizational challenge or driving positive change?
Kenny Rogers has a line in his song, The Gambler that goes: “you’ve got to know when to hold em and know when to fold em”. Knowing when to quit was a hard lesson for me. I have high achievement motivation, so knowing when to stop trying did not come easy to me. However, it is an important lesson.
Dave Ulrich and I had just written, How Leaders Build Value (originally published as Why the Bottom Line Isn’t) which demonstrates how a publicly traded business can increase confidence of investors and other external stakeholders.
A senior leader at a global financial services companies hired us to help them after regulators put them on notice that they couldn’t do any more acquisitions until they overcame systemic ethical issues among their leaders. Their new CEO had recently visited Japanese regulators to apologize for retail bank violations, a group of employees in Germany had made illegal trades and several boxes fell off the back of a UPS truck filled with private client data. I was confident that we could help and signed a multimillion-dollar contract to help them.
My excitement and positive feelings for the project didn’t last long. It was apparent that several of the leaders who sponsored the project were not interested in cleaning things up. For two months, these leaders fired several members of my project team without conferring with me and literally shouted at me in public at a dinner where I discussed some of the changes we knew they needed to make.
I pulled my RBL team together and we discussed our options including firing the client. Though it was a difficult decision, I met with the company’s most vocal critic and gave her some personal feedback as well as our decision to no longer continue the project. When my team and I left that night, I was sure that we were done working at this company.
However, a few days later, the CEO called and apologized for our experience. After a good discussion, he promised to provide us greater support and proposed that he fire our most virulent critics unless they changed. We completed the project after making significant changes in their policies and leadership practices. Soon after, the regulators allowed them to start M&A again.
This story has a successful ending, but the changes could not have taken place if I had not decided to fire the client. Quitting the project was the leader success factor I had to learn. The last verse in the Gambler song summarizes this lesson:
Every gambler knows that the secret to survivin’
Is knowin’ what to throw away and knowing what to keep
‘Cause every hand’s a winner and every hand’s a loser
The IR Digest: How do you balance the need for strategic HR with the day-to-day operations of an organization, ensuring a seamless integration of leadership capabilities?
This is an ongoing challenge for every HR organization. The reason that it’s a challenge is that when strategic and essential work (day-to-day operations work) is mixed together, the day-to-day operations work drives out the strategic. The reason for this is the nature of each type of work. Day-to-day support work is concrete, urgent and short-term. Strategic work is ambiguous, conceptual and longer-term. At the beginning of the day if I have both types of work on my TO DO list, then I do the day-to-day support work first. So, operational day-to-day work drives out strategic work.
To get around this challenge, HR can structurally separate strategic work and day-to-day operations work. The structural separation creates accountability for those doing day-to-day operations to do it in a manner that is cost-efficient while meeting standards of quality and service. It also creates accountability for those doing strategic work to impact the business in areas of human capability- talent, leadership and organization capabilities.
When organized this way the day-to-day work is centralized with a shared services organization and with HR generalists. This allows HR Business partners and Centers of Excellence to focus on the strategic work.
The HR Digest: In your speaking engagements, you address leadership and business management. How do you tailor your insights to resonate with diverse audiences, considering the unique challenges they may face?
The key to earning respect and staying relevant is thorough preparation for a diverse audience. I have made the rookie mistake in the past of NOT preparing well for a diverse audience. I was in Shenzhen, China giving a speech to a large group from Huawei the day that Donald Trump was elected president. The previous day, it looked like Hilary Clinton was going to win so I prepped to answer questions about what I thought her approach to China would be.
When I found out that Trump had won, I immediately turned on the news to see what Chinese leaders were saying about a Trump presidency. Luckily, I found an interview with Jack Ma, the founder of Alibaba, where he talked about Trump. I did not vote for Trump, but I did not want to disrespect the presidency by saying anything negative. So, I was able to be relevant and knowledgeable by quoting a respected Chinese source- Jack Ma.
Beyond preparing insights about the topic, I also have to prepare to customize those insights to the audience. The first time I gave a speech in Riyadh, Saudi Arabia I made a few mistakes because I did not understand the people and the culture. The men and the women were separated into different areas of the auditorium- the men all in their white dish dash and the women in their black abayas. At the time, I thought I had prepared for this experience but as I look back on it, I am a little embarrassed about how I tried to shake hands with a few of the women where this is not a common practice. Thankfully, I was fortunate to have a Saudi colleague who gave me the feedback. About a year later, we opened an office in Dubai, UAE and for the next ten years, I learned a great deal more about Arab culture and how to communicate.
So, whether the diversity is political, cultural, race/gender, or orientation, the key to a diverse audience is to prepare for the audience by learning as much as I can and being open to learning. I have been fortunate to have diverse people teach me about their views and beliefs. Personally, I am fascinated with this aspect of my work so I’m up for the challenge.
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Norm Smallwood is a recognized authority in developing businesses and their leaders to deliver results and increase value. His current work relates to increasing business value by building “outside in” organization, leadership, and people capabilities that measurably impact market value. In 2000, Norm co-founded The RBL Group with Dave Ulrich. |