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Turning Purpose Into Performance
Gerry Anderson, the CEO of DTE Energy, and Robert Quinn and Anjan Thakor, professors at the University of Michigan’s Ross School of Business and the Olin Business School at...
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Gerry Anderson, the CEO of DTE Energy, and Robert Quinn and Anjan Thakor, professors at the University of Michigan’s Ross School of Business and the Olin Business School at Washington University, respectively, discuss how an aspirational mission can motivate employees and improve performance. Anderson talks about his own experience. Quinn and Thakor explain their research showing how leaders can foster a sense of purpose that sharpens competitiveness. They wrote the article “Creating a Purpose-Driven Organization” in the July-August 2018 issue of Harvard Business Review.
CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch. As President of DTE Energy back in 2004, Gerry Anderson knew he had a problem. Surveys showed workers at the utility company were not performing up to their potential.
GERRY ANDERSON: We weren’t a good company then.
CURT NICKISCH: Anderson tried to shake things up by adding training, changing incentives, increasing managerial oversight. The results were disappointing. That’s when he realized his people were not to blame, his approach was.
GERRY ANDERSON: I mean it’s a simple thing, but if you want a company to be excellent you have to draw people’s discretionary energy, their extra energy. Well, what do you give your extra energy to? I give it to things I care about and believe in.
CURT NICKISCH: On today’s show, turning purpose into performance. In a bit we’re going to hear from Bob Quinn and Anjan Thakor, the two business co-professors wrote the HBR article “Creating a Purpose Driven Organization.” It’s on the cover of the July/August 2018 issue of Harvard Business Review. But first, we’re going to hear from the CEO of a company they wrote about in their article. That’s Gerry Anderson of DTE Energy. Gerry, thanks so much for talking with the HBR IdeaCast.
GERRY ANDERSON: Oh, happy to do it.
CURT NICKISCH: When was the moment that you realized you needed to try something different?
GERRY ANDERSON: It happened on the cusp of the great economic recession actually. When my own company, I was being talked about as being thrown on the scrap heap of broken companies in Detroit. We were going to be among the first junk bond utility, was the talk in the industry. We weren’t a good company then and I came in and really sort of firmly laid down the law that we were going to be a different company and told everybody that I wanted a plan where they were going to hit benchmark numbers. And we were going to begin to have a performance ethic at DTE and behave differently and not accept mediocrity. All of which was heard, I would say, but not embraced and the further you got down in the organization the more it scared people. And by the time that process had played through which was 2007, working into 2008, we were improved, but our, the engagement of our people as we measured it via Gallup, was really low.
CURT NICKISCH: Improved, but not changed.
GERRY ANDERSON: Yeah, improved, but I could see that because energy was low, I would have to inject some sort of change pulse on a repeated basis. And as I thought about that I asked myself is that what I want my, maybe the remaining decade or 12 years of my career to look like? Pulsing an organization that really doesn’t want to be pulsed to prod change. So, I began to think about continuous improvement in a more sustainable continuous model of allowing our organization to become excellent. And one of the cornerstone principles of continuous improvement is respect for people. You cannot ask your people to go to bat for the corporation unless they sense that you’re going to bat for them. It’s just an unfair exchange. You can’t ask for their heart and their energy, but not provide something equally meaningful in return.
CURT NICKISCH: Had you been a skeptic of purpose or purpose-driven organizations?
GERRY ANDERSON: I wouldn’t say I was a skeptic, but I didn’t understand the true power and I didn’t know how to infuse an organization with purpose and aspiration. I knew how to work a team of, a small team of leaders, or early in my career, how to work a team of 50 or 100. But how to line up over 10,000 people behind a purpose and an aspiration and make that real, something that people felt in their gut. I didn’t know how to do that. I also didn’t understand the power of it until I lived through the year that followed.
CURT NICKISCH: Yeah, so what happened?
GERRY ANDERSON: As our financial plan went up in flames in late 2008, I pulled our team together and said look, everything we planned for the last year is scrapped. We need a new plan. We’ve got about 10 days to do it, so let’s go to work. About two days into that planning session two of my most senior leaders came back and said look, too much money has walked out the door, probably a couple hundred million dollars and we have got too much of our cost in people. We’re going to have to do a large layoff here. There’s no other way to get it done. Well, I knew I was facing the decision of my career because if I walked away from our people at their moment of greatest danger, that would echo and be remembered for a long, long time. So, in the end, I and we may the decision to do the opposite. We went to our people and told them that this was a very big event we were facing. We couldn’t promise how it would turn out, but we would promise one thing. We promised that the last lever we would pull to protect the integrity of the company would be a layoff. That we’d do everything in our power to prevent it. But in return, we said there’s something we need to ask of you. You need to go to bat for this company with an energy level and an intensity and a level of creativity that you never have before. We went into the year having made this ask of our people and the promise to our people, but I got to tell you, I was holding my breath. And month by month, I met with my controller and I’ll never forget those meetings. First month we beat our budget. That was unlikely. Two months in we beat our budget. A quarter in, and this was we were a quarter into 2009 and GM’s just about to fall into the government arms and bankruptcy. Steel mills are closing all around us. Auto plants are closing down. We beat our budget for the first quarter. I remember slamming the table and telling him “There’s a break in your financial model, find out where it is.” He screamed back at me actually. “There is no break in our financial model. This is just what’s happening.” And it was then that I realized this ask we made of our people was actually playing out. They were coming to bat for the company with a different level of energy and a different level of creativity than I understood prior to then, it could be possible.
CURT NICKISCH: It’s interesting. I don’t know if you had been seeing the signs, but just didn’t want to believe that they were real yet, but what did you see on the ground that backed those numbers up?
GERRY ANDERSON: So, the reason it was hard to see is that it was disaggregated. It was being carried out by 10,000 people. It was hard to put your finger on. It wasn’t three, four or five big initiatives. It was hundreds and thousands of initiatives being carried out by people. But I’ll give you a good example. I remember not long after that discussion with the controller, meeting with a small group at one of our power plants. And we had been changing up the digital controls at the power plant. We were far enough into the project that there was no turning back and it was a $30 million project they thought as we entered 2009. So, they said to themselves, we got to do our part. So, they began to bid the project harder and harder. Well, they took it from 30 to 27 million. And then they asked themselves, well what is it that’s really obsolete in these systems? And they narrowed down what was really obsolete and had to be changed out to certain circuit boards. So, they went back to the manufacturers and said look. We’re in the same situation everybody is. We need your help. The only thing that’s obsolete here is these components. We want you to manufacture those. $3 million. So, they took the project from 30 to three [million dollars]. They cut out 90% of the cost through a step that in prior times they wouldn’t have taken. They would have stopped after they moved from 30 to 27 [million dollars] and called it good.
CURT NICKISCH: Well, you hit budget, yeah.
GERRY ANDERSON: Yeah, we did it. After 10% out, that’s pretty good. But the crisis called on them to think differently. And that was happening all over the place in examples large and small. Everything I learned was about people and what they’re really capable of when they set their hearts to something.
CURT NICKISCH: How has it been possible to keep that going after you perhaps lost that sense of crisis?
GERRY ANDERSON: That was the question I entered 2010 with. It was, I realized clearly that we were going to move out of preservation mode and as I thought about it, I realized that we needed to move from preservation to aspiration. And that was we needed to turn our people’s energy outward and help them realize that yeah, we were OK as a company, but the people around us weren’t. So, that’s what I started to talk about. That we could be a force for growth and prosperity in our city and our community and in our state. And that that’s what we needed to fight for now. And that statement still lives today. In fact, it’s been shortened to be a force for good. But it has power because it reaches back to that time in the crisis when we turned from trying to save the company to going to bat for our state and our communities. And that drew people’s energy because people wanted to help the people around them. They wanted to help their city be vibrant again. And so, that was really the second source of energy, now that was infused into the company.
CURT NICKISCH: Some folks might hear about your experience and think, well a public utility, it is regulated, but it has somewhat of a captive market, a geographic monopoly and that purpose-driven organization wouldn’t be possible at many, many other businesses in more competitive markets. So, what would you tell them? What’s the biggest misunderstanding about becoming a purpose-driven organization that you want to clear up?
GERRY ANDERSON: Just think you’re going to build excellence in an organization and real drive when your people are giving you average or below average energy, makes no sense. I mean it’s a simple thing, but it simply makes no sense. If you want a company to be excellent, you have to draw people’s discretionary energy, their extra energy. Well, what do you give your extra energy to? I give it to things I care about and believe in. So, in terms of a public utility versus other companies, yes we face less market volatility than say a commodity based company. But I can tell you our industry spreads out from really mediocre to excellent too. And so if I just talk to you about the hard measures over the decade from 2007 to the end of 2017, sort of the period that I walked through my own journey, learning about all of this, our economic performance was that our total shareholder return was up 275% and our average peer was up 83%. So, our performance over that period from a hard economic standpoint was over three times what our average peer was. And you can call me soft if you’d like, but my background is actually engineering, physics, and McKinsey. I’ve come to believe that the soft stuff really is the hard stuff. They have to go for your people’s energy and when you’ve got your people’s energy, it is wind at your back. It doesn’t mean you don’t have to do finances and strategy and operations really, really well to perform, but boy those things are so much easier when your people are with you and really with you.
CURT NICKISCH: Gerry, thanks so much for sharing your experience and your company’s experience.
GERRY ANDERSON: I’m happy to do it and I appreciate the chance to talk.
CURT NICKISCH: That’s Gerry Anderson. He’s the Chair and CEO of DTE Energy. Now we’re going to hear from the two researchers who wrote about the energy utility in their HBR article about Purpose Driven Organizations. Bob Quinn is a professor emeritus at the University of Michigan’s Ross School of Business. He’s also a co-founder of the school’s Center for Positive Organizations. Bob, thanks for coming on the show.
ROBERT QUINN: Great to be here with you.
CURT NICKISCH: And Anjan Thakor is a finance professor at the Olin Business School at Washington University in St. Louis. Anjan, thanks for talking with the HBR IdeaCast.
ANJAN THAKOR: You’re most welcome.
CURT NICKISCH: I just want to ask what in the story of DTE Energy spoke to you. Why did you see that as an emblematic example of a company that learned to be a purpose-driven organization?
ROBERT QUINN: We interviewed a lot of CEO’s who were heading up a purpose-driven organizations and there was an underlying story there and when we met Gerry and listened to his story, it was the epitome of all the other stories. A CEO who enters the role and doesn’t leave and purpose people are cultured. They’ve risen up out of economic thinking, conventional assumptions and then a crisis hits. And once a crisis hits and they can’t succeed they have to think in new ways and they discover purpose, people and culture and Gerry was the epitome of that experience.
CURT NICKISCH: Yeah. Why does it take a crisis?
ANJAN THAKOR: What happens is that during a crisis, solutions that are based on the standard assumptions by which firms are operated in normal times often don’t work. And so, it ends up being people are searching for alternatives ways to approach organizational change and to approach the problems and the challenges that they face. During normal times the standard assumptions and the solutions that they suggest seem to work reasonably well and so there isn’t the need or the necessity that arises often when there’s a crisis. So, it’s counterintuitive because to pursue higher purpose organizationally during a crisis is actually financially less affordable. Because you have to make economic sacrifices in the pursuit of organizational higher purpose. But this somewhat paradoxically, that’s when these leaders seem to be more receptive to things like higher purpose and some of the alternative solutions that are suggested by the pursuit of higher purpose.
CURT NICKISCH: I can see companies turning to this in a crisis because they’re looking for something that works and something better. I can also imagine companies that do this, call it organically, but just do this because they have that higher purpose either from the way they were started as a startup, or just because their mission is clear. I mean in DTE Energy’s case their purpose had always been their purpose. It wasn’t finding a new purpose. So, have you really never found any organizations that are purpose driven that didn’t become that way through a crisis?
ANJAN THAKOR: No, actually we have. So, I think you’re absolutely right and we talk about this in our article as well, that you don’t invent a purpose, you discover it. That it’s there and oftentimes it’s latent.
ROBERT QUINN: I think what happens in the crisis, people tend to rise to a higher level of effort. So, at DTE Energy, they had a crisis. Gerry asked them to rally. He wasn’t sure what he was asking for and they rallied. And when he saw that, that’s when he made his great discovery. That there was enormous discretionary energy available in his workforce that he wasn’t tapping. When the crisis was over he had this amazing meeting where he sat down with his direct reports and he said look at our numbers. In a year, one should have been a disaster. It was the best year in their history. Because these people stepped forward with such enthusiasm. He then asked them this critical question. He said, how do we want to lead this company so they continue to perform at this level? What would it take not from them, but from us? And that was an incredibly intense meeting where people shared not from their brains, but their hearts. They formed a vision. They changed how they led and over the next few years they tripled their stock price. The moment you have a purpose that’s authentic it becomes the arbitrator of every decision. Every decision is made in relation to that purpose. There are many companies that have purpose and value statements on the wall, but it has no relevance to what happens day to day and everybody says that’s just hypocrisy and you made the workforce more cynical than ever. But what happens in a purpose-driven organization is they got the right purpose and everything focuses back to that purpose. So, it becomes an authentic thing and it’s empowering.
CURT NICKISCH: I suspect that in many organizations there are many employees who want to be part of a purpose-driven organization and have those intrinsic for them, they want to be doing interesting work, they want to get paid, but they also want to be making some sort of difference, or just making meaning with their time. There are also people who say, well that’s great, but this is what the organization values and so, it becomes much more contractual. How can that balance of employees who are optimistic and the ones who are pessimists about this, how do you get everybody over to one side?
ROBERT QUINN: Well, first of all, let’s take that first assumption. I suppose a lot of people desire to have purpose and meaning. Well, I bet you do. I know I do. That is everybody hungers for that no matter what they say or do. I can be very passive aggressive and tell you my boss in a thousand ways that I don’t want to do anything, but take my paycheck. But that’s not a true message. Everybody hungers for meaning. Everybody hungers for achievement. Everybody hungers for respect, results. People want that. But they don’t have a chance to access, they don’t believe it’s possible, so they turn off.
ANJAN THAKOR: Because there’s so many posters on the walls and statements of value and then they get very cynical because they don’t see those things being connected with the day to day decision making. They don’t see those things being the arbitrators of full decisions that the organization makes. So, the authenticity of the purpose is critical so that it becomes real for people.
ROBERT QUINN: Most CEO’s do not believe in purpose work. They don’t want to do purpose work. They think it’s a waste of time. What that means for the listener of this podcast that you have a golden opportunity. If you can learn to do purpose work you are going to be different than most managers and most executives in the world. You have leadership capacity they don’t have because most executives are not leaders. Many CEO’s are not leaders. Position doesn’t make you a leader. What makes you a leader is influence. And that’s different than authority. Purpose is all about influence.
CURT NICKISCH: Let’s talk a little bit about the payoff from being able to make a transformation like this. Anjan, you’re an economist. What have the numbers shown you?
ANJAN THAKOR: Organizations in which there’s a clarity of purpose and it’s clearly communicated to the employees in the organization that those organizations achieve very significant economic outcomes. They outperform organizations that are not purpose driven. So, there is evidence that it does have tangible economic payoffs, but here’s the paradox, is that if in fact, your employees feel that you’re pursuing a purpose because you want them to work harder and you have certain economic goals in mind that it tends to lose its authenticity. And people then begin to view it as just another mechanism by which you’re trying to control them to get them to work harder and produce greater economic outputs. So, the fundamental paradox I think is that you have to pursue it because you believe in it.
ROBERT QUINN: One of the things that’s very hard to see when we talk about it’s the arbitrator of all decisions, there’s an outcome that’s very significant. If someone has a purpose and it’s authentic and they’re constant around the purpose, then every decision they make ties back to that purpose. Anytime you have a purpose your problems become a springboard to creative action and richer, more abundant culture. And everybody wins even when there are big problems. That is not available to the normal economic mind. When we work with companies to build purpose-driven cultures, that’s one of the things that sort of amazes them is all of a sudden people are buying their product because they’re getting more than a product. They’re getting a culture. People want to believe in organizations. And most organizations they can’t believe in.
CURT NICKISCH: So, this notion of lip service, have you seen this happen inside companies where there’s been lip service to purpose because it seems like something that’s going to pay off and employees just don’t buy it because they feel that the authenticity that Anjan talked about earlier, just isn’t there?
ROBERT QUINN: I was in a company recently. I was walking through the cafeteria. They had purpose and values on the wall. I said to the cashier, in the cafeteria, what do you think of that? She looked at it and then she just rolled her eyes. That said everything.
ANJAN THAKOR: I see it all the time. I mean I think that there’re more companies where you see that than maybe companies where it’s authentic. And I think people are conditioned to view things like statements of value and anything connected to purpose as not being integrated within the day to day business decision making. So, I think that that’s really the challenge for leaders is the authenticity requires as Bob said earlier that it becomes, purpose becomes the arbitrator of all of your decisions and every employee believes that.
CURT NICKISCH: You talked earlier about how the listeners of this podcast could become those types of purpose-driven leaders because there’s a need for it, most people aren’t. What would you recommend to listeners who have this urge and see the need? How do they kind of begin incorporating this kind of drive into their careers?
ROBERT QUINN: I think that is a spectacular question. And it goes back to personal purpose. What is your life mission? What is your highest purpose? Why are you on this planet? When you leave this planet, how will it be different? What is your gift? Who is your audience? Who do you want to give that gift to? The moment you specify that, your life changes because you move from ego goals to contribution goals. And we have lots of science that shows you function differently when your purpose is to contribute to the welfare of the whole, or the welfare of other people. Purpose-driven people live proactively. They know why they’re here. They know what they’re trying to contribute. When you become that kind of leader, you become an invaluable leader. So, we’re talking about something very basic, very powerful and the world’s hungry for it right now.
ANJAN THAKOR: And envisioning this purpose-driven workforce and accepting the proposition that people actually want it and believing that is I think sort of the second step that you take after you yourself recognize what your own purpose is as a leader.
CURT NICKISCH: Bob and Anjan, thanks so much for coming on the show.
ROBERT QUINN: It was an absolute delight. Thanks so much for having us.
ANJAN THAKOR: Yeah, you’re most welcome. This was my pleasure.
CURT NICKISCH: That’s Bob Quinn and Anjan Thakor. Quinn is a professor emeritus at the University of Michigan’s Ross School of Business. Thakor is a finance professor at the Olin Business School at Washington University in St. Louis. They wrote the article “Creating a Purpose Driven Organization.” You can find it in the July/August 2018 issue of Harvard Business Review or at HBR.org. This episode was produced by Ramsey Khabbaz, Adam Buchholz is our audio product manager. And we get technical and production help from Rob Eckhardt. Thanks for listening the HBR IdeaCast. I’m Curt Nickisch.