Unlock Strategic Supremacy: Your HR Department is the Key to Disruptive Growth

Welcome to the Built by People podcast, where we share the stories and insights of the world's top HR leaders. Join us as we dive deep into the minds of HR executives, uncovering their strategies, challenges, and triumphs in shaping today's workforce. I'm excited to welcome Michael to the Built By People podcast. Michael, thank you so much for joining us. And as a starting question, I always love to ask if you could share a little bit more about your career journey.

Great. Let me see. How did I start? I guess let's take it back in college. When I was an undergrad, there was no undergrad degree in HR whatsoever. Not that I even heard of it. And a friend on campus convinced me to go to an on-campus interview with IBL. And I remember he didn't get the job, but I got the job and going back to the fraternity house. And teasing my fraternity brothers, uh, that I had a job and I'd be working downtown Chicago and they did. And one day if they stopped in, I might buy 'em lunch. And of course one of 'em looked at me and he says, so Mike, what are you gonna be doing? And I said, I don't know. What does an HR rep do? What does a personnel rep do? I had no idea. I was a pre-law major and I was on my way to law school. But a funny thing happened on the way to the floor. I end up falling in love with HR, um, and end up switching to a, from a JD to an MBA. And from that moment on, I moved. There were no, when I first got into HR, there was nothing called an HR generalist. It was all specialists and you work your way around from recruiting to benefits to compensation, to training and development, to employee relations. And they saved the fun stuff, employee relations, for last. And so I remember as a 22-year-old, I, once I moved out of recruiting, I moved into benefits and you couldn't get out of benefits unless Irene approved. She was head of benefits management. You couldn't get out of there and move on unless Irene gave you the, she was like the Lou Gossip Jr. and an officer and a gentleman drill sergeant before you got out of there. But anyway, and it was like a march or die. IBM would hire 108 personnel reps and maybe 10 after 2 years would make it all the way through. So I remember just being frustrated about being in recruiting. And my recruiting manager told me I was recruiting a secretary, and my recruiting manager gave me some of the most profound advice I ever heard. He said, being a recruiter is like choosing a Supreme Court justice. The person you choose is gonna direct this organization for the next 5 to 10 years, good or bad. You are selecting the individuals who will either make or break this organization.. And I never forgot that. When I moved to compensation, I always kept that mentality that there was a larger cause and a bigger purpose to what we're

doing. Michael, you've identified different HR business models that organizations can adopt. Could you walk us through those models and explain how they reflect an organization's maturity levels?

Now, this isn't— you won't find these business models. This is an idea and a concept I developed and published on myself based off my experiences. If you walk— came to an organization, 9 times out of 10 you ask them what model they're in, they probably couldn't tell you. They describe some of the things, but the most basic— there's about 4 to my understanding, to my publications. I've identified 4. The most basic kind of model is called a compliance model. That model is characterized by HR specialists. And the reason is compliance is mostly made up of hiring, firing, and benefits. There's nothing strategic about it. It's no nonsense. If you follow the policies and procedures, we comply. You will comply with the policies, the procedures. It's recruiting. It's basic. The next model where the organization, usually these models are usually developed and designed, well, depending on the level of sophistication of the organization. Some organizations who have no respect for HR will maintain a compliance model. They don't put any money in the HR, they don't, don't, but will mostly have a compliance model. And that's the one you usually, the one most complained about. When you hear stuff negative about HR. Thinks HR's trying to tell me what to do. HR is a place where no goes to die. HR, when you hear negative things about human resources, 9 times outta 10, my research, that HR department is in a compliance model. Compliance model, because the only thing they know is yes or no. They can't tell you, they know it's bi— everything is binary. The next model, when an organization is either startup, they're in a compliance model, or whether they're usually harvesting or mature and heading out of the life. If you look at a life cycle, organizational life cycle, startup, growth, maturity, those four phases generally, or death, or so here's, you know, compliance. They're trying to harvest stuff and they don't need any physics. But as an organization, I'll give you a case in point. Microsoft Now at the time, BlackBerry owned 97% of the market, and of course Microsoft had an equal amount of dominating the market. Now the difference between the two of them is Microsoft. Now there wasn't, it wasn't un— Microsoft, when they start growing, they start developing their department. They move from an HR compliance model, which is a basic to HR universal model, which is HR generalist, usually characterized with HR generalist. It's much more flexible, and at the same time, it is more efficient because in a specialist model, you, all you got is a group of individuals who are highly— the positive about a compliance model is everyone is extremely skilled at what they do. Negative side of that. If Dave can stay, if Dave is gone, nobody can tell you anything about benefits. Nobody can do this, but it's weak bench strength. But what if we took Dave, the benefits person? What if we took Michael, the employee relations person? What if we took the labor relations and the compensation person, all 4 of them, and we trained them on all of these positions? Now we're much more efficient, much more flexible, and we can call them HR generalists. And that's how the, the department evolved. Why don't we become more efficient? Because some of the complaints of HR is they're never— we— they get a little bit strained, for lack of a better word. So getting back to my, my analysis, so IBM recognized as they grew, they developed their HR department. HR department moved from compliance to, um, universal HR. Then it moved from universal to business partners, people when you had a sophisticated HR business partners, and I see this all the time, like a colleague of mine at another university, I interviewed her staff and she was of course saying how sophisticated her department is to comfort the university I just started with. And she was telling me, we have business partners. You guys are about 2 or 3 generations behind. It's going to take a while to take up. And I listened to her and I said, you're right for now. In 2 years, you'll be coming and ask me for advice. But anyway, she was telling me about her business partners and I said, let me stop you. You don't have business partners. You have HR generalists. You just gave the title business partner. They're not business partners because if you had HR business partners, you wouldn't need Ascension. You wouldn't need consultants around it. Business partners can do what generalists can do. Plus they can design strategic planning, plus they can do change management, plus they can do 360 coaching, plus they can talk to you about the latest strategy, the latest business models to help you support your strategy. That is the difference between a generalist who just knows the ba— all of the basic functions and a JHR benefits and a strategic business partner, which is much more sophisticated in that. Came about through the Big Eight at the time, cuz I left IBM and I moved, went to PricewaterhouseCoopers, and that's where I got my sophistication started taking shape. Arthur Andersen, they're no longer around. They're now, their consulting firm is now Accenture, but Arthur Andersen was the big boys on the block with consulting. Getting back to my model, I digress. Getting back to my model, whereas IBM started developing, taking the HR department along with them. Microsoft did. So when Microsoft, when they were arrogant, not Microsoft, BlackBerry, they were arrogant and they refused to change. So when this flip model started coming out, they got complacent as most organizations who could dominate the market do. They never think they're gonna, they never think they're gonna get disrupted. And all of a sudden they started losing market share. Then they switched and they went to, we need new technology, we need new engineers, we need new efficient ways of doing things. And they called upon their HR, their compliance HR model, who was simply not capable of designing those type of things. The only thing they could tell you is whether you are following the policies and procedures, whether your benefits are right, but they have no skillset in designing change management. They have no skillset in developing some of the most sophisticated tools to get you where you are. Now, and I tell my staff that my, when I teach, I said, now, was HR the sole reason IBM is circling the drain at 3%? No, but they didn't help. They weren't capable of helping BlackBerry create superior talent acquisition to bring in research and development. They weren't capable of helping them streamline their process to compete with the new market coming out. They weren't capable of designing and career and training and just switching up, going arming, disarming, and rearm. Only thing they had was compliance, and that's great. Now, is a compliance model altogether wrong? No. If I was called in to assess Lowe's or Home Depot, one of the two was got caught in a massive— compensate massive wage discrimination against women, If you call me in to design a new HR model for them, I would recommend a compliance model because it's going to keep you, limit your legal exposure. It's great. The positive behind a compliance model is it limits your exposure. It makes you more efficient. It benefits, but it's not strategic. It can't, when an organization, particularly when an organization has strategic ambitions, it's simply not capable.. And a lot of times I tell faculty presidents and VPs, you can't get mad at your HR department. They're doing what you designed. They set up what you set 'em up to do. They're not capable. It's like you're trying to compete in the Indy 500 and you got a 1950 demolition derby car, and then you're getting mad at it because it's not capable of keeping up with all the other Fast-track Formula Ones. The next model is what we, the business part, the third and most sophisticated model is called a change, the change, change expert, or PST, Perpetual State of Transition model. And I named it to do that is because of organizations that are so sophisticated that they're moving last year's product model, last year's gener— different fourth, fifth generation inside of a year and a half, and they're designing. IBM, the iPhones, all of this technology, it is the most sophisticated. Change agents are more sophisticated than business partners. They know much more and they, they, they are much more sophisticated. They have organizational development, they have finance, they have it. They're much more sophisticated than even a business partner. It is expensive to run. If you were a Chicago Bears fan, when they ran, opened up with the 46 defense, that defense was extremely risky, but you had to have the right type of talent to run that. And the Bears, lo and behold, at that time had excellent people in each one of those roles in order to run it because the 46 defense is called requiring you to take risk. I'm gambling that I can get to your quarterback before you can throw that ball. The best answer to the 46 was a spread. I'm giving you— my wife says, stay away from analogies, but that's the best way I can explain what a PST model is, a change model. It is highly sophisticated. Only organizations with a lot of skill sets and organizations who are constantly in a competitive market for change. For the next best thing are capable of pulling them off. It takes a lot of training and a lot of development, and you gotta have a high budget to run that model, cuz these people won't cheat. And models. I was up at a university in Kansas explaining these models, explaining the change models. And I said, now what I've seen is I've seen, I was at a university in Texas and he sent me his organizational chart. And when I saw the chart, I said, when, when I talked to him, he said, what do you think? I said, you guys look pretty good on paper. On paper, which they did. But even though they had a strategic business partner model, they were actually functioning as a compliance model. None of them knew what they were doing. They had all of these old processes and procedures. But none of their people were capable of doing it. They said they had business partners. They made— these people were specialists just given a business partner title. You sophisticated now. The HR department when I came into Grand Valley State University was compliance. The HR, the director of employee relations, is the only one doing employee relations. Everyone else was specialist. They hired, fired, But the president, Grand Valley was on the president who came in, she had grand ambitions. She wanted to take the university from a regional university to competing with Michigan and Michigan State. And the only way to do that is to go national. She, you can't run a compliance model going national, being a national university. You have to hire in all 50 states. Our payroll department was set up, payroll was set up for regional. We couldn't pay anybody outside. We couldn't pay anybody. If you wanted to work, a professor, and you wanted to work online, we couldn't pay you. The compliance model was not set up to meet the needs of a strategically ambitious organization. So we immediately had to change to a business partner model. We immediately had to bring in talent management. We immediately had to switch from payroll and benefits to total rewards to make us more flexible. And within a year and a half, COUPA, that's the Colleges and Universities Human Resources, recognized us in 2023 as the nation's most innovative HR department.

Michael, there seems to be a correlation between an organization's Fortune 500 ranking and their HR department sophistication. Can you elaborate on this relationship?

And share specific examples? Yes, of course. No organization has ever achieved strategic supremacy. No organization has ever obtained world-class status or created disruptive innovation without the sophistication of a highly sophisticated HR department. And on organization, there's this link with how sophisticated your HR department is. But with the HR department's capabilities of designing leadership development, designing change management, designing strategic compensation and benefits, designing with sophisticated models, change models. One of the most important things of the— people don't seem to forget about IBM is for 100 or 200 years, they're international business machines. They started out selling calculators or selling pens and pencils. Moved up to become the world's best, uh, mainframe. They, then they switched, got involved with Microsoft, switched, made the, made the jump from mainframes to laptops, then decided to get out of international business machines forever, but out of it. The most dangerous time in an organization is two times. One, when they just acquired another organization, and two, when they're shifting business, when they're shifting. Product lines or shifting of business, business models or whichever. And IBM decided to sell off all their laptops and switch to selling advice. IBM has one of the most sophisticated change management organizations ever. 90% of organizations who attempt trying to shift, trying to change their business structure, restructure business structure, fail. IBM successfully did that. They could. Why? Because they have one of the most sophisticated change management HR departments in the country. Let's just take McDonald's. 60% of all former McDonald's managers, regional managers, you know where they're working at? 60% of the people that's hired are working from McDonald's are working at Jack in the Box as a regional manager, working at Burger King. Working at Red Lobster, working at Boston Market, at— because Burger King has one of the most sophisticated talent management operations in the country. One person leaves, they develop another person, that another next person step in. No one's more sophisticated than how McDonald's, but that's the superior. That's what keeps them up. Intel has one of the most sophisticated talent acquisition. They, together with Google, they have one of another sophisticated type of acquisition. They stay ahead of the curve because they hire the best and the brightest, whereas others do not. That does not happen if you don't have a more sophisticated, superior HR department. If you got a compliance model, if you got a universal model with generalists, that's not gonna get you there. But the level between the organization, the correlation between the organization, between the, the, the rank on the Fortune 500 and the level of sophistication. My book, Chasing Malcolm, or Chasing, the one I'm writing is analyzing this. My, what I like to, I'm looking at, if you are familiar with Collins' Good to Great, I'm taking his concept but analyzing it in terms of What is the level of rank? What is the level of sophistication of the HR department? And that's my research. My hypothesis is what I just said, and I'm collecting data to prove that.

Michael, what parting advice would you like

to share with our community? Human resources is much more than just recruiting. It's just more, much more than just benefits and people. The first thing you think is an HR One of the things I like to tell my HR staff, my team, or, or if I'm, I'm also a faculty member, I tell them young MBAs wanting to be a business partner. I say, every morning when you get up in the morning, you look in the mirror, you have to ask yourself, is today today? And they pause over. I say, is today today? Is today the day you quit? Because the HR professional always have to have that in mind. Because if you're not ready to quit, then you're not ready to be fired. And if you're not ready to be fired, you're willing to take anything. HR is the only one who can overrule a president if he or she is violating policies. HR, a 22-year-old kid can do it. When I say, when you, if you're not prepared to quit for integrity, then you're gonna end up like Enron. Then you're going to end up like taking the banks over to, you know what, they knew what was going on. And yet they did everything to protect the failed leadership, to drive organizations over the business, over the top, over the cliff. The, the whole real estate debacle. HR, where was HR? Where was HR when all of these things— you, you, we have integrity. You have to have integrity that people are counting on you. If you're not ready to quit, then you're not ready to be fired. And if you're not ready to be fired, you do anything, then you take a fumble. Is a— that's when the system work. When a fumble is a fumble for Walter Payton or some 8-year-old kid in Pop Warner football. You call the shots like you see 'em. You defend the in— you don't defend management, you don't defend employees. You defend the interest of the organization.

Michael, thank you so much for joining us on the Built by People podcast. It was a pleasure to have you involved.

Thank you, sir.