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DC- In a nutshell, what do you think is wrong with management?

GGM- First of all, here is the predicament for most companies: our growth performance record is not very good at all. Revenue growth is less than half of what it should be, and profit growth is less than 25% of what used to be a decade ago. So, the big challenge for most companies is how to increase the pace of growth, in revenue and profits. But if you look at the performance of stocks in the past decade, you quickly realize that we seemed to have lived in an illusory world, because the performance of stocks was driven largely by external factors, outside of our control, so that stock performance had very little to do with how companies were managed.

So the idea that management practices were driving success was illusory. The time has come now to build authentic growth, based on the realization that real profit increases are the real drivers of real stock increases and that real profit increases are driven by real and sustainable revenue growth, authentic growth. Most companies need a path that can guide them to achieve authentic and sustainable growth. Follow This Path tells a very compelling story – how the world’s greatest organizations drive real and sustainable growth by creating relationships with employees and customers that are worth enough to override price, by ensuring that employees and customers alike are emotionally engaged

DC- Give me an example of a factor people were following in the past that has little relationship to the success of a business.

DC- Most HR VPs would say they are pretty sure there is a connection from their programs to revenue growth because there ought to be a causal relationship. However they would admit they have not been able to prove the connection.

GGM- That is one of the reasons why they don’t have much influence in how an organization should be run. The marketing function can show the CEO the impact of a particular campaign. The operations manager has a way to link the investments in the production system to the bottom line. The HR person will never get that impact unless he or she can demonstrate what drives revenue, margin and profit growth.

DC- What other mistakes has HR made?

GGM- One is the belief that business performance outcomes, like turnover, productivity, profitability, are, in essence, company-wide phenomena. We have discovered that every business outcome you can imagine is almost always a local business unit phenomenon. That was one of our first discoveries.

Take turnover. If you take any given company—and we have looked at in excess of 300,000 business units in more than 1,000 companies—you notice that the variation within (i.e. the internal variation among business units) is larger than the variation between companies. There may be 20% of business units accounting for 60% of the cost of turnovers while 20% of business units have hardly any turnover.

DC- How big is a business unit?

GGM- On average it is about 10 people. The range is wide. But what does not change is that the most important person within a company is the local manager because almost every business outcome can be predicted by the relationship between the manager and their employees.

DC- That these very small local units are what really matter is an interesting research finding.

GGM- I would ask the HR practitioner to take any important business outcome and break it down in terms of business units. You will see the range of outcome performance is incredible. You will find you have the world's best and the world's worst within your own company.

DC- Most business professors would say Coca Cola is successful because they are incredibly smart about marketing, or that Unisys is successful because they really understand technology, or that Dell is successful because they have incredibly effective production.

GGM- You are talking about yesterday. Coca Cola was highly successful by marketing one brand for all occasions, and using a mass advertising initiative as the medium to engage its customers. Today, that brand is no longer for everyone, nor for all occasions and what’s more important, that model of engagement has exhausted itself. Unless you incorporate the human related issues of engagement in the critical areas of distribution, merchandising and promotion, how do you replicate that success story?

The problem again is that unless companies re-define how they are going to engage customers and employees in order to somehow override price, their traditional competitive advantages are gone. As Michael Porter pointed out, you can either be different or be the lowest cost producer. The potential for any company to be significantly different has been eroded so the only way to compete seems to be to lower your price. We call cutting your margins the razor blade ride to hell because once you are on that path you can not leave it. And while you can momentarily gain share, ultimately you don’t achieve sustainable growth.

Aside from a few exceptions, the rule is you can’t be different today unless you maximize the value of people. That variable has never been maximized because it has never been considered important. But we are not talking about ‘people’ in the conventional way. We are talking about our natural predisposition to want to be emotionally engaged.

DC- Tell me a little bit more about customer engagement and employee engagement.

GGM- Some of your readers will be disappointed because HR practitioners want to move away from soft terms and here we are saying, "Hey you should use emotional engagement." However, our research shows that that is indeed the key measure. But let me explain:

For more than a century emotions have been considered to be elusive, difficult to measure, that part in us that constitutes ‘a baggage of evolution’. Recent discoveries in neuroscience have changed that forever. There is nothing elusive or subjective about emotions. These are chemical reactions inside our brain, which can be observed, measured and cultivated as any other biological phenomenon. Secondly, organizations thought emotions were something you should control so that they didn’t get in the way of rational thinking (Does this sound familiar? You probably heard it in Daniel Goleman’s Working with Emotional Intelligence).

Again, the bulk of recent discoveries in neuroscience indicates that emotions, first, are mechanisms in the human brain that you should try to understand. Here is why: the neural pathways from the amygdala (the emotional center of our brain) to the frontal lobes (the house of our intellect, of what we are consciously aware) are much wider than the other way around. This simply means that emotions set our highest-level goals, how much and how well we work and how attached we become to brands and organizations. And a central theme is that you cannot control this. In other words, we are naturally predisposed to be emotionally engaged. The question, of course, is our organization does or does not fulfill this natural predisposition to the fullest.

Another important implication is that our emotional wiring is very difficult to change.

DC- So what is your definition of "talent”?

GGM- Again, I would contend that the basis of our understanding of talent lies in neuroscience, particularly how our learning and communication capabilities (our synapses, the connections between neurons) are hard wired from an early age. Talent for us is a consistent pattern of thinking, feeling and behavior that can be applied productively to achieve superior results. It contains our intellect, our ability to process mental images, our ability to reason in a particular way, but it also includes our feeling of what happens when we engage in the right activities and makes us passionate about it. And practically all superior performers are passionate about what they do. The question is: Do you seriously think that you can train someone to be passionate about something?

If there is one lesson that this book should teach HR practitioners it is that engaged employees create engaged customers, who in turn create sustainable margin growth.

So there is a vast emotional economy within all organizations that is bigger than we ever imagined. There is more value to be created in this economy than in many, if not all, other management initiatives being pursued today. Organizations should assume that every employee is naturally predisposed to be emotionally engaged. They must use that emotional engagement to connect with customers. And, they must hold every manager responsible for the employees’ level of emotional engagement.

Oh, one last thing: In the process of managing their company’s emotional economy, ‘HR’ should be called ‘GR’ instead, because such is the department that should be in charge of managing the company’s growth rate.

Follow This Path is available from Amazon.com.

List of Past HR.com Interviews