Culture change is a key for any digital transformation initiative. The shift from one business to another is often accompanied by a need for people in the organization to adopt new processes, ways of working, and approaches to break down silos and relate differently to customers. Although culture change is critically important to transformation, it is difficult and time-consuming to achieve. In this episode of CXOTALK, we speak with two experts on the intersection of transformation, culture, and business models. 

Alex Osterwalder is an entrepreneur, speaker and business model innovator. He is co-founder of Strategyzer, a leading SaaS company that helps organizations develop new growth engines, better value propositions und powerful business models via online applications and facilitated online courses. In 2015 Alex won the strategy award by Thinkers50, called the “Oscars of Management Thinking” by the FT, and ranks #15 among the leading business thinkers of the world. In 2013 he won the inaugural Innovation Luminary Award by the European Union. Alex is lead author of Business Model Generation and Value Proposition Design, which sold over a million copies in 37 languages. USA Today named Business Model Generation among the 12 best business books of all times. The German edition was named Management Book of the Year 2011. Fast Company Magazine named it one of the Best Books for Business Owners in 2010. 

Dave Gray is the founder of XPLANE, a strategic design consultancy, and co-founder of Boardthing, a collaboration platform for distributed teams. He is a leader and manager with a background in design. He has worked with many of the world’s largest companies, as well as mid-sized businesses, startups, executives and individuals. His area of focus is the human side of change and innovation, specifically: How can you get people to adopt new ideas? How can you win their hearts and minds? How can you get people, including yourself, to change deeply embedded habits and behaviors? How can you transform a business strategy from a good idea to a living fact in the real world? Dave Gray is the author of two books on design, change and innovation: Gamestorming: A playbook for innovators, rule-breakers and changemakers; and The Connected Company. As an entrepreneur, a designer and as a leader, he has worked with startups and Fortune 100 companies, in just about every industry you can imagine, to help them use design to bring their strategies to life. In 1993 he founded XPLANE, a business design consultancy which has served more than 50 of the Fortune 500. In 2013 he co-founded Boardthing, a collaboration platform for distributed teams.

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Video Transcript: Culture Change and Digital Transformation with Alex Osterwalder and Dave Gray

Michael Krigsman:

(15:40) Welcome to episode number 170 of CXOTalk. I’m Michael Krigsman and today we’re talking about culture and digital transformation, and our guests are Alex Osterwalder, who is one of the worlds experts in Business models and Dave Gray who’s one of the world’s experts in culture and culture change and what an exciting show this is. If you’re watching on Livestream or if you’re watching on CXOTalk dot com, go to Twitter then you can join this conversation with the hashtag cxotalk, and you can ask questions of these gentlemen. Guys, Alex let’s start with you. Give us very briefly your background and what do you do.

Alex Osterwalder:      

(16:35) I’m the lead author of Business Model Generation and Value Proposition and Design, and the cofounder of Strategyzer a company that is trying to build a strategic operating system for companies of the 21st Century.

Michael Krigsman:

(16:47) Okay, and Dave Gray and who are you and what do you do.

Dave Gray:

(16:53) I’m the founder of a management consultancy called XPLANE and we focus on helping companies the measure and culture change initiatives.

Michael Krigsman:

(17:04) Okay, so we have an expert on business models and we have an expert on culture and maybe we should begin with Dave, let’s level set here and when we talk about culture what actually do we mean.

Dave Gray:

(17:24) Well I think what I mean anytime two or more people interact together they’re creating culture, whether it’s a family in a restaurant or any group. And in an organization what I mean when I say organizational culture and a good level set definition of it is cultures how we do things around here. It’s both the formal procedures in roles as well as the informal of how we get stuff done.

(17:51) It’s the daily operations and sometimes I’ve described it as being like an operating system on a computer; you’re not always aware of it but it’s always both creating opportunities and limiting what’s possible for you to do at all times.

Michael Krigsman:

(18:07) And Alex you look at culture through the lens of business models. You’re one of the foremost business model experts on the face of the planet, so as you think about that culture through a business model lens, give us some background and tell us about your thinking.

Alex Osterwalder:

(18:25) Yes, so business models are basically the logic of how you create, deliver, and capture value right. So I think the way Dave framed it you know culture is the operating system of your organization, so you need that operating system to run a business model on top of it right.

(18:42) And you know I think what we do really well and the kind of culture we have in most companies today is an execution culture. We’re really good at you know running our existing business models and making them better, and you know cutting out the fat and getting better at it all the time. But what we’re not really good at yet I think besides that execution culture, creating innovation culture. Another operating system you could almost call it you know, the dual operating system under one company, that’s why this topic I think is of particular interest when you talk about business models, and that’s how Dave Gray and I got together on culture.

(19:20) We’ve known each other for a long time, and you know Dave has inspired me a lot, and this was just a great opportunity to collaborate on the culture topic.

Michael Krigsman:

(19:31) And you’ve been collaborating Dave with Alex on something you developed called the Culture Map, so what is the Culture Map.

Dave Gray:

(19:40) The Culture Map is simply a tool like the Business Model Canvas if people here are familiar with the Business Model Canvas. It’s simply a lightweight tool and by tool I mean literally a piece of paper or something that can be presented on, put on a whiteboard etc., for helping people think through what are the things that drive their culture. Not only what the behaviors are, but what are the outcomes that we’re getting from those behaviors, and what are the underlying enablers and blockers that are actually operating within that culture to make certain things possible and other things impossible.

(20:18) And every organizations culture of course is unique, but I think a lot of times because it is so embedded, even it’s like air; it is always there but that does not make it easy to see. And a lot of times it’s kind of like you’ve gotten so used to – it’s like any habit. You know, I used to be a smoker. I would light a cigarette and be smoking without even being aware of it. And sometimes I would light a second one before the first one was done even.

(20:50) I think organizational culture is like that. it’s the habits of an organization, many of them unconscious or things that you’re not consciously aware of. And so the Culture Map is a tool to help you really get a grip on what actually is happening and why.

Michael Krigsman:

(21:07) And Alex what does this have to do with digital transformation.

Alex Osterwalder:

(21:11) So I think you know when you’re trying to change, transformation change in general you really want to use tools to do that. I mean what Dave just said that the analogy he used is a very good one. Culture is like air, it’s there but you can’t see it. Culture is there but you can’t really see it and companies let it happen.

(21:35) When you want to actively change, from one state from the present state to a future state for whatever topic. It could be business model innovation, digital transformation you need to make it tangible so you can actually work on it. and when we’re talking about digital transformation, you know we might be talking about some substantial changes and behavior, and what the Culture Map does really well is you know, make explicit the desired state, the kind of behaviors that you want, the kind of tools that you’re going to use, to the outcomes that you want to get from this digital transformation.

(22:11) But then most importantly you work on the enablers and blockers that will lead to this future state, to the kind of digital culture, the use of digital tools that you want to have. so we need tools for any type of active work on these kinds of topics and that’s what I think you know we brought to the table when we started working together on this tool aspect. And it’s pretty important I think for executives, doers, and companies in general to switch from working ad hoc on every project towards a more tool based approach, practical simple tools you know for each specific topic.

(22:53) And the Culture Map is one that helps us and in particular in big transformations, and you know digital transformation has it in the word, right. It’s not something that’s easy to achieve, so we really need to actively work on the enablers and blockers that lead from the present state to a future state.

Dave Gray:

(23:11) I can add to that. You know one of the things; there are many culture initiatives that are superficial. They are things that go under the label of culture initiative or culture change initiatives that only scratch the surface and don’t actually get to those underlying enablers and blockers.

(23:31) And it’s kind of like that kind of culture initiative is almost worse than doing nothing because what you do is you bring people in a room and you give them pizza and you have balloons, and you say, ‘We’re all going to be this different kind of company now, and here’s a picture of that different kind of company that we’re going to be and people ‘. And you haven’t actually addressed the enablers and blockers like incentives, like job descriptions, role descriptions, leadership behaviors.

(23:55) And if you are not actually addressing these fundamental underlying systems you’re setting yourself up for failure. Because the people are going to go back to doing after the balloons are all popped, and the pizza’s all gone, and they’re going to walk out of that room and they’re going to continue to behave the way that they’ve behaved in the past, because all of these systems and processes are designed to enable people to do certain things and to block them from doing other things.

(24:26) So I think one of the reasons that a tool like this is incredibly important is it does force the thinking. You can easily have a conversation about behaviors and not talk about underlying enablers and blockers. And you can say you’re going to change behaviors and you’re either having people nodding and agreeing and saying they’re going to do it. And maybe even believing they’re going to do it. But at the same time you’re setting them up for failure if you’re not addressing these underlying systems and structures.

Alex Osterwalder:

(24:57) One thing I would just like to add on top of that because I think it’s going in a nice direction here is you know if you make the analogy in digital transformation you know towards building new business models and coming up with new business models, what companies do really well is work on detailed aspects. If we take business model, people are good at working on finance, working on new marketing initiatives, working on new value propositions.

(25:26) But companies are kind of lost the bigger they get is looking at the bigger picture. Looking at all of the pieces and how together they form one story. And it’s the same with digital transformation you know, to really succeed you need to address a lot of moving pieces and you need to have this one story how everything fits together.

(25:46) And in general when you visualize this, I mean something that explains what we’ve been doing now for decades right, and with the Culture Map we’re doing it and that’s specifically for the culture topic, then you start seeing those connections. You start seeing that bigger picture.

(26:03) So I think it’s rarely the smaller pieces that are the problem. I think that people are very good at designing new digital tools and implementing new initiatives, but what people are not always very good at is mapping that kind of those detailed aspects, those 10 pieces to the bigger picture, so we all move into the same direction.

(26:23) And that’s where these tools, Business Model Canvas, Value Propositions Canvas, Culture Map all have a very similar function. They make bigger picture issues, bigger business issues visible, tangible, and they kind of show us a story of what’s behind it.

(26:39) So when we work together as a team we all pull into the same direction. And that’s one of the big challenges today where there is so many things going on in companies you need alignment. So I think the Culture Map helps create alignment in digital transformation initiatives.

Michael Krigsman:

(26:56) It seems to me that this emphasis on the underlying enablers or the underlying inhibitors of the culture change really distinguishes this from traditional change management. Dave was talking earlier about having pizza parties and balloons, which that kind of thing doesn’t address at all the underlying dynamics of the change. So maybe can you talk a little bit about the underlying dynamics in a digital transformation environment?

Dave Gray:

(27:32) Well yeah I mean so for example, you’re not going to become Google by getting a bunch of beanbag chairs, and throwing them on the floor, and getting a ping-pong table and like just you know changing those superficial things.

(27:48) I mean the workplace environment does matter of course, but it’s the stuff beneath that. And when we talk about enablers and blockers we’re talking about things like rules, procedures. Both formal rules and informal rules, and there are informal rules in every organization, even to the point of you know, ‘well don’t take notes if you’re going to say anything that we’re going to be doing that’s illegal. Just don’t write it down’. It’s like well you know that’s not going to be a culture. If it’s a culture of don’t write it down it’s not going to be a culture of don’t do it is it?

(28:21) If you think about it right, it’s a culture of ‘well just don’t leave a record, don’t leave a trace’. There’s a difference, and when we talk about enablers and blockers, some of those are the informal rules and some of them are literally very formal things; the physical layout of the office space –my Google joke aside. The incentives the what do people get rewarded for, what do they get promoted for? What gets people fired? What are the conversations that people are having?

(28:52) One of the things that we come up against a lot is that most large enterprises, many of them are no emotionally safe place where people just don’t trust each other. They’re often very politicized environments, where territory, where budgets are based on organized territorial and hierarchical ways.

(29:11) And one of the first conversations we often have is what is it going to take for people to trust each other in this organization. How do we build trust, how do you lack trust today, and where do you need to build it. Those are the kind of things that we talk about when we’re talking about enablers.

(29:30) And there are conversations that are not necessarily easy to have. I think they do often require an outside facilitator, or someone who you know when you have someone you’re trying to facilitate these conversations purely internally you’re putting a huge amount of political pressure on the people who are facilitating the process. And I think it’s very useful to have someone, you know like a therapist in a way. Someone who’s there to help people have constructive conversations but to continue to ask those tough questions that actually get to the root causes.

(30:06) Organizations are honestly they are systems of relationships between people, and when we talk about culture we actually have to get down to the roots of what are the relationships of how people operate together today, and what do they need to look like in order for us to become this organization that we’re trying to become.

Michael Krigsman:

(30:26) Alex, I was going to say what does this have to do with business models?

Alex Osterwalder:

(30:31) So again I think it’s what I was mentioning before going from a present state to a future state. Let’s take business model innovation as a specific topic. Companies are good at managing their existing business models right, but there’s a whole challenge today of creating new business models because companies need to create growth.

(30:54) If you you know already have that 10 billion or 100 billion in turnover, and you need to grow 5% every year, you know that’s building a $5 billion business or €5 billion business every year, that’s not easy to do. You need to have an innovation culture to do that besides your execution culture, so it’s not either/or, it’s and.

(31:17) So you know how do you create that innovation culture? How do you get people to experiment and try out things, and fail rapidly, fail quickly, fail often, learn from that and iterate. Well you won’t get that with the present state in most companies which is geared towards execution. You know you stick to the plan, you have to project you know what you’re going to deliver and there’s no space for failure. And that’s okay for the execution right, so you’re in an environment that you know, you know the customers you know processes, you know the market. But it’s not okay when you’re trying to do something new.

(31:56) You can’t expect from somebody to come up with something new, you know imagine something new and then just deliver, because they don’t know, the literally have no clue what the new business model’s going to look like. It’s just in today’s culture you’re not allowed to say that you have no clue. You’re not allowed to experiment. You have to show a business plan, you have to show projections.

(32:18) So the culture that we have in the execution engine toady running businesses is perfect for that, but it’s bad, it actually basically kills innovation when it comes to bigger picture innovation.

(32:30) So if we want to be able to create that innovation culture we need to completely change the enablers and blockers or eliminate the blockers, like business plan of one example. Business plans actually maximize the risk of failure because they force you to refine an idea before you test anything, they get you to put in really detailed numbers making it up you know maybe after a bottle of wine, and then you know senior executives buy into that and they actually literally kind of buy that business plan that you’re going to finance it. and then you’re doomed because you’re going to execute you know a fantasy.

(33:11) So to quote Steve Blank you know who launched this whole lean startup movement he likes to say there’s a very fine line between you know a vision and a hallucination. And in order to prove that your new vision of growth engine is right you actually need to test all the time which is not possible in today’s culture.

(33:31) So you need to work on those enablers; what are the enablers that are going to lead to experimentation, and what are the rituals for example that are going to get people to experiment? Well you need to celebrate failure and learning. You need to celebrate you know that we’ve done things wrong, but we actually learned from it and we iterated quickly and we’re working towards you know figuring out what actually works. We’re not writing business plans anymore but we’re finding evidence. We need a culture where evidence trumps opinion. It’s not the senior leader with the experience of the past business model who should trump the conversation with [past experience and opinion. No, it’s the people, the teams, the entrepreneurs who experiment and can really bring data and facts to the table; evidence of what’s going to work that’s going to trump the conversation that going to trump opinion.

(34:27) So for to do all that we need to be systematic. We need to map this desired culture and we really need to work on the enablers and eliminate the blockers you know from incentive systems to all the kind of formal and informal things that we have in  place to achieve that new culture that leads to innovation.

Michael Krigsman:

(34:47) So Dave Gray, how infact can an organization with an established culture do the things that Alex was just talking about. It seems like it’s easy on one level to talk about having a culture, that accepts innovation and accepts risk taking and failing fast and experimenting and so forth, but it seems very difficult to actually accomplish in practice so how do we do it?

Dave Gray:

(35:14) Well it is very difficult to accomplish and practice, and I would say it would be nice if there was a recipe book that we could pull out and give every organization and say here’s how you do it. we are at a point of time in history where a lot of organizations are figuring out. There are certain types of organizations that were born digital; they don’t need to do digital transformation. Companies like Amazon and Google were born digital. They have an advantage to companies that were born in an industrial age that now have to transform.

(35:50) It’s quite different to take an organization that is mature and has developed over 100 years or more and now try and take those people through transformation. And that what I mean when I sometimes compare culture work to gardening. If you think about design, Alex and I are huge fans of design of a tool for transformation, design thinking. If you think about design you think about culture. Culture is very organic. It’s something that lives in people. It lives in the relationships. And designing a culture is something that’s very similar to designing a garden.

(36:33) and you design a garden by putting the structures in place, looking around at the climate, determining what’s possible in this climate. Alex and I have had this conversation and you’re not going to try and grow a palm tree in Geneva. It would be a mistake to sort of grow a pineapple farm in Missouri where I live.

(36:52) There are certain climates that are conducive to certain things, that are sort of climates that are not conducive, and they are conducive to certain things and not others. And you have to understand your organization. In some cases it may not make sense for you to try and transform the culture of your current organization to make it more innovative.

(37:09) It may make sense to create a new organization, or I’ve a number of things; companies do a number of things. One is you create the innovation center of excellence where there is a team which is charged specifically with a enabling and helping people to figure this stuff out. So they are kind of like a support system or a centre of excellence and they would invite people to their innovation center or their group. They will teach them the tools, and they will help them adopt and so forth.

(37:44) There’s also the idea of the innovation lab, which is kind an external like a thing. I think that one of the things that for me I’ve seen have the most success with is actually finding a very important and pressing issue that’s external to the organization.

(38:05) Say you’re in banking right now, you know that bitcoin is something you should be thinking about. You know that the millennials are not using banks in the way that their parents did. You know that these are pressing external issues. And if you can find one, if you can find an issue that is a burning issue that is very important, that can enable you to sometimes that he senior people from across functional group together and spend a week doing a deep dive with them on, the knowledge in our company lives in these siloes and these business functions of today, for in order to figure out this problem, this wicked problem that we have to face, we’re going to have to get our heads together.

(38:51) And you know you need a compelling problem to get the focus of senior executives in a room like that, and you might need as long as a week to do it. I have a friend named Alex Ryan, who’s doing this within the government of Alberta Canada right now. In Canada Alberta they’re very energy dependent. It’s an oil-based economy; they have to be thinking about the future. What’s the future going to look like with a future of electric cars and so forth?

(39:17) What they did was they pulled a whole bunch of people from across the government together and in industry together to address this problem and talk about it. And what’s interesting about design thinking is design thinking is not about predicting the future, it’s about predicting the multiple possible futures and looking across a whole scope of issues.

(39:40) Every organization today that’s been around let’s say more than 20 or 30 years has got issues in their business environment that are pressing and need to be addressed often urgently. That’s often I think a great place to start because it gets people’s attention. And then if you can get their attention and you can get them for a week, then you can expose them to design thinking and design tools. And that’s a very powerful thing. I think it was Buckminster Fuller once said, you know don’t try and change people’s thinking. Give them a tool the use of which will change the way that they think. And when it comes to designing or helping especially senior people to try to think through culture, I think it’s very powerful if you can create an experience through which they will come to a different way of thinking or exposed to deployment.

Alex Osterwalder:

(40:35) Yeah just to add to that, and I think you know that that garden analogy really put it nicely. I think if we look at culture today in most organizations, well cultures they are right, every organization has culture, but if they just let it happen they don’t actually design culture.

(40:51) Most companies don’t really take care of culture. They don’t really take care of that garden, so it just happens. And what we’re trying to do here is really make this a bit more systematic so you can intentionally design culture, but like a garden not like you know designing a car where you have everything under your control, with a garden you don’t.

(41:14) But I really think we’re seeing more companies moving towards this realizing if we don’t take care of culture, and we don’t try to work on culture we’re going to be a victim of the forces around us because it’ll be be coming pretty violent right. You know, Sol Kaplan likes to say you want to make sure that you’re not Netflixed.

(41:38) Netflix is a good example because they actually put out a culture deck there which was very popular, I think there was 14 million views on the deck that they put out there on Slideshare, and that shows that it’s a very hot topic today. And I think what Dave said was very correct, because of the environment is changing, senior executives are paying a lot more attention to how am I going to survive, because they’re going to be more Blockbuster’s, more Kodak’s, more Nokia’s than we’ve seen ever before. I mean business models in companies are expiring like yoghurt in the fridge. It’s inevitable, is going to happen and it’s going to happen faster than ever before, simply because competition is ferocious. It’s easier for smart people to build a business to disrupt other companies and we’re going to see more of that.

(42:30) So culture is on the agenda of some of the best companies out there. You know Hubspot put a slide deck out there as well. A Boston-based company right, and it created a controversial conversation because somebody who was working there didn’t like it, and wrote a book about this start-up culture. But it shows that as soon as there’s conversations that get heated, it shows that there is a real topic they are right, people who are taking sides and have an opinion.

(43:01) I think this is one of the most pressing things after obviously not super subjective there, but besides business model innovation with you know culture is crucial. And you can’t actually do business model innovation without taking care of your organizational culture.

Michael Krigsman:

(43:17) Dave, last week I moderated a panel of Chief Digital Officers from large media organizations and this was in New York City, and there was unanimity, unanimous agreement that the hardest part of their job as a CDO is the culture change and dealing with the culture. So what advice do you have for an organization that is trying to adopt new business models? At the same time is being forced to run their old business model because that’s where the bulk of their revenue is still coming from, and there’s this cultural mismatch and it’s just really hard.

Dave Gray:

(44:04) Yeah I have a story that I like to tell about a friend of mine named Mick Calder, he’s a turnaround guy, his company is called 333 group, and if you know anything about turnaround’s what his company does is they come in, and they take a company that like Alec said like a Nokia or a company that’s distressed and just about at the end of its rope. They come in, they buy it, sometimes practically for nothing just the existing debt of the company and they turn it around. And I was having a beer with Mick and I asked him, ‘Mick how is it that you can come in knowing nothing about a company, knowing nothing come in and buy it and turn it around and when the people who have been operating that company for 50 years, up to 50 years and all their experience they can’t do it. Why can you do it when they can’t?’

(45:03) And I’m getting to the answers to your question which is here was his answer he said, ‘We come in and we usually don’t have a lot of conversations with the management because we don’t need to. We have conversations with the employees, and we have conversations with the customers. And between talking to the employees and talking to the customers we find that pretty much everyone already knows what needs to happen’. Well why hasn’t it happened? Well it’s because the leaders have gotten out of calibration with the business environment and again invoke Steve Blank, they have not gone outside of the building in a number of years. They’ve lost touch with their customers. They’ve lost touch with some of the business reality.

(45:47) When you’re a senior in any organisation and there are a lot of filters to filter out bad information because nobody wants to be giving the boss that news. So the more layers that you have in your organization, and the happier things look by this time you actually get the numbers which theoretically are subjective, but are actual fact all often not.

(46:04) So what happens is, what we do when it comes time to transform an organization is we do go deep. We facilitate conversations with customers, with employees; with the rank-and-file we build a movement in a way in the same way that you might build a civil rights movement. We have actually worked within the organization to trying understand what’s really going on and what needs to be learned, and what the organization is having trouble hearing. Because it’s often that’s the case is that the organization has because of its habits, and because of its routines often those are teams involved moving information around. And often that movement information is getting manipulated as it’s been moving around to paint perhaps a more rosy picture or a different picture.

(46:54) So the answer to your question in my mind is you’ve got to actually tune you’re listening, you’ve got to really calibrate to the external environment. You’ve got to listen to people inside of the company, but you’ve also got to be listening in a way that’s focused on customer issues and concerns and you know, Alex is very familiar with the sort of set of tools and techniques that we’ve developed for this which we call game storming collectively. But I would include in that you know lots of design thinking techniques that really get people engaged in not just having conversations blah blah blah around a table. But drawing pictures and visualizing it and really thinking through what’s going on around them and having those conversations which sometimes you need to have conversations with three, or four or five people before you can form a single picture what is going on that has any validity.

Michael Krigsman:

(47:50) Alex Osterwalder, you’re the expert in business models, and we are talking about this intersection business model and culture, and Dave was saying well you need to listen very carefully. But when I talk with people inside companies one of the problems that they face is that they are trying to undertake this business model change and change the culture to be one of listening, and to be customer centric. But at the same time you have what some people call the anti-innovation antibodies, because if you have for example a salesperson in a particular role, and you’re asking she or he to now take a different form of compensation because we are no longer selling on premise software with the big payment upfront. But it’s now going to be spread out over a long period of time. That person doesn’t want to change, and so if you were to listen the answer would be ‘hear me, I don’t want to change. I don’t want to do this differently’. So in that kind of case which happens all the time what do we do?

Alex Osterwalder:

(48:57) Yes, you know I think when you have a business model that works and still works and still you know creates results, you don’t necessarily need to change that. What you need to have is a space where innovation can live where you can prove what works and then you grow it from there. And you attract the people to that new business model that you know that are interested in that.

(49:24) So I recommend to really understand the issue really well, that anybody who is listening today and the recording should read the shareholder letter by Jeff Bassos in his last annual report from Amazon. Where he really shows what’s so particular about their culture, and why they are so good at creating new growth engines. Because one thing you want to keep in mind is that Amazon is the company that grew the fastest from zero to $100 billion revenues and they just achieved you know from zero to 10 billion with Amazon Web Services you know which everybody said, hey why are these e-commerce guys trying to build infrastructure services, why don’t they leave that to IBM, HB and so on. But they did it. Why is that? Because they created a culture where people can experiment, and once there is proof this is going to work they scaled that part right.

(50:26) They’re not telling people who are doing their job really well in e-commerce to change, because that might not be necessary because you want people who are good at what they do who continue to sell the way they sell. And you know not every new growth engine is necessarily a destruction of the old right. If you take Amazon Web Services, it’s very complimentary.

(50:46) Now, the other examples you not Amazon has also self-disrupted a couple of times when they launched the marketplace, they basically said, hey anybody can sell on our platform and compete with our own stuff. Right, so the actually created that disruption, but the created this innovation culture throughout the company. And if you read that shareholder letter by Bassos, who understands this is not luck that Amazon can actually change continuously, can reinvent itself, being excellent at what they do and create new growth engines.

(51:20) That’s not a coincidence, that’s a cultural issue and he specifically uses the word culture. And he says, there’s one thing that Amazon does really well throughout the company is experimentation. And he says Amazon is the best place to fail because they’re good at it in the sense that you know they learned from it and they change. And the CEO himself, Jeff Bassos has failed you know, the Kindle Fire was a big failure but they learned from it and they didn’t stop.

(51:50) If you take Apple, it might be a bit closer to the case that you said when they launched the iPhone. Guess what, they knew they were going to disrupt the iPod sales, but they made that transition.

(52:06) Is part of the culture of what I like to call an invincible company, that is willing to reinvent itself while they are successful and that you need to create. That culture that everybody is willing to change when it’s time for change, the people are also willing to be extraordinarily at execution while you know you can still make money from an existing business. That’s something you can put in place. That’s the kind of people that you hire. If you keep people on board who are not willing to change, it’s your own fault that you’re not changing right. I mean there’s a time and this is where Netflix was pretty tough at saying that you know there’s a time for every skill and every competence, and they just need to fit between what the business is trying to achieve and what people can bring to the table.

(53:03) Now obviously you want to do that in a human way to really make sure that people are able to work on the stuff they like, but that’s a cultural issue. And you know culture was fuzzy until now, and I think with the culture map what we tried to do is make it concrete; something that you can visualize. Something that you can work on. So it’s not this fuzzy conversation anymore and that’s what we are out trying to do, getting people to understand together with Dave Gray, Strategyzer and explain to show that culture is something you can work on. It’s something that you can change. It’s not an accident, it’s not something that you should just leave their. It’s something that you know that is in our hands, and the first great companies are already doing it. Now they have a tool to do it even better.

Dave Gray:

(53:49) Yeah well let me go back to your sales person example Michael and we’ve got a member of the sales team used to getting a big bonus selling this large iron or whatever. Well what’s the traditional way to change incentives? It’s going to go to a subscription model, you’re going to get it incentives this way, we’ve designed incentives blah blah blah. Well no wonder you get resistance because you designed incentives in the same weight you designed incentives the last time, which was you were like the scientist lab master. You were designing the maze, and you are putting the cheese and the little shock buzzers in various parts of the maze, and you’re asking people, you’re saying this is the maze. Go run the maze.

(54:37) Well that’s not actually doing it different than the way we’ve done it in the past; that’s the same, and guess what? You know when people look at that they say, hey you’re treating me like a rat in the maze, and it’s very obvious and people don’t operate that way.

(54:54) If you go to that salesperson and instead of saying, ‘Here are the new incentives, go sell this way now’, you say, ‘Look here’s the problem that we are facing in the world. Here are the things that we have to do. We know and you know that we know we’re not going to be selling this big iron you know in this big box and so forth in the future. You know that, we know that. That’s reality’.

(55:17) Now, here’s what we need to do. We need to move to selling software subscriptions, we need to move to a different approach. Now, and this is where the Culture Map can be really handy. Now help us figure out, if we want you to be selling in this way and building relationships with customers in this way, how do we need to design the incentives for you to be not just grudgingly willing, but excited to come in and do that every day. What can we do? And I’ll tell you Michael, when we go in and we ask that question, 90% of the time and what we hear is ‘no one has ever asked me before what my incentives should look like to get me to do the things that I know we need to do as an organization. This is the first time anyone has even asking that question’.

 (56:09) I’m talking about treating people like human beings and asking them not like rats in a maze, not telling them that no, we need to change and be this new thing now. But asking them and actually treating them as adults and saying, look this is what we need to do together. We have to figure this out. Help us build a system. Help us build the structures like kind of like asking the people in New York how we should build the subway; of course you want their input.

Alex Osterwalder:

(56:34) Yet and I think that’s actually a very very big issue that you know we need to co-create more in the modern organization. Because people you know the most talented people don’t want to be told what to do and particular if it’s against what they believe in and against their skills and so on. So how do you co-create you know the right workspace, the right incentives, the right rituals, the right way of working, the right behaviors. It’s by making these conversations tangible.

(57:07) So the Culture Map is just a tool right and you know a fool with a tool right is still a fool. But I think you need tools to make these conversations tangible, and visible and structured. And you need a great facilitator. This doesn’t just happen, it’s art to have great conversations, to facilitate a conversation and great tools are part of that, but also great facilitation process. Now guess what? These are two things that companies are not very good at.

(57:38) Number one, they don’t use tools all the time, and in particular the higher we get the more importantly topics the less we actually use tools for strategic issues it’s pretty rare, right. Because we don’t have this tradition of using tools, and we don’t have a tradition of you know good facilitation. Some people are naturally very good at it but we don’t systematically facilitate or facilitate well, or bring facilitators in.

(58:04) So these are two big things if we really want to keep our most talented people in companies, and we want to create a culture where people can do their best work ever and really thrive, and bring to the table what they want to bring to the table. Then we need to use these kind of tools and we need to facilitate the conversation, so we can really build the organization of the 21st century. Many companies are still stuck in the 19th -century when it comes to organizational design right. They might build the technology of the 21st-century, but I’m not so sure and I am a bit provocative here of course because you know we have smart people in companies, but there’s not yet this culture of using great tools and great facilitation.

(50:48) But it’s changing, so I see, I mean I have the luxury of meeting a lot of these people who want to change, who are hungry for tools. And I’m seeing business schools and design schools and engineering schools churning out people who use these tools. But I think those people ‘in power’ today, are not all, I think you know many of them are still working the old way and we need to try to make this change happen and faster. And some of these people are not changing just because they don’t know. I mean you know if you run a 10 billion or 50 billion or $100 billion company, you don’t have that much time to be on the lookout for a ‘how am I going to do this better and with which tools’.

(59:29) So we need to make these things more aware, and I think it shows great opportunity also to make more aware of how the organizations of the 21st-century looks like, and how the culture in that kind of organization looks like and how we can work on that culture.

Dave Gray:

(59:44) I think it’s also important to recognize Michael, and it’s very fair that most of these cultural shifts that we’re talking about will involve transfers of power. There will be people who lose power. And one of the things that sometimes makes it really difficult is that there are people whose job it is to go to meetings and move information around, and actually take information and filter it, and transfer that information to someone else. And sometimes those people will look at the future and they don’t see there’s a job for them.

(01:00:21) And I think it’s very important to be able to have conversations that actually put those power issues on the table. If you try and pretend they don’t exist, and you don’t discuss them, then you’re going to have this kind of undercurrent almost like this sort of guerilla you know movement is operating against everything that you’re trying to achieve in a very informal and under the table kind of way.

(01:00:49) You have to put those issues on the table, and you have to have conversations with the people about them. And you’ve got to point people – I mean one of the reasons that we draw a lot of pictures in the work that we do with culture changes, you want people to see themselves in the future. You want those people to be able to see, and when they look out five or 10 years in the future of this organisation that there is a job for them. That there’s something that’s there’s something that’s very important that they are doing even if it’s radically different in what they are doing today.

(01:01:19) And what a lot of change initiatives fail to address a couple of those issues is that they fail to put those difficult conversations on the table, and they kind of tried to brush them over. I mean a lot of times people just prefer to be polite, and it’s not that they are trying to be mean, you know nobody likes to have a difficult conversation. And one of the things that these tools like the tools that Alex and I are talking about are helpful is because they actually makes those compensations both explicit and constructive at the same time. You’re having a conversation within a context of always of something that we are trying to achieve as an organization.

(01:01:58) When you look at that picture and say, well I don’t see a job for me, then we have that conversation and if we are actually drawing out the future state most of the time we are going to need people, especially with people with experience who have been around for a long time and understand the organization, and understand the industry. We are going to need those people, but I think it’s hard sometimes for them to picture themselves in that future state

Alex Osterwalder:

(01:02:24) I think the most competent people will love these tools. They want to bring them to the table, and the antibodies are usually coming from the people who are afraid of transparency, who are afraid of putting these things on the table. They can hide in fuzzyness, white you don’t meet this transparent, why you don’t visualize it. But those who really want to advance really want change, they love these tools, they really start using them.

(01:02:51) But you know it’s a very dangerous place for those people who were hiding there incompetent’s in the fuzzyness. Things are becoming transparent with these new tools, and you know people are fighting back obviously. So it’s pretty exciting times to see how these organizations are changing.

Michael Krigsman:

(01:03:06) You know we’re just about out of time, so as we finish Dave Gray, you are really one of the experts in the world on this topic of culture change, and very briefly give us the distilled summarized essence of your advice to drive culture change successfully, and then we’ll come back and I’ll ask Alex something similar.

Dave Gray:

(01:03:39) Okay I’d say there are three things that are critically important. One is you’ve got to have the strategic clarity to understand what is going on in your business environment to think beyond industries. Airbnb is not is in the hotel industry you know, Uber is not in the taxi industry. Thinking in terms of industry is what gets you into trouble, so you have to have strategic clarity and look at the business environment. And look at it broadly enough to start to think creatively and strategically about it. But there’s got to be reality. There’s got to be some reality before you can even have those conversations.

(01:04:19) The second thing you need is commitment. You actually need people to understand why this is happening, so you need to actually communicate that stuff with clarity and help them see why they should care about this. What’s in it for them, why is this important? Sometimes it involves getting people to think long-term and not just the short-term from quarter to quarter scenario. So you’ve got to get them motivated and committed and actually caring, that’s the cultural piece.

(01:04:44) And then the third piece is capability. You have to give them the skills and the tools that they need and the resources that they need in order to achieve these things. So the combination of these strategic clarity, the organizational cultural commitment and the capability are sort of like the three likes of the stool I guess in moving an organization in any kind of significant way and scale. Those are the three pieces and it’s one of the things that I find valuable is by making those things actually literally into a picture or a design tool, and actually forcing the teams to build consensus and alignment around those three things.

(01:05:28) What we need to do, why we should care, how we’re actually going to execute on that, that picture making and visual design tools are incredibly powerful organising force for making that happen.

Michael Krigsman:

(01:05:41) And Alex Osterwalder, you are the business model King of the world, and so just very briefly as we finish out here, what is your distilled advice about driving culture change from successfully when it’s part of the business model transformation or digital transformation.

Alex Osterwalder:

(01:06:08) I think one of the things that I still see is that people wait for the right moment to start working on business model innovation, and there is no right moment. It’s now and it’s always. So I would really you know advise people that read McGrath Columbia professor stuff around this ongoing transformation, and how to create more agile strategy and not think that you can build a competitive advantage run, you know work with that same business model for decades. Those good days are over right, it’s not going to happen again.

(01:06:48) What you really want to do is to create you know what some academics call the ambidextrous organization, where you have a great execution engine and you have a great innovation engine. And we wrote a little bit of a provocative HBR blog post on this idea that besides the CEO, the Chief let me call it Execution Officer, you have a Chief Entrepreneur, and there at the same level their peers. One focuses on the present and the other focuses on the future, and they report to the Executive Chairman of the board.

(01:07:21) We need to experiment with new organizational structures to create companies to have an execution culture and innovation culture under the same roof. And I’m not talking about the traditional R&D of doing product and technology innovation. I’m talking about companies that can create systematically new growth engines. And there are few of those, even if you take Nestlé, biggest you know food company just around the corner from where I live, yes they built an Nespresso but it was look right. That was a coincidence. Can they systematically create Nespresso’s the same size you know multi-billion-dollar businesses? No, there are very few companies that can do that. You know Apple and Amazon you know upfront.

(01:08:04) To become a company that will survive that won’t expire like a yoghurt in the fridge you need to to experiment with new organizational structures. You can’t work with the organizational structures of the past, otherwise you’re going to become you know you’re going to die like the dinosaurs that did. I think you just can’t survive with the old organizational structures. And we can’t have those compromises anymore.

(01:08:28) I think it’s really time to change you know new organizational structures need to happen now for those companies who want to survive in the 21st-century, and who want to create a great workplace. Because at the end of the day I think we also have the social responsibility to create places that aren’t great to work at, where we create value for customers, but also value for employees. And we spend so much time at our companies, you know seven out of 10 people are not engaged at work according to some statistics, that can be right. You can’t spend thousands and thousands of hours just waiting for the weekend all waiting for you know the next party.

(01:09:10) I think that’s just not, that’s not help organizations should be run. So beyond business model innovation, I think we just need to create great workplaces again, where people are inspired and they want to do their best work, but they can also you know have a life. They are not going to work from 8 to 10 o’clock in the evening every day. They have families and so on, so I think it’s time for change.

Michael Krigsman:

(01:09:33) Okay Wow! So we have been talking with Alex Osterwalder, who is the business model King of the world – actually it’s true. He is an author and has been building the business model tools are ubiquitous, and his company is Strategyzer. We’ve been talking with Dave Gray of the consulting company, XPLANE, who is the culture expert and culture change go to guy that pretty much I guess for everybody if you want culture change he’s the guy you would go to. And you have been watching episode number 170 of CXOTalk. I’m Michael Krigsman, thank you for watching, thank you to these great gentleman and come back next week, bye bye.

           

Companies mentioned in today’s show

333Group                    www.333group.com

Airbnb                         www.airbnb.com

Amazon                       www.amazon.com

Apple                           www.apple.com

Google                         www.google.com

Livestream                  www.livestream.com

Nestlé                          www.nestle.com

Netflix                         www.netflix.com

Strategyzer                  http://www.businessmodelgeneration.com/canvas/bmc

Twitter                         www.twitter.com

Uber                            www.uber.com

XPLANE                        www.xplane.com

 

Alex Osterwalder

Website                       www.alexosterwalder.com

Twitter                        https://twitter.com/AlexOsterwalder

LinkedIn                       https://www.linkedin.com/in/osterwalder

Dave Gray

Website                       www.xplaner.com

Twitter                        https://twitter.com/davegray?lang=en-us

LinkedIn                       https://www.linkedin.com/in/davegray