VMware COO:
Lessons on Driving Transformation at Scale

Michael Krigsman: Change is always a challenge. Today we're speaking with Mike Hayes, Chief Operating Officer of VMware, about managing change and transformation at scale.

Mike Hayes: VMware is one of the world's largest software companies. My role as a chief operating officer, I am in the center of both the run and the transform for VMware.

Like every good organization, you're in a constant state of transformation. That's certainly true for us as we pivot to our SaaS future.

About VMware’s transformation

Michael Krigsman: Mike, you are in the center of transformation at VMware. Tell us about that transformation. Tell us how you decide where you need to focus. Give us some insight around that set of issues.

Mike Hayes: Look, I think, in a transformation, the first question for any large enterprise – this is not specific to VMware – is, how much conviction and convergence is there around the destination? Is there a very clear company vision in what you are going to do and how you are going to do it?

No president in the world can make every decision that needs to happen for foreign policy or domestic policy, economic situations, et cetera. It's really important to say, who is responsible for what and how is it going to run?

That's effectively what a transformation is. It's making sure that the organization has really crisp clarity and accountability while you're working toward that vision. If I could simplify it, vision is the where, and then strategy is the how.

Michael Krigsman: How do you decide where to focus? You talked about that vision. But now narrow it down among the range of possibilities.

Mike Hayes: The first thing is understanding what your organization's differentiation is. VMware's differentiation is super clear.

The world of virtualization is the foundation of VMware, but that's also been act one and kind of what we call act two of the company. Act three is really this multi-cloud dominance (is really the word that I would use).

Every organization has a finite amount of R&D dollars or SG&A dollars to go spend and invest. So, the question really is, where is the highest return on the investment of those dollars?

Then of course, we've got another fascinating topic, which is short-term versus long-term tradeoffs, which I deal with every day in the transformation role.

Navigating large-scale transformation with clear goals

Michael Krigsman: How do you execute this kind of transformation? Transformation, as you said earlier, is challenging for an organization of any size, and VMware has got 40,000 employees.

Mike Hayes: The key is understanding how you organize around the goals of the organization. And so, org design and clarity of who's responsible for what is the key. How do you have minimal overlaps and no gaps?

OKRs (objectives and key results) are a very commonly discussed framework. There are a million different frameworks for figuring out who is going to do what and how. But as long as your company goes all-in on one common framework that creates a common lexicon, it really boils down to who make what decision where and how.

Balancing individual and team incentives for transformation success

Michael Krigsman: But still, there are folks who are going to push back against change because their personal goals, their personal objectives, how they are compensated, issues like that may not align fully with the organization as you want it to end up in the future. Again, how do you handle that?

Mike Hayes: How we operate is more important than what we do.

Some of the times when I talk in our "Ask me anything," what I'll remind people of is that as long as you're on the right side of ethics, the law, company policy, et cetera, there's no single decision that any one person in VMware can make that's going to really crush the company. As long as we make decisions and we act with our biases toward action, then we will win.

If your organization fails and learns, you just succeeded. And so, how do we make sure that the lessons from what we try and learn are spread across the company so that we can absolutely become better every day? I think, if you have that focus on how you operate, that's really critical.

Sometimes people hold up operations and they think of it very narrowly. Maybe I'm biased, but I think of operations much more broadly.

And so, we talk a lot in these enterprise, large organizations about how do we interlock the goals. How do we make sure that the OKRs have the right amount of overlap and no gaps, like I described? Well, that comes from really that one team effort and understanding what the person to the right and the left of you are doing on any given day, week, or month, and then just communicate really well.

Michael Krigsman: Mike, I don't want to belabor this, but how do you even know when there are anti-change forces at work inside an organization (whether it's VMware or anywhere else) because very often that can manifest as, "Well, we're not achieving the goals," but we don't really know why?

Mike Hayes: If somebody is incentivized as an individual versus the whole company, it's hard sometimes to put company before self.

Twenty years in the SEALs, what I always told people was, "Team, teammate, self." And when we show up as one VMware, we're all putting team before self.

Now, you're right. That gets really hard for individuals to do, and I find that, in a large organization, there's nobody that comes to work and says, "What can I screw up today?" Everybody is acting out of great intention trying to do their part.

If you help people zoom all the way out and say, "Well, what is your part in the system?" you need to sub-optimize your individual piece of it in order for the system to be optimized. That's a really critical thing.

Let's just make this very simple. Let's say it comes down to annual bonus time.

As a leader in the organization, if you're applying some really strict mathematical formula on bonus and have no management discretion and judgment, then your organization is set up to fail because what you need to do is reward the people who put team before self.

Culture and incentives: “Don't give people tasks; give them goals.”

Michael Krigsman: Being clear about the vision, the goals, and then being very specific around aligning the incentive structure through the organization to support the vision and the goals that you've laid out.

Mike Hayes: Don't ever give people tasks; give them goals. As soon as you give people tasks, you have lost as an organization.

Look, all high-performing organizations are essentially the same. They have some sort of a vision that they're trying to accomplish, that strategy of how they're going to get there. Then at the end of the day, it's all about people and how people come together to achieve a common outcome. That's really what we do really well at VMware is that we do not have a culture of me before team.

Once we create that outcome and we have that clear vision of how we're going, how do we respect that everybody in the workplace are motivated by different things?

Some people, it's just that compensation. Some people, it's having their name up in lights or quality of life and making sure that you're not working 80 hours or even 41 hours a week.

No matter what, recognizing that we're all different, we all have different passions and abilities and interests and skills is how teams come together. And if you can translate what people's individual motivations are and connect that to the goal and be very, very genuinely invested in the people in your team so that you can make them successful. Not by my definition. That's not important. I want to make you successful by your definition of success.

When people are working to just a task, you're going to lose. When people are working toward a goal and move out of the way, then they have the oxygen in the room that they need in order to go achieve what they're trying to achieve. VMware is very good at setting that situation up.

Michael Krigsman: Mike, thanks for addressing these very challenging leadership issues. As I have interviewed so many business executives on CXOTalk, it's such a common challenge that everyone who's trying to drive change and transformation faces.

About VMware's internal and external change initiatives

Let's talk about transformation at VMware. Tell us about that transformation and the scope of the transformation that you are trying to drive.

Mike Hayes: Let me describe the transformation in kind of two buckets. For simplicity sake, let's say external and internal.

I would describe the external transformation as how do we pivot an as-a-service business model. I want us to solve another enterprise's problems, create economic value through that, and then share that economic value where the customer retains more of that economic value than we do. But if we do that the right way, there are plenty of economics and value to go around so each organization succeeds and wins together.

That ultimately is about, to me, what as-a-service moves toward because we're going to give you something that is going to solve a real problem of yours, and we're only going to get paid on a consumption basis. The question really becomes how do you enable others to solve their business problems in the way that is best for them. So, that's the external transformation.

Part of transformation is saying, what are the things that we could be doing better? For me, the ambition that my team has taken on is really a three-fold transformation internally. Think of it in, very simplistically, three layers.

Data: Do we have a modern data architecture and a modern data stack? Yes or no?

The answer was no. We have undertaken what is roughly a three-year journey. We're about two and a half years through it. And we have completely rebuilt our data foundation to massive, massive, massive wins.

Since we've done our data transformation, we have increased our no-touch transactions by 15%. We have brought down duplicate records (in some cases by 80%). And so, that foundation powers everything. And so, how do we unify that around a better state, a better application state? We're doing that.

The last part of the transformation, we are creating an e-commerce application that can transact any of our 40+ products or our 11 kind of routes to market that we have. VMware is a very, very complicated organization that our application can simplify. That is the elegance in a transformation is to make things that are complicated simple.

Harmonizing business models with product-led growth strategies

Michael Krigsman: Well, it's a very complex set of issues. You've just spoken about the data and technology aspects of your infrastructure. What about the business model, because that's, of course, a very important part of this as well that just makes everything more complicated?

Mike Hayes: In any transformation you also have to wrestle with how long are you going to run two business models. We made the decision to incrementally roll things out as we build them and as we bring them on.

You used to have different parts of the software-defined data center – whether it's compute or storage or networking, et cetera – that used to very much operate in isolation. Now, how do you move up that layer and connect everything across?

That's really what our vision, strategy folks, starting with our CEO, and then our engineers are backing up and moving toward. That's going to really, really change the game for this, winning in the multi-cloud environment.

The most important aspect of what you're talking about is always product. You have to think all about product-led growth.

You can have the best operations in the world. You can have the best salespeople in the world. You have to have the products that are solving real problems because no amount of operations and sales will overcome average products. What I love about VMware is that we have awesome products that, every time I talk to a customer or a client, they do backflips about what they do for them.

I'm really just trying to highlight the need for a very strong operational ecosystem. So, to your wise question and wise point in the question is that transformation that we're doing from a customer-first approach has to feed back into our internal transformation, and the communication between the two has to be really, really solid and sound. I would tell you it absolutely is.

Redesigning processes and breaking down silos across the organization

Michael Krigsman: Of course, as you're doing this, you must have built redesigned processes, redesigned relationships, breaking down silos across the organization to accomplish what you just described.

Mike Hayes: Oh gosh, yeah.

How do we embrace the discomfort and say, "Look, we're making a strategic choice with the vision?" and then we jump in?

And so, with that, a lot of the discomfort that you're kind of referring to here is internal process and policy changes, especially as an organization can tend to grow up in a very decentralized way (as VMware has). What you can end up with are a bunch of different policies.

Let me just bring this to life for people. Let's just say customer churn. One of the important metrics in ARR is obviously you need to know your customer churn.

Do you count that if, 60 days before, a customer says, "Hey, we're definitely not going to buy any more of product X," or do you wait until the last day of the period? That makes a major difference on your metrics.

That in and of itself isn't the problem. The problem is when you do it differently across the organization.

You just need to pick a way and go all in on what your policies and your processes are going to be.

How to measure and evaluate transformation progress

Michael Krigsman: Mike, you mentioned metrics. How does one measure and evaluate the progress of a transformation effort?

Mike Hayes: The most important thing for us right now is ARR and, of course, our customer satisfaction scores. How do you land on a single way to go measure ARR? It's very simple.

It's some combination of obviously what happens with the install base of the existing. Does is expand or does it contract? Then what do you do that's net new?

In essence, that's not a complicated math problem. But the thing is, back to the organizational design point, there are different parts of the organization that are responsible for different parts of that.

Avoiding churn is a customer success function. Where is the expansion and the renewal kind of function live? Where does the net new sales live? Every organization might do that differently, but what's really great about VMware is we figured that out and we know who is responsible for what.

Then to the metrics, literally, the metrics question, how do I as the chief operating officer role empower the CEO or the business unit leaders so that they can look at how they're doing on a single pane of glass and drill in or drill out and take a look either by product or by geography or by size of customer and take different cuts of the data and say, "How are we doing?"

Michael Krigsman: At the end of the day, are you making money and are our customers really happy? If those two things are in place, then everything else supporting it must also be in place (at least fairly well).

Mike Hayes: Of course, and we can't neglect the internal metrics around employee satisfaction. I would add onto what you just said, which is, are our own VMware teammates super jazzed to be part of VMware and be on the mission?

Business agility: What is it and why it is important

Michael Krigsman: Mike, let's talk about business agility because that's another dimension of that. Share your views on this phrase, this topic that we hear so much about.

Mike Hayes: Agility is one of the most important aspects of any high-performing team, if not potentially the most important because the ability to react to a business problem or a business opportunity is way more important than anything else. You have to have the fundamentals, the elemental foundational aspects and characteristics of a great team in order to respond.

The most important thing is to recognize that you've probably already determined your outcome from that crisis by everything that you've done over the past year or two or three years, the foundation that you've built. In the moment, you can only change things so much.

What's important to me is you need one playbook. If you very quickly can identify a problem or an opportunity, dissect that down and say, "Here's what we want to come out of this. Here's how we're going to organize. Here's how we're going to communicate it. Here's how we're going to check in. Here's how we're going to govern," those are the things that will determine the ability to react in the moment and that's what true agility is.

In the SEALs, we'd always go in with a plan, but our plan was for the plan to change. We were already ahead of the situation because we knew that whatever we planned was going to be different.

Practical advice on creating business agility

Michael Krigsman: Can you describe the practical steps you've taken at VMware to ensure that there is this organizational agility? Again, VMware is such a large organization and agility is hard in a large company.

Mike Hayes: Let's say a situation arises and you've got a product that isn't doing well enough in a given quarter. Or internally, we're not on track to deliver something that we need to deliver. What do you do?

What you need to do is say, "Okay, do we all have the same vision on where we're going? Yes or no?" If yes, great. If no, have the conversation around vision.

Okay. Then from there you say, "Okay, why aren't we achieving what we're planning and desiring to achieve?" What's the diagnosis of that down to that root cause?

If you can really get to the really clear diagnoses, it's often some sort of gap in org design and clarity of who is responsible for the different pieces and parts that collectively add up to go achieve that outcome. Those people might be distracted on ten other things that they're also working on and they have too many things on their plate. That's a perfectly legitimate reason.

As long as you can get to that clear diagnosis, then you can do something about it. Then you can have the conversation.

Michael Krigsman: Mike, what are the challenges of driving or creating or building organizational agility?

Mike Hayes: I think one of the most important things is to understand that when you're working in a team that needs to be agile that there are going to be people who are exercising and flexing new muscles. With that, what you need to do is have the conversations around the things that you can be doing better.

Look. No one is judging anybody. It's like in life, like coming off of a SEAL mission. We could have had it go really, really well. But the thing is, we don't spend time talking about what went well. We spend our time talking about what didn't go well enough because that's where the highest return on the investment of that time is.

How do you push an organization to be a little bit more or a little bit faster or a little bit more decisive? Then when you have to flex those new muscles, how do you help everybody understand that you're genuinely coming from a place of care and compassion and commitment to the larger necessary transformation?

How to measure and evaluate business agility

Michael Krigsman: Are there metrics or KPIs that one can use to evaluate business agility?

Mike Hayes: Like any set of metrics, you can't have just quantitative or just qualitative metrics. What I would say is, in this area, it's way more qualitative than it is quantitative.

I can't think (on the spot) of very many quantitative metrics that I've used in my life to measure agility. It has mostly been by having the real conversations with people around the ability and the speed to pivot.

Generally, agility can be equated with speed, but that's not the only metric – speed. It could also be what direction are you heading in and how quickly does a team embrace the new idea.

If all of a sudden, the team, instead of moving left they need to move right, how well does everybody all of a sudden get behind that? And so, there are a lot of team dynamics here that most importantly don't start with the quantitative numbers.

Advice for business leaders on driving large-scale organizational change

Michael Krigsman: Mike, given all of this, what advice do you have for folks, for business leaders who are driving large-scale organizational change or transformation?

Mike Hayes: I'd say balancing patience versus impatience is one of the most important things. You have to have impatience in order to be a successful change agent in order to drive change. You have to want everything yesterday.

However, you also have to recognize that you can't do everything yesterday. So, it goes down to that prioritization muscle or the prioritization engine.

At the end of the day, you have a sequencing of events on your change plan, your transformation plan. More importantly than what you do, how do you decide what you don't do?

I talked earlier about short-term versus long-term intentions. I have a finite amount of focus and energy that we can place on either run the business or transform the business. What percentage goes into transform and what goes into run?

If I go give everybody what they need right now in the run, I will not properly transform. A lot of my job at VMware has been to say, "Hey, we're going to put all of our energy into transform and I will deliver you a transformed product or process or system way faster because I'm putting much more of our energy into the transform."

I'm not saying that I have the right answer for everybody's individual situation. All I am saying is be really, really thoughtful and decisive around how you balance long-term, short-term, patience, impatience, et cetera.

Then the last thing I would say is balancing confidence and humility. You have to have a constant questioning, a constant humility of what don't I know and what might I be missing because if you don't do that then every step of the way, as soon as you think you're sure about the path you're going down, the thing that I'm sure of is that you will miss something if you don't have the constant skepticism and questioning.

When I walk into an organization and I say, "Who is in charge here of what we're not doing?" nobody ever raises their hand because they don't think like that.

Everybody gravitates to that positive space of the "what is." How do you think about the "what isn't"?

What I'll try to do is make sure that we have the conversations and have that humility to very quickly say, "Hey, I was wrong. Let's go the other direction. Thanks for bringing in the other ideas."

The importance of situational awareness

Michael Krigsman: It seems like awareness, situational awareness and self-awareness, also are very important for folks who are going to be successful managing in the way you just described.

Mike Hayes: It's so true, and that's one of the things that I bring from my past life in the SEALs. As soon as you think you have "the" idea, I'll tell you you're quite possibly wrong.

All you need to do is say, "I have an idea," and then you have a group of people who are really smart, who are really experienced, who figure out, out of all of the ideas that get brought forward, how do you find the best idea from the group. That is to your point around really that is a process, that is an operation.

Michael Krigsman: Awesome. Mike Hayes, Chief Operating Officer of VMware, thank you so much for taking time to speak with us today.

Mike Hayes: It was absolutely my pleasure. Such a great time and great conversation. Thank you.