Host Intro (Gene Kim)

I saw Dr. David Almeda speak at a conference that JMI Equity held for its portfolio companies, and when I saw it, it blew me away. Dr. David Almeda is the chief people officer at Kronos, which was founded in the year 1977. He described a five-plus year journey of a board-level mandate to make Kronos one of the best places to work, which resulted in completely changing how managers were measured across the entire company.

I loved his systematic approach in that it's both grounded in academic research, but it also takes into account all of the complication of changing a culture and what values are rewarded by the organization. I asked Dr. Almeda to tell us the story, teach us why employee engagement is so important, and why it warranted the continuous focus of their board of directors, and how it's impacted the lives of teams across the company and their leaders. Without further ado, Dr. Dave Almeda.

Dr. David Almeda

Thanks, Gene.

All right. Well, thank you, and Gene, congratulations on creating such a great sense of community within this conference. You don't get to a lot of conferences. A lot of times it's just people talking from the stage and there's no real interchange. So I have 30 minutes. I'm going to be as candid as I can about our experience in the area I'm going to speak about. But I'm also, at the very end, going to put up my email address, so if anybody is interested in having further conversation about this, I'm happy to do it.

Okay, so let's talk about Kronos. Kronos, just for context, is a global organization, roughly 6,000 employees in roughly 27 countries. We do a little short of $1.5 billion in revenue. The majority of that revenue is recurring revenue. Software, you can see what we focus on from a software perspective. And lots of customers. One of my favorite things about the company is we're just so diversified, not only from a customer count perspective, but also from an industry perspective, across multiple industries. We have customers today in roughly 105 countries, and millions of people touch our products every day.

But today's conversation really is about manager effectiveness. This is a journey my team started on in 2016, and the intent of this journey was actually pretty straightforward. We believed that there was a lot of power in ensuring and finding a scalable solution to make sure that every employee at Kronos had a great manager experience every day, to the extent that we could do that. A lot of these talks I have, if you're a big company, sometimes you think this isn't scalable. I can tell you that's not true. This will scale across, we believe, any size organization. And if you're a small company, you might think it's too hard to implement. I don't think that's true either. I think this is, if you do it correctly, something that you can implement at any size organization.

I call this slide the kind of "why should we listen to you" slide. When Compuware was out here earlier, they talked about employee engagement as one of their key metrics. We feel the same way. The only thing I'd add to that as a caveat is employee engagement on the surface isn't necessarily a key metric. It matters how you measure it. There are all kinds of different tools out there to measure employee engagement. They're not all created equal. There's a rigor to some tools and the processes behind them that differentiates some of those from others.

But you'd have to be living in a cave not to understand the power of things like Glassdoor today. And whether you're hiring employees or looking for a job yourself, especially in this type of audience and field, 90, 95% of the folks that come to work for us, for example, look at Glassdoor. It does matter. You can see the metrics here. I'm not going to drain this slide. Thirty-six percent of the people that come to work for us come directly to us from a best-place-to-work site. Whether that's Glassdoor, whether that's Fortune, no matter where it is, just like they're looking for a good restaurant, they go to the highest-rated organizations and they work their way backwards. What I'm going to talk about today is how manager effectiveness helps in this area.

Just again, a little more context. As a company, we believe that great businesses are powered by great people. But we also believe, kind of related to that, that great people deserve great managers. The WorkInspired tagline you see here is our employment brand. It's an internal aspiration and an external-facing brand, so folks have a sense of what it's like to work for us. And then trust and high performance are the two biggest foundational pieces of our culture, which does play into this whole idea of manager effectiveness, and I'll get to that.

We spend a lot of time working and studying and optimizing the relationship between managers and their employees. I think almost every organization believes that having that solid relationship is key for lots of reasons I'll talk about, but some of them are retention, performance, engagement. But how many organizations really have a process that they've institutionalized to ensure that happens? How many organizations really hold managers accountable on a regular basis, in our case biannually, to make sure they're doing what they should be doing as managers every day? I would argue not a whole lot.

The hypothesis is pretty simple in our case. We believe that managers influence engagement, retention, and performance. Through the work we've done over the last few years, I can tell you I more than believe that. I know that it's true, factually true, and we'll talk about how I know that in a second here. But that's kind of the easy thing to figure out, the hypothesis. The harder thing is to figure out the how.

If you believe on the surface that managers have this huge impact on your organization, how do you get to a place where you have a process that you can rely on, that you know is the correct one, that you know you're measuring managers on things that are going to have the right impact on both employees and the organization? Some of the questions we asked ourselves are here: what do your employees care most about, what manager behaviors matter the most, and what does great management at Kronos specifically look like?

This model is one we use a lot. This is essentially how we go after almost everything. I run a team at Kronos, a few teams, but one of them that is focused on this area uses this model to go after and determine exactly how they're going to tackle things in a robust, rigorous, hopefully academically founded way.

If you look at this particular problem we had here with manager effectiveness, where we started from a defined standpoint was figuring out how great managers at Kronos lead every day, and what does that even mean? Great managers sounds like a great term. Of course we want great managers, but as I said earlier about engagement, "great" can mean a lot of things. There are a lot of organizations that have really high engagement that aren't effective. They're not going after performance. They aren't making their deadlines. They have employees that are happy, but maybe not productive, or maybe they're in a group that's got a culture that's different than others.

We tried to get through all that by analyzing a ton of data at Kronos that we had access to: performance reviews, talent reviews, calibration we do every year with managers across all organizations so we can get as objective a view as possible of all our managers, and Courage to Lead Awards nominations. Through this whole process, using those data points and many more, we identified our highest and lowest scoring managers.

You might say, "Why do we care about our lowest scoring managers?" What we did, very simply, is we overlaid the highest on the lowest. We sat down in focus groups and said, "Let's figure out every day how these managers that are highly rated are showing up and what they're doing at the behavioral level." We cared about what high-performing managers were doing, kind of subtracted what low managers were also doing that was the same, and the residual of that is what you wanted to measure, what you wanted to go after.

We also did a lot of external benchmarking. Google did some work closely related to this, a body of work called Project Oxygen. If you want to look at that, it's actually a really good body of work. We've met with them, and vice versa, a few times, so we're kind of working together, trying to grow in this area. Facebook also did something similar to this. And then Deloitte we used for different reasons from a benchmarking standpoint. We used Deloitte specifically because of the way they ask questions in their performance review process. They ask very stark, candid, clear questions, and that was critical in this.

Once we got to that point, the question became, once we knew the behaviors, how do we measure them? What we did is, I think, simple but super effective and has had a major impact on our organization. We essentially flipped the performance appraisal on its head. Twice a year, our employees rate their managers. They rate them in 18 specific areas. We use a third-party academic institution to validate that those areas actually matter, so they're tied to or correlated to things like retention, engagement, and performance. As we've worked through this over the last three years, we know that the questions that we're asking are questions that matter.

Every manager gets a report twice a year. It says, "Here's how I'm doing. Here's how I'm doing versus my peers. Here's how I'm doing in all these different areas." It gives them something to work on. That manager now has to sit down with his team, individually or collectively, usually individually, twice a year and say to them, "Here's what I'm going to do. Here's how I'm going to get better. Here's me, here's the good of me, here's the areas I need to work on, but I'm going to commit to you that I'm going to do that, and I'm going to report back to you on the next survey."

Why that's important for a lot of managers as we first rolled this out is it's a huge paradigm shift. You have managers that are in this old school that think being a manager is just telling people what to do and what I say is what is right and what goes. This flipped this around. Hugely impactful for us. And it's twice a year.

I've been doing this HR thing for a long time. You all have had employees where there's a problem employee, so someone gets involved, they do some kind of coaching thing, and then six months later the person's back to their old behaviors. It's kind of like muscle memory. This doesn't allow for that. There's a spotlight that basically just follows them around.

As a result of this measurement, some people that were managers just aren't managers anymore. Not because they're bad people. It's because the skills they need to manage an organization that we've identified here really clearly, they just don't have. Other organizations we've made smaller. If you have 20 people for a span of control, it's probably a few too many. Other folks have left, not a lot, but some. Some have said, "Look, whatever. I've been managing for 20 years. I don't need this to tell me how to manage." To which we say, "Okay, you can manage the way you'd like to. You just can't do that here." That's not meant to be sarcastic. It's just we believe this is so critical from an engagement, performance, and everything else perspective.

My favorite kind of managers, which is 95% of them, say, "This is awesome. You just gave me shorthand on how to be a great manager and how to get better. Thank you. I don't have to read that book or this book or that other book or go to that seminar or whatever. This is great. I know exactly where to focus." I'll tell you a story later where we've got some very senior managers this was a huge aha moment for.

Think about enablement. When we first measured manager effectiveness, we shared that report with the manager. We didn't share it with the manager's manager. Why? Because it's not meant to be a gotcha. It's meant to be, here you go. Here's where you stand today, and if you want to get better, here's the way to do that. Beforehand, we had set up coaching for both internal folks and external folks. We had training, both virtual and classroom-led, and we put in a program to reinforce this.

I'm sure in most of your organizations you have a sales incentive program where your top salespeople all go to this super exclusive, expensive trip somewhere. We do the same thing, but we do that for the top 25 managers in the organization. We bring them into Boston every year. We have the whole executive committee there. We bring their spouses or significant others, and we treat them like gold because we know they're the lifeblood of the organization, and it's that important to us.

Let's cut into a little bit of some of the results and what we found. Gene mentioned that he met me at JMI. JMI is one of our private equity owners. What they love is the whole idea of MEI and putting this across every organization, just taking our questions. That's true for a lot of other PE firms; they have the same reaction. My counsel to them is it's not the same for everywhere. Some of these broad categories probably work, but I would encourage people to do the work. Look at the data. See what's unique for your organization, because you're going to be reinforcing this in a way that's super powerful. If you're reinforcing the wrong stuff, you could easily get the wrong outcome.

In our case, here's what we found. Great managers for us communicate. They share information, give ongoing feedback on a regular basis, and tie people's work to the overall strategy and performance goals. One of the very basic things that is hugely correlated is they take the time to share the results of the MEI survey twice a year. If you don't even take the time to share the results of your MEI, then you're probably not bought in. That's a huge red flag for us. It hardly ever happens, but communication means more than just saying hi. There are specific things that people do. There were managers with organizations that just never had one-on-ones, never had staff meetings, never shared goals except maybe once a year from a review standpoint. We gave them insight into how that was hurting them.

Great managers empower and enable. This has to do with decision-making and risk-taking. Like any other technology company, there's innovation that you need to have on an ongoing basis, and if you have a manager that's micromanaging you and not allowing you to do anything besides what they exactly want you to do, not allowing you to take risks, it's going to hurt the organization. This is a major one for us.

Great managers develop and encourage. This is career conversations, understanding what that individual wants to do in their career and looking for ways for them to move forward with their career. Hugely important.

Great managers support the whole person, and this one is the one that gets most managers, or a lot of them. When we first rolled this out, every person in the organization was assessed: my boss, who's the CEO, the whole executive team, everybody. They all got a report. We talked about the bottom 20%, which isn't a term we use, but it's kind of how we looked at it and you'll see why. Pretty intensive one-on-one coaching. There was an executive committee member that was in the bottom 20%. You don't know what you're going to catch when you throw a huge net out. I took that one on as a coaching. I'm happy to say they're not in the bottom 20% anymore. It was insightful for that person: super experienced and successful, but they had a blind spot.

Their blind spot was essentially they didn't treat people like people. They treated them like they were numbers or employees. They didn't share anything about themselves. They didn't really know what was going on in people's lives. How do you give work-life balance when you don't even know what's going on in life? It's a hugely compliant organization that I work for, so if you ask someone to do something and you don't have that understanding of what that means, what the impact is going to be, they're going to do it, but they also could be disengaged. This was a hard thing to learn for a lot of our managers, especially senior managers.

There's one thing to understand the behaviors, but you have to get it down to the question level. We asked 18 questions. We had 18 questions that we use a third-party academic institution for, because our surveys are truly confidential. We feed them data from our systems, and our engagement survey company feeds them individual data, and they marry them up. Then we do the work to figure out if these questions are actually having the impact that we want.

Some examples of questions: does my manager share information from their leadership, empower me to make decisions, provide opportunities to develop, and care about me? It's pretty straightforward. In our surveys, it mentions the manager by name. It'll say, "Does my manager, Dave Almeda, do this?" There's no confusion about who it is. One reason is clarity for the employee. The other is so the manager can't say, "I don't think they were talking about me."

This is what they get at a high level. The blurred-out thing in the background is actually what they get. It shows how we look at it from a quartile standpoint. They get an overall MEI score, and they get ranked by quartile against their peers, not against some external third party, against everybody else in the organization. This shows them basically what to work on. In this case, this manager would probably pick empowerment and maybe a couple others. Generally, it's three things or so. It's six months; you're going to make some progress, but it tells them exactly where to look. We have a developmental focus behind that that will help them do whatever they need. We see the commitment, and we're going to do whatever we can to make them better. This isn't a tool that we put in place to get rid of managers. It was a tool we put in place to help managers be better managers, and so far that's actually happened.

This is our engagement journey. In 2010, we were a little below IT industry average with our results. Then we did a lot of work in a lot of different areas and were able to push those scores up to roughly 84%, but we plateaued. We plateaued at the top 5% of engagement, but still we plateaued. If you're not moving ahead, in my world, you're moving behind. You've got to figure out how to continue to make us a better place to work. We were a little frustrated by this until MEI came along. These are the results from the first 12 months after we put MEI in, which was in July of 2016.

Fifty percent engagement variance explained by MEI. What does that mean? It means that if you look at our top-scoring managers and our lower-scoring managers, 50% of that variance could be explained by their score, how they did on MEI. If you take a step back from the data and say, logically, does that make sense? Sure. For yourselves, at least 50% of your work experience is impacted by your manager. Your manager is having a bad day, you walk in, they're irritated, and you're thinking, "Are they irritated at me? Did I do something?" If they're positive and they make it a great work environment, you have the opposite impact. Not a surprise, but still super powerful.

We saw a 6% increase in MEI scores between the first survey and the second. We saw a 3% increase in engagement scores, so the 84 now went to 87. It's actually 89 as we sit and talk today. Retention is a validated number for us. We ask one question, which we validated, that says basically, "Do you plan to be here in the next 12 months?" If they say no, they are leaving, on average, at a rate that's eight times what people say yes to. We've been able to go back and validate these things, and as you would expect, we saw a decrease in voluntary turnover. Our turnover in the U.S. for high performers is like 4%, so for it to drop is meaningful.

Let me tell you a real story. This is a real picture of an engineering vice president. I took her name off to protect the not innocent. She's an awesome manager, been recognized internally and externally for years, and I think that's kind of the point. Twenty years, she runs a 1,000-person-plus employee organization. She has always taken all of this leadership stuff super seriously. Her first MEI score was 88%. For her, type A, 88 was like a B, maybe a B+, which is how I'd feel about it too. But she didn't know what she was being measured on, so not too bad.

She dug in, and not only did she dig in for herself, but she dug in to make sure her whole organization was taking this seriously. The CEO was hugely behind this. There was never really any doubt about whether this was going to be taken seriously, but to put that in action was really impressive. For her, she found two areas that she just had a blind spot about: career goals and empowerment. She had all these VPs reporting to her and figured they're VPs, they're all set, they know what they're going to do. They really didn't. Some wanted to leave in three years and go start their own business. Some wanted to move into another part of the organization. She never asked the question. They were afraid to bring it up. It was a blind spot.

And then empowerment. If she were here, she would say the same thing. She's a little bit of a micromanager. She's a great manager, but she had her vision and allowed a little bit of flexibility, but people felt like they just didn't have enough latitude to put their own stamp on things, and she knew she had to back off. The second time around, she increased her score a couple of percent, and now she's, I don't know, 93, 94%, so solidly in the first quartile.

MEI is not a perfect thing. Your MEI score doesn't precisely say, especially in one survey, "Here is how good of a manager you are." Higher MEI, you're a great manager; lower MEI, you need a lot of work. Not always. You can take a really good manager, put him into a group that needs a ton of work, that's been mismanaged for a couple periods, maybe a year or a year and a half. We think about it as three cycles. Your MEI score could drop, and probably will. That's okay. The goal here isn't necessarily to get your MEI score up. Your goal is to manage the organization in a way we know is effective, and sometimes that means your score goes up, sometimes it means it goes down. Over time, you're going to have a higher average score, for sure.

A couple quick things. Communication strategy must be non-threatening. We never once said to managers this was a gotcha. In fact, just the opposite. We've done a lot of work on development; this is just another way of looking at that. Be open and honest about what we're doing. Work with a lot of levels of the organization to make sure they understand it before we roll it out. It was never done in a threatening way. We have a really high-trust culture. If you look at the Fortune results, the level of trust is like 98% within our organization. I don't take that for granted. We do whatever we can not to violate that. How you communicate this is really critical.

You need to get folks on board early, not only the C-level but all levels, to make sure they understand what you're doing, how rigorous the process is, how you're going about it, how you're going to communicate it, why it matters, and have them embrace it. We had very little pushback on this. I expected, especially for some of the folks that weren't rated high, that we'd get, "Let's all dive into the data and make sure that's okay." Well, it is, but that's not where they went. They just embraced this and said, "Okay. Thank you. I'm going to work on this." Some of them were just shocked.

When we rolled out the first time, 20% of the organization fell into this bottom quartile. I knew who these people were. I hated that. But we told them we're not telling anybody, not their boss, not the CEO, and I never shared these results with my boss, because it's not fair. It's not what we're doing. It's not the message we're trying to send.

The last one: evidence-based. A lot of times people are just trying to check the box on this stuff and don't take the time to do it in an evidence-based way, in a way that's rigorous, because at the end, what are you really doing? You could be missteering the organization in a major way that could have a negative impact on a ton of different areas. So it's super important that it's evidence-based.

The point I'm trying to make here is it's part of a continuum. It's kind of in the middle. It's not like you can just take this and plop it in. There are other things you need to do first. Also, we've hardwired, now that we know and have validated some of those characteristics, into our recruiting process, obviously our development process, and a rewards program. It all flows together once you can validate this.

This is a little inside baseball. I haven't shared this within Kronos. This is stuff we don't tell a lot of people. This problem we're trying to solve next is kind of this. This is the one I geeked out about. I was literally on a flight when I got this data, and it was just pretty cool. I'm going to try to explain what you're seeing here.

The dark blue are the July 2016 results. The July 2019 most recent results are the dark blue overlaying the lighter blue there. The most important part about this slide is if you look at the first quartile, for example: MEI, that's your average MEI score for that quartile. There are 173 managers in there. Average MEI is 99%, which is kind of a problem. Engagement, 100%, 100%. Retention, which I mentioned was a validated number, 100%. Now swing all the way to the other side. Fourth quartile, your average MEI is 74%, engagement way down at 74%, and retention at 64%.

We have increased it, and that's great. You can see the deltas parenthetically, how we've increased it over time. But if you're in the first quartile, my guess is you're not going, "I have a lot to work on." You kind of have an A. Even if it's an A-minus, are you really going to kill yourself to get the A or A-plus? Probably not.

The way this is derived is the top two boxes: when we do the surveys, five-point scale, fours and fives get you your top-box score. What would happen if we just made that fives? So you have to get the highest rating, like strongly agree, in every single one of these 18 questions. What would that look like? Looks like this. There are people that got no fives. There are people that just got fours and fives, or all fours, so kind of the same when you did fours and fives, now it's just fives. Some people went from the first quartile all the way down to the fourth quartile. Only three people in the whole company got a perfect score. Three.

We're not going to do this because people would freak. It's a little radical, but what if I took an average? What if I said, "Let's use an average of your score"? There are mathematical ways you can get to this. But the point is, you're not as good as you think you are, potentially. For the three people that got all hundreds, good for them. No matter what I do, you're still awesome. But there are a lot of people that have a lot to work on still. This is probably what we're going to work on next. There are a lot of ways we can go after this, but I think it's going to compel people to try to get even better.

Like I said before, there's my email address. Any questions, please reach out. We talk about this a lot with organizations. Happy to share. This is not proprietary in our view. We'll share the math, not the outcome, just to show you how we get to this stuff, if anybody's interested. Thank you.