Why Great Turnarounds Start with Culture, Not Strategy

(upbeat music) - I'm Oddy Ignatius. - I'm Allison Beard and this is the HBR IdeaCast. (upbeat music) - All right Allison, so you are a top 30 US company in terms of size, but your market chair is down, your share price is plummeted, and morale is poor. You need to change. What kind of CEO would you want to leave the transformation? - Well, I would typically say an outsider for fresh perspectives, new thinking. I'd probably want someone who's done a big turn around at another company before, but I did just interview John Stenke of AT&T who oversaw big changes that that company even as an insider, so I'm not sure. - All right, so today it is the outsider story. It's in the same industry. My guest today is Dan Schoeman, the man who has taken the reins of Verizon, which was in desperate need of a reset. He was not an executive company, though he was on the board, and he had led a successful turn around earlier at PayPal, but he had no interest in the Verizon job when it was first offered him. - Hmm, so how's it going? - Well, it's still early days, but Schoeman decided to focus initially on the company's culture. He's trying to reinvigorate what had become a risk averse, inward looking organization, in order to become competitive again. It has the potential to be a case study of how an outsider can come in to lead the turn around of a once successful company that has lost its way. Here's the conversation. - You're at Verizon. You turned down the job as I understand it twice, maybe more than twice, before you agreed to take it. What made you want to get back in the game? - Well, I turned it down because I was very happily retired. I was living on our ranch in Montana. I wasn't looking to come back into corporate life, but I was on the board, I was the lead director. We needed to make a change. I felt a keen sense of loyalty to the company. And I felt like the company had a tremendous amount of assets that we could leverage and that there was a real opportunity to take a iconic American company. And at least have the shot at turning it around. And so after a lot of discussions with my wife, I agreed reluctantly to go do it. But here I am nine months into the job and I'm loving it. - At a high level, what was wrong with the company? - We had been losing market share for five years. We went from having the largest market cap in the industry to having the lowest PE multiple, which is the market's way of saying that they don't really believe in your growth going forward. Our turn rates were going up. Our customer satisfaction results were going down. So there's just a ton of things. And I think inside the company really importantly, we were willing to be prey. We were willing to gently seed market share to our competitors. We weren't playing to win. It was obvious we needed to make a change. So the company for a long time had relied on its engineering prowess. And it's not enough anymore. And we had put the network at the center of everything that we do as opposed to the customer. And then I also think culturally, it's a proud company. It has a lot to be proud of. But that also means that you're resistant to change. That you look back at what you did and you want to repeat it. And in the era that we live in, right now, where change is accelerating at an increasingly hard to imagine pace, we were falling behind. When the pace of change external to a company is faster than the change of pace internal, you're falling behind. And we were falling behind because we were risk averse. We were hierarchical. We love our process. You know, we love to show our work. But really, you know, I'm very much, I trust that you're doing good work. But I want to see the outcomes and I want to know when those outcomes are coming. I think we were not imagining enough, like what kind of role can we play in the age of technology in the age of AI and looking backwards to previous success we had as opposed to what success we might have in the future. - So, you know, companies talk all the time about wanting to be customer obsessed, for Verizon in particular, which, you know, probably a lot of customers view as a utility. They just want it to work. They're not sure they want a relationship with you, but they want it to work. What does customer obsession mean for you in this context? - Yeah, I think most people say that they want to put the customer front and center, but it's not easy to go and do that. Inside the company right now, we don't say customer centricity or customer obsessed. The initiative we have inside the company is entitled, "Every customer has a name." It means we treat you as a person, not as an account, not as a line. Almost like if one of my family members had a problem, how would I want the company to treat them? And that is hundreds of things. It's when you come into the store, how quickly do we start to serve you? Do you understand the plans that we have in front of you? Are they too complex for you to understand? Are we trying to prey on complexity, to drive profitability, or can we make them simple and easy to understand? When you call our customer service centers, do we treat you with respect and empathy? Customers, fire, companies, all the time in quiet ways, because they feel disrespected. They feel like there's gotta be a better way than this. It's too hard to be a part of your company. And we have to have a great network. I want us to have the best network in the country. We are part of the critical infrastructure for America. And we take that very, very seriously. But it's not enough to be fully differentiated. We just launched a whole host of new things where we've simplified our pricing plans. We've put loyalty. So like if you've been a customer for a long time, we want to reward you for that. We want you to be excited about being a customer every day. We're moving into an AI world right now. And our service is going to be more important than ever in terms of connectivity, AI, advancements, how you use AI, what's the right way for you to use AI, how you gin up agents in a safe way. We can be a part of that new infrastructure going forward. And that's an exciting part in a different way of thinking about Verizon going forward. And a place where I think we can add a lot more value to customers around security, other things like that. - Are you essentially accepting lower revenue temporarily to kind of build longer-term loyalty? Is that what that means with simplified plans to give people only what they want and need? - No, I don't think that being customer-centric means being less than physically responsible back to your shareholders. In fact, I think it can be the opposite. What was happening to us before was our churn rate was going up because people were unhappy with us. We were raising prices. We weren't treating them with the respect they wanted. Plans were confusing to them. You know, the first thing I did when I came in as I said, we're not going to raise prices without real value. And we're going to invest in the customer experience. And we're going to create a war chest to go and do that. And we're going to start growing our customers because if you start to grow your customers because churn starts to come down, then actually your revenues start to increase. And if you can be efficient in the way that you do business in your top and bottom line and your customer satisfaction, can all move in the same direction. Now that's not an easy equation to go and do. And you have to be willing to take difficult decisions early on to make that happen. I think if you do the right things, make the difficult decisions, challenge the culture, inspire people to do great things that you can satisfy customers. You can inspire employees and you can inspire your shareholders at the same time. - So it's never easy to come in. I mean, you were on the board, but essentially came in as an outsider. And even though you've had a great track record at PayPal and elsewhere, you know, people are resistant to change. It's never you just come in and say, we're going to do this and everybody says, hooray, talk about the bumps along the way to get the team to staff, the company excited in these ideas or what. willing to explore these ideas. Well, first of all, you're exactly right. People are resistant to change and change is happening at an accelerating rate right now. People who win the lottery, which you have to admit is a good change, right? You've just won the lottery, often suffered divorces, lose friends because it's such a big change in their life. I think as a leader, you need to do three things simultaneously and you need to do them particularly well. The first thing is you need to tell it like it is. Without sugar coating it at all, my view is every employee is an adult. They probably already know what's going on. They're just waiting for leadership to admit it. My first all-employee meeting, actually every single all-employee meeting, I have no slides, I have no notes. I want to come to those meetings. Yeah, they're good. I have a couple coffee in my hand and I basically just talk from the heart like just like this is what I see and you know, I said look, I know we have a lot to be proud of as a company but the fact of the matter is we are losing and I know that's actually really hard to hear that we're losing and that just does not work for me. I know it does not work for you either but we need to play to win. We need a full scale internal kind of revolution and cultural reshift where we play to win and that's not a marketing slogan. That's a way of life inside the company and I talked about what's getting in the way of that. You know, what's happening in our culture to get away from that? Like, you know, on a scale from one to ten, this company is traditionally like a two in terms of being risk averse. Like, I'm a one when it comes to the integrity of our financial results, cybersecurity, I have no tolerance for any risk in that. But trying new things, failing, learning from them, moving forward, I'm probably an eight or a nine. The company just needs to feel like it can take risks that it can fail that it's okay to go do that. We're going to learn from it. Everybody wants to play for a winning team. Nobody wants to be on a losing team. So that's the first thing you need to do. We also need to invest in the customer. Like, we need money to go and do that. I talked about the need to create that workshop and that was going to result in layoffs. I made the hard decision. You know, and it was my decision. You know, I worked with my team on it, but I take the responsibility for it. You know, we laid off 13,000 people like in month two. And I was in front of the whole company talking about that, saying that laying off even one person, one person, because it affects their family, their friends, colleagues who have worked for them is painful. But our job is to make sure that we are as efficient as we can be, that we create this war chest. And I said, like, we're going to do this layoff, but we're going to take most of those dollars. And we talked about five billion dollars of OPEX savings we're going to do and invest it back in the customer so that we could be a great company going forward so that we could reclaim our market leadership become the most trusted company in our industry. And when we started going through that, that would feel great. You know, that it would feel difficult and disruptive at first. But I'm playing for what are we trying to accomplish? Like, what is our vision going forward? Because people need to be inspired as well. So what are they, like, what are your employees thinking about? What is it that's motivating them? What's the goal? What are they trying to get to? I think what they are really motivated about right now is that we are playing to win. You know, that we are trying to be a trusted company and that they see that we can do that. Like, early successes are really important in these things because once people start to see success happening, they really rally around that. Like, the first quarter, you know, I came in in October. We have been losing subscribers for a long time. We put on something like 650,000 subscribers at first quarter because I was like, we are going to play to win. I think we're going to do what we need to go do will be physically responsible, but we're going to win. And our stock went up that day by the most that had gone up in 18 years. Winning is contagious. You have to see that. And I think people also they were yearning to play for a winning team. Nobody wants to be in a bureaucratic organization. Nobody wants to be in a hierarchical organization. They want to have permission to be their best selves going forward. And, you know, we also push them hard. One of my sayings is that every single day matters here. I want to see improvement every single day. And there's an intensity about that. There's a saying, heaven and hell are the same place. It's just heaven for some and hell for others. And, you know, for me, working hard, being disruptive in the market, putting customers at the center, being on a winning team, being available any time to go make these decisions. To me, that's like heaven. I love that. Some people don't like that. And that's okay as well. We are not the company for that right now. And so I think we're getting the people who are now inspired to be here, who want to make us better and better and better. And we have not just kind of defined what reality is and created the vision of where we want to go to. But we have a road map on exactly how we're going to get there. And I think everybody understands that they're bought in. We have a ton to execute against still, obviously. But we're making good progress. I'm really proud of the team. He talked about trying to be a truth teller. And you've cultivated a reputation about being a truth teller about AI. What is the truth about AI in business? Truth is a subjective thing often. It's your set of circumstances. How you see things, then I may see them differently. So I don't think there's any absolutes in that. And especially when you're thinking about the future, what I do try to be is as authentic and honest about how I see the future playing out. AI is going to be a part of our future. And you will be better at your job. And you will be better in life if you understand how to use and capture the benefits of AI. So we've put in place gigantic training programs full week long training programs on using AI for all employees. I've also put into place extensive kind of reskilling programs for employees who might be affected by AI going forward. In other words, you know, they're displaced by AI. I want to be sure that they have all of the tool sets and access to be successful in whatever their next chapter might be. But I don't think we should underestimate the impact of AI. And I want to be as honest about that as I possibly can. Obviously, we don't know the future. But maybe what are some of the early use cases that tell you, yeah, we could accelerate here, here, here and be a very different company. Well, first of all, I think the value that we offer to consumers is going to be radically shipped by AI. I don't think we'll just be a connectivity company going forward, offering wireless and broadband. I think we'll be a integral part of how consumers use AI. I think we can put a AI fabric over our network. I think we can do things that enable consumers and small businesses to take full advantage of AI in their lives. That could be things like token packages where people buy tokens from us and we're an orchestration layer on top of the network where we cost optimize the use of those tokens for you because as a consumer, there's certain LLMs that are good for certain jobs, but they may cost more. But you as a consumer may not know that, but we as a network will know that. And so we could cost optimize the use of tokens. And I think that tokens are going to be the coin of the realm. We could offer a safe place in our network because we have 95 million people in the country that use us where if you want to utilize an agent, you can utilize it in the context of our network. We could provide that secure environment. What we offer going forward could be very different than what we offer today on top of the connectivity. We'll also be a part of the AI infrastructure in the company will connect these data centers to dark fiber and lit fiber. We have the capability by retrofitting all of our central offices into edge computing data centers to take inference out to the edge for applications that need low latency, like remote surgery or autonomous driving vehicles. It's a radically different value proposition that adds much more richness to the depth of the relationship that we have with consumers and businesses. I think AI will enable us to be way more productive, we'll get more things done, but also really importantly increase our customer satisfaction levels dramatically. So what's the plausible darker scenario? I mean, I feel like tech CEOs all the time are saying things that alarm us about, you know, we have 500 days until AI will, you know, something bad sounds like it's coming. And you know, obviously job losses are a certainty, whether net job losses are, I don't know, but what's the possible dark side and how do you think about that? How do you lead with that? If you think about the speed that AI is developing, there are going to be all sorts of considerations to think about. I mean, three years ago in these models first came out. They're great, but they couldn't even do math, right? Remember like they didn't really multiply. The models that we're using today are the worst models that we will ever use. Open AI is going to put out four iterations of their model between now and the end of the year. Every one of them will be substantially better. We are on the cusp of what's called recursive self-learning for these models, which basically means that the models will write themselves. No human intervention. We're probably six to 12 months from that. You've got quantum coming. Yeah, we're preparing for quantum that it comes by 2028. And the way that I think about quantum is everything times 1,000. And then several years later, you've got humanoid robotics behind that. So obviously, there are a lot of things that are going to change in our world. I think there is no question in my mind that there is going to be disruption. We don't know exactly what that's going to look like because it's the future. But the way that I think about life in general and the way that I think about things is it scenario planning. Okay, we don't know exactly, but let's scenario plan. What could happen? As I look function by function, I can see disruption in various functions. And the question really is, how do we get ready for that? How do we provide the right reskilling, the right training? When I did this initial layoff, we put in place a 20 million dollar fund, we're the first company to go and do that for AI, reskilling and training. I actually don't think that's enough going forward. I think, you know, we are going to double, maybe triple that amount over the next one to two years to make sure that not only are all employees inside Verizon prepared for future one. Well, however, that future may play out, but also the communities that we serve, like we'll go into various cities, various small businesses that may not be experts at how to use agentech forms of AI going forward and help them with that. Because I think as leaders, we have a responsibility to go and do that. Like, if there's going to be, you know, a two to five year trough, you know, where there's potentially more unemployment, that's not good for our economy, that's not good for our country, that's not good for any of our companies. And so I think all of us who have positions of responsibility, we all need to step up. So I want to talk about leadership at a high altitude. You come into a CEO role, it's different from your first many, many years ago. What did you learn in terms of, you know, CEO needs to do this, does not need to do this. You know, what was the wisdom that you accumulated? Well, there's no substitute for a lot of years of experience. It gives you go through a lot, you go through ups and downs. What I tell people here, I think, for a leader is one, you need to be humble. And what I mean by humble is you don't know it all. And if you do think you're the smartest person in the room, you're just in the wrong room, get out there. There's too much going on. I mean, it's just changing so rapidly, we need to be learning all the time. And that means that things that we thought were certain before, are probably no longer certain, you know, you need to kind of challenge yourself continually. I have this saying that, you know, I never want to stand still because when you do, you start falling way behind on it. I also think being authentic, there's a superpower in that, you know, I never want to talk in corporate speak. I never, like, I just want to be me because it's the easiest thing that I can be. And people see that, you know, it's approachable. They know that they can talk to me about anything. They know I'm going to be as truthful as I can be about where we're going. And I'm also very honest, like I don't know what that future is going to be. And I think people really respect that. I think we need to inspire. And I think we need to admit when we're wrong and course correct. So that can't be enough though, to be humble. I mean, there are a lot of humble, authentic people out there. Not that many. Well, okay, I mean, no, I agree, those are great attributes, but they're probably a lot of humble authentic guys out there. You know, the ability to inspire I get, but there's got to be more than just, I'm just like this at home, you know, I, what you see is what you get. I mean, they have to be other kind of skills attributes approaches that are key to doing this job successfully. Well, I mean, they're the basics. You've got to be able to work at a very intense level. You have to have extremely high expectations and insist upon them. You need to be able to make very difficult decisions and stand up to them. People need to know that you're going to lead. You're going to be uncompromising that you have an expectation that you're going to win. I'm a fighter. I don't like I've done mixed martial arts for like 40 years. And I've learned from that, you know, to be very cool, calm, collected in very high stress situations. I feel like as a leader, you can never be too operative down either because good things are going to happen. That's great. But they're going to be followed by difficult things. And that's also okay. You'll learn from those. I think those are kind of like just from my perspective, the basics of leadership. And then I do think those traits on top of those are really important, you know, being humble, being authentic, and being willing to say the same thing that you say internally, publicly, like, it's great because there's no, you don't really have to think that much about what I say over here or what did I say over here. It's very consistent. Yeah. So for Verizon, this is a turnaround. You've used that term. Yeah. When does it end? You know, when do you? You know, it probably, you'd expect me to say there's probably never ends, but that's not really your question. So in my view, there's kind of a three year plan that we're under right now. The first year is about admitting the issues that we have, you know, confronting them head on, putting into place a fully comprehensive transformation program. We have like 10 work streams, we have like 400 initiatives in them, like everyone in the company is engaged in those. I meet every single week on those. I spent hours on every single one of the 10 work streams. We have the leaders of the company involved in all of them. Year two is institutionalizing that. We're making that transformation right now. Like let's see the results, course correct, solidify, and then year three, we kind of turn into an AI native company. We are part of the AI infrastructure and we've transformed like who we are as a company. So I guess another way of saying it, what would have to be true for people to say, "Dentialment fundamentally changed for pricing." Well, I think you'll see it in all of our metrics, you know, you'll see it in our customer satisfaction results, you'll see it in our churn rate, you'll see it in our employee satisfaction results. You'll see it that we are truly AI native. I think to become AI native, the technology is going to be there. there's no question about it. I mean, I think in two years time we're approaching AGI, if not at AGI two or three years, you know, we're at quantum by 2030 at the latest. So I think the technology will be there. I think the most successful companies will have figured out culturally how to adopt to that. I think that is probably the biggest challenge for any company because people can be scared of all of the change. They can be scared of like what could AGI do to my job, you know, that kind of thing. And so I think the issue that we will all face is how do we adopt it? And I think again, there in our network teams, like when they see what we can do in terms of improving the network by running these things autonomously, when we look at our cyber security, when we see like how much better we can be than we've been in the past. And by the way, I think we've been amazing in the past, but we're living in the time of AGI. It's not good enough for how we've been. There's a lot to be very excited about on the AI front, you know, people talk about, okay, so they're going to be disruption. There is going to be disruption. But we've had a lot of disruption in our lives. And humans are amazingly adept at moving through it. People always have tragedy in their life, somehow they bounce back from that. And I feel like the utilization of AI, how AI native we are as a company, how we've been able to adapt it. And what that's done for all of the constituencies that I serve will be the legacy that I hope to leave. Dan, this is great conversation. Thank you. Thank you so much. I appreciate it. That was Dan Schoeman, the CEO of Verizon. Next week, Allison looks at how organizations can create products and services to appeal to both emerging and developing markets. If you found this episode helpful, share it with a colleague and be sure to subscribe and rate IDKAS in Apple podcasts, Spotify, or wherever you listen. If you want to help leaders move the world forward, please consider subscribing to Harvard Business Review. You'll get access to the HBR mobile app, the weekly, exclusive insider newsletter, and unlimited access to HBR online. Just head to hbr.org/subscribe. Thanks to senior producer Mary Dew and to senior production editor, Kristen Murphy Romano. And thanks to you for listening to the HBR IDKAS, we'll be back with a new episode on Tuesday. I'm Ida Ignatius.