HANNAH BATES: Welcome to HBR On Strategy, case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. When Hubert Joly became CEO of Best Buy in 2012, online retailers like Amazon were exploding in popularity and the electronics retailer was struggling. Gone were the days of meandering through big box stores in person. Instead, customers could find it all from the comfort of their own home. Best Buy was facing a sea change. But Joly did what seemed impossible. He famously turned around the retailer by changing the organization’s holistic strategy. He prioritized fair pay for workers, opportunities for employees to advance, and working with consumers, the larger community, and even competitors. In this episode, Joly will tell you how he defined his organization’s purpose and aligned incentives with that larger strategy. You’ll also learn how Joly found mutually beneficial ways for Best Buy to work with competitors and suppliers – including Amazon, which had once threatened the company’s survival. If you’re interested in turn-around strategy, this episode is for you. It originally aired on HBR IdeaCast in July 2021. Here it is.
ALISON BEARD: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Alison Beard. Several years ago, a distraught mom and boy came into ac big box store with a serious problem. The robot dinosaur they’d purchased, his favorite toy, wasn’t working. The store associates knew just what to do. They explained that they were actually surgeons who could fix the dinosaur’s injury. They pulled the toy behind the counter, performed their operation, really swapping one dinosaur for another, and handed the new one over to the boy who was, of course, thrilled. The associates improvised. This was not the store’s standard operating procedure, if you’ll pardon the pun. But our guest today says that what those employees did also wasn’t an accident. Their actions stem from a culture that he and the rest of his leadership team tried to create and spread through the one struggling retailer, Best Buy. It not only made the boys’ day; it turned the company around. Joining today is Hubert Joly, the former chairman and CEO of Best Buy. But he’s here to talk about more than one company; he also wants to explain how other organizations can find purpose, honor all stakeholders, and lead with humanity, just like those store associates did. He’s the author of the book, The Heart of Business: Leadership Principles for the Next Era of Capitalism, and the HBR article How to Lead in the Stakeholder Era. Hubert, thanks so much for being here.
HUBERT JOLY: Alison, thank you for having me now. So, look forward to our conversation.
ALISON BEARD: So, at least at HBR, we have been talking about this transition from shareholder capitalism to stakeholder capitalism for a long time. What is new or different about the approach that you’re suggesting?
HUBERT JOLY: It’s really the applicability to concrete, how do you do this? Yes, we’ve been talking about this, you’re right, for a long time and I’m glad we’re talking about it because I think the world we live in is in a difficult state. We’ve had a health crisis, an economic crisis, societal issues, racial issues, environmental issues, geopolitical tension. You name it, right? What’s the definition of madness? Doing the same thing and hoping for a different outcome. So, the Milton Friedman focused on shareholder primacy, the top-down approaches in management; they’re not working. So, I think all of us now realize this. The question for leaders is not whether this is the right idea or the right direction, but it’s how, how do we move forward?
ALISON BEARD: Yeah, and one step is signing on to something you call a declaration of interdependence. So, in broad strokes, what guidance are you giving to other companies with that declaration?
HUBERT JOLY: Well, I think it’s the realization that business cannot live in isolation. Best Buy is headquartered in Minneapolis. So, following the horrible murder of George Floyd, of course, if the city is on fire, you cannot open the stores. You cannot run a company. Same if the planet is on fire, you don’t have a business. As leaders, I think during the pandemic it was an opportunity for all of us actually to step back and think about what’s important. My belief is that an excessive focus on profit is poisonous, it’s dangerous, and so the philosophy that I propose is one where at the heart of the business, you have the idea of pursuing a noble purpose, business being a force for good, putting people at the center, like these amazing associates. Oh my God, when I heard that story with the dinosaurs, I got it. This was human magic being unleashed. Then this idea of embracing all stakeholders and treating profit as an outcome, and it’s refusing, Alison, zero-sum games. I refuse to oppose stakeholder capitalism and shareholder capitalism, because shareholders are really important, and at Best Buy our share price went from $11 to now I think around $110, so times 10 in nine years. So, we have to embrace this philosophy of “and” as opposed to “or.”
ALISON BEARD: You do talk about not just purpose, but noble purpose. Do you think that every business can find a noble cause?
HUBERT JOLY: There may be exception. If I’m a cigarette manufacturer, maybe I need to think harder than a service business because these things are dangerous. They’re poisonous and I don’t care if there’s a warning sign on the packet. But most companies, noble purpose is not reserved for companies in the healthcare sector. At Best Buy, I could see this. Traditionally, we’re consumer electronics retailer, but at some point in our journey, we stepped back and said, “No, we’re actually not a retailer. We’re in the business of enriching lives through technology by addressing key human needs.” It’s a much more inspiring idea and the good thing is that it helped us expand our addressable market vastly, and we can get into the examples. So, companies have this opportunity, and it’s … By the way, Alison, let’s slow down. It’s hard work to define a company’s purpose.
ALISON BEARD: Right.
HUBERT JOLY: This is not just the Communications Department come up with a catchy phrase. No, you need to do the work and understand, what are the human needs in the world that you’re trying to address. What are you uniquely good at? What you’re passionate about, and then, finally, how you can make money. This is work that every company can do. What I would say today, Alison, is that a lot of companies have embarked on that journey. Purpose has truly become quite trendy and fashionable, but I think the challenge is to really do the work so that it can be translated into very specific winning strategies. That’s where the work needs to start.
ALISON BEARD: How do you make sure that it’s not just the leadership team and the marketing department that believes in and works toward that purpose, but also that the frontline workers feel connected to it?
HUBERT JOLY: Yes, and so if making the corporate purpose concrete enough is a first challenge, what you’ve just said is a second challenge. So, let’s imagine, Alison, for a second that you and I walk at Best Buy. We’ve just defined a corporate purpose and we walk into a Best Buy store and we tell the associates and the GM, “Look, we have some important news. We have this new purpose. It’s to enrich lives through technology by addressing key human needs.” I can guarantee you, Alison, that the associates are going to look at us and say, “We love you, guys, but what did you just say? What do you want us to do at 10:00 AM tomorrow when we take our shifts?” So, that’s real work as well. At Best Buy, to make it concrete, what did we do? We took 40 or 60 of our most respected middle and senior managers, and we had them work on making this very concrete. To show you how concrete it was, it culminated on one day, a Saturday, in June, I think it was 2017, when, on a Saturday morning, we closed all of the stores for a few hours. There was no PowerPoint presentation, no glossy video, no message from the CEO. I was just in one of the stores and we got into small groups and we worked on two questions in small groups. One was share with each other your life story. We start with a young woman. She had been in an abusive relationship with an ex-boyfriend. She had been homeless, and for her, Best Buy was her family. It was her home. So, all of a sudden, I see her not just as an employee, but as a human being with all of the complexity and some aspects of beauty of that humanity. Second exercise: share with each other the story of an inspiring friend in your life. So, for me, it’s my older brother, Phillip. He’s just wonderful. Then we said, “Look, what we’re trying to do, which we are already doing when we are at our best, is to treat each other and the customers as human beings, and we’re trying to treat each other and the customers as an inspiring friend to them.” Oh, all of a sudden, I get it because in my life, for most people, what drives them is to do good things to other people. It’s the old golden rule. And I get it and that for me, that’s a very seminal idea. When companies work on the corporate purpose, it’s tempting to define it, and then to roll it out and tell people, “This is what we’re going to do”. That’s outside in and top-down. Equally important, if not more important, is inside out and bottom up, meaning starting from our heart. A key question that everybody can ask themselves, and people around them, ask themselves, “What drives me in life? What’s really important? How do I want to be remembered? What gives me energy?” And ask people around them. And I think if, in our companies, if we can manage to connect what drives each individual working at the company with their work and with the purpose of the company, that’s the beginning of human magic happening.
ALISON BEARD: Yeah. But people in those frontline positions are often concerned just as much with a paycheck as they are purpose, so what’s your take as a leader on what is fair pay for people who are in retail jobs or blue collar roles?
HUBERT JOLY: I think that the discussion of social injustice and inequality in this country is a very important discussion. I think that raising the minimum wage, starting wage, is a very important trend. Best Buy, together with other companies like Walmart and Target, has been at the forefront of this during the… Since the time I studied, I think the starting wage has increased I think from $10 to $15 per hour, and of course the average is significantly higher. The other thing is so much of what I’ve learned when I was at business school or at McKinsey or my early years as an executive is either wrong, dated, or incomplete. One of the things we’ve learned is that we need to have financial incentives to drive performance, and there’s research by MIT that shows that financial incentives actually deteriorate performance. And on the front line, the founder of the company, back in the nineties, eliminated commissions because I think he thought it was driving the wrong behaviors, having the salespeople drive you to the products with the highest margins, as opposed to the products you wanted to buy. And then recently my successor, Corey, actually eliminated bonuses, it was team-based bonuses or store-based bonuses, for the front-liners and incorporated them in the base pay, so really increased the base pay. Because if you’re at, let’s say, 12, 13, now $15 per hour, the bonus is actually a source of uncertainty, right? Because you need to pay rent. If you’re a student, we have a lot of students in our stores, you need to manage your student loan. So having the certainty is actually much better, and then the way you get 125,000 people to show up at our best and do some magical things, you don’t want to rely on incentives to do this. You rely on creating the right environment where they want to give their best. In the context where, in the COVID crisis, so many people have been rethinking their life, so you see companies that are losing employees. So on top of your customer value proposition, the definition of your employee value proposition, I think that’s going to be a big differentiator for companies.
ALISON BEARD: And part of that is also a path to advancement, right?
HUBERT JOLY: It’s a path to advancement, it’s skills acquisition. So, to make it, again, make it concrete, so one of things we’ve done at Best Buy is we’ve broadened the scope of the skills people have so that they can be in different parts of the stores, and build more skills, both knowledge of different products but also selling, leading. And so yes, the employees, again, they are wonderful human being. And if, as an employee, you’re in a growth environment, you feel you belong, you feel your manager is investing in you, then you’re much more charged up. So, of course, pay is important, but it’s the whole package. It’s benefits, and importantly, it’s the environment.
ALISON BEARD: It’s one thing to sort of want to lead this way, have a plan to lead this way, but it’s another to do it when you’re trying to manage a huge team or run an entire company, and you’re dealing with complexities and challenges and even crises, so how do you maintain that focus, that one-on-one attention, making sure employees feel seen when so much else is going on?
HUBERT JOLY: So, one of the implications of getting into this new era of stakeholder capitalism is the change about how we lead. The old model, what was the old model? It was the leader as the superhero. He or she knows, usually a here, knows everything, is there to save the day, is the smartest person in the room, too often driven by power, fame, glory, or money. And nobody wants to follow a leader like this. We know a few of them around us, but nobody wants to follow them. I think the new leadership model, for me, what I call the purposeful leader, is somebody who’s very different. Of course, they are clear about their own purpose, and they’re curious about the purpose of people around them, as we’ve talked about. In addition, they are very authentic and vulnerable, which for many of us, self-included, is a significant transformation. Because in my earlier years as a leader, I was driven by perfection. Believe me, it was like a disease. But then, in a context, and we’ve seen this in the last 18 months, as leaders at all levels… all of us are leaders, at minimum of our lives… we’re being thrown curve balls where there’s no playbook. Did you have a playbook, Alison, for the COVID crisis? I did not.
ALISON BEARD: No.
HUBERT JOLY: In that context, if you’re trying to tell your team, “I got it, I know everything,” this is not authentic. They’re going to know immediately that, and you’re going to be thrown out after five minutes. So, this is a different style of leadership where you have to be able to say, as a leader, “This is what we know, this is what we don’t know, and let’s see what we can do to figure out what we don’t know.” This is about being able to say, which took me years to be able to say, “My name is Hubert and I need help, because I don’t know how do we work together to figure this out?” And that’s a much more powerful, by the way, way to lead.
ALISON BEARD: It does seem as if the pandemic has been such a shock to the system that it did cause people to reset. And instead of reverting to old patterns, people are beginning to fundamentally rethink their careers and business. So, is that why this moment is really ripe for a full-on shift to this new kind of capitalism that you’re talking about? Can this be the point where we really do stop caring about profits as much as we have in the past and create some long-term change in the U.S. and around the world?
HUBERT JOLY: Yeah, it’s really a pivotal moment. And by the way, I’m not saying we shouldn’t care about profits. I think we should treat profit as a very important outcome. Shareholders are people like you and I, we give them our savings, and so we want to make sure that they do a good job with them. But yes, what we have to move away from is this excessive obsession about profits and treating it as the main thing. And by the way, one of the things I’ve learned from a client years ago is how to run your monthly business performance review meeting. And that client told me, “Don’t start with the financial results. End with the financial results in that meeting. Start with people in organization, then go to customers in business, and finish with financial results.” If you flip it, if you start with finance you’re going to spend your entire meeting on it. I’ve done this. I know. Whereas if you flip it, if you start with people then business then finance, you’ll be able to look at the drivers. But to go back to your question, I do feel it’s a pivotal moment, and it needs to be a pivotal moment. Why is it a pivotal moment? Because yes, we’ve all realized the humanity of people around us. People working from home on our Teams. We’ve seen their spouses, their children, their dogs, their cats, their wifi problem. We know they’re humans, right? There’s no going back. The other thing is that… And it really struck me last year, as I’m the eternal optimist. But I had to pause and say, “The world is not working well.” You would need to not pay attention to not see the health, economic, societal, racial, environmental, and geopolitical issues we have. And so, we have to reinvent the way we lead and the way we use business as a force for good going forward.
ALISON BEARD: Yeah. It does seem like we’re making progress. We have so many companies moving in this direction, but at the same time inequality is at an all-time high. Billionaires, leaders of companies made hundreds of billions of dollars in this pandemic when a lot of frontline workers really suffered. So how do you take the steps that we’ve made and push it to an extent that it really results in real change for those blue shirt workers? For the Amazon delivery drivers, for all the people working in these frontline jobs all around the world.
HUBERT JOLY: Yeah. These are multifaceted issues. For me, to change that from each of us from within. How we lead, how we think about how we can best embrace all of our stakeholders, starting with the employees and the customers and the the community. How we commit to racial diversity. One issue, frankly. I became is a citizen. I think it was almost two years ago, so a big deal for me. And so, I get to vote now. And when I see our tax-
ALISON BEARD: Quite a time to come into U.S. politics.
HUBERT JOLY: Exactly. Frankly, I’m personally shocked by the fact that apparently some of our billionaires are not paying taxes. This is horrendous. This is unacceptable. Now, I know some of them are giving half of their assets. There’s been the billionaire pledge. And by the way, I’m not a billionaire. I’m still going to give pretty much all I have when I die or before I die, because I don’t want to mess up the life of my children. But the tax code has got to be changed. My view, Alison, is that we have a few ticking time bombs. We have an environmental ticking time bomb. We have a societal ticking time bomb. We need to address them. And I don’t want to make it sound too easy, but status quo is not a great option.
ALISON BEARD: And it does seem, given the dysfunction in a lot of political systems around the world right now, is it your view that business leaders can show us the way forward?
HUBERT JOLY: Here’s the thing: I believe all of us have a role to play. As individual leaders, we have a role to play because what we do every day to people around us makes a difference. CEOs have a role to play because they can lead companies to be a force for good and to be more than just for profits. Boards of directors can influence policy and so forth. And yes, business increasingly needs to get involved in societal issues. Again, if the city’s on fire, business cannot thrive. And we have to wait on certain issues, but even more important than speak, we have to act. That doesn’t mean that government does should stay on the sidelines, but I think it’s all of us. And it starts with each of us.
ALISON BEARD: Yeah. And this ties into your point about the end of zero-sum competition. Best Buy is famous for its turnaround. But part of that was the way not only in what you differentiated yourself from big, scary competitors like Amazon, but also tried to work with them. So, talk a little bit more about that strategy and why it was so important for you, and what other leaders can learn from it, operating in their own industries.
HUBERT JOLY: Yeah. One of the things I learned from another CEO, he told me that…. It was very precise. 98% of the questions that are asked as either/or are better answered as, “And.” So should you focus on the short term or the longterm? No. Both. Should you focus on your employees or your customers or your shareholders? All of the above. And interestingly enough, that also applies to competition. Traditionally many companies, we formulate the strategy as being, “We want to be number one. We want to beat competition. We want to be the best.” So, we’re defining ourselves like in a sports competition where winning is about beating. And my view of businesses is different. Winning is about being unique. It’s about, again, pursuing that noble purpose where you address a very important human need in a unique fashion. So yes, Amazon was supposed to kill us, right? In 2012 when I became CEO, everybody thought we were going to die. It turned out that the problems we had were not inflicted by Amazon. There were self-inflicted, which made them easier to correct. But then we went to the extra step and we decided to partner with the world’s foremost tech companies, including Amazon, which of course sells products. Because what I saw is, of course the customers needed Best Buy because, for some of our purchases, we need to touch feel and see the product and ask questions. But the vendors also needed a place to showcase the fruit of their billions of dollars of R&D investments. So, I saw that as an opportunity. And the first deal was actually with Samsung, where in December of 2012, with the CEO of Samsung Electronics, JK Shin, we did a deal where in a matter of months he had 1,000 Samsung Experience stores within our stores, which was good for the customer, good for Samsung, and good for us. And as it is to Amazon, some of our competitors were refusing to sell the Kindle or the Echo products in their stores. And we said, no, our customers are interested, Amazon is going to give us some money to sell their products in our stores, and so it’s good for everybody. And so, it’s the idea of, instead of focusing on beating, focus on what you’re trying to accomplish in the world and try to be the best version of yourselves you can be, and see who can help you achieve that.
ALISON BEARD: So, at what point in your turnaround did you know that this approach to stakeholder leadership was really working? And how will we know in the corporate world at large that we’re making a difference, we’re making progress? So back in 2012, so when everybody thought we were going to die, two months after I started, which in and of itself was crazy, we went to New York to present our plan to our investors, and our approach. We shared with them a diagnosis, what was working, what was not working, our approach and our long-term targets. We talked about all of our stakeholders. The employees, the customers, our vendor partners, community, and the shareholders. And of course, initially what saved the company was the fact that we were able to stem the decline of both the revenue and the margins by refocusing on the customers, and mobilizing the employees, and taking some cost out. But I wanted from day one to have this holistic approach, because if we were going to do well and do good, I wanted to do good by doing well, and do well by doing good. Let’s take the environment. At Best Buy, we have a recycling program where anybody, irrespective of where you bought the product, you can bring back your electronic products to our stores, and we recycle them because there’s a lot of good metals in there, good components that we can re-market and so forth. And so, the beauty of this is that this is good for the planet obviously, but this is also good for the customers, because you can empty your cabinets, right? And this is good for us, because it builds traffic to our stores. Employees are demanding to work for good companies. Customers want to deal with good companies. The community is expecting us, needs us, to do well and to do good in the community. And of course shareholders, we need to take care of them as well, so might as well make peace. For me, the debate is over, right? And when I listen to my former colleagues in the corporate world, I think the debate of whether to move in that direction is over. And the focus is really on the how, right?
ALISON BEARD: Wonderful. Well Hubert, thanks so much for joining me today.
HUBERT JOLY: Thank you, Alison. So enjoyed our conversation. Thank you.
HANNAH BATES: That was Hubert Joly in conversation with Alison Beard on the HBR IdeaCast. Joly is the former chairman and CEO of Best Buy. And he’s the author of the book, The Heart of Business: Leadership Principles for the Next Era of Capitalism. We’ll be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review. If you want more podcasts, articles, case studies, books, and videos like this, find it all at HBR.org. This episode was produced by Mary Dooe, Anne Saini, and me, Hannah Bates. Ian Fox is our editor. Special thanks to Rob Eckhardt, Adam Buchholz, Maureen Hoch, Adi Ignatius, Karen Player, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.