Long before he became CEO of Charles Schwab, David Pottruck had a job overseeing the branch network for the investment firm’s 75 offices. At the time, Schwab differentiated itself from competitors by adhering to a “no sales” philosophy—clients simply came to Schwab when they had money they wanted to invest. Pottruck proposed a “soft selling” approach in which employees would invite new accounts to come to the office and learn about Schwab’s additional financial services. Employees would earn bonuses as clients invested more money, and Schwab could grow beyond its current level of US$5 billion in client assets. Pottruck saw the plan as a win-win-win for clients, employees, and the company.
“Employees hated the idea,” he says now. Although Schwab ultimately achieved a trillion dollars in assets as the plan was implemented, “we could have gotten there faster and with much less pain if I’d known then what I know now about leading breakthrough change.”
Today, Pottruck is a chairman of the wealth management firm HighTower Advisors and an adjunct faculty member at the Wharton School of the University of Pennsylvania, where he teaches students how to lead through breakthrough change. His recent book, Stacking the Deck, gathers a career’s worth of insights on the same topic. Here he offers his thoughts about how any institution—including a business school—can implement and benefit from far-reaching and difficult change.
When you talk about change in Stacking the Deck, you ask, “What will people resist? What will they embrace? What can you do to allay their fears?” What are the answers?
There’s a tendency for leaders to underestimate the level of resistance that will meet bold, breakthrough change ideas. Most leaders fall in love with their new ideas and think, “Everyone’s going to love this! I just need to come up with a fabulous presentation, tell people why I’m so excited, and they’ll be thrilled!” And people are not thrilled. Actually, they’re quite resistant.
What leaders fail to understand is that they need to look at change from the vantage point of the person in the audience. That person is thinking, “What does this mean to me? To my job? To my level of expertise? Does this negate the 20 years I spent learning how to become an expert in my field?” If you’re a travel agent for a large corporation, and everyone in your company starts using Expedia and Travelocity, suddenly all your contacts and sources of information don’t matter any more. The switch might be good for the company, but it’s not great for you.
How do leaders convince workers that change really is necessary?
They have to be credible, trustworthy, and vulnerable. They have to tell their own stories in intimately personal ways. Leading through change is really about someone’s ability to be an inspirational leader.
It’s also about being a magnet for talent. Change leaders need talented people to help them lead change. That process builds a perception of momentum that starts to become self-fulfilling.
How can business schools teach the essential skills of change management?
I have a biased perspective, but I believe you have to bring in people who have been in the trenches, who can explain why change is so hard, and who can make the process realistic and human. I think teaching breakthrough change from a textbook is not terribly credible. When I teach change management, I bring in outside speakers—such as the protagonists in some of the cases I teach. I also talk about my own experiences.
What lessons do you share with students about your experience overhauling the way Schwab ran its branch offices?
I did a number of things wrong. First, I didn’t realize that “soft selling” was so counter to what the Schwab culture was all about. Second, I tried to change all 75 branches at once. I should have concentrated my energy on implementing pilots in three or four branches.
Today, these are the principles I teach in class: Make change fit with the culture instead of flying in the face of culture. And understand the importance of implementing a pilot program and building momentum.
Most industry observers think higher education itself is on the verge of breakthrough change. What do you see as the key concerns?
Too many institutions aren’t effectively preparing students for careers in the world ahead. Why? Academic institutions are largely controlled by faculties who in many cases are teaching the wrong subjects—because those are the only subjects they know how to teach.
Even in high school, schools are teaching physics, chemistry, earth sciences—the same things they’ve been teaching for 40 years. Why isn’t computer science replacing chemistry? Because science teachers resist it. They don’t have the skills to teach it. You can’t bring about change if it’s led by people who resist change.
What would your takeaway message be for business educators?
We have to start pilot testing new concepts and ideas. We have to think about what will resonate in the marketplace. We don’t have to throw everything out, but we do have to build on our foundations. We don’t have to fire the faculty, but we have to complement the faculty.
We have some painful work ahead. There needs to be some reallocation of resources. Some large academic departments of the past need to be reduced. The financial resources and student demand will move to schools with the courage to face the reality of what’s happening in the world.