Bayer’s Bill Anderson: Turning a 168 Year-Old Tanker Like a Speedboat

Yeah, thanks for the invitation, Brian. Glad to be here.

Many companies have their own very specific problems, but almost every large organization has a bureaucracy problem. And it's really interesting because this is something that I've been trying to get my head around for probably at least two decades. And I say that because I think I became a manager first about 25 years ago. And I noticed, you know, when I was a new manager that one of the things that we managers were doing was we were trying to fight bureaucracy. We were busting bureaucracy. We're trying to take out complications, simplify, prioritize. And so that was, you know, 1999. And then, you know, like fast forward to, oh, 15 years later and I noticed, wow, you know, we're still doing that. Only the thing I noticed is like we're doing all this bureaucracy busting, but things are only getting worse. You're kind of like, hm, what's going on here? You know, it's kind of like if imagine you had a disease and the more you tried to treat the disease, the worse it got. You kind of have to rethink your strategy. So I think that's kind of a starting point.

Yeah. Yeah. That's I had the same kind of thing because I went from a 30-person enterprise to a 700-person enterprise and then that 700-person enterprise merged with another and we became 5,000. Then I went to like a 10,000-person organization and then a 100,000-person organization. I noticed that. Yeah. The bigger you got, the worse it got. Like for example, in the 30-person organization, you'd see an opportunity and you just do it. Or you see an opportunity and you need some help. So you call a couple of your friends at lunch because you're just eating around the same table. You got only got a little table, you know, in your little break room. And you just go, 'Hey, what if we do this?' and before lunch is over, you've decided, 'Yeah, we're gonna do this.' And you do it. And then I go to like from a 700-person organization to a 5,000-person organization, that same activity. Oh, you can't just talk to two people. You got to talk to like seven people and then they got to talk to their managers and then you got to have like a follow-up meeting and you know maybe occasionally you actually get something done but a lot of times things just don't happen because there's just too much overhead.

Maybe before I answer that, let me just complete sort of the analogy. There's a common thought among managers that bureaucracy is kind of like a virus that infects the healthy organization or the healthy organism and then you got to kind of take the virus out. And I would argue that's actually the wrong way to think about it. The truth is that it's not that the organization is healthy and then it gets a virus. It's actually the composition of the organization is what's creating bureaucracy. You know, like think about it. Nobody gets up in the morning and says some manager in a big multinational company gets up in the morning and says, 'Hey, I'm going to go be a bureaucrat.' Like nobody thinks like that. And so I mention that because it's actually the presence of 10 or 12 layers. It's the fact that things are organized by this kind of functional org chart instead of being organized around the customer, around the product. Right? It's those are the things, those layers, the need for signoffs, the fact that people four layers removed from the product or the customer are actually decision gatekeepers. That is what is bureaucracy. So you can't actually just take out the bureaucracy. You have to take out the parts of the system that make the bureaucracy. So, what we've done at Bayer, when I arrived, we had 11 to 12 layers and now we have six to seven. Now, you might think, well, six to seven, that's still a lot of layers. But if you consider that...

Yeah, exactly. It goes really fast when you're counting them, you know? It's like...

Um, I have actually I don't know how many I have. Maybe 14 or something. 12. Um, so what we've done is we've taken out the layers. By the way, lots of people talk about taking out layers. In fact, pretty much every reorg someone says, 'Oh, we got to take out layers.' Usually that's missing the point. If you have a 12-layer organization and you take out two layers, which is probably the average big corporate reorg, they'd be lucky to take out two layers. That does nothing. If the basic way things are done, decisions are made up and down the hierarchical functions. You have annual budgets where the money is divided into thousands of little cost centers and those are kind of like the money's trapped. They're like money traps, right? If that's how you're operating your business, it's not going to get meaningfully better. You can make it, for example, yeah it's better to have 10 layers than 12 but the same basic problems are going to persist. And so what we've done is we've taken out so many layers and we've expanded people's span of... we don't call it span of control, we call it span of coaching. We do that not because it's a clever name but because we have lots of people in our organization... Well, let me give you the facts first and then I'll give you examples. So, our average span of control was six and a half, which isn't actually that bad. A lot of large companies, it might be five. We're now at 14, and it's still going up. We're not done. And if you look into that, what you find is we have all kinds of people with 20 direct reports, 30 direct reports. The most I know of, we have some people with 90 direct reports. The reason I mention that is not to be obsessed with the math. Think about this. Let's say you're managing five people, you know, and you've got your drill like, okay, you have annual performance plans and goals and they're going to review them with the manager and you're hiring and firing and you're managing performance issues and all that stuff. Okay? You're managing that. You're doing that for five people. Now, you come into work the next day and the boss says, 'Hey, you know what? You're gonna manage 90 people instead of five.' You think your work's gonna change? If you're doing one-on-ones, your schedule's done. Yeah. I mean, think about it. How many one-on-ones could you do? So, right. You're not doing one-on-ones. You're not doing the same job. It's a different job. So, instead of the idea that the management is directing the activity of the organization, that's done. Command and control, forget about it. You can't command and control an organization that's that flat. You have to switch to a mindset that hey, the people of the organization are owning the business. They are, whether they're engineers or agronomists or doctors or lawyers or whatever their job is, salespeople, they actually, they and their colleagues, their peers are owning the business. And the job of people in management is simply to kind of like be greasing the skids, you know, to be figuring out, hey, where's there a bottleneck? Where are things stuck? And so we actually, we have a description for that model. But that's the idea. So that's what we're doing. We're getting rid of annual budgets. Everything is on 90-day cycles. The whole organization including the leadership team and every 90 days groups of people come together and say, hm, what are we going to do the next 90 days? What are the most important things? And then we spend one day every 90 days planning, so evaluating what happened the last 90 days, what are we going to do the next 90 days, can we do it with fewer people? If a couple people from our team we don't need anymore, they're going to go join another team, right? So this is happening every 90 days. 10 or 15% of the organization is moving to a different team. Teams are collapsing, like teams go away and new teams are formed. So you know, again, you have some standing teams like let's say there's some molecule you're going to launch in five years' time, well the product development team is not going away in 90 days unless you fail in trials or something. So you have some teams that are durable teams and you have other teams that form for 90 days, 180 days and then they go away. So that's what we're doing at Bayer.

Yeah. Yeah. Well, here's the thing. An orchestra, there's a score. Businesses don't have a score unless you're just doing the same thing over and over again.

Yeah. But that's not a score. That's where the earnings call is where you got to go and present your results. The investors don't care how you got it. They want to know what you delivered. And so yeah, business is a lot more like jazz than it is like, you know, Beethoven. And I think most businesses are more like Beethoven than... And the bigger they are, the more likely they are like Beethoven than they are. A startup is more like a jazz band in my mind. But think about that, you know. So, is that good? Not necessarily. Definitely not necessarily. Um, but it seems like gravity as organizations get bigger, they look more and more like orchestras. They're more structured. There's more layers. The planning is longer. The budgeting is much stricter. And so, you seem to have broken all that down. And I spent a lot of time just like coaching. I basically coach startup founders and try to teach them how to be scale-up CEOs. Like how do they make that move from startup founder to scale-up CEO without turning into an orchestra, without turning into, you know, a sclerotic, slow... how do they avoid it from the get-go? Well, they usually don't. Yep. Um, and if you look at the big tech companies, yeah, what I can tell from people I know who've worked in them or working in them now as an example, most of them are big bureaucracies now, big command and control. They have all the normal corporate mechanisms. And now I want to be clear about something and this is a bit of a head-scratcher for a lot of people. You can do worse than having a hierarchical bureaucracy. In fact, a well-run hierarchical bureaucracy can deliver okay performance. And the way I think about it, and I use this analogy a lot, it's kind of like there's hierarchy hill. And hierarchy hill, think about it this way. Let's say you've got two 10,000-person organizations. Each of them has the top hundred people that are basically calling the shots. And the other 99,900 people are more or less order takers. Okay. Which means they're not that motivated. They're not killing themselves to deliver new innovation or because it's too hard. Because if they have to work their way up through eight layers to get anything done, it's exhausting. They know, hey, that's not really what's being expected of me. They just expect me to, you know, comply. All right. Now, if you have two of these organizations, one of them, let's say the CEO and the executive team are more concerned about improving their golf handicap, and the other one, the CEO and the executive team are totally into the customers, the products, the technology. They're really into it. Well, which one of those do you think is gonna perform better? Yeah. Right. And by the way, this latter one, I like to call it the missionaries versus the mercenaries.

I kind of like when I think of HubSpot in the early days, like you think of the first 10 employees, like the reason the first 10 employees joined HubSpot is very different than the hundredth to the 110th versus the thousandth to the thousandth, etc. etc. value prop we espouse and so everyone sort of joined because they love the mission or they like their colleagues, they didn't play golf, they were completely focused on, probably worked 100 hours a week and just naturally, and by the way I think this is okay and natural, you should put off as long as possible, but there's a natural progression where the reason someone joins a 10,000-employee company is very different than a 10-person and you're going to have people who are more mercenaries who have a life, thank goodness, and have different priorities. So, it changes over time.

Look, you know this, Brian, there's a hundred or a thousand ways to kind of simplify the world, categorize, etc. I mean, I don't really work with the missionary-mercenary model so much because what I find is that almost everyone is capable of having kind of missionary zeal about something. Love that. You know, I have a brother-in-law who was a cop and, you know, but he was really into what he did in his job, but because of the nature of being a policeman, he had a lot of free time. And in his free time where he wasn't, you know, fighting city hall literally, he was building amazing things. He was organizing trips for people from his church to rebuild houses that got destroyed by tornadoes. And he would organize the whole thing, man. They would show up and like rebuild a house in two weeks. Yeah. You know, like a team of 15. So he was missionary in his spare time and he was an employee in his job. And the way I look at it is every Bayer person can be all-in on the Bayer mission. And the question is are we going to create the environment that makes that normal? Or would you have to be kind of weird to actually do that because you're always fighting city hall?

Don't hire professional managers.

Look at a company like Amazon. They did not hire professional managers. They had the same people who were there when there was five people, when there was 500 and 5,000 and 50,000. You know, they because they correctly intuited that if they went and hired professional managers, they would end up with a dull, mediocre organization. And again, by the way, it's not the manager's fault. This is a system. It's a way of organizing. And if you hire managers who've been trained that that is what good looks like, that's what they're going to implement. Now, you may need to uplevel. Like for example you might have a person who's the finance person who was capable of leading in a 10-person organization who's not capable of leading in a 1,000-person organization. But that doesn't mean the answer is to hire a professional manager as your CFO. It means you got to find a better CFO who is dynamic and isn't thinking like a bureaucrat. And you may say, well, where do you find those people? Yeah, okay. It gets a little, you know, that's a longer conversation.

Actually, I'm pretty... I love education and I love people who are lifelong learners. I don't spend a lot of time looking at whether or not someone has an MBA or not. In fact, the executive leadership team at Bayer is six people total, including me. And honestly, I couldn't even tell you if anybody... I know I have an MBA. I honestly couldn't even tell you if any of the other ones have an MBA or not. They probably a couple of them do, but I didn't even notice. Now of course part of that is like when you're hiring somebody who's, when you're at a lower level and you're hiring someone who's 25 you might think about it differently than when you're hiring people later in career.

Yeah. So, this is classic. So the way a complex organization, a bureaucratic organization handles that situation, like okay, we got to have financial discipline, the way they handle that is we got to pin down where every dollar is going to go in advance. You know, it's kind of logical, but it doesn't work. In other words, okay, if it's November now, I got to figure out where all the money is going to go in the next 12 months, kind of down to the department, the activity, etc. And we think when we're doing that that we're actually somehow creating value because like we've specified it, but as you said, the whole world changes. And by the way, that's true in startups, but it's pretty true in big multinationals, too. And so what we do now is we call it a two-tier resource allocation approach. We call it dynamic resource flow. So tier one would be like your agreement with the venture capitalists. Okay. Tier one would be hey we're going to spend $2 million in the next 12 months and or whatever it is $20 million in the next 12 months and we're going to deliver at a high level these are the big things we're going to deliver while we're doing that. Okay, that's tier one and that's where the kind of nailing it down because hey, we've committed to our investors or we've committed, you know, like so that you can't really give on. But that's okay because it's high level. Now at tier two, you don't do... so the normal corporate thing is you take that $20 million and you divide it up into $100,000 here and $500,000 there and you assign those numbers to individuals and you tell them you're accountable for this, you're accountable for this and then they all are incented basically to spend whatever that number is, not more, not less, okay? But of course that's stupid because the world's changing and you don't want that money divided up that way because by July that doesn't make sense anymore. So instead of doing that, you go with your $20 million number. That's tier one. And tier two, you've got a resource pool. It's got $20 million in it. You've got leaders. Maybe you've got, I don't know, five program teams and an administrative team. And the five program teams are each working on some product they're developing. And then you've got an administrative team. They're responsible for keeping the lights on and whatever. Okay, you're having a conversation, a regular conversation about, okay, when we took the $20 million and we roughly assigned it across those six teams, but there's nothing special about that assignment. It's not the basis for your end-of-year bonus. It's not like, oh, if you spend less, you're great. And if you spend more, you're a dog or whatever. It's just a starting point because we're on January 1st. This is sort of where we are right now. So now everybody go work for 90 days. Do your best to drive your product forward to thrill your prospects and to treat the company's money like it's your own money. And then we're going to come back after 90 days and just sort of check in. Okay? Oh, and team A says, 'Actually, you know, we've hit a roadblock and we're kind of stuck.' So, you say, 'Oh, team A, you're stuck. I tell you what, you're waiting for feedback from a regulator. It's going to take six months. So, we're going to take all the people from team A and put them on the other teams. And we're going to take all the money that was in team A. We're going to spread that over to the other teams.' Okay, let's talk about team B. Ah, team B, we've got a new opportunity. We can actually do more. So, okay, good. Let's take some of those team A people, right? And even more than that, you're doing this in a way that it's actually the teams that are sorting this out. It's not like the boss is deciding all this. Okay? So, that's... and at the end of the year, nobody's a hero because their allocation at the beginning of the year was $5 million and they only spent four. No, no. We'll talk about your performance at the end of the year in a peer review session.

It's 90-day cycles and it's not the basis for performance management. See, that's where a lot of bureaucracy gets created by each team thinking, 'Oh, it's my job to spend this much, not more, not less.' You're kind of locking it in where you say, 'No, that's just funds available, but you should try to spend less if you can and make more progress if you can, right?' And we'll talk about how you did later.

And Brian, a little caveat, okay? I mean, I don't think 100-person companies are that much of an intellectual challenge from an organization model standpoint. In general, if you got a bureaucratic 100-person organization, then man, I don't know, something's wrong. Fine. But by a thousand people, it creeps in.

So, you're at 100, you want to go to 1,000. You don't want to be sclerotic. Yeah. Here's a departure. Usually, if you're going from 100 to 1,000, and I've been on that journey, that is generally where you start bringing in the professional managers. It's usually more in the like 500 going to a couple thousand. You can kind of get away with the really informal stuff, I don't know, up to 300, 500, but then it starts to... big decision you have to make is are you going to make managers responsible for performance management? Or are you gonna draw on the power of all the peers and the doers? And when you make that decision, you are sort of deciding the fate of whether this is going to continue to feel like a startup or whether it's going to really take a major fork in the road towards a hierarchical organization.

I'll give you a model for it. It's not the only one, but think about it this way. We're working our way to 1,000 people. Yeah. You're probably going to have, I don't know, 15, 20, maybe 30, even 40 managers. If you had 40 managers, they'd have 25 direct reports on average. Okay. So, you're somewhere in this range of like 25 to 50 direct reports per manager. If you're in that range, then first off, the managers, they're not reviewing and approving everything. You're hiring smart people. These smart people, they worked hard to get to your company, you know? They don't need to be told what to do and babysat. They're going to be all on teams. And they will every 90 days they're going to get feedback from their peers. Whoever they worked with the most, they're going to get feedback and it's a simple feedback system. They got a one, that means great job. Love working with you, you know, great impact. Two is wow, this person's really off the charts. Like they are clearly performing above what anybody would ever normally expect. And a zero is like, hey, needs improvement. Not good enough. Needs to be better. Okay. And then you get... they're answering two questions. One question is what was this person's major impact in the last 90 days and what could they have done to be even better? Two questions. Every 90 days, everyone in the organization is getting those questions answered from all their peers. And it turns out people actually care a lot more what their peers think than they think what their boss thinks.

Yeah. Here's a learning. And I've heard this from a number of people who've been down this path and I've come to believe it through my experience and the experiments that I've run. What you don't do is you don't take that rating that I just described. You get at the end of the year and let's say you've got 40 numbers, right? Because you've done it every 90 days and you've worked with let's say 10 people each 90 days. So let's say you got this one person's got a 1.2 and somebody else has got a 1.3 and somebody else has got a 0.9. That doesn't become their multiplier for their bonus because if you do that, you sort of weaponize the peer feedback system. Then people they feel like I give you a one if you give me a one, right? Of course. Or I can't just rate the person as I believe I should rate them because I'm thinking, 'Oh, I think they really need the money or something.' You know, it's just you don't want to do that. And by the way, people are... It's really funny. I often do this in large groups. I'll ask people. I say, 'Who do you think has a better, more objective view of your impact, your boss or your peers?' You know, and I ask like, 'Okay, who says boss? Who says peers?' It'll be like 98 out of 100 people will say peers. Then I say, 'Who do you think should do your performance evaluation? Your boss or your peers?' Boss. Peers. Okay. This is... we're working with humans. Humans are not logic machines. No. And so we're implementing this now at Bayer worldwide. We're at 90,000 right now. When I started, we had a little over 100,000. We're at 90,000. By the way, most of the positions we've eliminated, the vast majority were management positions. What we're saying, we're implementing this peer assessment, peer feedback. Okay? And we're telling people, hey, everybody breathe deeply, right? We have great people. This is... we want to learn from our peers because our peers know us better than our managers do. And if one of the major goals of the people of Bayer is to grow and to get better as a result of being a part of this team, then we owe it to each other to give each other this feedback. We're going to put a hard break between the peer feedback and the comp. And it doesn't mean that it's irrelevant. So if I'm a manager of 50 people at the end of the year, I have what my eyeballs have witnessed over the year. I have the feedback from you know and I have the qualitative and the quantitative. I have all that. I can see what teams have delivered. I have a variety of sources of information and based on that I got to make some decisions about...

I actually don't even really care. I...

Yeah. You know, we first off, it's funny. We haven't tackled this in earnest. It's funny. It hasn't been a big topic. It doesn't mean that nobody cares about titles, but I think we sort of say, hey, if you need a certain title to get your job done, then, you know, let's talk to your manager about it and talk.

No, because you know, titles are one of those things where you can go around in circles. And at the end of the day, if your goal is to advance science and to do great things for customers, spending a lot of time talking about titles is not doing either of those things.

Yeah, it's not. So, in other words, I'm not trying to get rid of titles. It's just not. It's kind of like the org chart. We've done this with the org chart, too. In our model, we still have an org chart. We just put it, I always say we put it at the back of the room. It's just like it's not that important. And I know you could say, 'Oh, yeah, but it determines pay and pay is important, but the org chart is not that important.' You know, but I tried that, too. And I remember I didn't have an org chart and there was a whiteboard near my desk and I drew on the whiteboard instead of having an org chart I drew this is what I think our influence chart is and a bunch of boxes and arrows and whatever and I asked it like can you look at our email instance and see who's got the most influence and they took a crack at it and anyway the most powerful person at HubSpot at the time this is probably 30 people was a guy named Brad Coffee who ironically came, he was our first intern and just knew everything. And so I wasn't the most influential person. It was this, you know, young guy who was really capable. And I tried that for a while and I sort of got talked out of that, too. And one of my regrets, Bill, over time is I had some ideas that were like counterintuitive to how you build an org and a little bit like your ideas, and I got talked out of them over time, and I regret some of that.

Yeah. Here's the tricky thing and I think it just takes practice and it takes experimentation. Because you now you notice I said org charts become less important. And what you just described was something where you're trying to replace an org chart with some other kind of chart. But I'm not doing that either. You see it's sort of like a lot of these things. There can be various methods or like titles versus no titles, you know, like saying there's going to be no titles is the CEO being in control. Banishing titles. Saying, you know what, titles just don't matter that very much. If you want some big title, knock yourself out. But frankly, that's just not where the organization is going to put its energy. That's actually not control. That's kind of like saying, we're going to trust people. And now again, be really careful here. I'm not saying that what we're doing at Bayer is the old hire great people and turn them loose. That's a failed plan. That works. If most people who say that, they only say it because they're not really doing it. Or if they ever try to really do it, like literally turn everyone loose, it lasts about a day. It's chaos. And nobody likes chaos. People will take, you know, dictatorship over chaos anyway. So we took out a lot of stuff, but we put back a lot of stuff, too. I mean, we didn't put it back. We put in stuff. So, for example, 90 days, we have these 90-day rituals. You know, every 90 days, the team comes together. First thing they do is they do a retro. Look at, hey, how did things go the last 90 days? Did we achieve the three outcomes we said we were going to achieve? And if we didn't, why not? What went wrong? You know, so again, not spending days staring at our belly buttons, but like spending, you know, an hour. Hey, what went wrong? Now, what are the most important things for the next 90 days? By the way, are we still comfortable with our long-term vision on our team? Like we're still trying to launch product X with certain features by certain time. If that's that team's kind of longer term vision, still feeling right. Yep. Okay. Then okay. Now, what are we going to do the next 90 days? This is all and we have outcomes, not outputs, not like we're going to sell more. That's an output. You know, outcome would be we're going to improve the performance of this part of the product by so much. Or we're gonna, you know, whatever. It's something the customer says they need. We're going to deliver that. And so these are these rituals and the fact that everybody's on 90-day cycles. This is a new or a different way of operating, but it's not one that lacks discipline. Every, by the way, everyone's on the same 90-day cycle. The idea is so that if this team dissolves, there's somewhere for the people to go because there's other teams forming. You see? So, it's one of these things that a lot of times people get trapped in the idea of control versus sort of decentralization kind of anything goes. We're trying to put in a place, think of it more like a really stiff backbone. But the arms and the legs can go wild.

I don't know if you're going to like this answer, but I think on the one hand we went really fast. And on the other hand I don't think Bayer was facing a lot of pretty big challenges and in addition to some sort of technical challenges we faced we had this organizational problem whereby the people of Bayer were passionate about the company's mission, about the quality of the science, about great people. But everyone agreed, hey man, we can't get anything done around here. This place is so bureaucratic. Now, as I said earlier, I don't know if Bayer was the most bureaucratic company I've seen. Maybe not. But the fact that some of the technical challenges we faced made that bureaucracy really unacceptable, you know, like people will put up with a lot of bureaucracy if sales are growing 10%. And we were facing patent expiries and things. So people were like, hey, we're bureaucratic and we're hosed, man. We got to like this isn't going to work. So, I don't think we could have gone slower because if we had gone slower, we're facing existential threats. So, I kind of think it's a little bit like baby bear's porridge. I think we've probably gone about the right speed.

Well, first off, let me say there've been very few turnaround stories of this kind. Most of the organizations that are running a system similar to what I've described, they built it from the ground up or they implemented it early on. So, actually my kind of specialty is doing this in places that are already established. And I became CEO of Genentech. I basically landed in the role in the second half of 2016 and I found that things had gotten remarkably bureaucratic for a company that was known for innovation. The innovative spirit was still there. The culture was okay but the mechanics were broken by the levels and by the governance processes and all this stuff. And at that time I had no idea. I had zero idea what to do about it. I mean I guarantee you I had no idea. In fact I was almost despairing because at that point I'd been around the organization for 10 years and I knew that during those 10 years there had been non-stop efforts to stop bureaucracy. And so that's where I mentioned this sort of insight that like hey it's not bureaucracy is not an external thing that comes in and infects this sort of healthy body. The body is designed wrong, built bureaucratic from the ground up. It's been built that way. So I spent a couple years there and then I became the CEO of Roche Pharma which is the parent company of Genentech and so I had like six years to practice, half seven years to practice this stuff before I got to Bayer. And now but that's part of the answer. So it's not like we just started making this stuff up when I got to Bayer that could never have happened. It would have been overwhelming. There were lots of inspirations and it wasn't just me. I mean there was a bunch of people I was working with and I could barely take credit for anything that's in this system. Almost all the insights came from somebody else. There was a book I read called Reinventing Organizations by a guy named Laloux. Have you seen it, Brian?

Yeah. And it talks about teal. And maybe you've heard that term. That's a really interesting read that got me started. I learned about this organization Buurtzorg in the Netherlands. That's probably the most radical because they have 16,000 employees and two managers.