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Ownership Thinking

McGraw-Hill

Chapter One

I love the name of our company (also the name we have coined for this way of doing business). The name Ownership Thinking describes exactly what we are trying to achieve. That is to say, to create cultures of employees who think and act like owners, with the purpose of creating wealth. I am a big fan of wealth, because wealth creates opportunities. With the information you will glean from this book, you will be able to create new wealth in your organization. Every employee in your organization will participate in creating wealth, and every employee in the organization will benefit from it.

It is important to point out that wealth creation is not a zero-sum game. We are often led to believe that if wealth is created somewhere, it must somehow be taking wealth away from somewhere (and, therefore, someone) else. Nothing could be further from the truth. The creation of wealth allows for investment of that wealth to create more wealth. And when employees are taught to engage in wealth creation, they become better stewards of wealth and are equipped to create wealth in their own right. One of my favorite examples of this is the Springfield ReManufacturing Corporation (SRC); I had a great deal of exposure to this company from 1995 to 2003 or so, and I owe a debt of gratitude for what I learned from that experience. SRC, which rebuilds bigvehicle engines, was established in 1983 when 13 employees purchased it from the failing International Harvester with $100,000 of their own money and (remarkably) $8.9 million in loans. At that time, the company did roughly $17 million in revenue and employed 120 people. By 1988, SRC's debt to equity ratio was down to 1.8 to 1, and the business had a value of $43 million. Since 1983, SRC (an employee-owned and open-book company) has founded and invested in more than 35 separate companies that do everything from consulting to packaging to building high-performance engines. Many of these companies are the brainchilds of SRC's employees, who have gone on to develop them under the SRC umbrella. The company now has sales of over $400 million per year and employs over 1,200 people.

Ownership Thinking is not only about wealth creation, however. It is also about creating extraordinary organizational cultures—cultures where employees learn the business of the business and are active participants; where everyone is challenged and must take responsibility for their company's destiny and their role within it; where workers know what the heck is going on and how they contribute; where everyone is a "part of"; and where people have fun.

How Owners and Employees Think

In order for companies to create wealth and extraordinary organizational cultures, employees and owners must become more aligned in their thinking. When I ask business owners what concerns they have, what they think about from day to day, or what might keep them awake at night, they generally mention the following:

* Profit. The company must have more revenue than it does expenses.

* Cash flow. Business owners understand that it's pretty difficult to run a business without cash. They also understand that a company can be profitable on paper, but run out of cash (more on this later).

* Risk. They have to face the realities of market conditions, the economy, liability, employee issues, and on and on. Business owners often have their personal wealth at stake as well, and their families will be impacted if the company is not successful.

* Competition. They must be able to compete in the marketplace in terms of quality, price, availability, and so on.

* Employees. They are faced with hiring and retaining the right employees, employee interaction, legal issues around employment, and so on.

* Cost controls. They must be able to keep costs in line to ensure that the company is profitable and generates cash. And there are many costs: materials, labor, regulatory, facilities, utilities, transportation, administrative, equipment maintenance, outside services, research and development, and marketing to name just a few. Oh, and don't forget taxes.

So that is what I hear from business owners. However, when I ask employees what concerns they have, what they think about from day to day, the list is quite different. I typically hear the following:

* My paycheck

* Benefits and health care

* Getting my work done

* Job security

* Recognition

* Friday (time off)

* The work environment (Do I like it here?)

* Opportunities for growth and/or more money

I am not being critical here; I'm simply telling you what I hear. Now, ask yourself what the list immediately above (the employee list) is all about. It is, of course, all about "me." The list from business owners, on the other hand, is about the business. It's about the business's financial performance, ability to compete, and overall sustainability. Fundamentally, Ownership Thinking is about moving employees away from only the "me" way of thinking and toward the concerns of the business and its financial performance. I say "only" because, of course, the list of personal concerns that employees have will not disappear by doing this. The paycheck, benefits, recognition, time off, and so on, will always be important to them. The point is, when employees are given the tools, information, and training to become more engaged in the business, the business will become more profitable—guaranteed. With more financial resources available to it, the business is able to take better care of its employees. It can do this with self-funded incentive plans (described later), potentially better benefit opportunities (or not taking them away, as many companies have done), and certainly better growth opportunities within the company because the company is more successful. Ownership Thinking is a win-win way of doing business.

In this book, I will be providing you with the tools and information you will need to pursue an Ownership Thinking culture in your organization. As I mentioned earlier, however, there are several important and profound reasons for practicing Ownership Thinking that go beyond operations and finance. And so, before we get into the tools, I will be addressing some of those reasons.

Entitlement

My mission in life is to eradicate entitlement, and Ownership Thinking is the tool I've created to help accomplish that mission. People with an entitlement mentality believe they are somehow owed something, that they should get things simply because they exist. Judith Bardwick, my friend and the author of nine terrific books, introduces the concept of entitlement in her important book Danger in the Comfort Zone:

Entitlement is an attitude, a way of looking at life. Those who have this attitude believe that they do not have to earn what they get. They get what they want because of who they are, not because of what they do. When this rich nation stopped requiring performance as a condition for keeping a job or getting a raise, it created a widespread attitude of Entitlement. Entitlement destroys motivation. It lowers productivity. In the long run it crushes self-esteem.

Entitlement has become an enormous problem in our culture, and I'm afraid it's getting worse with every generation. Ironically, I believe this has happened in large part because of our fanatical insistence that self-esteem, particularly in children, trumps virtually everything else. In fact, if we do not validate our kids' self-esteem, we may be considered hateful or mean or simply a bad parent. Under the pressure of this politically correct notion, we have been led to believe that it is our responsibility as parents to give self-esteem to our children. How have we done this? Have we done it by instilling discipline and the importance of a strong work ethic? On the contrary, we've lowered the standards in our schools so that everyone gets good grades. We don't keep score in games so that "everyone is a winner" (I recently attended a grade school award ceremony where there was a fifteenth-place ribbon with 15 participants in the event). We continually tell our children that they are performing wonderfully, even if they aren't. We've given them more and more, and required less and less of them.

The underlying theme of what I just described is that failure is not acceptable—even when a person is failing. Given this, we attempt to deal with failure in one of two ways. First, we deny that it is actually failure. We do this by lowering standards or by simply saying that success is not all that important; merely trying is enough (unfortunately, denying reality does not make it go away). Second, we continually rescue our kids. Rather than rescuing them by ensuring that they have the discipline to improve, we rescue them by attempting to fix the symptoms (poor grades, not enough stuff, lack of recognition, etc.). We have lost sight of the fact that sometimes people and organizations need to fail in order to become successful. In the 30 years before his election to the presidency of the United States, Abraham Lincoln suffered a myriad of failures and setbacks. Defeat is part of life, and, in fact, it often inspires—if we are taught to dust ourselves off and move on. Of course we will never learn to do this if we are constantly being rescued. Nor will we grow. It could be argued that Lincoln's failures eventually led him to greatness.

By the way, I suggest you reread the previous paragraph on entitlement, replacing the word parent with employer, and the word children (or kids) with employees. I think the same scenarios often apply in the workplace.

Here's an example of protecting our children from the reality of varying levels of talent or success that really floored me. I was in Seattle with a client some time ago and read a news item about a local elementary school that had banned students' use of Lego toys. The students had been building model houses and other buildings with the Legos, and since some constructions were larger and more impressive than others, the administration contended that the use of Legos might be damaging to the self-esteem of the students who were not particularly creative or ambitious. Further, and even more frightening, the administration maintained that Legos were promoting capitalism (heaven forbid!) and private ownership. They were banned in an effort to protect self-esteem and to "reeducate" students on the importance of collectivism.

All of these actions are taken with the goal of creating self-esteem. But wait a minute. What actually creates self-esteem? Is it having things? Is it being told we are doing well when in fact we are not? Is it bringing everyone down to the same common denominator? Or is it accomplishment? When we look solidly at this issue, self-esteem is only created through accomplishment. It cannot be given. It must be earned. As Ayn Rand states in Capitalism, The Unknown Ideal, "It would never occur to a person of self-esteem and independent judgment that one's 'identity' is a thing to be gained from or determined by others."

The insidious truth is that what is being done to create self-esteem in children is actually destroying it or perhaps preventing it from being developed at all. We are, in fact, creating entitlement mentalities. As Charles Sykes states in 50 Rules Kids Won't Learn in School, "The reality that the self-esteem movement ignores is that children learn to feel good about themselves by actually acquiring skills: this is called self-confidence. Ask yourself if it is better to feel good about your swimming abilities, or to actually know how to swim."

The development of entitlement in children has carried over into adulthood and the world of education, work, and real life. Many people now expect to be taken care of and, in fact, have been taught that they will be. What follows are several "rights" that have been extolled by various politicians and platforms over the past several decades:

* The right to a useful and remunerative job

* The right to earn enough to provide adequate food, clothing, and recreation

* The right of every family to a decent home

* The right to adequate medical care

* The right to adequate protection from the economic fears of old age, sickness, accidents, and unemployment

* The right to a good education

I am not a cold-blooded person; in fact, quite the contrary is true. And I'm not opposed to altruism when it is appropriate. However, I believe that the notion of providing the things noted above to all citizens begs the following questions: At whose expense are these rights to be provided? From whose effort? And at the risk of sounding insensitive—why? In Danger, Judith Bardwick states: "Expressed simply, entitlement is the result of too much generosity. We give people what they expect and we don't hold them accountable for meeting criteria of excellence. In business it commonly happens because managers are unwilling to do the work of requiring work." Perhaps these managers have simply given up in the face of rampant entitlement and political correctness. Bardwick goes on to say: "When people don't have to earn what they get, they soon take for granted what they receive. The real irony is that they're not grateful for what they get. Instead, they want more. Too much security is what entitlement is all about."

In his important (and disturbing) book, Weapons of Mass Instruction, John Taylor Gatto delves into this issue as he analyzes the problems created by compulsory education. "Maturity," he says, "has by now been banished from nearly every aspect of our lives. Easy divorce laws have removed the need to work at relationships; easy credit has removed the need for fiscal self-control; easy entertainment has removed the need for people to learn to entertain themselves; easy answers have removed the need to ask questions. We have become a nation of children, happy to surrender our judgments and our wills to political exhortations and commercial blandishments that would insult actual adults."

At the heart of entitlement is the notion that if I want something I should be able to have it. Obviously everyone cannot have things simply because they want them. Someone must produce those things, and despite what we might hear, production is a private choice, not a public duty. From my experience, the people who actually produce things do so primarily for two reasons: (1) They have a strong work ethic. In other words, they have come to believe that rewards come only with hard work, and (2) They enjoy producing. It is exciting for them, and the reward for producing is not only the things they are able to afford as a result of it, but the personal growth and sense of worth that come from producing: that is, true self-esteem. Who, then, gets things simply because they feel entitled to them? They are typically the nonproducers.

I believe this is the direction we are headed in the United States of America: from each according to his ability, to each according to his need. Or perhaps it is more accurate to say: from each according to his work ethic, to each according to his want. I also know that, aside from the moral implications of this trend, this is a direction that must ultimately fail. There are many reasons for my thinking, but one of the fundamental contributors is simply this: if producers in the United States are punished for producing, why should they continue to produce (in the United States, at any rate)? And if there are no producers, how will the nonproducers get the things they feel they are entitled to? Consider this statement by Francisco d'Anconia from Ayn Rand's Atlas Shrugged:

You wish to see the fruits of my efforts taken by people who drift from failure to failure and expect me to pay their bills, who hold their wishing as an equivalent to my work and their need as a higher claim to reward than my effort, who proclaim that I am born to serfdom by reason of my genius while they are born to rule by the grace of their incompetence, that mine is to produce but theirs is to consume.

In addition to preventing the development of true self-esteem, entitlement in the workplace also lowers productivity. In organizations where entitlement is prevalent, employees are not held accountable for achieving results; therefore results (logically) are not achieved. In fact, results may not even be defined. I find that in these organizations, "busyness" is held in very high regard, and rewards are often tied to activity rather than performance. The following is an unedited e-mail I received from an employee in one of my client organizations, which illustrates my point:

You recently spoke to the outfit I work for. You effectively lowered morale with your don't deserve a raise spiel. What about exploitive employers who withhold raises from employees that deserve it because they earned it? you're doing a lot of harm to people who have worked very hard.

(Continues...)

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Excerpted from Ownership Thinking by BRAD HAMS Copyright © 2012 by Brad Hams. Excerpted by permission of McGraw-Hill. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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