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IT'S MY COMPANY, TOO!HOW ENTANGLED COMPANIES MOVE BEYOND EMPLOYEE ENGAGEMENT FOR REMARKABLE RESULTS
By KENNETH R. THOMPSON RAMON L. BENEDETTO THOMAS J. WALTER MOLLY MEYER
Greenleaf Book Group PressCopyright © 2013 Thomas J. Walter
All right reserved.
Chapter OneHAVING LEADERS WHO DO EXTRAORDINARY THINGS: Springfield Remanufacturing Corporation
When he worked for international Harvester plant in Melrose Park, Illinois, during the 1970s, John P. "Jack" stack earned a reputation as a kind of "fixer" when it came to dealing with problems on the manufacturing floor. He had a knack for finding creative solutions to longstanding headaches. That kind of reputation cut two ways, though; in 1979 Stack found himself reassigned to Springfield, Missouri, to turn around Springfield ReNew Center (SRC), the division that remanufactured heavy-duty diesel engines for the parent company. Morale was terrible at the plant and so was productivity. Some of it had to do with the uncertain future of the organization—international Harvester itself was suffering mightily at the time—and some had to do with how the workforce was treated. Employees worried about what was going to happen to them next.
Stack spent his first few weeks at SRC wandering the floors and observing the practices and procedures and processes that were in place. The workers, too, were busy observing their new manager. One plant veteran even went so far as to ask stack in the middle of a staff meeting, "well, how old are you anyway?" the answer: stack was a mere thirty years old at the time.
During a recent discussion with us more than thirty years later, stack said that he knew the workers back then distrusted management mainly because the plant's leadership team kept a tight lid on information. They ran the ship as a hierarchy wherein people were told things on a need-to-know-basis only. That mind-set, in turn, led to doubt and suspicion among the folks on the shop floor. Stack knew firsthand how such a caste system negatively affected the firm all the way to the top; it created an environment consumed by an "Us" versus "Them" struggle.
As someone who began his career in the mail room back in Melrose Park, Stack understood this dilemma all too well. When he eventually accepted a promotion off the shop floor into a leadership position, he was no longer invited out to play pool or to participate in beer and pizza parties with his old friends. He had become one of "them," and his friends began calling him a "suit." "I have never forgotten what they thought about leadership," stack said, and he didn't want any part of it.
After taking over at SRC, Stack did take risks in trying to break down barriers with his associates on the line. He bucked corporate orders to cut costs by ordering extra fans for the shop floor and fighting for dental coverage. Making incremental moves like that had an impact. Not only did performance at the plant begin to turn around, but employees began to trust stack a bit more each day.
That trust was soon put to the test, though, when Stack received some devastating news from corporate HQ: The Springfield plant was to be closed. The recession of the early 1980s, combined with the arrival of global competition, struck international Harvester hard. The company was hemorrhaging money everywhere. The only recourse, upper management felt, was to scale back. But with the U.S. economy as a whole struggling, jobs were scarce. Stack knew that closing the plant would strike a terrible blow not just on his SRC associates but also on the town of Springfield itself. No one could afford to see the plant close.
That realization led stack on an ambitious journey. (The story is told in great detail in his second book, A Stake in the Outcome.) He cobbled together about $100,000 from twelve other managers in the Springfield plant to use as a down payment to buy the factory from International Harvester. At the same time, he somehow convinced a banker to lend the new owners enough money to cover the sale price, which left the new business with a breathtaking 89-to-1 debt-to-equity ratio. "That meant that if we missed one payment, the bank would take everything back," said Stack, who also pointed out that SRC is now a 100 percent employee-owned company.
Stack also came to another realization as he fought to save SRC: He couldn't do it alone. While he had years of experience and training in building engine components and transmissions, no one had ever taken the time to teach him how to build and run a business. Given the sky-high stakes and the razor thin margin of error, Stack knew that if SRC was to become a success, he needed to find a way to engage each and every one of his associates in helping him run the business. Rather than rely on the command-and-control hierarchy of old, where the leaders at the top made decisions, he needed a new kind of system that could turn every single worker into a leader. The answer he came upon, as it turned out, was something that's now called the Great Game of Business.
* * *
In this chapter, we'll describe how stack and his associates at SRC came to implement something new in the world of business: a leadership system that empowers everyone in a company to make good decisions because it's in their best interest to do so. "Look, I believe that people, as a whole, hate to be 'managed' and told what to do," said stack. "The goal should be to have a system in place where people can manage and lead themselves. Rather than boosting up or tearing down individuals, the system should be about getting to the root causes of problems and enabling anyone—not just charismatic and visionary leaders—to come up with the solutions. And if you doubt that this system works, consider that in its first days, a share of SRC stock was worth 10 cents. Today, three decades later, that same share is worth $237 [split adjusted]. That's a 237,000 percent growth rate if you're counting. The question isn't 'Does SRC's leadership system work?' It is, 'Why isn't everyone playing the Great Game of Business?'"
There Has to Be a Better Way
The inspiration behind the leadership system stack and his associates created lies within the words "there is a better way and we can do it." Stack knew that most organizations wasted the talents of their workers. But if they could find a way to unlock and unleash that talent, they could create an organization with a supercharged workforce committed to meeting the organizational goals. What if they could change the paradigm from giving workers only enough information to "do their job" to creating a transparent culture in which everyone would be taught to understand how their individual efforts could literally impact the company's bottom line? "If I can connect the employee to the broader picture and create the training and reinforcement structures to encourage that connection," Stack said, "I might get a greater commitment from each employee to do the job well."
Stack recognized that if he and his associates were going to be successful, he needed to knock down all of the barriers that had become so prevalent in modern business. In order to build a leadership system, stack knew that everyone had to trust the information they were being given. "If you ask associates at most companies how much money their company makes on every dollar of sales, they usually think it's around 60 cents. But the truth is it's usually more like 10 cents—if anything at all. Most employees think owners are lining their basements with gold bricks."
By adopting the practice of what Inc. Magazine has dubbed "open-book management," where every shred of information (save salaries) is shared with everyone in the organization, SRC learned to eliminate its Us versus Them culture. It also removed any misconceptions employees had about the financial solidity of SRC, which then enabled them to think of ways they might help their company improve. In other words, the associates at SRC became more deeply entangled in the quality and performance of their duties because they could now see how their efforts paid off. As Mike Lofton, a production supervisor at Heavy Duty, one of SRC's divisions, explained: "This is why my staff enjoys work and stays on the job. They know what they do leads to financial success for the company and for themselves." Rodney Swope put it even more succinctly: "Sharing financial information allows staff to plan their lives."
The Great Game of Business
But simply sharing information isn't enough to turn employees into leaders. To get there the employees have to understand how companies work by mastering the language of business, which is told through the information found on balance sheets and income and cash flow statements. But stack also knew that most people are scared of numbers, especially if it sounds anything like accounting. Ugh. The answer stack came up with, interestingly enough, was that most people actually love playing games like monopoly, where they are almost tricked into handling money and making business decisions. People as a rule also like to win. If he could get people thinking that business was just another game—one they could actually win—it would bring about a major change in how they thought about their job. And, just as with any game, stack knew players needed three things:
1. They needed to know the rules.
2. They needed to know how to keep score.
3. They needed to have a stake in the outcome.
These three elements are, in fact, the foundation of the Great Game of Business, which, in turn, is the foundation for SRC and its leadership system.
Part One: Teach the Rules
In order to put his leadership system in place, Stack first focused on teaching his associates the rules to the game. Every new hire at SRC attends a training program where he or she first is taught business basics through a case study of a fictitious company that makes yo-yos. The participant learns the basic elements of the financial statements and the principles of costing as they relate to a manufacturing business. Then the training continues with a case study of a more realistic application to SRC. The goal is to show the workforce how the financials fit together at the organization level, which is how you keep score.
The next step is to reveal how each individual unit, down to each individual, contributes to the organization's financial statements. Each line item—for example, an expense item—is then allocated to an individual or a small team, usually in an area they have control over. They then create a realistic budget for that line item for the year. They are responsible for meeting the targets they have created. This sets up an understanding of how an organization operates at a macro level through the financial statements and also how you can drill down to specific line items (the micro level) that an individual can impact on a daily basis.
We talked recently with a chief financial officer of a mid-size organization who went through SRC's training program. He really did not want to go because he thought it would be a waste of time. But after the two-day training ended, he spent two hours on the phone with his wife on the way back home explaining what an important benefit this program would be for his organization.
Part Two: Keep Score
On a weekly or biweekly basis, each of SRC's divisions has a huddle, which is essentially a meeting where the latest performance results are shared with everyone in attendance. (There is also a biweekly huddle where the parent company, SRC Holdings, reviews the performance of each of the separate units.) During the huddles, everyone can see all the expenses and all the revenue and what they mean to the employees if they reach particular critical numbers. By sharing the latest results, each and every associate then knows exactly what the latest "score" for the business is—either relative to their departmental or divisional goals or even to the organization's overall goals, which are called its "critical number." The critical number is chosen at the beginning of each fiscal year as a way for the organization to zero in on and go after its biggest weakness, which could be profit before tax, for example, or debt.
But what makes SRC's huddles really interesting is that they involve matching up actual performance against the projections made by the associates. Rather than obsess about historical information, which would be like driving a car using only the rearview mirror, SRC puts a strong emphasis on looking ahead. Associates are taught how to forecast what the future holds and then, when variances against those forecasts occur, to be able to explain what happened and why. What's truly powerful about this system is that the projected numbers aren't pushed down from upper management; the associates themselves set the targets. "You really have to know your business to be able to forecast," said stack, "so you tend to study a lot more to get it as accurate as possible."
For the first half of the one-hour huddles, particular line items are called out and actual amounts are compared to budgeted amounts determined by the forecasts. The second half of the meeting involves the whole unit sharing ideas to help those who might be below projected or to suggest what might be done to support meeting the critical numbers of the organization.
The huddles are critical in creating SRC's leadership culture. Not only are individuals involved in managing their own numbers, they are likewise directly involved in helping others reach their numbers. They are working together because they are treated as equal partners in the process. At SRC there are defined trigger points as to what happens if, for example, sales drop to a particular level. Everyone knows that, and they work like crazy to come up with ideas on how to reduce costs or how to obtain more revenue in order to avoid those trigger points. Such engaged teamwork can only happen if workers fully trust that what senior leadership provides in the data is "the real stuff."
As Stack pointed out: "We are making leaders of everyone in the organization and that is important. Each one is now working for the organization—not just on their job but for reaching the quantified targets too. They are thinking of how to do better each day. We can see that by their comments and the discussion in the huddle."
Part Three: Provide a Stake in the Outcome
The third key component of playing the Great Game of Business is to share the rewards that come from winning or, in this case, when the organization reaches its targets. In this approach, there is little to be gained by making a unit or an individual target easy to reach. In the past, as with Management by Objectives, such a practice created an adversarial relationship between management, who wanted higher goals, and employees, who wanted lower targets they could attain more easily and thus gain the bonus tied to those targets. SRC's approach precludes that from happening. By creating a bonus program that is linked directly to the organization's critical number, everyone is given the incentive to work together to earn it. What's so effective about this approach is that when the critical number is chosen well—again, usually around an organization's biggest weakness—everyone on the team is rewarded for actually making the company stronger when they achieve their goals.
For the first quarter, the workforce can receive up to 10 percent of the total bonus if the company is on target to date. Obviously, knowing they can earn some of the bonus immediately (not having to wait a full year) incentivizes the workforce to reach those first-quarter targets. In the second quarter, up to 20 percent of the bonus can be received for reaching the company critical numbers to date. What is also so beautiful about this approach is that if their numbers were low in the first quarter, the workers can make it up in the second quarter if they meet the critical numbers for that period. In the third and fourth quarters, they can receive up to 30 and 40 percent, respectively, of their bonus.
Excerpted from IT'S MY COMPANY, TOO! by KENNETH R. THOMPSON RAMON L. BENEDETTO THOMAS J. WALTER MOLLY MEYER Copyright © 2013 by Thomas J. Walter. Excerpted by permission of Greenleaf Book Group Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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