"The Great Game of Business" gets every employee to think like an owner.
Sunday, December 11, 2005
St. Louis Post-Dispatch Business E5
"The Great Game of Business" gets every employee to think like an owner.
Manufacturing companies shouldn't be complacent. The "perfect storm" of 2001 to 2003‚because of the recession and extreme price competition from China‚ has let up. Financial performance has improved over the last two years, thanks to the 2003 tax cut and opportunities for price increases.
It may be, however, that manufacturers are in the calm before the storm. The leading consumer confidence indexes are 28 percent below what they were from January through June. Interest rates are climbing, as central banks around the world tighten credit to prevent inflation. Fueled by a $331 billion federal deficit, a $695 billion trade deficit, $55 a barrel oil and out-of-control health care costs, the storm is regaining strength.
Companies that react too slowly won't survive. Those that use the threat to make major changes, however, can become stronger than if the storm had never occurred. "Top-down" approaches epitomized by executives such as Jack Welch and Chuck Knight‚ discussed in previous columns‚Äîare one answer. But bottom-up approaches, which get every employee to think like an owner, might be even better.
Jack Stack is my favorite example of using worker involvement to weather a perfect storm. In the early 1980s, Stack managed a Springfield, Mo., International Harvester plant that remanufactured diesel engines and components. Harvester, which was going bankrupt, sold Springfield Remanufacturing, now SRC Holdings Corp., to Stack and 12 other employees for $7 million in early 1983.
The first year was brutal. The buyout financing included $6.9 million in debt and only $100,000 in equity, a debt-to-equity ratio of 69 to 1! Then, on the second day after the buyout, they lost a customer that accounted for nearly half of the company's revenue. Within a year, debt had climbed to $8.9 million.
How did SRC weather this storm? Stack admits that he initially didn't know how to "manage" a company in such a situation, but he did know the principles of athletic competition and fair play. Starting with the premise that everyone wants to be a winner, he created a system he came to call the great game of business, with rules, score keeping and rewards.
First, Stack made sure each employee understood the drivers of business success - the rules of the game. Through a series of weekly meetings and now-monthly "huddles," people began to think and act like owners. They came to understand standard costs, cost variances and ways to control them.
For example, in 1985 SRC realized its overhead costs‚ things such as heating and cooling and administration‚ were out of control. Every front-line supervisor and manager was enlisted to analyze and control a cost.
One drew toilet paper. His analysis produced a toilet-paper index - consumption went up during slow periods and down when people were busier - that helped bring toilet-paper costs under control.
In one year, overhead costs per operating hour were cut to $26.32 from $39. Every penny saved went to the bottom line, and profit per share increased to $4.05 from $0.61.
Second, Stack practiced open-book management, sharing financial information with all employees, a practice he called following the action and keeping score. During that early survival period, about 50 managers met weekly to present their critical numbers, forecast key financial results for the month, then share this information with colleagues.
Later, the focus shifted from survival to changes needed to stay on track for achieving the profit goal and bonus. Employee reports of successes were met with applause, excuses with catcalls.
Finally, and perhaps most importantly, Stack made sure that all employees had a significant stake in the outcome. Initially, their jobs were on the line, and they knew it. But Stack also wanted them to have a significant positive interest in SRC's profitability. At the end of the first year, SRC established an employee stock ownership plan, an ESOP, giving stock to employees with seniority. SRC also established a bonus plan that got everyone's attention: Each employee would get a bonus equal to a month's base pay if pretax profit reached $2.2 million.
This great game of business produced impressive results. SRC's stock price increased to $15.60 in 1987 from a dime in 1983. It should reach $140 this year.
Your company, like SRC, can be stronger than if the perfect storm had never threatened. The SRC journey is detailed in two books Stack wrote with Bo Burlingham: The Great Game of Business and A Stake in the Outcome. An SRC subsidiary helps other companies implement the Great Game of Business. Its 2006 National Gathering of Games will be held March 15-17 in St. Louis.
You can learn more about the National Gathering and get free downloads of presentations from past conferences at www.greatgame.com. You might also want to check the National Center for Employee Ownership's Web site, www.nceo.org, which has many archived articles that detail how to get employees involved in your company.
Bill Finnie, a business consultant and adjunct professor at Washington University, writes about the do's and don'ts for success.
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