Sound familiar? I hear this question at least once a day. I usually suggest if you want your employees to really buy in to your prices, show them where the money goes. Open your “books.” Teach them how the business works.
My wise suggestion is often rejected:
- “If they knew how bad the numbers were, they would all leave!”
- “Frankly, I don’t know how to read the financial statements myself!”
- “It’s none of their business how much money I make!”
Do it anyway. If your financial situation is bad, your employees know something is wrong. Gossip always sounds worse than the truth. If you are uncomfortable with financial data, you all can learn together. If you don’t want to lay open your paycheck, you can ease into “open book” management by sharing some financial data now, and granting more access later. Make a game of it.
Open Up: Recently, I had the pleasure of meeting some folks who play the game very well. I attended a terrific seminar at the Springfield Remanufacturing Co. (SRC) in Springfield, MO. Jack Stack is CEO of SRC, which rebuilds engines. (They don’t do plumbing, but, no matter. Read on.) Jack previously worked at International Harvester as a mid-level manager. At the time, International Harvester was $6 billion in debt with interest rates at 20 percent and they were laying off 1,000 workers a day. (And you think you’ve got problems.)
Jack decided that there must be a saner way to run a business than the my-way-or-the-highway management philosophy sinking International Harvester. Faced with laying off his division’s remaining 119 employees, Jack and a dozen other managers came up with a plan to buy the division themselves.
Jack didn’t really know much about the financial side of business at the time. As they went from bank to bank seeking a loan (21 total!), he learned how to interpret his financial statements. Their numbers were horrible. By some error, I imagine, the 21st bank loaned the company $89 million on collateral of $100,000 borrowed from friends and relatives. Springfield Remanufacturing Co. was in business!
Because of the company’s fragile financial position, Jack couldn’t afford to be late even by one day paying back his loan or he’d lose the whole thing to the bank. He had no idea how he was going to pull it off. So he turned to the employees and said, “We need to generate enough cash and profits to stay afloat. I don’t know how to do it. Here are the financial statements. This is how we keep track of what’s going on. I need your help.”
Every employee learned the financial side of the business. They made the connection that what they did at each work station impacted some number on the income statement or balance sheet. They took responsibility for the turnaround and pulled it off.
As the employees learned the game of business, they became eager to play bigger, more interesting games. The success of SRC makes a great story. So Jack Stack wrote a book, The Great Game of Business. Today SRC is comprised of 23 diversified companies, one of which produces a terrific seminar explaining open book management. The focus is not on manufacturing ... it is about doing business in an open, cooperative, creative, responsible way.
At the Great Game Seminar I attended, several SRC managers explained the basic components:
1) Know And Teach The Rules: In other words, keep track of the money. To play the game, you need to find out how to get money into the company and decide what to do with it when it gets there.
The balance sheet and the income statement are the principle scorecards. Don’t feel bad if you don’t really understand these reports. Jack claims a huge majority of the business population is financially illiterate. (Frank Blau says more than 90 percent of the people who attend his seminars can’t correctly compute a selling price.) But you can learn, and share your knowledge with your employees as you go. At SRC, 30 percent of every new employee’s time is spent learning the financial aspect of the business. Everybody plays the game.
By creating, analyzing and communicating the financial statements, you can find the numbers that really indicate the condition of the company. By setting targets for these “critical numbers” you lay out the rules of the game.
2) Follow The Action And Keep Score: Hold regular meetings to go over all the numbers. I used to think it was cool to get financial data within 10 days of the next month. SRC employees report mid-month figures. They can nip a problem before the month ends. The financial statements provide the agenda for the meetings. As you go through each item on the income statement and balance sheet, you check in with each department, see what’s happening and decide on a course of action. How are you doing with actual sales vs. predicted sales? Are you over-budget on advertising because you couldn’t resist the salesman with the talking refrigerator magnets?
At SRC, there is a person responsible for every line on the financial statements. The numbers aren’t cold, nasty, unrelated facts. One number may indicate that Suzy in Accounts Receivable is struggling with collections. The group can offer suggestions — improve c.o.d. procedures, quit selling to deadbeats, etc.
3) Provide A Stake In The Outcome: You must be able to win the game and reap the rewards. If the only one who wins is you, the team won’t carry you for long. Poll your employees to find out what they value — money, time off, education, insurance benefits. Create a bonus system and tie the bonus to hitting the critical numbers.
It’s important to have a company-wide critical number goal. But be careful to reward individual performance as well. Often one outstanding employee is pulling the whole company along while the boss boasts about teamwork. People who contribute more should get more. Every position in the company can be tied to an incentive-based compensation plan.
For example, SRC has a Employee Stock Ownership Plan (ESOP). This is a very hip way to tie compensation to the company’s performance. Dish out stock to the owner-employees as a bonus for hitting the marks. Stock bonuses don’t require immediate cash disbursement. But they are only worth something if the company improves in value by creating solid earnings. This is the ultimate buy-in.
4) You Gotta Wanna! Jack calls this one of the higher laws of business. Motivation comes from within. Your techs will be comfortable selling their services at a reasonable price when they believe in the price. If they see how the customer benefits from the unique way that you do business and understand the costs associated with customer service, they can sell it. If they see what’s in it for them, they will want to sell it. They gotta wanna.
Some parting words ...
- It takes time and relentless training to really play the game.
- The process builds trust in the process. And in each other.
- Visit the Great Game web site for more information — www.greatgame.com.
- Buy and read the book The Great Game of Business by Jack Stack.