Sales drive the plan. The top line of an income statement is sales, and a balance sheet begins with cash and accounts receivable -- both related to sales. Each sales manager presents a month-by-month plan for the year that will yield SRC's optimal 15% growth in both revenues and net income.
Growth targets, SRC learned from experience, should derive from the particular constraints each company faces. Early on, the wheels fell off when SRC tried to expand by 40% a year. It lost control of inventory and manufacturing processes, impairing quality and delivery timeliness. "You can't bring that much product on without killing everybody," says Samsel.
Bob Bigos is national sales manager for the Heavy Duty division. With some 300 people now bringing $50 million to SRC's top line, Heavy Duty is an anchor. It rebuilds engines for trucks, construction equipment, and farm vehicles.
By the time Bigos presents his plan at the October retreat, he's done his homework. He supports each component with meticulous detail to pass the top managers' muster. They question him closely: What impact will his plan have on inventory levels? Is any discounting required? What are the marketing needs?
In the weeks before the meeting, Bigos concentrates on that 15% growth target. He talks to customers, studies market trends, and meets with people throughout his division -- managers, supervisors, and line workers. He analyzes limits to manpower, space, computers, and even the speed of machine tools. If his plan is beyond the plant's capacity, his workers recommend workable alternatives.
He asks Irene Schaefer, the materials manager, if she can supply parts to achieve his goals. At the engineering shop, he questions the status of research-and-development's new products. Will any be part of the mix? "We take everyone's ideas," Bigos says. "Then we blend them down to what we think is realistic."
As he presents his October plan Bigos knows he's supported by the Heavy Duty workforce that helped him build it. "There's so much finger-pointing in business," Stack notes. "People say, 'It's their fault,' or, 'Those guys in sales are bums.' But if you get people to buy into the plan, they develop a sense of ownership. It becomes their plan."
Bigos presents and defends a contingency plan as well. Like the other sales managers, he devises a fail-safe strategy for 15% growth that will be used if his primary plan falters.
Creating plan B is no small job. Individually or in teams, the employees weigh in with their contributions to the fallback position -- what's feasible, what's not? Engineering, R&D, purchasing, operations, scheduling, distribution -- they all must be on board. If a big contract bombs, the backup plan will be activated quickly.
"We spend a tremendous amount of time on the what-ifs," Stack explains. "So we don't want just a plan, we want a trapdoor."
When Bigos's plan earns the approval of SRC's high command, he presents it in its entirety to everyone in Heavy Duty. Now the division has until mid-December to compile the next year's budget -- parts and prices from suppliers, personnel, wage estimates, machine tools -- all focused on the 15% increase in the next year's pretax net income.
Managers consult employees even about capital expenditures. Last fall Bigos turned to Candy Smalley, team leader for Heavy Duty's fuel-injection-nozzle unit, because $10,000 had been appropriated for tooling in her section. "I wanted torque guns," she says. "But they were too expensive. So we decided to spend the money on an automated stamping machine -- it's like a brander that stamps each nozzle with a diamond symbol that means 'remanufactured.' It reduces the jarring your wrists and elbows get from hand-stamping 600 nozzles a day."
SRC's chief financial officer, Don Ross, synthesizes the divisional plans and budgets to assemble an overall plan for a final review by Stack and his senior people. Once the directors approve the plan at their January meeting, it kicks off on February 1.
Throughout the year, everyone compares performance with the plan. "Jack Stack feels that if you're off more than 5%, up or down, you're out of control," says one division general manager. "Nobody gets mad if you bring in extra profits, but the point is, you should have known you were going to do that."
Deviations from plan are quickly noted, because of the astounding information flow inside SRC. The game plan incorporates eight documents: an income statement, a balance sheet, a cash-flow analysis, a sales and marketing plan, a capital plan, an inventory plan, an organizational chart, and a compensation plan. ("You can undoubtedly get by with fewer," Stack writes in his book. "We did for years.") But the scorecards for the Great Game of Business are the weekly divisional reports.
Every two weeks, division managers meet with SRC's executives to report their numbers. On alternate weeks they caucus with their lieutenants at the division level. Following each meeting the managers and supervisors gather their people to discuss the company's financial status. The employees know what the numbers mean. And they care. Their bonuses and the value of the ESOP are on the line.
A key part of Stack's survival strategy has been to get employees to think and plan like owners. The company spends more on financial education than on job training. In 1993, for example, it devoted 31,300 employee hours to business education, at a cost of nearly $300,000. Job-skill training, meanwhile, consumed 11,200 hours. Employees learn what's at risk and what's to be gained, and everyone knows how to make a difference.
"It's not like you have just one meeting and learn everything on the financial statement," says Kevin Dotson, an ex-marine who works in the Heavy Duty warehouse. "I learn more every time I go to a meeting. But you do understand the lines on the statement that you actually affect. That's how you see how you can be more efficient or how we as a small team within a large team can improve so the next group can take the handoff more smoothly. We all have different jobs, but we're all pulling for the same goals."
* * *
In late 1992, inspired by Stack's book and the SRC model, Harlan Accola set out to build a planning system for his company. American Images had struggled back from its near debacle in 1986 but still had a ragged feel. It had a computer system with powerful software, but nobody really knew how to run it. The lead-generation and telemarketing area, a core of the business, was weak. Accola still wasn't well versed in financials, and the business wasn't making much money.
So, early the next year the Accolas took the critical step of bringing in accountant Dennis Kearns. He'd been controller of a cheese company that, in 12 years, had grown from $3 million to $50 million. After it was sold to Kraft General Foods, in 1990, Kearns stayed on for two years before he started to look for a small company at which he could make a difference.
