An open-book management guru explains why in successful businesses everybody knows where the company is heading.
To be successful in business, you have to be going somewhere, and everyone in the company has to know where it is
I got a call a few months ago from a friend who owns an architectural-engineering firm. He was upset because his company, which was doing about $3.3 million in sales, wasn't making money. His biggest concern was the $300,000 in debt he was carrying. Somehow, he said, he had to get people focused on generating profit so he could pay down the debt, or he would be forced to make deep cuts in the organization.
"Why wouldn't you want to get them focused on paying down the debt?" I asked.
"I figure the debt is my problem," he said.
My friend isn't unusual. Most managers think it's their job to deal with the big problems. So they shoulder those burdens alone, and the problems almost always get worse.
The reason is simple. To be successful in business, you have to be going somewhere, and everyone involved in getting you there has to know where it is. That's a basic rule, a higher law, but most companies miss it. They miss the fact that you have a much better chance of winning if everyone knows what it takes to win.
Let me give you an example from my son's Little League baseball team, which I coach. Now, you have to understand that the guy I coach with and I are great believers in situation baseball and learning how to win as a team. Of course, all coaches -- like all managers -- talk about the importance of playing together as a team. But when they go out to practice, they usually spend the time drilling the kids on individual skills. We teach situations, not skills. We constantly run through imaginary scenarios. We make sure everyone knows the rules and how to use them to gain an edge. It's a lot more fun than running drills, and it keeps everyone focused on the real goal, which is to win as a team, not just to make nice plays individually.
That particular year, the approach was working better than ever. But in the last game of the season, we ran into a mountain. The mountain was the other team's pitcher, who was half a foot taller and 40 pounds heavier than the biggest kid on our team and who had an unbelievable fastball.
By the third inning, we knew we were in trouble. We hadn't come close to getting a hit, and we were losing, 3 to nothing. The other coach and I were at a total loss. We asked the kids if they had any ideas. One of them piped up, "He's too fast for his own catcher. He can't catch the third strike if you swing at it."
I looked at the other coach. That was it! If the kids just kept swinging, the catcher would drop the third strike. According to the rules, a batter can steal first on a dropped third strike. We quickly put another game plan together and went to work on it, swinging at every third strike, stealing like crazy , scoring runs. In the end, we won the game, 5 to 3 -- without getting a hit.
Why did we win? Because that kid knew that his job wasn't only to hit. It was to figure out how the team could score runs.
The same thing can happen in business -- but not if you keep the big problems to yourself. My friend with the architectural-engineering firm didn't make that mistake. He designed a bonus program geared toward reducing the debt, which was his critical number. The program set aside 20% of profits for bonuses and earmarked most of the rest for debt payments. If the company met its annual goal for debt reduction, the bonuses would increase.
My friend also asked for volunteers to help find expenses that could be cut if the company remained unprofitable. That's his contingency plan, but I doubt he'll need it. The last time I spoke to him, the company was on course to grow 35% this year, with a 10% operating profit -- and to reduce its debt by $200,000.
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Jack Stack (reachable at email@example.com) is president and CEO of Springfield Remanufacturing Corp., in Springfield, Mo., and the author, with Bo Burlingham, of The Great Game of Business. His column, Critical Numbers, appears every other month.
Contributing editor JACK STACK is president and CEO of SRC Holdings Corp., based in Springfield, Missouri. The company's innovative style of open-book management -- financial information is shared among managers and employees -- is summarized in Stack's book The Great Game of Business, coauthored with Inc. editor at large Bo Burlingham.