"It really wasn't a big deal," says Nuetzman. "We just looked at the projects we had and realized we could shuffle resources around. We got the delivery dates on the less profitable projects extended and turned them over to contract labor. Then we put our high-powered internal resources on the most profitable stuff.
"I didn't think too much about it, but Joe Knight keeps bringing it up. I guess it's because the other two Joes were away at the time, and so we did it on our own."
The other two Joes are Joe Cornwell and Joe VanDenBerghe, who cofounded Setpoint in 1992 and subsequently, with Joe Knight, developed its management system. Around the company they're referred to individually as Joe C., Joe V., and Joe K., and they function very much as a team. Other companies have senior managers. Setpoint has "the Joes."
Reinventing the accounting process: "If you don't like something, you set it up as an engineering problem, and then you solve it," says Joe VanDenBerghe.
The three met at Arrow Dynamics Inc., a company based in Clearfield, Utah, that designs and manufactures amusement-park rides. There the Joes were more or less typical entrepreneurial malcontents. Cornwell and VanDenBerghe used to sit around dissecting the projects they'd worked on, trying to figure out why so many went bad. "As engineers we began by complaining and then turned our complaints into engineering," says VanDenBerghe. "That's how engineers think. If you don't like something, you set it up as an engineering problem, and then you solve the problem."
They brought the same type of thinking to Setpoint, where the "engineering problem" they set out to solve was how to manage projects. Cornwell and VanDenBerghe had never seen a project-management system that worked, and one of their primary goals was to invent one. To do so, they realized, they'd have to delve into the accounting process, which plays a major role in the way projects are tracked. Neither of the founders knew accounting, however, so they set up a research project.
That research project turned out to be the crucial first step in the creation of Setpoint's management system and culture. In the course of figuring out how they wanted to do their accounting, the Joes wound up developing the tools they needed to get the entire workforce involved in controlling the numbers.
Cornwell took the lead. Although an engineer by training, he'd become very interested in the numbers of business. ("Joe Cornwell is an engineer who decided business was cooler than engineering," says Knight.) He began by purchasing copies of QuickBooks, the small-business accounting program from Intuit Inc., and a basic textbook on accounting, which he used to familiarize himself with accounting language and concepts. He also started meeting every Wednesday evening with his friend Joe Knight, who was still at Arrow. Knight had a strong financial background, including an M.B.A. from the University of California, Berkeley, but he was also a bit of an iconoclast, and he was open to Cornwell's unconventional ideas.
"I didn't agree with the textbook about the way you should do things," says Cornwell. "For example, they said you should treat labor as a variable cost. Well, you can treat labor as variable if that's the deal -- if you're hiring temps, for example, or contract labor. But it's stupid to treat your regular employees as a variable cost, because the cost doesn't vary in reality. You can't hire and fire people as the work comes in and goes out. Even if you were a hard, cruel bastard, you couldn't do it. Nobody would come to work for you if you did."
Cornwell believed that a company's values were embedded in its accounting system and that a lot of its problems came from that system as well. Together he and Knight began rethinking the entire way that a project-based company handles its numbers internally, challenging accounting conventions at every turn. Out of that process emerged Setpoint's unique approach to managing projects, built around the Joes' particular way of thinking about -- and defining -- gross profit and operating expenses. That approach is the cornerstone of Setpoint's management system. (For a fuller explanation of the accounting involved and the thought process behind it, see "Online Resources," below.)
To be sure, the Joes weren't the first businesspeople to put aside accounting conventions in order to develop their own critical numbers. Many -- perhaps most -- successful entrepreneurs go through a similar process. But Setpoint stands out in another respect, namely, the extent to which its employees use those critical numbers to decide how they can best direct their efforts as they go about their jobs.
The Joes were, in fact, committed to promoting a high degree of employee involvement from the beginning. Inspired by Jack Stack and his colleagues at Springfield Remanufacturing Corp. (SRC), in Springfield, Mo., they'd decided early on that Setpoint would be an open-book company and that they'd put great emphasis on financial training and sharing information. But it wasn't until the fall of 1998 that someone finally hit on the particular mechanism around which Setpoint's entire management system could coalesce. The credit for that goes to a Reid, not a Joe.
At the time Reid Leland was a 29-year-old project engineer; he has since become the operations manager of Setpoint. The idea for the mechanism came to him, he says, as he was returning from an open-book-management conference that fall. There he'd heard about other companies' weekly "huddles." He thought Setpoint should have them as well. But how would you present the numbers to people? You needed something visual. Joe Knight was already doing a weekly update for managers on a spreadsheet. Why not put the same information up where everybody could see it?
