Ralph Stayer of Johnsonville Foods, on the eight-year process of revamping his management style

It started with a six-page letter chief executive Ralph C. Stayer wrote to the employees of Johnsonville Sausage in 1982.

Things were going to change at the Sheboygan Falls, Wis., manufacturer, Stayer, now 47, told them. He was committed to helping his employees learn how to work smarter so they'd become the best paid in the industry. To get their attention, Stayer enclosed a $200 check in each letter, the first of many bonuses he hoped they'd be able to earn as they took the thousands of little steps necessary to fix what was wrong with the business.

On its own, the letter marked a modest change. But that new compensation system was just the first step in an eight-year journey that would transform the company into a national management model celebrated in magazines and on television, making Stayer a celebrity of sorts.

Stayer had worked on the slaughtering line at Johnsonville during summers in high school and college. He had studied business and finance at Notre Dame, the first in his family to earn a degree, and had joined the company, founded by his parents in 1945, upon graduation. It was small, with $1 million in sales from a few retail stores, but Stayer had plans -- "to make money and build the business," he recalls. With his parents' blessing and help, he broke off the manufacturing and wholesale sides of the company in 1968, leaving the retail end under his parents' control. Over the years he pushed sales up until they reached $15 million by 1982.

But the CEO wasn't happy. Quality and productivity were slipping. So Stayer started asking questions about himself and the company, and about who should do what. Inspired by Lee Thayer, a communications professor in the humanities department at the University of Wisconsin, Stayer decided to turn Johnsonville into a new kind of organization, one step at a time, by pushing decisions and responsibilities down the hierarchy, destroying the conventional management structure along the way, and inventing its replacement on the fly.

Today the company, now called Johnsonville Foods Inc., is one of those rare places where empowerment and teamwork go beyond mere rhetoric. There are no general raises; all employees are paid for performance, with a regular pool of profits divided among them. Sales have gone from 1982's $15 million to an estimated $130 million today, and the company's share of the Milwaukee-area market has gone from 7% to 40%. Productivity has increased between 200% and 300%. Stayer has moved gradually out of direct day-to-day responsibility at the company over the past four years. He has started a pasta business with more than $10 million in sales and has launched a consulting career, teaching others the lessons he learned at Johnsonville -- a process he calls Managing the Journey of Change.

This fall INC. writers Leslie Brokaw and Curtis Hartman talked with Stayer about the past eight years, a time of continual change for him and his company.

INC.: Let's start back in 1982. Your company was doing $15 million a year, up 150% since '77, with profits holding strong. That sounds like most CEOs' picture of paradise.
STAYER: That's one way to look at it. Or you could look at it and say, My God, this business isn't healthy. Forget what the numbers look like. People don't care.

INC.: Do you remember any specific moment when that realization hit you?
STAYER: It was a bunch of little things, like walking around seeing equipment being dropped and seeing people talking in the aisles, not committed at all. Then I ran an employee-attitude survey, and we came out absolutely average. Here we were this rapidly growing company; I thought everyone should be excited. But the only one who was excited was me.

I wanted them to care, but at the same time I didn't understand why they should. What the heck, I owned the business. Why would anybody care as much as I do? I was a good boss, friendly, I knew all the names, but we were there to make sausage and to make money for me.

INC.: But the company was growing and making money. What did you think you'd get out of people caring more?
STAYER: I could see such a gap between what we could be and what we were. The quality wasn't anywhere near as good as I wanted it to be. Second, I wasn't having any fun. I was a baby-sitter for all my executives. I had to get them together to solve their problems.

Do you know what causes frustration? It isn't problems. You get those all the time. What causes frustration is knowing that 20 years from now, nothing will have changed. Crap is just going to keep coming down, and you'll be there shuffling through it. It was terrible. We were doing all kinds of stuff, and I couldn't see any improvement at all. If anything, our productivity was going down.

INC.: What sort of "stuff" were you doing?
STAYER: Oh, modern management techniques, more organization and supervision. Long before quality circles were popular, I started meeting with groups of people and asking them their problems -- so I could solve them. I hired a quality control person with a lab and put in a quality program with lots of controls -- and quality got worse, not better. I hired a human resources person with responsibility for training, monitoring, and systems, and I put in more supervision, but things still didn't get better.

The quality control person says, "We need more QC people, so we can check more." The manufacturing person says, "We need more supervision; set a pace line." They couldn't sell me on it. We'd added more supervision, and we still couldn't get the job done. There had to be something different. I was ready for it.

INC.: We've talked to hundreds of CEOs, and the number of those who would hire a humanities professor to be their business mentor is very small indeed.
STAYER: Right, because the CEO is supposed to be the guy with all the answers. But Lee [Thayer] made sense. He talked about communication -- that real communication is who owns the problem. His whole point was that it's not my job to make them listen, it's my job to set it up so they want to listen. Get the problem in the right spot, and communication gets real simple. Now I've come to believe that there isn't such a thing as a communication problem; it's a responsibility-is-in-the-wrong-spot problem.

INC.: For example?
STAYER: Shipments. Lost orders. Salespeople taking orders and then not letting the factory know. The salesperson doesn't feel responsible for getting the shipment out, so he doesn't bother to think who else needs to know about it to make sure it happens. We could build systems for 100,000 years and we would never have enough to make people be responsible.

INC.: And Lee Thayer helped you make your employees be more responsible?
STAYER: No, he didn't. He said, "It depends on you. What are you willing to do? Are you willing to say that you have to change? Are you willing to understand that you're the problem?" We talked about what I was doing and what I wasn't doing. I had no idea that what I did was to create what I had. But I had made the decisions. By gosh, if you made a decision, that was fine, as long as you made it the way I would have made it.

INC.: So it was a Socratic dialogue?
STAYER: Absolutely. I'd ask questions, and Thayer would turn them back. I'd always ask about this problem or that problem, and he'd ask me, Whose problem is that? Whose problem should that be? Ideally, what would you want to have happen in this situation? Ideally, where do you want the business to be three years from now? You have to start with the best of all worlds, given realistic constraints. What would you like to create? If you don't know where you're going, you don't know when you get there, and all roads are fine. Specifically,who do we want to be responsible for what? How do we want people to feel about things? How do we want them to be working together?

Thayer always had me form pictures, asking me what a great performance would look like. He said, "Do you want to be playing the trumpet or directing the orchestra?" I usually played the drums very loud!

INC.: It's one thing to decide you want everyone playing together like the Philharmonic. It's much harder to get employees to take that on.
STAYER: You get people to take it on because it solves their problems and frustrations. The real key to leadership is being able to combine the best interests of the group with the best interests of the individuals, to make sure they're all working with a common purpose. It's a process of finding opportunities to help people understand that by getting rid of their own frustrations, they're also making the business better.


INC.: That's fine in the abstract, but with what specifics do you start?
STAYER: It's not fixing any specific problem. There are no recipes. We want to fix the real problem, which is having people understand they ought to be responsible for their own workplace. Take boom boxes. People were coming to me and complaining that the music was too loud and they didn't want radios here. Well, how am I going to solve that problem? I can't.

INC.: Of course you can. You can say that boom boxes are banned from Johnsonville.
STAYER: So the few people who complained are happy and the rest, who like the music, are mad? Solomon couldn't solve that one. But I can say, "That's your workplace, you guys decide. You solve this any way you want." They start solving boom-box problems, pretty soon they start looking at other stuff that frustrates them about how the place operates.

INC.: Like what?

STAYER: One of the biggest frustrations was that new people coming in weren't trained properly, so they had to work with people who did a lousy job. They said, "We gotta fix it." And I said, "You're absolutely right, and you guys know what these people need to know when they come in. The HR department doesn't know, so you guys can build a much better program. Train them." Another frustration is that they didn't like some of the people they had to work with, so they took over the hiring and firing -- they know better than I do what they need. So what's left for HR? With people taking over more and more of the responsibility to deal with their own frustrations, what do you need a supervisor for? People are supervising themselves.

INC.: How did you divide the company up into the appropriate teams?

STAYER: I didn't. Why is that my problem? They divided it up.

INC.: That sounds like a prescription for chaos. It's fine to push authority down to the employees, but you can't change a company that dramatically overnight.

STAYER: You change opportunistically; the important thing is having a picture of what you'd like the company to look like down the road. I want the decisions made. I want each person to know exactly what he or she needs to know to do a good job. I would like this place to run with as few layers as possible. I want each person to say, "My job is to make and keep customers, and here's how I do it." That's my vision. So when someone comes to me with a problem, I don't see that problem; I see an opportunity. How can we use that to get from here to there, so the right people own the problem? The people who are responsible should make the decisions. You don't have to be responsible if someone else is making your decisions for you.

INC.: So you draw up committees to talk about frustrations. How do you convince them you are giving them the authority to make decisions that matter?

STAYER: It starts with little things and adds up. Like vending machines -- they didn't like the vending machine company. I said, "I don't even eat at the vending machines, get whatever company you want." There was a lot of fear then; we had to help them interview the different companies and such the first couple of times. But you don't make the decision. Your job is to transfer the ownership of the problem to where it belongs.

INC.: It sounds easy enough with something like vending machines. But what happens with bigger issues like quality?

STAYER: I wouldn't give up the quality stuff until they got good at the vending machines. I don't like chaos; we did a little bit at a time. In the letter I first wrote to employees, I talked about thousands of little steps, acknowledging that we're going to make lots of mistakes along the way, and that anytime we've made a mistake, we're going to fix it.

INC.: When you visualize the ideal company, you say, "I want, I want, I want." Why should employees care what you want as long as they are doing their jobs?

STAYER: The only reason is if it is in their best interest.

INC.: So the first thing you changed was the compensation system. Rather than across-the-board annual raises, you started to pay for performance and added a bonus pool of 28% of the profits. What were you trying to accomplish?

STAYER: In the best of all worlds we wanted people worrying about being productive, wanting to be better performers. Second, we wanted not to have to worry about how many people we had. You want performance, so you say, We're not going to pay people equally. You'd like everyone's compensation to go down when the business doesn't do well, too, but it's hard to take salary away from people. So you make the bonus a portion of people's compensation. The average now is up to about 6% to 7% of compensation, but our target is to get it to 10% to 20%. We make a pool of dollars, generated by profits, that's going to be divided. Everyone understands that if we've got more people and we don't add profits, the bonus isn't going to go up. So adding profits with fewer people is everyone's job now. Do you think we have a problem with automation? Where do you think our productivity gains come from? They come from people understanding that it's in their best interest.

INC.: Starting the change with people's paychecks must have created a lot of concern about just how that money was going to be divided.

STAYER: There was a lot of concern. I said, "Look, guys, you've got to work it out. You're concerned about all these things, fine. We'll sit down and work on how we do this."

INC.: It's your pot to divide?

STAYER: It's your pot to divide. But it's got to add up to a couple of basics. It can't be equal for everybody. It's got to reward performance for individuals and teams because it's better performance that is going to make a difference in the size of the pot.

The key thing is not to design this in a vacuum. Get people together and say, "These are the things we need to reward; figure out how to do it." If I get them to design it, I get them to make it work and to understand the underlying issues. The real role of the CEO is to generate productive conversations about what performance ought to look like.

INC.: How is that different from the traditional role of the CEO?

STAYER: The traditional role is as chief decision maker and strategist, at the top of the hierarchy, away from the day-to-day. Your role is to think. Their role is to do. But the key is not to have a strategic vision; ideas are a dime a dozen. The key is being able to execute. That means a lot of people have to line up in a row wanting to do whatever it takes. You don't have time to baby them or bludgeon them. They just have to do it. So your role is to make sure people see it's in their own best interest to do that.

INC.: Isn't it faster to issue orders than to have a team of people come to a consensus?

STAYER: At one time it probably was, when life was simpler. But today it takes so many people working together to make anything happen. How do you issue orders when you've got 78 different departments who have to come together all at once? If you issue orders, you're telling people, Don't think; just do. But if you've got 1,000 people, you've got 1,000 minds. And if you issue orders from the top, you're using only 3 of them, or 2, or one. That's stupid.

INC.: But what if I want the decisions made fast. Can you do fast?

STAYER: We do very fast, much faster than the average because we don't have to have all the information flow up to the guy on top. Do you know how much time and effort it takes to get all that information up there? Do you know how many decisions are made poorly from that level?

There's a lot of ego in saying, I am the guy who has to make the decision because I know better. I was there. I know.

INC.: Companies all over the country are trying the team concept and hitting the same roadblocks. How do you keep teams on track? How do you reward for new products? How do you decide how much spending authority to give them? How do you resolve disputes within a team?

STAYER: Most companies that try teams are trying to graft new limbs onto a cadaver. The management concept is no longer appropriate. So the team is like a fleck of gold in a cesspool.

The only reason you set up a team is to accomplish something, right? So give the team work -- make sure that every person on that team is really concerned about that work and doing it well. Move the ownership and responsibility toward where it needs to be, at the point of action. If they're concerned, you don't have to do another thing; they'll get it done. But if you don't do that, I don't care how many systems, how much structure, how many newsletters, PCs, electronic systems, whatever else you have, it ain't gonna work.

* * *

INC.: Aren't you abdicating all your responsibility?

STAYER: Not at all. I'm keeping the major responsibility, which is to make people great performers. The conventional wisdom says that I have to control them, I have to follow up on them, I have to have them reporting to me. But my job is to set it up so I can coach them to become great performers.

INC.: What if they don't set the performance standards you want?

STAYER: Groups of people set very high standards for themselves, higher and higher the more chances they get. They want the opportunity to learn and to grow, to see that their jobs can be important and they can contribute. There's a lot of talk about making people feel important. I don't agree with that. I think we have to make people be important -- and know it. People like to sign on to things; they want to make a difference and be part of a winning team. If they're not doing it at work, they're out doing Little League things or something in their church.

INC.: You call your managers coaches. What difference is there between asking management to manage and asking them to coach?

STAYER: None, unless you absolutely change the nature of their jobs. If you want people to coach, then you'd better reward coaching. The bonus had better be developed on how well they build people; the promotions had better be developed on how well they build people. You darn well had better develop people.

INC.: Let's say I sign on to make sausage at your plant. What would my workday be like?
STAYER: The whole concept is that we want each person to be a businessperson, responsible for the financials and everything else. So the people on the shop floor are responsible when the yearly budget gets done. You and your team will put that together, maybe with a financial person sitting in to help, although we've been at it for five years now, so people pretty much do it themselves. Every month you check out the stuff and record it, with measurements for your performance, your department's performance, your team's performance, on a daily or hourly basis, depending on what processes have to be controlled, tracked, and charted.

INC.: All this in addition to my job.

STAYER: That is your job. It's the same in sales. Those people managed their own budgets and expenses, with discretion over what to spend for promotions, demonstrations, advertising, or whatever. We want to make them struggle with the issues and trade-offs, and we believe those are best handled at the point of action. When you have a merchandiser who gets promoted to salesperson, he or she hires a merchandiser as a replacement, and the bonus is tied to the hire because I want them to know what happens if they make a mistake.

INC.: How is the company set up? Is Johnsonville organized by functional departments or product groups?

STAYER: Neither. We start with what does our customer want, not what do we make. We used to define our products by smoked, cooked, fresh -- how we made them. But [company president] Mike Roller said, "No. We're going to define them by how people use them, when they use them, why they use them." We have four sets of customers: retail, food service, processors, and institutional. So we got rid of our functional organization; manufacturing and sales became services to the people who run the business -- the people in charge of the retail group, food service group, etc. That's where the business is done. The rest of us are just support; all our factories and sales staffs are just services that are being provided.

INC.: And you got rid of the QC department along with human resources?

STAYER: We don't have an anything department. Functional organizations become so vested in their own processes that they don't see the rest of the business. You wind up growing specialized idiots; they can only make a decision that takes care of their department, but not one that services the whole business.

That's why we talk team, team, team -- if you have any department that's a department unto itself, you're dead. If you think that quality is important, then you've got to get rid of your quality department -- it's got to become everybody's problem. Finally, we told our QC department that there would be no more quality control, it was going to be technical assistance. Your job is to eliminate your job, to teach it to the people out there. If you do it, we'll give you a better job. If you don't do it, you'll get different jobs.

INC.: You've moved to a different job yourself, away from the day-to-day leadership of Johnsonville, on to your pasta start-up and your consulting business. Was that your goal from the start?

STAYER: I don't think my goal was ever to step away. My goal was to step back and not have to deal with the issues I was dealing with. I'm still emotionally attached; I live and breathe that company. But it became apparent that to be the best help, I had to get out of running the company on a day-to-day basis.

INC.: Why?

STAYER: I was getting comfortable with it, and the minute that happens I know that I'm becoming part of the problem again. Your guts have to be churning every now and then or you're not learning, you're not pushing back the envelope. I loved it, but the well was starting to run dry.

I was facing the succession issue, too. I knew I had to get out of there to give other people the opportunity to see how well they understood the company. The real job as CEO is to make sure the people coming after you are better. I wanted to make sure that if something happened to me, Johnsonville would continue, and I wanted to start that transition when I was 43, not 60, when I'd have only one chance.

I started the pasta company out on the East Coast to get away. But I still needed something more. I got something out of the pasta company, but that was duplicating Johnsonville. So I started my consulting firm to go on learning, teaching a lot of people.

INC.: If Johnsonville stopped growing, would you step back in?

STAYER: No. As a stockholder and owner, I'd ask the people there what they were going to do about it. We've had bad years, times when the raw-material market went through the roof and we couldn't pass the prices on. But the people said, "Let's start talking about what we have to do about it." In fact, we're going through one of those times right now. The numbers are horrible in the industry, profits down 50% to 75%. But our earnings are up substantially. So it works.