Senior editor Jeff Seglin did a magnificent job of putting together the excerpt from The Great Game of Business , by Jack Stack, president of the Springfield Remanufacturing Corp. (SRC), which begins on document number 06920521. But try as he might, he couldn't figure out how to work in one of my favorite passages from the book, a short parable that offers profound insights into the art of managing in the 1990s. The story (which appears below) is about the power of ownership, not just of a company but of a job, a responsibility, a piece of the process. Read it. Think about it. Use it to instruct your children in the economic difference between working for a paycheck and working for oneself -- a difference that, if truly understood by the average person, would spark a veritable revolution in the workplace.
Flushed with Pride
From The Great Game of Business, by Jack Stack, edited by Bo Burlingham (Doubleday/Currency, 1992)
By the end of our second year as an independent company, we had a budget system in place, but we were having problems with the minute costs of the business that were not directly related to making the product -- everything from toilet paper to paint to protective eyeglasses to heating and lighting. We hadn't been monitoring these so-called burden costs, and the spending was getting out of hand. So we said, "OK, we'll divide up the burden items and give one account to each of the supervisors and other management people." It would be that person's responsibility to determine how big the budget item should be, not just for his or her particular area but for the whole company, and then to make sure we hit the target.
The idea was to give ownership of the burden numbers to specific individuals. Before, nobody owned any of these numbers. The burden expenses were being dumped into catchall categories. Having those catchalls turned out to be a big mistake. If you have a catchall in a budget, people will dump anything and everything into it. The result was that people spent whatever they felt like on burden items, and the expenses went wild.
So we wrote the names of the burden items on slips of paper and put all the slips into a pot. Then we got everybody together and did a drawing. Each person drew an account with a dollar figure attached. A guy named Don Wood got toilet paper. After we'd finished the drawing, we told people to go out and do some investigating, then come back to the next meeting prepared to say whether or not they accepted the dollar figures we had put down. If not, they had to say why not and tell us what the actual figure should be. As it turned out, some people stuck with the number we gave them, some lowered it, and some raised it. We didn't really care, so long as they bought into the final figure, because from then on it would be each person's responsibility to follow that account and bring it home.
Don Wood took his assignment to heart. As he tracked the toilet-paper account, he began to notice certain surprising but unmistakable trends. You would think, after all, that toilet-paper consumption would remain more or less constant from week to week or month to month, but that wasn't the case. Instead, there was a distinct pattern of variations. Wood began looking for factors that might cause a rise or a dip in toilet-paper use. Sure enough, he discovered that the more time people spent working "on prime" (that is, actually producing engines and engine components), the less toilet paper they used. Conversely, toilet-paper use increased whenever we hit a slow period in the business. At a staff meeting Wood presented his findings in the form of a graph on which he had plotted toilet-paper consumption in 1983 and 1984, along with the number of prime hours worked during each month of the period. He thereby demonstrated beyond dispute that the busier we were, the less frequently we went to the bathroom.
Aside from providing ongoing entertainment, the program worked. Don Wood came in under budget, and so did most of the other burden-item trackers. Their spirit was contagious. That was the year we went after overhead in the bonus program. At the beginning of the year we had an overhead charge-out rate of $39 per hour, meaning that we spent $39 on overhead for every hour we worked on prime. The bonus goal was to reduce the charge-out rate to $32.50 per hour. In fact, we got it down to $26.32 per hour. Our profits soared, since every penny we took out of overhead went straight to the bottom line, and the value of our stock jumped from $4.05 to $8.45 per share. Somehow I don't think it was pure coincidence that all this happened the same year Don Wood came up with his toilet-paper index.