Critical Numbers

If you aren't satisfied with the results you've been getting from your employee-training programs, maybe it's because you've been doing the wrong kind of training

It's amazing, when you think about it, how little our ideas about employee training have changed in the past 40 years. The entire business world has been turned upside down, but most of us continue to look at training as a specialized activity. We think people won't learn unless you take them off the job, sit them down, and put them through a step-by-step instruction program, complete with "coaches," workbooks, videos, whatever. Then we complain that training is too expensive and doesn't deliver the promised results.

Most learning doesn't happen that way--in business or anywhere else. I can tell you all there is to know about bass fishing. You can read every fishing magazine, study every fishing book, and watch Jimmy Houston haul them in every Saturday morning on ESPN. But it won't mean much until you go out on a lake and start throwing a lure. When you feel that first bite or have that first backlash, then you'll begin to learn about fishing.

I'm not saying that formal instruction is worthless, just that it's overrated. According to a recent authoritative study conducted by the Center for Workforce Development, up to 70% of what employees know about their jobs they learn informally from the people they work with. Formal training programs account for 30% or less.

Those findings aren't as surprising as they may seem at first glance. Think about your own company. When you bring in new people, you probably give them some kind of orientation. You explain their benefits and tell them what's expected on the job. But who gives them their real orientation? How do they find out what's really expected? They learn, all right, but not in any formal training session.

The point is that job-related learning goes on whether or not we're aware of it. People learn through a whole series of events that most companies don't even recognize, so they never figure out how to leverage the process. They don't see how much training you can do outside a formal training program.

I'll give you an example. We have a young manager who's responsible for a business doing about $20 million in annual sales. Last year his business sprang a leak. He'd brought in several new product lines, and sales were growing, but as his volume went up his gross margin began to slide. I asked the manager what was happening. He said he thought his expenses might be running a little high on the new lines.

"Which lines and which expenses?" I asked. He didn't know. In his weekly financial reports, comparable expenses from different product lines were mixed together, so he couldn't pinpoint the exact cause of the problem. He seemed to be hoping it would just go away.

So what do you do in such a situation? There are two typical responses. One is to do nothing, except maybe give a lecture on watching costs. Then, if the problem turns into a crisis, you hold the manager accountable. The other response is to focus single-mindedly on getting the problem resolved. So you send in your fix-it person to find out what's really going on. Either that, or you do it yourself.

But there's a third option, a learning option, and that's the one we chose. I told the manager to go back and find out exactly what was causing his margin to shrink. "How do I do that?" he asked.

"There's only one way," I said. "You have to break the numbers down."

It didn't take long for him to figure out that most of the losses were coming from one product line, which accounted for about $1.2 million of his sales. That was a mystery, because the line is a simple one. All it involves is repackaging engine components. We buy them from the manufacturer, put them in boxes with some washers and gaskets, seal them up, and ship them out. How could we lose money in the deal?

The manager did an analysis and was stunned by what he found. It turned out he was losing all the money in the packaging. When he added up what he was spending on labor, cellophane, boxes, and so on, he discovered that the packaging was costing $16 per unit--and we had it down for just $4 per unit. In other words, we were losing $12 on every box we shipped.

It was a big mistake. The loss on the line had come to $40,000 for the previous year. At our usual margins, we would have earned about $85,000 on it. So our failure to price the product correctly had resulted in a profit swing of $125,000 in that year alone.

Unfortunately, the damage was already done, but at least we got something for our money--namely, a manager's education. In the course of diagnosing his margin problem, that manager learned more about running a business than we could have taught him in hours of classroom instruction.

I'm not referring only to the lessons he learned about the pitfalls of combining costs or the need to break down problems. More important was the opportunity we had to plant some seeds, to begin developing in this manager qualities that must eventually become part of his daily existence--a passion for numbers, a hunger to find out where he's making or losing money, constant curiosity about what's really going on in the business. There is no formal program that can instill those instincts and emotions. People acquire them informally or not at all.

That's one of the great benefits of informal learning. It develops a kind of knowledge you can't teach in formal training programs. Yes, it's important that people have certain basic skills--the ability to read, write, and do arithmetic, for example. Assuming people have those tools, however, you don't need a classroom to teach them about business. They can learn more, and they can learn faster, if you integrate the teaching into the normal, day-to-day functions of the business.

That is, in fact, exactly what we've tried to do with the Great Game of Business, our system of open-book management, which includes a whole series of mechanisms designed to teach people about different aspects of our business. But you don't need a fully developed management system to leverage the informal learning process. What's important is to recognize the teaching opportunities. It's not hard. Once you begin looking for them, you'll find them all over the place.

For example, every company I know has trouble allocating funds for employee activities--sporting events, parties, community projects, and so on. For many CEOs it's a major source of frustration. You try to please everyone, but somebody always comes along with another idea or request after the money's already been divvied up. Then you're the one who has to play Solomon. You can't win.

Our idea was to turn the problem into an informal training program. We set up an employee-activity committee composed of frontline people from various departments. We give them $5,000, and they decide how to spend it. In the process they learn a lot about the difficulties of managing--how hard it is to be fair, how unreasonable some people can be, how important it is to communicate.

Or consider the job-satisfaction surveys that I wrote about last year. (See " Measuring Morale," Critical Numbers, January 1997.) Every six months we ask people to agree or disagree with 14 statements, such as "At work, your opinions count" or "Those of you who want to be a leader in this company have the opportunity to become one." When the scores come in low in one area, we turn them over to a committee that investigates the problems and comes up with solutions. The next survey tells us how successful the committee has been. In 18 months, we saw morale scores improve an average of 20% in one of our plants. And who do you think served on the committee? Our frontline employees, of course.

It's all part of our effort to promote continuous learning throughout the company. We believe everyone at Springfield ReManufacturing needs to be learning continually if we're going to keep growing, providing opportunities, and taking care of people's wants and needs. In this economy, there isn't any alternative.

Jack Stack is the president and CEO of Springfield ReManufacturing Corp., in Springfield, Mo., and is the author of The Great Game of Business (Doubleday/Currency, 1992). Both the book and this column were coauthored by Bo Burlingham.