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1995 Financial Impact Optimas Award ProfileBRSpringfield Remanufacturing Corp

March 1, 1995
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Related Topics: Behavioral Training, Finance/Taxes, Financial Impact, Featured Article
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Everyone loves a good game, be it football, Trivial Pursuit or Chess. And although each game is distinct from others in the way that it's played, all games have elements in common. For one, they have rules. For some games the rules are complex and require reading lengthy rule books, while for others a quick explanation from another player is sufficient. In either case, it's essential to know the rules before the game can be played right.

Then, games require keeping score. Whether it be simply that the first person to get rid of all his or her cards is declared the winner, as in Crazy Eights, or a complex system of outs and runs that accumulate during a series of innings as in baseball, a scoring system is necessary to determine who wins the game.

Which brings us to the next element that all games contain: the thrill of competition. It's the challenge of being the player or the team with the superior strategy or game plan, the most talent or the best hand that makes the game fun. And face it, it's because games are fun that people play them.

That's why Jack Stack, president and CEO of Springfield Missouri-based Springfield Remanufacturing likes games. In fact, he likes games so much that he makes the running of his business, which remanufactures engines, into one. He even calls the day-to-day operations The Great Game of Business. "I'm not trying to trivialize what business is all about by calling it a game," Stack says. "And it's much more than a metaphor. If you look at all the characteristics of a game and you look at all the characteristics of a business, you see that they're almost the same."

Are they? Well let's see. We said that to play a game, you must first understand its rules. Does running a business have rules? Certainly. According to Stack, all businesses have two basic rules. The first is to make money and the second is to generate cash.

OK. What about keeping score? Businesses do that too, in the form of financial statements. And the thrill of competition, well, all businesses have competitors that they must try to beat with superior market strategies, more talented employees and better hands in the form of products and services.

But is running a business fun? "If you study some of the most successful people in business, the Ray Crocks or the Ted Turners, you'll see that they're having a ball," says Stack. "They're having a ball because they look at business as a form of entertainment. They look at it as a forum of fun and to them it's a game."

So that's what Springfield does. It makes work fun for its approximately 700 employees by recruiting them to play The Great Game. It teaches them the rules in the form of financial training. It helps them keep track of the score by holding weekly meetings in which financial statements are filled out and analyzed. It involves them in improving the score. And, it offers them a stake in the winnings through an ESOP and bonus program.

The Great Game was implemented in 1983 as a tool to save the plant that Stack and 12 other managers who worked there bought from a failing International Harvester. But not only did the game help the company survive, it has been the secret to its success, transforming it from a minor league player with $16 million in sales to a pennant contender projecting $107 million in sales for 1995. Employee owners, knowing they share in that success, have as a team increased the company's stock value 27,000%, from 10 cents a share that first year to approximately $27 dollars a share today. In turn, those who have been in the game for at least 10 years have earned themselves between $40,000 and $50,000 — more than half the average price of a house in Springfield.

How the game is played.
The Great Game of Business, as with many games, is structured around cycles. Just as baseball has nine innings in a game, and then 182 games in a season, The Great Game consists of a set of separate games played in innings within a specific time period. For example, within one "season," which is one year, there would be approximately four games played, each one lasting for a quarter of the year. Each game consists of approximately 12 "innings," one each week during the quarter. At the end of each quarter, if the players have "won" the game, they receive a cash bonus. Each quarter offers opportunity for greater cash awards, with the biggest payoff at the end of the year. Think of it as winning the World Series or the Super Bowl.

There are basically four steps to the game. The first is what Stack calls the Great Huddle. This is basically a weekly staff meeting, held every Wednesday morning at 9:00. Here, approximately 40 to 50 managers, supervisors and other department representatives meet to look at the score. When the meeting begins, each player is given a copy of the income statement from the previous week and a blank income statement that has the company's game plan (determined at the beginning of the season), printed on the side. Then, as each player calls out the latest numbers from his or her department — the sales department, for example, gives an estimate of what sales will be for the next six months — the players jot them down on the statement and discuss them. By the end of the meeting, the numbers are totaled and the players know what numbers they have to beat.

Which brings us to the second play of the game, which is communicating the score to the rest of the players. Each of the representatives takes the income statement and shares the numbers with the rest of his or her department. The rules of the game are that the people who attend the Great Huddle must do this within 24 hours of the Huddle. Stack calls these meetings "Chalk Talks," or coaching sessions. It's here where the group talks about the numbers, analyzes them and sets up a game plan for this inning.

Next comes the action. Armed with the numbers they need to achieve, workers go back to their jobs and work together to make it happen. It may require buying less supplies this month because expenses are high. Or it might mean increasing production because shipments are down. The point is that the workers all know what their goal is and work together to reach it.

The final phase of the inning is pre-Huddle huddles, which take place Tuesday afternoon and Wednesday morning. This is where line managers pass along the results of the week to the representatives who will be attending the next Great Huddle. The representatives re-evaluate their monthly estimates based on the numbers and prepare the numbers for inclusion on that week's score card.

Winning the game reaps rewards.
And so the game goes, week in and week out. What keeps it exciting is the fact that it isn't only numbers that the players are striving to reach — the numbers have dollars attached to them. The most tangible of these dollars are those workers receive through the company's bonus program, appropriately called "Skip The Praise, Give Us The Raise," or STP-GUTR, pronounced "Stop-Gooter". The program is directly linked to the game, paying off for reaching predetermined goals.

"The purpose of The Game is to be able to enhance the economic value of the lives of people who contribute to the company's success."

The goals are set at the beginning of each season based on vulnerabilities in both the income statement and the balance sheet. In other words, if the company is realizing a poor debt-equity ratio, one of the goals for that year will be to improve it. Or if pretax profits are low, a goal will be to raise them. Whatever they are, the final goals and some targets to reach along the way are outlined for all players.

Everyone in the organization works toward the same goals and is paid for results achieved based on a percentage of regular compensation. "The game is to beat the statements, not to beat each other," Stack says. Although everyone participates in the same bonus program, managers and professionals are eligible to earn bonuses totaling up to 18% of their annual pay, while everyone else can earn up to 13% of their pay. "We want people to move ahead, to take more risks and to shoulder additional responsibilities," says Stack. "If they do, it's important that they get rewarded."

Payment from the plan works like this. The company allocates approximately 50% of any profits generated above a 5% pretax profit to a bonus pool. The pool for the first quarter, or first game, is 10% of the total for the year. It increases by 10% for each quarter following. However, it can increase an additional amount each quarter if the full amount isn't earned in the previous quarter. For example, if only half of the targets toward the goal allocated for the first quarter are reached, players will receive bonuses based on that amount, and the unearned 5% will roll over to the next quarter, making that bonus pool worth 25% of the annual bonus pool, rather than just 20%. So even if no targets are met in the first three quarters, workers can still get 100% of their bonuses if they meet the goals at year end, although this is an unlikely scenario. It would be like a football team letting their opponent score three touchdowns in the first quarter, then come back to win the game; it's certainly possible, but most of the fans will already be leaving the stands to get a head start on traffic.

The goals of the bonus program are linked to stock value. If the goals are met, stock value increases. According to Stack, for every dollar in aftertax profits, Springfield's stock value increases by about $10. That gives players a further incentive to meet their targets and eventually their goals. After all, employees, through an ESOP program, own 31% of SRC's stock. That means if the company profits, workers in the ESOP profit as well.

Employees and former employees who have cashed in their ESOP shares and sold back any other stock they bought during special "trading windows" have sold back equity worth more than $6 million since 1983. The ESOP is the single largest shareholder in SRC. Employees are eligible to join after a year of full-time employment. Their shares are fully vested after seven years. And although the ESOP has no voting stock in the company, it has all the legal rights of a shareholder. The program is managed by a committee of five people, three of whom are appointed by SRC's board of directors and two of whom are elected, one by the hourly staff and one by the salaried staff.

Stack believes sharing equity in the company is an important element of the game. "After all," he says, "The purpose of The Game is to be able to enhance the economic value of the lives of people who contribute to its success."

SRC teaches players the rules of the game.
Just giving people equity isn't enough to get them to act like owners, however. Elizabeth Pinchot, co-author of Intrapreneuring and The End of Bureaucracy and the Rise of the Intelligent Organization says: "The success of Springfield is based not just on people having a piece of paper that says they're owners, but on the fact that, in addition, people are given tools and the freedom to act like owners. Unless you actually let employee owners in on the decision-making and get participative management, worker ownership doesn't make much difference in the success of the company. At Springfield, ownership means true participation and the tools to intelligently participate."

One of the tools to which Pinchot refers is an understanding of the financials and of how a business is run. This understanding comes from constant training and repetition of the concepts. Last year, for example, the company spent approximately $300,000 on business literacy training, compared with only $50,000 on skills training. And, employees are required to spend a minimum of 30 minutes per week learning the latest financial figures (during the Chalk Talks.) According to Stack, however, no one spends more than four hours per week in meetings related to the game, and 95% of the people attend only one meeting per week that lasts one hour or less.

Training related to playing the game runs the gamut from conferences and seminars on such concepts as team work and the importance of listening, to one-on-one tutoring. Education begins immediately upon being hired. In fact, at orientation each person is given a book that explains every element of business and contains a glossary of terms. Workers also are required to attend Chalk Talks right away. "The essential element is repetition," Stack says. People learn, he says, by repeating the process over and over again.

In addition, each person must go through a four-hour training program within their first 90 days of employment. The training is based on a workbook designed by the company called The Yo-Yo Company. What the training does is have each person go through the process of building and selling yo-yos for a four-month period. "Numbers are intimidating to people so we had to figure out a way to break down the intimidation level," says Denise Bredfeldt, an SRC employee who created the training workbook. "Everybody can laugh and joke about a yo-yo." Also, a yo-yo only has a few parts — two pieces of wood and a string — which makes the purchasing of materials and so on easy to grasp.

The workbook walks employees through a balance sheet and an income statement, and explains cash flow. It also presents a given set of circumstances that the trainees must work through. "What we try to do with it is get people to start talking about their business in the same way," Bredfeldt says. "That's the premise of it."

Bredfeldt says that because the workbook provides answers, workers can walk themselves through it, and some do. The company hasn't standardized a way for the training to be done. Some units send it home with their new hires to do it on their own within a specified time period. Some managers go through it with the new employees at orientation. Still others wait three months before teaching it to their workers so that they've had a chance to attend some Chalk Talks and learn about their particular department.

The book was put together as a request from human resources. According to Bredfeldt, one unit got into trouble and needed some training right away. "We didn't have time for just repeat, repeat at the weekly meetings," says Bredfeldt. Adds Gary Brown, vice president of human resources at Springfield: "We could teach the most complex machine operations that we have in six months, but it was taking us two to three years to get people to really understand the business aspects. We needed something to shorten the educational process."

Bredfeldt wasn't in human resources, or even in the financial department, at the time that she developed the work book approximately a year and a half ago. She was in research and development. "It started out kind of as a joke, then it turned into a dare and then into an 'OK, I'll show you." But the book has been successful in training the workers. Even more than that, Bredfeldt is now general manager of a spinoff company, called Biz Lit that markets the yo-yo book to other companies (see "SRC Turns Workers into Presidents, ).

The training as a whole is essential for helping workers strategically play the game. "People who really understand how to play the game are the people who accumulate all the wealth," says Stack. "We're compensating people for investing in themselves, so we've got to teach them the whole concepts of being owners and thinking like owners."

HR's role in the game.
Because employee education is such a major part of The Great Game, human resources personnel play a central role in the game. You may say that they're part manager, part coach and even part referee. "We wear many hats," says Brown. "We have the traditional responsibilities of recruiting, screening, hiring, administering benefits and compensation, but we also must play the roles of educator and of the catalyst for communications."

The role of educator starts while screening job candidates as potential players in the game. From the first interview with a job seeker, they tell the candidate that, if hired, 70% of their pay is for doing their job and 30% is for learning the business.

Because of this requirement, HR looks for certain traits when hiring. Most commonly, "We look for team players," Brown says. SRC hires many of its workers just out of high school, or out of junior colleges. One of the things HR looks for in these people is if they played any sports because, says Brown, "In most sporting activities you will find the competition, and you will find a person that has a desire to win."

The company also looks at other past activities that the candidates were involved in, such as junior achievement programs, clubs, yearbook committees. "Did they volunteer time, are they willing to go the extra mile?" says Brown. "If the person has been employed before, we try to find out if they worked on any special task forces or special assignments beyond their regular job."

Despite the company's efforts at trying to find good fits, approximately 70% to 75% of its turnover occurs within employees' first 90 days. That's partly because of the extensive push SRC puts on learning the business during this time. "We spend a lot of time during that first 90 days of employment in making sure that employees are getting the right information," Brown says. "We try to create a mindset that says it isn't really acceptable for you to go to work at SRC and just do your job. You have to get a grasp of the big picture."

The emphasis is on getting each employee to understand what his or her financial impact on the corporation is. "Until they understand that, they're not really seeing the big picture, they're not understanding how business works, and they're not really a partner here," Brown says. "They may be a partner in the sense that they're enrolled in the ESOP, but until they play a role in the day-to-day business decisions, they're not really a partner."

It's HR's responsibility to ensure that each new employee is receiving the information that he or she needs to become a viable player in the game. One of the things HR does is make sure that the weekly meetings, the Chalk Talks, take place and that the information that's getting distributed is being understood. HR people go out on the floor within the 24 hours after a Huddle has taken place and talk to people. They'll talk to 15 to 20 employees in the span of an hour. "We do it on their own turf and in their own work stations so it isn't intimidating," Brown says.

The first question the HR staffer will ask someone is when the last Chalk Talk they attended was held. If the person's supervisor is doing his or her job, it should have been that morning or the afternoon before. The next thing the HR person will do is try to test the quality of the information given in the meeting. For example, they'll ask something along the lines of, "What did you think about the labor performance this month?" If they got the information that they should have, and if they understand the big picture, the employee will answer back something like this: "Well, I saw that we're about $25,000 favorable and that's very good for us because we're building product in less time than we thought." If they give back a blank stare, either the supervisor isn't doing a good job of communicating, or the person doesn't yet get it. This gives HR an opportunity to go back and review what's happening at the meetings and ensure that the people running the meetings are relaying the right information.

By right information, Brown means enough information. SRC prides itself on its open book management. "We use an open book mentality because it enhances the trust factor inside the corporation," Stack says. "By opening our books and teaching the score cards, we basically say, 'Hey look, here's how we're doing. If you think we can do better, please let us know how.'"

Adds Gifford Pinchot, co-author with Elizabeth of Intrapreneuring and The End of Bureaucracy and the Rise of the Intelligent Organization: "To build an organization of the future, empowerment is key. But for empowerment to work, people have to be making good decisions. And the only way that you can ensure that they make good decisions is to feed them a steady diet of truth about what's really going on. So accurate feedback in the form of widespread sharing of information is essential for an organization to use the intelligence of their people. That's the genius of Springfield. The people at Springfield understand that you have to feed out all the truth on a week-by-week basis."

Although SRC does relay its financial figures each week, some people still have trouble grasping the concepts. When this is the case, HR will spend some one-on-one time helping the workers learn what they're struggling with. If the workers need additional help, HR helps them get enrolled in either the company's educational programs or outside courses that will help them. It also will give them information on the company's tuition refund program.

Says Brown: "HR has an easy job because we get a lot of support from management — they're committed to the communication and the training aspects of the business." This shows up in the fact that each HR person is entitled to develop his or her own training and education budget. "We ask HR to tell us how much money they need to carry out their mission," Brown says. "They play a very important role and we don't want them hampered because of cost."

SRC's game is a winning strategy.
Springfield's strategy seems to be on the right track. Its components fit into what Lincolnshire, Illinois-based Hewitt Associates calls performance management, defined by the research firm as, "a cyclical, year-round process in which managers and employees work together on setting expectations, coaching and feedback, reviewing and rewarding." And a 1994 survey by Hewitt of companies that employ performance management found that these firms:

  • Posted higher profits, better cash flows, stronger stock market performance and higher stock value
  • Produced significant gains in both financial performance and in productivity improvement
  • Showed higher sales growth per employee and lower real growth in numbers of employees.
Says Edward L. Gubman, head of the human resource consulting practice at Hewitt: "The study proves that good human resources management produces a payoff in terms of bottom-line financial performance."

"The tools of the intelligent organization allow us to change the average employee from jockeying from a safe haven to taking an entrepreneurial attitude."

That's certainly been the case at Springfield. Not only has the company reaped great financial results from the game, its management practices have helped it avoid any layoffs in the 12 years it has been in existence. Even in 1986, when General Motors canceled an order representing 40% of SRC's business for the coming year, and the numbers indicated that 100 people needed to be cut from the payroll, SRC averted a layoff by giving its workers the information and letting them pull together to grow their company.

Says Gifford: "The only way to be smart enough to deal with the complexity of the modern world is to use everyone in the organization's intelligence. The tools of the intelligent organization allow us to change the average employee from jockeying for political position and a safe haven to taking an entrepreneurial attitude toward creating the future of the organization. That's the glory of Springfield. Instead of trying not to be the one whose head was chopped, instead the employees were trying to save the organization."

Adds Stack: "We're driving self-esteem, we're driving pride, we're driving the agony of defeat and the thrill of victory." And you thought that business wasn't a game.

Personnel Journal, March 1995, Vol. 74, No. 3, pp. 50-58.

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