Read an Excerpt

Chapter 1

WHY WE TEACH PEOPLE HOW TO MAKE MONEY

It's amazing what you can come up with when you have no money, zero outside resources, and 119 people all depending on you for their jobs, their homes, even their prospects of dinner for the foreseeable future.

That's pretty much the situation my twelve fellow managers and I faced in February 1983, our first month in business as an independent company. We were supervisors and managers at a little factory in Springfield, Missouri, that up until then had been owned by International Harvester. At the time Harvester was in big trouble, sinking faster than the Titanic, cutting loose operations like ours in a desperate attempt to stay afloat. When the company offered to sell us the factory, we jumped at the chance to save our jobs. It was like jumping into a leaky life raft in the middle of a hurricane. Our new company was loaded down with so much debt that the smallest wave could capsize us.

We were scared. We couldn't rely on traditional ways of managing because they wouldn't produce the kind of results we needed in time to save us. So we grabbed for something new, based on what we thought of as the higher laws of business.

THE FIRST HIGHER LAW IS:

You Get What You Give.

THE SECOND HIGHER LAW IS:

It's Easy to Stop One Guy, But It's Pretty Hard to Stop 100.

I don't know where I learned these laws. You don't hear about them in school. You pick them up on the street. But I know they are real laws of business, and they are the reason why we survived and have been successful ever since. It was out of these laws that we created the Great Game of Business. These two higher laws sum up our success; they emphasize how thoroughly dependent we are on one another--and how strong we are because of it.

I am often asked to say exactly what the Great Game of Business is. I have to admit I find this hard to do. It is not a system. It is not a methodology. It is not a philosophy, or an attitude, or a set of techniques. It is all those things and more. It is a whole different way of running a company and of thinking about how a company should be run. What lies at the heart of the Game is a very simple proposition:

The best, most efficient, most profitable way to operate a business is to give everybody in the company a voice in saying how the company is run and a stake in the financial outcome, good or bad.

Guided by this proposition, we turn business into a game that everybody in the company can play. It's fun, but it's more: it's a way of tapping into the universal desire to win, of making that desire a powerful competitive force. Winning the Great Game of Business has the greatest reward: constant improvement of your life and your livelihood. You only get that reward, however, by playing together as a team, and by building a dynamic company.

Playing and winning the Game worked for us in a big way. From 1983 to 1986, our sales grew more than 30 percent per year, while we went from a loss of $60,488 in our first year to pretax earnings of $2.7 million (7 percent of sales) in our fourth year. We never laid off a single person, not even when we lost a contract representing 40 percent of our business for a whole year. By 1991, we had annual sales of more than $70 million, and our workforce had increased to about 650 people from the original 119. But the most impressive number was the value of our stock, worth 10 cents a share at the time of the buyout and by 1991 worth $18.30, an increase of 18,200 percent in nine years. As a result, hourly workers who had been with the Springfield Remanufacturing Corp. (SRC) from the beginning had holdings in the Employee Stock Ownership Plan (ESOP) worth as much as $35,000 per person. That was almost the price of a home in Springfield in 1991.

We didn't do this by riding some hot technology or glamorous industry. Remanufacturing is a tough, loud, dirty business. Our people work with plugs in their ears and leave the factory every day covered in grease. What SRC remanufactures are engines and engine components. We take worn-out engines from cars, bulldozers, eighteen-wheelers, and we rebuild them--saving the parts that are in good shape, fixing those that are damaged, and replacing the ones beyond repair. But in some ways engines are incidental to what we do. Our real business is education. We teach people about business. We give them the knowledge that allows them to go out and play the Game.



The basic rules of the game

People who run companies know that there are really only two critical factors in business. One is to make money and the other is to generate cash. As long as you do those two things, your company is going to be okay, even if you make mistakes along the way, as you inevitably will. I'm not saying safety is not a major issue, or quality is not a major issue, or delivery and customer service are not major issues. They are all major issues, but they are part of the process. They are not end results or even conditions of survival. In business, you can have great customer service and fail. You can have a terrific safety record and fail. You can have the best quality in your industry and fail.

THE ONLY WAY TO BE SECURE IS TO MAKE MONEY AND GENERATE CASH. EVERYTHING ELSE IS A MEANS TO THAT END.

Those simple rules apply to every business. And yet, at most companies, people are never told that the survival of the company depends on doing those two things. People are told what to do in an eight-hour workday, but no one ever shows them how they fit into a bigger picture. No one explains how one person's actions affects another's, how each department depends on the others, what impact they all have on the company as a whole. Most important, no one tells people how to make money and generate cash. Nine times out of ten, employees don't even know the difference between the two.

At SRC, we teach everybody those rules, and then we build on that simple knowledge and take people all the way to the complexity of ownership. We constantly strive to paint the Big Picture for the people out on the factory floor. We try to take ignorance out of the workplace and force people to get involved, not with threats and intimidation but with education. In the process, we are trying to close one of the biggest gaps in American business--the gap between workers and managers. We're developing a system that allows everyone to get together and work toward the same goals. To do that, you have to knock down the barriers that separate people, that keep people from coming together as a team.

THE BIGGEST BARRIER IS IGNORANCE,

which creates frustration. I really think the two are one and the same. In most companies, there are three levels of ignorance:

1. The ignorance of top management assumes that people down the ladder are incapable of understanding its problems and responsibilities.

2. The ignorance of the people on the shop floor usually means they have no idea why managers do what they do and chalk up every mistake in the company to a combination of greed and stupidity.

3. The ignorance of the middle managers means they are constantly torn between the demands of top management and those of the workforce. They really have the most difficult role in the company because they have to please two masters. If they side with their people, they're against top management. If they side with top management, they're in conflict with the workforce. Consequently, they can never please themselves.

What lies at the root of all this is a basic ignorance about business. Most people who work in companies don't understand business at all. They have all kinds of misconceptions. They think profit is a dirty word. They think the owners just slip it into their bank accounts at night. They have no idea that more than 40 percent of business profits goes to taxes. They've never heard of retained earnings. They can't conceive how a company might be earning a profit and yet have no cash to pay its bills, or how it might be generating cash and yet be operating at a loss.

That's the ignorance you have to eliminate if you want to get people working together as a team. But eliminating it is tough because most people find business incredibly boring. They don't want to hear about profits and cash flow. They really can't get too excited about making money for somebody else. Sure, they want a job they can count on, but beyond that they'd rather not get involved. Everything they've ever heard about business makes it seem complicated, confusing, hard to understand, abstract, maybe even a little seamy.

That's where the Game comes in. We tell people that they have the wrong idea about business, that it really is a game--no more complicated than baseball or golf or bowling. The main difference is that the stakes are higher. How you play softball may determine whether or not you get a trophy, but how you play the business game is going to have a big impact on whether or not you can support your family, put food on your table, fulfill your dreams. On the other hand, you don't need to be an entrepreneurial genius like Sam Walton to succeed in business. What you do need is a willingness to learn the rules, master the fundamentals, and play together as a team.

Everything we do at SRC is geared toward getting people involved in playing the Great Game of Business. We teach people the rules. We show them how to keep score and follow the action, and then we flood them with the information they need to do both. We also give them a big stake in the outcome--in the form of equity, profits, and opportunities to move ahead as far as they want to go. We do all this, moreover, by using tools of business that have been around for a hundred years or more. The most important of those tools are the financial statements.



The basic tools of the game

When people come to work at SRC, we tell them that 70 percent of the job is disassembly or whatever, and 30 percent of the job is learning. What they learn is how to make money, how to make a profit. We offer them sessions with the accounting staff, tutoring with supervisors and foremen, instructional sheets, and so on. We teach them about after-tax profits, retained earnings, equity, cash flow, everything. We want each of them to be able to read an Income Statement and a Balance Sheet. We say, "You make the decision whether you want to work here, but these are the ground rules we play by."

Then we provide a lot of reinforcement. Once a week, for example, supervisors hold meetings throughout the company to go over the updated financial statements. Each person writes the numbers down. Those numbers show how we're doing in relation to our annual goals, and whether or not there will be quarterly bonuses. The more people understand, the more they want to know. Competition and peer pressure, and the thrill of the chase send the numbers flying around. As people get caught up in the Game, they learn and they keep learning.

Suddenly, business makes sense to everybody. Capitalism makes sense. But to understand it, you have to look at the totality. You can't keep your attention focused on one job, or one department, or one function. That's what happens in most organizations: people develop a very narrow focus. The Game takes down walls. It forces people to realize that they're on the same team, and they win or lose together. And people really do love to win together. It's the best kind of success. It's much more fun than winning alone. You know that you're going to get rewarded, but so is everyone else. When you look at goals, like profit and cash flow, that makes people understand how they all depend on one another. It forces them to look at the business from the other guy's shoes and to have a broader perspective.



Ignorance can kill a company

What amazes me is that more companies don't do this. I worked at a giant International Harvester plant near Chicago for ten years. On Fridays I'd go to a staff meeting where the plant manager said, "We gotta make more money, we gotta be more profitable." But he never taught me how to make more money. We received plenty of orders--deliver a crankcase to such-and-such a line, cut down on accidents over there, get so-and-so's productivity up. I never knew anything about making money, and here I'd supervised hundreds and hundreds of people. Finally, it dawned on me that there was a better way, the way businesses have been run for a long, long time--with the financial statements. If people know how to use them, that's really the simplest way to run a business.

If people don't know, they won't understand, and they won't do the right things, and they'll blame you when the company fails. They'll say, "All this time you've been blowing smoke up our ass, telling us what a great job we've been doing. Now you come back and tell us the company is going to fail. We can't accept that. We really can't. Where did all the money go?"



Why we play the game



Reason #1 for Playing the Game: We Want to Live Up to Our End of the Employment Bargain.

I have always believed that you take on a big obligation when you hire somebody. That person needs to bring home money, put food on the table, take care of children. You can't take that obligation lightly. Of course, the individual has obligations to the company as well. Employment is a two-way street. But as much as possible I want it to be someone's choice whether or not he or she leaves the company. It really bothers me to see people laid off through no fault of their own. To prevent that from happening, we have a contract among ourselves. Everything we do is based on a common understanding that job security is paramount--that we are creating a place for people to work not just this year or five years from now, but for the next fifty years and beyond. We owe it to one another to keep the company alive.