The Great Game of Business
The Great Game of Business

The Great Game of Business

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. (Location 384)

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. (Location 400)

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. (Location 406)

People are told what to do in an eight-hour workday, but no one ever shows them how they fit into a bigger picture. (Location 407)

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. (Location 431)

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. (Location 440)

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. (Location 443)

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. (Location 448)

Competition and peer pressure, and the thrill of the chase send the numbers flying around. (Location 450)

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. (Location 455)

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. (Location 473)

Looking at this situation, we realized there were two things we couldn’t do. Number one, we couldn’t run out of cash, because then our creditors would close us down. (Location 487)

Number two, we couldn’t destroy from within, which would be a danger if morale got bad. If either happened, we’d lose the company, and 119 jobs. Everybody had to know the company’s financial pulse at every point. We had to tell people where the cash was and then make sure they were involved in deciding what to do with it. That’s how the Game began. (Location 488)

The Game lets you see for yourself how safe your job really is and shows you what you can do to make it safer. It doesn’t provide guarantees, but there aren’t guarantees anymore. To tell the truth, there never were. (Location 492)

They limit themselves. We continually challenge people to tell us where they want to go, and what they want to do with their lives. When you do that, you open a lot of doors. You get rid of a lot of the frustrations people have. You also take their excuses away, which is essential. (Location 517)

The Game is an attempt to create an environment wherein everybody can take pleasure in their work, even the people who put washers on bolts. (Location 524)

distinction. Getting people to think and act like owners goes far beyond giving them equity. (Location 535)

employees: they insist on being told what to do, they won’t take initiative or responsibility, they make excuses and blame other people for their own failures, they constantly pass the buck to someone else. (Location 537)

That’s the antithesis of ownership. Owners, real owners, don’t have to be told what to do—they can figure it out for themselves. They have all the knowledge, understanding, and information they need to make a decision, and they have the motivation and the will to act fast. Ownership is not a set of legal rights. It’s a state of mind. You can’t give people that state of mind in one fell swoop. You can only nurture it through a process of education. (Location 539)

The whole idea behind the Game is to create an environment in which people are learning all the time. (Location 545)

They view people as a contingent liability. They’re missing the fact that productivity depends on people. I don’t disagree that machines can make you more competitive. They can absorb overhead. They don’t take breaks. They don’t go on vacation. They don’t sit around wasting time. What machines can’t do is figure out how to make money. Only people can do that. If you have people who know how to make money, you’ll win every time. (Location 553)

People want things. They want big bonuses. They want expensive fringe benefits. My position is, “Fine, you can have it, but can you fund it?” A lot of times they can’t fund it, and they don’t want to take the time to learn how. They want it first—they’ll worry about paying for it later. That type of thinking destroys companies. “Pay me now, I’ll perform later.” It brings down company after company. You find that thinking in everybody from the CEO to the guy on the shop floor. You need to take the opposite approach: earn it first. In reality, nobody really minds paying for it once it has been earned. (Location 588)

If you give the benefit or the reward before it’s earned, you’re constantly in a catch-up game. If things go bad, you may be forced to balance off the benefit in some way, and the balancing is usually done with human hide. (Location 596)

Cover your ass. If your job was to get parts, you never told your suppliers how many parts you really needed, or when you really needed them, because they’d screw you every time, or so the experienced schedulers told me. (Location 623)

The same thing happened when I began dealing with people on the shop floor. There we had a situation where nobody believed the schedules they were given because, once again, everybody was covering their asses. (Location 632)

We established credibility, and you only build credibility by telling the truth. You simply can’t operate unless people believe you and believe one another. That taught me an important lesson: lying and dishonesty are bad business. (Location 644)

To tell the truth, it’s seldom easy to make that transition from a line job into management. That’s another myth: managers have it better than workers. There’s a reason you get paid more when you become a manager. You’re taking on more responsibility, and you’re giving up some of your freedom. (Location 666)

It’s very common for managers, especially new managers, to think they’re supposed to have solutions for any problems that arise on their watch. That kind of thinking can get you into deep trouble. (Location 673)

I know supervisors who can’t hold a meeting because they’re afraid someone might ask a question they can’t answer. (Location 677)

In fact, I learned a tremendous amount from those experiences. Aside from sharing problems, they taught me about the importance of managing with the downside in mind, of having contingencies and trapdoors. (Location 695)

The secret is to make contingency planning a habit of mind. It was a habit I developed as I moved up the ladder and found the problems kept getting harder. (Location 699)

else. You stay night and day on that one thing. You figure out how to motivate, push, sneak, threaten, do whatever is necessary because people’s livelihoods are at stake. Take the hill. You gotta take the hill. (Location 708)

peers. So I knew they were winners, and we needed people who could be winners right off the bat, because we were operating in a real losing situation. (Location 725)

The corollary was that you should only give people the information required to do their specific jobs; everything else should be treated as some kind of corporate secret. Somehow it had become common wisdom that this was a good way to run a business—in fact, the only right way to run a business. That is the biggest myth of all. (Location 728)

My God, if I can get people pumped up, wanting to come to work every day, what an edge that is! That’s what nobody else is doing. Suppose I could run the right numbers, so that a guy wakes up in the morning and says, “Man, I feel terrible, but I really want to go in there and see what happened.” That’s the whole secret to increasing productivity. (Location 769)

Management is all about instilling that desire to win. It’s about instilling self-esteem and pride, that special glow you get when you know you’re a winner. Nobody has to tell you. You just feel it. You know it. (Location 782)

In a healthy company, you can see and feel the enthusiasm. People nod and smile and look you in the eye. There are often banners around, or balloons. Something is always being celebrated—a birthday, an anniversary, a new record, whatever. (Location 789)

For people to feel like winners, they must have pride in themselves and what they do. (Location 826)

They were never taught to care as kids. So how are you going to get them to care about their work or their company? (Location 829)

We used very simple techniques—an open house, for example. I had put one on at Melrose Park, and it was a huge success. (Location 833)

time. That was naïve. In fact, individual evaluations inspire fear in a lot of people. (Location 934)

But, in any situation, there are usually one or two issues that affect a whole series of problems facing the company, the plant, or the organization. If you can identify those issues, you can use them as levers to affect several things at once. (Location 954)

Working all the time doesn’t help the business, not over the long term. I’ve seen workaholics who’ve destroyed people. They become obsessed. They send out terrible messages. (Location 990)

If you make them come in to the office or the plant, you’re creating a situation where they hate work. I don’t want people to hate work. (Location 992)

Most of the problems we have in business today are a direct result of our failure to show people how they fit into the Big Picture. (Location 1016)

KEY POINT: The Big Picture is all about motivation. It’s giving people the reason for doing the job, the purpose of working. If you’re going to play a game, you have to understand what it means to win. When you show people the Big Picture, you define winning. (Location 1024)

1. Create a series of small wins.       2. Give people a sense of the Big Picture.       3. Teach the numbers. (Location 1027)

There are only two ways to make money in business. One is to be the least-cost producer; the other is to have something nobody else has. (Location 1253)

By the same token, you don’t have to worry too much about losing business to competitors who charge less. If your costs are lower, a price war is going to hurt them more than you. (Location 1255)

To do that, you have to come up with an edge that customers can’t get anywhere else. Maybe it’s quality, maybe it’s a particular service, maybe it’s a unique product, maybe it’s a brand name. As long as you’re the only one who has it—and customers want it—you can charge a premium for it. (Location 1258)

In our business, we have to be a low-cost producer, because anybody can remanufacture engines and engine components, and thousands of other companies do. (Location 1264)

Every minute of every day, for example, someone on the shop floor decides whether to rework a used part or replace it with a new one. In principle, we want to recycle as many used parts as possible. The more parts we save and reuse, the lower our costs—provided, that is, people don’t spend too much time doing the salvage work. Suppose we’re paying $26 an hour for labor and overhead, and a guy decides to rework a connecting rod, which would cost us $45 new. If it takes him one hour, the company makes money. If it takes him two hours, we lose money. And it has to be his judgment call, because no two salvage jobs are exactly the same. So people constantly have to decide whether it pays to put in the time and effort required to do a particular operation. (Location 1267)

We almost always base one of our annual goals on pretax profit margins—to ensure people stay focused on making money. (Location 1922)

As a general rule, however, we make a point of taking the second goal off the Balance Sheet—to make sure people also pay attention to generating cash. (Location 1923)

A ratio of two to one is generally considered quite healthy. (Location 1931)

Suddenly everybody wants to know about receivables. We have staff meetings where our accountant talks about which customers pay and how fast they (Location 1934)

Winning. There’s really nothing like winning to make you want to go back and try again and do even better the next time. Set up your bonus (Location 1942)

program so that you put people on a winning track from the outset and then make it possible for them to keep winning right through to the end of the year. (Location 1943)

With the profit goal, for example, the company’s baseline is usually a pretax margin of 5.0 percent, while our top target is 8.6 percent. (Location 1945)

If it’s between 5.0 and 5.5 percent, we get into the first payout level, which pays hourly people bonuses equal to 1.3 percent of their regular pay. (Location 1947)

Coming up with the specific targets and payout levels is largely a matter of arithmetic. (See “Bonus Math,” this page.) (Location 1951)

Everybody must understand that the basic health of the company is paramount. Nobody should earn a bonus for doing the minimum required to protect jobs. (Location 1956)

(Remember, 40 percent of profits go to taxes, so that leaves us with about a 3 percent after-tax margin, which we need for working capital—replacing worn-out machines, handling swings in inventory, and so on.) (Location 1957)

Stop-Gooter gives a machinist on the shop floor a shot at getting an extra 13 percent on top of his or her base compensation—that’s $2,600 for someone making $20,000 a year, or the equivalent of almost seven weeks’ pay. (Location 1968)

it gives back to people, in the form of bonuses, about half of the additional profits generated over and above the base of 5 percent pretax (assuming we hit the highest payout levels on both goals). (Location 1970)

Suppose you decide to give people the chance to earn 25 percent of the annual bonus in each quarter of the year, and they come up short in the first two quarters. (Location 1990)

Suppose, on the other hand, they simply had to achieve the goals at any point in order to earn the bonus for the entire year—and they got everything done by the middle of the third quarter. Chances are that the company would be headed for big trouble before the year was through. (Location 1992)

goes on and by rolling any unearned bonus from one quarter into the pot for the next quarter. (Location 1994)

Let’s say our Balance-Sheet goal is liquidity, as measured by the current ratio, and we have $10 million in current assets and $5 million in current liabilities. So our current ratio is 2.00 to one, or 2:1. (Location 2081)

year. We are saying, “WANTED: A $29 PER HOUR CHARGEOUT RATE.” Or “WANTED: A 20% INCREASE IN THE CURRENT RATIO.” (Location 2400)

You don’t have to ask them to do this or that for the company. You can get them focusing beyond the company, on something that is more important to them than the company—namely, their own lives. They’re (Location 2434)