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How SRC Uses High-Involvement Planning™ to Take Advantage of Downturns
Most companies don’t try to predict recessions—they merely react and try to survive them. On the other hand, with the help of forecasts from ITR Economics, the employee-owners of SRC Holdings’ family of businesses constantly look ahead to the next potential downturn on the horizon—and talk about how they can take advantage of it when it comes.
By planning for future downturns, SRC has never laid anyone off. Ever. It’s also doubled the business’s value five years after each economic recession it has weathered since 1983—generating significant wealth for its employee-owners.
“We had learned from our past experiences that if you think a recession is coming, you don’t want to be in debt,” says Jack Stack, the president and CEO of SRC Holdings. “You also want to be diversified in the markets you operate in. For example, we know it’s smart to invest in property selling at a discount, especially commercial property, which can earn cash by collecting rent. We also know you can buy companies for pennies on the dollar. It’s the whole theory of buying low and selling high. There’s much to be said about buying something in a downturn.”
With the financial crisis of 2030 looming, SRC is yet again turning to its playbook to plan for an uncertain future and position itself to take advantage of the situation to benefit its employee-owners.
“When the rainy day comes,” says Stack, “we want to have the biggest umbrella in town.”
Embracing High-Involvement Planning
Consider the situation SRC faced in 2009, at the beginning of what has become known as the Great Recession. Based on ITR’s forecasts, SRC knew a recovery period was approaching, but another downturn would follow around 2019 or 2020. The associates at SRC then began to consider how it could best position itself to double in value not just by 2014 but also again in 2024.
To take advantage of the next downturn, the associates at SRC knew they needed to save enough money to make the kinds of investments they had in the past. To create their future plans, the associates at SRC rely on a critical practice of the Great Game of Business known as the High-Involvement Planning, or HIP, process.
HIP transforms the annual time-consuming planning process into a highly informative, educational journey that involves everybody at every company level in understanding the big picture and the importance of looking forward to the future. By including everyone in the planning process, HIP aims to shift everyone’s mindset from “That’s your plan” to “This is our plan.”
The HIP planning rhythm includes meetings in June and October, which bring the marketplace to SRC’s associates. The process begins with associates gathering as much macroeconomic data as possible to help assess what will happen in markets over the next five to ten years.
“The economy plays an important role in everything we do,” says Stack. “That’s where the dynamics change.”
Bringing the marketplace to the people also means understanding what competitors are doing and how their actions—setting prices, wage levels, or the margins they’re earning—drive the market's actions.
“I want our associates to understand that it’s the marketplace that’s setting the standards and what we need to do to survive,” says Stack. “It’s important for people to understand that it’s not the whim of leadership or a flip of the coin that determines the outcome.”
With a forecast, associates can assemble strategic plans, laying out the financial resources and people needed to reach their destination. HIP helps bring the sales and marketing team together with the rest of the company. It removes the blame game and finger-pointing between sales and production by setting up one-year and five-year forecasts that every employee can vote on.
What makes the HIP process so effective—and why it’s called high-involvement in the first place—is that it garners real buy-in from everyone in the organization by asking them to weigh in on how confident they are in the plan—not just the sales plan but also the contingencies, growth plans, and overall direction of the company. It also allows everyone to provide input and hash out any weaknesses they see in it.
That’s how it becomes a plan everyone can believe in. If people don’t participate, they don’t buy in. If they don’t buy in, they don’t commit. If they don’t commit, they don’t deliver. When people buy in and are committed to the plan (even if it is inadequate), they will adjust and strive to make the necessary corrections to achieve the goal. People support what they help create.
“HIP not only connects the dots inside the company,” says Stack. “It teaches the associates what game they are really in. It gives everyone the big picture of where we are and where we want to go.”
Another critical—and sometimes overlooked—part of the HIP process is contingency planning, which answers questions like: What if forecasts are wrong? What happens if 15 percent to 20 percent of the business is lost overnight? What would you do? Using contingency planning tools, you create a discipline to develop plans B, C, and D.
“It’s all about having new ideas, new products, and new markets ready in case of emergency,” says Stack. “You always need to plan for the unexpected. As Mike Tyson once said: ‘Everybody has a plan until they get punched in the mouth.’”
Saving For the Future
The shared vision SRC’s associates reached in 2009 using the HIP process was to save and build a $100 million “war chest” over the following ten years and invest that money during the next downturn. Since the company already had $32 million in the bank, it needed to save about $7 million a year for the next decade. That goal became the long-term vision everyone in the organization could begin aligning with and contributing to achieving.
“We had a plan, and it was time to execute it,” says Stack.
Even if the company’s forecast about when the recession would hit was wrong, there was no downside to planning to build up the health of the company’s balance sheet. Each of SRC’s ten business units built five-year financial plans to support the $100 million vision. Teams also embraced other Great Game of Business practices, such as setting Critical Numbers—annual financial or operational metrics representing a weakness or vulnerability to address—to help achieve their vision. Company-wide scoreboards tracked progress, and many of the company’s Critical Numbers and annual bonus plans were also tied to how much cash could be generated each year.
Teams throughout every division also ran departmental and company-wide MiniGames—short-term rewards-based activities used to affect a change, correct a weakness, or pursue an opportunity—over ninety-day periods to help drive new efficiencies and generate additional savings. One example was how a corporation-wide team created a MiniGame to turn dead inventory into cash. At the same time, Huddles—regular discussions held on a daily or weekly basis in which attendees forecast key performance indicators and areas of improvement—were used to answer questions and generate new ideas to drive the company toward its goals.
The organization maintained its discipline to the rhythm of HIP by revising its five-year forecasts based on market economic data while also developing contingencies in case those forecasts were wrong. It also continued to track its progress toward its ten-year goal. SRC’s associates eventually hit their ten-year goal—saving $100 million—a year early.
Sustainable Success
Despite the uncertainty created by dire forecasts of the economy’s future in 2030 and beyond, SRC’s employee-owners are yet again leaning into the rhythm of their High-Involvement Planning process to chart a prosperous future for themselves.
“Our purpose all along has been to build the long-term value of the company for our people so they can have a wonderful quality of life,” says Stack. “Planning the future five and ten years out and checking on it every six months makes the present much easier to work through. You get everyone working together. As we say at SRC, ‘It’s easy to stop one guy, but it’s pretty hard to stop one hundred.’ That’s the beauty of the HIP process.”
