A company is only as good as its people. Everyone knows that. So why is that in so many companies the vast majority of the information-hoarding and decision-making happens only at the top? Why have we been holding onto a managerial system invented decades ago to fit an industrial society that tells us that only the CEO and the rest of the C-Suite are smart and capable enough to drive the company forward?
In other words, why don’t we treat the frontline the same as we do the CEO?
It’s my belief that the more you educate people, the more they want to know. And the more you teach your people to be businesspeople—to think and act like a CEO or an owner does—the better the decisions they make to create a bigger pie that everyone can benefit from. To get those better decisions, you sometimes have to give your people the information and let them come up with a solution. And, as opposed to many of those decisions made from the top down, people will actually support what they help create.
<<Jack wants to know your thoughts! Leave a comment at the bottom of this page, and Jack Stack and Darren Dahl will comment back and/or answer any questions you might have. >>
Consider a story that I heard from Tim, a general manager at one of our factories. During the weekly huddles (what GGOB calls high-involvement staff meetings) and monthly planning meetings, many of our frontline hourly people began to voice complaints about their wages. They wanted raises. Even the extra money they were earning through their variable compensation gain share program wasn’t enough.
Our business has seen the shares of our employee stock ownership program (ESOP), skyrocket in recent years. But the wealth our people were earning for the long term wasn’t helping them pay for the bills they faced from day to day. Sometimes short-term needs demand attention at the very time when you don’t have the cash to pay for anything, even, say, for day care or the mortgage.
At the same time, our people were constantly hearing stories from their friends and family members that other companies were paying higher wages to try to bring in new employees. Our people began to ask why we weren’t matching those pay hikes. Some people even left their job with us just to get an extra $1 an hour. We were facing a weakness.
To put this challenge into context, this factory competes in a highly commoditized market where every penny makes a difference in whether a product line is profitable or not. Our biggest expense, of course, is the cost of labor. About two-thirds of our people are paid on an hourly basis. Part of our education program focuses on explaining how pay hikes affect the bottom line and how, by remaining profitable, we increase the value of the business, which everyone benefits from through their shares in the ESOP. If we could, we would pay everyone $50 an hour. But the math simply doesn’t work if you want to sustain the company over a long period of time. The disconnect between long-term wealth building and short-term wage gaps was a problem, and it needed to be dealt with.
But rather than coming up with a top-down solution, Tim let people come up with their own answer. He recruited a group of ten volunteers who had recently completed a round of financial literacy training. It was a diverse group of men and women who represented just about every functional area of the factory, from assemblers to warehouse workers. The team represented a diverse cross-section of our community as well. Tim told me the group members had really bonded during their training, even going so far as to give themselves a team name—the Determinators—because they were so determined to understand every nuance of the income statement. They were now ready for a new and tougher challenge.
As a kickoff, Tim, along with the controller and HR manager, bought the team lunch and laid out the problem with the wage gap. The team was told they could have access to any company information they wanted, and they were also encouraged to seek anything they needed from outside as well. Their challenge was to come up with a solution that was both wage competitive with the market and would also deliver a safe return to the company.
For the next eight weeks, the Determinators dug into the factory’s income statement, balance sheet, and cash-flow statement to see how a pay raise would affect the business. These folks really went after it: they bounced ideas off each other, they polled our sister companies for their wage levels, and they even began to look for other ways the factory could reduce costs so they could apply the savings to the payroll.
It’s important to point out that this skunk works team could have proposed a $50-an-hour raise. The general manager never put any limits on them. He trusted them to understand the impact of whatever decision they arrived at. It was up to them to debate the impact on the value of the business of whatever course of action they recommended.
After the first five weeks, the team presented their initial plan: They suggested an across-the-board raise of $1 an hour for the one hundred hourly workers. Tim then went to a whiteboard that had the factory’s income statement printed on it and flowed through what a $1-an-hour increase looked like. It was a sizable investment for that number of people.
Tim simply asked the front-line employees to get engaged by looking at the results and ask if they were satisfied with the risk that such a raise involved. “Do you guys think this kind of investment will generate a return for the business?” he asked. “And do you think it will keep us competitive and allow us to make the gain-share program?” They shook their heads no. They wanted to dig deeper and see if they could find a better answer. Specifically, they wanted to get better data on the cost of turnover to quantify how the raise might pay for itself.
Eventually, after a lot of number crunching based on several different scenarios, the group came up with a revised proposal to raise hourly wages by fifty cents across the board for the first six months of year, followed by another fifty-cent raise six months later if the factory hit its targets. The team’s rationale was that the added cost to the payroll would be offset by significantly reducing turnover and the cost of replacing workers on the line. As a way to further reduce the risk and to help ensure the second-half raise could go into effect, Tim and the team put together a short-term incentive plan, which we call a MiniGame, based on overhead variances in the business.
It was a great plan on paper, but the whole company would need the employees engaged to achieve their goals to make everything happen. This was a plan nobody could complain about, but if people wanted to, they could talk to the team who put the plan together rather than blame management. For Tim, that was an investment worth its weight in gold.
“Any time we ever put in a raise in the past, we could never please everybody,” Tim told me. “Someone always felt slighted. This time was different. It wasn’t management who had come up with it; it was the people on the front lines who brought it to their peers.” Even better, the time and energy those ten associates invested in the project elevated to an entirely new level their ability to think and act as CEOs and owners do.
This is just such a great example of what happens when you trust your people enough to give them a stake in the outcome and empower them to do something about it. To give them the same kind of power that a CEO would have. They had a say in the solution and they made a difference.
The Great Game really gets cooking when people begin to look further out to develop longer-term strategies to win. They also learn how they personally stand to gain from those wins, and how that becomes a ripple effect that spills into their personal lives and communities. When that happens, everyone wins.
This story has been adapted from an excerpt from Change The Game by Jack Stack and Darren Dahl
Let's have a conversation! Leave a comment at the bottom of this page, and Jack Stack and Darren Dahl will comment back and/or answer any questions you might have.