Results-Based Leadership & Open Book Management

An early business thought leader, Peter Drucker, once said that ‘effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.’ But the process of getting results has improved over the decades since Drucker wrote those words.  Of course, he is right about getting results, but in my own view Drucker left something open for debate.

Boards often discuss the performance of the CEO. In one instance the executive had done a marvelous job getting results, but in the process had alienated a large number of people, including many on the senior leadership team. The culture created by the leader was about getting results, and that culture included a good amount of fear and intimidation created by a dictatorial ‘theory X’ top down command and control management style.

Leadership is about so much more than results. An effective leader can get great results and build a culture of trust, respect, with care for the human element. When leaders really listen to their team members, being receptive when they present their problems, they build trust and respect, and the member will want to do great things because he/she feels connected and valued. If the team does not trust and respect the leader due to that leader creating a culture of fear and intimidation, the leader is ineffective and needs to change, or be changed.

Drucker is right when he says ‘effective leadership is not about being liked’, but in my view great results can be obtained without sacrificing trust and respect. A leader that does not have the respect of his/her subordinates is no leader at all.  Leaders today can adapt to changing business environments by creating collaborative communities of natural teams, working together towards commonly defined goals.

A more recent trend in leadership embraces the term ‘Open Book Management’, which is most often attributed to Jack Stack, who along with Bo Burlingham co-authored ‘The Great Game of Business’ in 1992 based on the successful process Mr. Stack developed at Springfield Remanufacturing Corp., in Springfield Missouri.  

In 1983, Mr. Stack and 12 other managers scraped together $120,000 and together acquired a division of International Harvester located in Springfield Missouri, using $8.9 million in borrowed funds.  That facility had 119 employees and was fighting to stay above water with a mountain of newly issued debt. Today, it is known as Springfield Remanufacturing Corp. SRC is part of a basket of companies collectively known as SRC Holdings.  Mr. Stack is Chairman and CEO of SRC Holdings.

As a manager at International Harvester, Mr. Stack was more familiar with manufacturing terms, such as on time delivery, quality improvement, labor utilization, and employee turnover.  When Mr. Stack was seeking capital to finance his acquisition, he learned new terms used most often by the bankers, such as cash flow, retained earnings, debt to equity ratio, and other financial terms that were like a new language to him. 

He knew he had to do something different in the new acquisition if the company was to survive, so a decision was made to teach financial management to all of the employees, thinking that if they were the ones creating the numbers, then they should also understand them.  He further wanted to engage the employees by making business fun, turning it into a game of making profit and generating cash, and providing employees with a portion of the gains.   

Stack and his management team started to teach business fundamentals to the employees at SRC.  Together they developed a process that was like a game, with rules just like a game. In fact the process has three fundamental principles it follows as it develops a path to the ‘Critical Number’ (the number one thing the organization must do to ensure success).  1. Know and teach the rules; 2. Follow the action and keep score, and 3. Provide a stake in the outcome.

Over time, the team at SRC got better at playing the game.  They created bonus plans based on incremental growth in profitability and provided a portion of the gain to the employees who actually helped create the additional profit.  They even granted stock to employees, starting with a small percentage of the business, and growing to a majority ownership by employees.  

The success of the process at Great Game has been extraordinary.  $.10 invested in 1983 today is worth $613.00. Growth like that is most uncommon, and far exceeds rates achieved by top private investors and major investment banks.  Many employees operating equipment at SRC have become wealthy by Springfield standards, (i.e. no debt, a nice house, a car or truck, a lake house, and a bass boat with RV in the back lot).  SRC Holdings now has 12 companies, with several thousand employees, and is approaching $1.0 billion in revenues.

New processes must be embraced to achieve great results and maintain a strong culture simultaneously.  At SRC, Stack got his employees all talking with each other every day in a daily 10 minute huddle where top priorities were discussed, along with any changes in expenses vs. forecast.  Weekly, the entire company comes together in an all company huddle, where forecast numbers are updated by department, and changes in the numbers each have a story behind them.  

Stack introduced line item ownership for each critical expense area of the P & L statement.  Each department is accountable to forecasting their number, which gets updated weekly. By the end of the month, the entire company knows how it is doing relative to plan before the month is officially closed.  The numbers come up from the shop floor, as opposed to being generated in accounting.  

To encourage process improvement, minigames were introduced as a way to engage employees in the problem-solving process resulting in better efficiencies, reduced costs, improvements in inventory turnover or days sales outstanding.  Minigame teams are grassroots informal and ad hoc teams that come together voluntarily to attack a business problem. There are rules to the minigame, but each has a team with a purpose, a financial target, a forecast, a theme, and some prize money that is allocated based upon the objectives and financial improvements that ensue from the game.  At SRC, minigames are very competitive, and often are accompanied by bragging rights. It is all in good fun, but targeting cost reduction or margin improvement by all employees that touch the process.

Changing organizational structure from the traditional top down command and control form to a decentralized Great Game approach will ignite passion, permit and encourage debate, generate creative solutions which are often much better than anything a leader could devise on his or her own.  Jack Stack’s new book ‘Get in the Game’ will be released this fall, and I can’t wait to see the view on this trending topic from the originator of Open Book Management.