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Learning the Rules of the Business Game

22nd Jan 2001
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Business is a game like cricket or football but with profit and loss instead of runs and goals and British employees are learning the rules say FTdynamo, in the seventh of a series of columns written for HR Zone from the new management education portal.

It is hard to imagine anyone getting excited about reading company accounts, let alone using them to motivate an entire workforce. But if US businessman Jack Stack has his way, British workers from the shopfloor to the boardroom will soon be as familiar with their employer's financial performance as the auditors.

Mr Stack is the man behind The Great Game of Business, an employee training programme that has been running in the US since 1984 and which comes to Britain for the first time this week. His approach is simple: business is a game like cricket or football but with profit and loss instead of runs and goals; and, as in those games, it is more enjoyable if you know the rules.

The Great Game of Business is a subsidiary of Missouri-based SRC Holdings, a group that started life as the Springfield ReManufacturing Corporation (SRC). In 1984, SRC, which rebuilds engines and components for the agricultural sector, faced closure owing to poor sales and Mr Stack, along with other managers, took control by means of a management buy-out.

It was to counter his own lack of knowledge that he developed The Great Game. "Until then," he says, "I had spent 14 years in a company and knew nothing about measuring the business in terms of the financials."

The Great Game's training divides into three six-week modules that break down into learning the rules, making change using "scorecards" and building a culture in which everyone is committed to the financial success of the organisation. Seminars are led both by members of The Great Game's full-time staff and by representatives from companies the organisation has worked with in the past.

As in any game, step one of Mr Stack's approach is to teach everyone in the organisation ("and I mean everyone") the rules - in this case how to read financial accounts.

His next move is to open the books - once a month or even once a week. Some executives are uncomfortable with such openness; Mr Payne says that the "traditional, hard-line owners" are the hardest to crack.

Open-book management is not new but where Mr Stack believes he can make a difference is in breaking down the figures into team and individual budgets, so everyone can see what impact they are making on the profit and loss. Employees are given the responsibility for setting budgets and forecasting performance - and are rewarded accordingly.

"We would never cut anyone's budget - too many budget projections are made in business on the assumption that the board is going to cut them by 10 per cent," says Mr Stack, "but we do bring the marketplace to the people, showing them the rules of the game. We show them, for example, what wages the company's competitors are paying so that they understand that if they want to pay themselves more they have to make savings in other areas."

Budgets, forecasts and performance make up Mr Stack's "scorecards" and they are used to identify weak parts of the company. "The one thing we keep control of," he says, "would be the bonus. We take the bonus programme and target it at the weakest part of the company. When those parts are sorted out, everyone gets a bonus."

At SRC, workers quickly found they could earn a Dollars 3-Dollars 4 bonus for every Dollars 12 paid as salary. They also benefited in other ways if the company did well. "Rewards came in three ways," says Mr Stack: "the growth of the company and the career opportunities that brought; the bonus programme; and a massive equity programme under which the equity of the company was distributed among the employees. That meant the success of the company was shared among those that created it."

Mr Stack is adamant that company equity should be entirely owned by its workforce. Forty per cent of SRC Holding's shares are distributed to staff through a share bonus scheme. The remaining 60 per cent is held by managers who took part in the initial MBO. When a member of staff leaves the company buys back their equity at price set annually.

Full employee ownership of shares is an unsettling prospect for those in the investment business. Stephanie Smith-Maxwell of the British Venture Capital Association says external finance offers a company much more than just money. "Venture capital gives strategic advice and gives you executives who have invested in similar companies. They can advise about competition and they have the expertise to grow your company quickly. It wouldn't work, however, if you couldn't hand over some equity in return."

For Mr Stack, there lies the rub. "People are building companies to float them, not to endure," he says. "The new economy has phrases such as 'burn rate' but I have always been in business to make money, not to burn it. When people are prepared to pay multiples of 50 on your stock, it is crazy not to have that equity inside the company. Even at the beginning, when you need seed money, you should go to the bank, borrow the money and make a stock ownership programme for staff."

In the US, The Great Game has worked with 2,800 companies, from small enterprises to big companies such as Federal Express, the logistics group, Ford Motor Company, the car manufacturer and R. R. Donnelley, the printing services provider. The company has also done work in Zambia and Singapore but the UK operation will be its first office to be set up as a separate company. Based in Bristol, it will have a separate staff supplemented by personnel from SRC's Missouri headquarters. The same model will be launched in Australia in the spring.

Mr Stack says "a number" of British companies has expressed an interest but will not name names. However, he is comfortable that the traditional British resistance to US-style employment training will not be a problem.

"The UK is financially literate; people in Britain are more economically literate than in the States but they don't have the courage to go out and set up a business. We are going to help them find that courage."

"Open-book accounting certainly works well," says Richard Brennan, managing director of TMI (UK), the training company. "At TMI I like to think that everyone spends the company's money as if it were their own and 35 per cent of our workforce own shares in the company. The only caveat I would have is that understanding financial information is important but it is not a panacea. People can sometimes be too focused on the numbers to see what is behind them. You need to teach people to be able to see the strategic needs of spending money, in research and development for example, as well as the operational ones. How do you persuade your staff to speculate, for instance?"

"The key for many organisations will be being able to translate financial figures into how they impact on people's jobs and vice versa," says Graham Houston, director, Scotland, of the Industrial Society. "This even works away from the manufacturing sector. You can talk to people in the service industry, for example, about how much less it costs to keep a customer than to win a new one and show what level of service is needed to retain them."

Many training programmes fail when their lessons do not last. "Training always requires maintenance," says Mr Payne, "but we have materials and initiatives to assist that. The Great Game shows people what learning will do for them in the long run and as a result it helps them see the worth of other training initiatives, too."

Mr Stack agrees. "Opening the books has incredibly wide-reaching effects. Everyone realises they need each other to make the organisation succeed."

FTdynamo features writing and research from leading business schools and management consultancies with expert insight and analysis from FTdynamo. A free trial of its services is available at http://www.ftdynamo.com

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