If you have not yet read The Great Game of Business by Jack Stack and you are leading a company, you need to add it to your list. The book outlines the success of an overall philosophy of open book management that results in employee engagement. It also contains some memorable stories about how powerful data can be when it is shared with – and owned by – the front lines. One of my favorites is about how a toilet paper analysis led to a higher stock value. Seriously.
Fair warning: you might think this sounds like small stuff in your operation and therefore unworthy of your time and attention. But you would probably be wrong.
In this case, the company had a budget in place, but its costs unrelated to the direct production of products (its overhead or burden) was larger than desired. Nobody really owned the numbers, and Stack says expenses were dumped into catchall categories. Since nobody owned the numbers, nobody managed the spending. And you know what happens when nobody is managing the spending. Costs ballooned.
In this instance, management decided to solve the problem by breaking the burden down into pieces, and assigning an individual to be accountable for an analysis of his or her item. He or she could report back to management whether the number was on target, whether it should go down, or even whether it should be increased in the budget.
Now to the toilet paper analysis: Don Wood was assigned the project of looking at toilet paper costs, and he went all out. He wanted to see whether there were trends in the spending. Don found out that toilet paper spending was not at a constant level, but rather it rose and fell. Curious, he searched for data to figure out why there was variation in the TP expenditure.
Don discovered that during periods when the team members were operating “on prime”, which in this business was assembling engines and engine parts, the less toilet paper they used. Conversely, when business slowed down, toilet paper usage went up. The busier they were, the less team members went to the bathroom.
So what do you do with that information? Stack says Bob presented it, complete with a graph showing toilet paper consumption over two years. While TP was not the only expense analysis, it was probably the most entertaining.
Management decided to implement a bonus program for reduction in the burden items. (This is the sort of business gamification Jack Stack promotes.) The threshhold to make bonus was to reduce from $39 of overhead for every hour worked on prime to $32.50. In reality the company outperformed the goal number by shrinking overhead to $26.32 per hour worked on prime. The cost savings went right to the bottom line. And the company’s stock price rose from $.61 per share to $4.05. Although Bob Wood’s TP expense report might have been a bit funny, the results that he and his colleagues achieved by taking ownership of expenses were seriously good.
Some business owners, particularly those who run closely held companies, are a bit squeamish about sharing financial information with employees. A few have shared with us their concerns about team members missing crucial pieces of financial information and drawing inaccurate conclusions about the company’s health (or the owner’s new home!). Stack’s toilet paper example demonstrates the hard dollar value in bringing the numbers information AND the ownership of them directly to the individuals that have the ability to affect them.
If you would like to learn more about how to improve your business results via open book management, ProActive Leadership Group can help.
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