How to create an ownership-centric culture that holds employees accountable and rewards them accordingly for their efforts.
By Bridget McCrea
Brad Hams’ philosophy is simple: When employees have a little skin in the game, they’ll go to bat for their employer more times than not. They’ll treat the company as if it were their own, thus the name of his Denver-based business consultancy, Ownership Thinking. The concept is straightforward, but putting it into action in today’s workplace typically requires a completely different mindset from what owners, leaders and managers are accustomed to.
“Our goal is to create organizations of employees who think and act like owners toward creating wealth which, of course, creates opportunity for the company,” says Hams. He developed the Ownership Thinking model while serving as president of Mrs. Fields Cookies in Mexico in the early 1990s. For the last 17 years, Hams has been helping companies adopt that “culture of ownership.”
Hams works with companies of all sizes and across various industries – including precast manufacturers. He says organizations that push employees to think and act like owners not only create more opportunities and wealth, but they also retain workers at a 200% higher rate than companies that don’t.
“It’s not just about creating wealth and improving financial performance,” says Hams, who feels that companies can push performance to new levels through a combination of the right people, education, measures and incentives. “It’s also about creating extraordinary business cultures where people want to come to work every day.”
The four components
Hams’ business philosophies go beyond open-book management and employee ownership. He outlines the following four foundational pillars that he teaches to companies:
1. The Right People: Ownership Thinking creates an environment that promotes learning and development, while increasing visibility and accountability. Your best people will excel, and your poorest performers are generally self-selected out by their peers.
2. The Right Education: Employees are taught the fundamentals of business and finance so that they are better equipped to make financially sound decisions.
3. The Right Measures: Rather than focusing only on lagging financial measures, an emphasis is placed on identifying the most critical leading, activity-based measures (Key Performance Indicators, or KPIs) and using them to forecast results on a regular, formal basis.
4. The Right Incentives: The process of employee education and focusing on the right measures in an environment of high visibility and accountability will increase your organization’s profitability – guaranteed. “We can now design and implement a broad-based incentive plan, because it is self-funded,” says Hams.
Those pillars caught Theodore W. Coons’ eye last year after he picked up Hams’ book, “Ownership Thinking.” The timing was perfect, because Coons, president of Spillman Co., a forms manufacturer based in Columbus, Ohio, was already considering the issues of personal responsibility and accountability on a company-wide basis. Alex Freytag, partner and vice president at Ownership Thinking, was the right person to help Spillman Co. introduce and implement those concepts.
Freytag conducted a day-and-a-half seminar with the Spillman employees (two-thirds of them comprised management personnel) in April 2011. Through the exercise, the company came up with a list of KPIs – based on history, budget and actual performance – that it uses to create monthly “scorecards.” It also developed an annual budget and had its managers come up with twice-monthly budget responsibility goals for their respective positions.
“We evaluate end-of-month numbers against both the budget and the projections,” says Coons, whose team looks at KPIs like top-line sales, gross margin, number of invoices and the average value of each invoice. Results are shared across the entire company. And while Coons points out that Spillman does not run on an open-book management model, the 32-employee organization does share “a great deal of information, including detailed financials, with the management team.”
So, you ask, what does Spillman Co. do to make its associates truly feel like they are profiting when the company meets and/or exceeds its financial goals? That’s where the bonus pool comes in, according to Coons. Based on the company’s book value at the beginning of the year, the pool includes a quarterly, minimum return that’s used to pay for taxes, capital replacement and return on investment. Once that threshold is achieved for a given quarter, 20% of Spillman’s net profit (before taxes) goes into the bonus pool.
“We then have a formula that’s built on the base wage or salary of each of the associates, which in turn becomes the denominator in the equation,” Coons explains. “We pay out half of that quarterly bonus in each of the first three quarters, and we hold back the other half just in case we have a bad quarter.” The final installment is doled out after the year is closed out (typically in January or February of the following year) in an amount that equals 5/8 of the total bonus.
With about seven quarters of Ownership Thinking under its belt, Spillman – which has paid out quarterly bonuses for each of those seven quarters – is already seeing the results of its efforts. “Our associates are taking on more responsibility and are more accountable,” says Coons. Communication among management team members has also improved. The firm’s plant manager now holds weekly meetings with his associates, for example, and Coons heads up two meetings per month where he talks openly with associates and managers about what’s going on with the business.
At those gatherings, Coons says participants are asking more questions and contributing more information and opinions than they ever did in the past, knowing that those contributions count. Picking up items off the shop floor and reusing them instead of throwing them out, and developing more efficient office functions, have both been implemented as a result of those meetings.
“We’re getting more suggestions about how to improve productivity and profitability than we were hearing two years ago,” says Coons. “We’re also seeing a big emphasis on waste elimination and have become a much leaner company as a result of the suggestions that we’re listening to.”
Convincing Spillman’s associates to participate in the Ownership Thinking model was fairly easy, although Coons admits that some assumed it was another “flavor of the month” management technique that would quickly fall out of favor. But as more and more of the employees began seeing the financial benefits of the program in their own payments, that sentiment began to shift. “When someone sees a bonus check as a result of their efforts,” says Coons, “it really helps enforce the program’s value.”
Creating an ownership culture
As Coons and many other company presidents have learned, employee buy-in is a pretty powerful thing. When workers feel like they’re part of something, and that what they’re doing really matters, they’ll be more apt to make the right decisions. They hold themselves accountable, keep watch on what others are doing, and take myriad other steps to contribute to the overall health and wealth of the company.
Of course, it’s not enough to set up a new incentive plan and hope that employees buy into it and start working a little harder, smarter and faster to help the organization achieve its goals. The transition to an effective ownership-centric company takes time and requires solid communication with all employees. It takes buy-in across all managers, owners, presidents and other decision makers. Without that support, the program will fall by the wayside quickly and things will “return to normal,” says Hams.
When introducing the initiative, for example, Hams suggests doing a simple employee survey to find out what workers feel are the company’s key issues from the financial, operational, external and human resources standpoints. “Employees see things on a day-to-day basis that leaders miss,” says Hams. “This is your opportunity to gather a baseline of information on the company’s issues and weave that information into your plan.”
Surveys also make employees feel included early in the process and truly part of the team. “They help get buy-in and ensure that the program will be implemented successfully,” says Hams. Employee training is equally as important and should be orchestrated across the entire team – not just in the leadership and management ranks.
Financial training is particularly vital, especially for workers who may not have dealt with financial statements and other accounting documents in the past. Hams, who has worked with 2,000 different organizations since founding his firm in 1995, says teaching employees the fundamentals of business and finance is a critical first step. Workers have to know how the company operates, how they fit into that scheme of things, and how they can contribute on both an individual and a team level.
“Every employee should go through a financial acumen training program,” says Hams. “This gets them engaged and onboard with the initiative.” When employees, managers and leaders are all in sync and working as one large ownership squad, the business rewards are measurable and significant.
For the business acumen training to be most effective, says Hams, it needs to go beyond simply displaying and explaining financial statements. “Most employees don’t see financial statements, and even if they did they probably don’t understand them,” he points out. “Plus, most companies get their financials midway through the following month, when it’s too late to do anything about them. They basically tell you the score at the end of the game, but they don’t cover what went on during the game.”
Getting to the next level
Brent Dezember, president at StructureCast in Bakersfield, Calif., knows the value of having a team of employees and managers who feel like they are part of the company. With an employee base that ranges from 50 to 65 persons, based on economic conditions, StructureCast utilizes a long-term financial plan based on quarterly objectives.
Teams of employees meet off site once every quarter to review and reset their goals according to performance. Within the production environment, for example, the KPIs include on-time delivery, sales per man-hour, and actual budgets for every job. Financials are measured and reported weekly, and both management and production teams huddle daily for at least 15 minutes.
During those pow wows, team members focus on what’s not being accomplished and the roadblocks that are standing in the way. “Our goal is to create a lot of very focused communication,” says Dezember, “and to hit on the points that are holding the company back in order to come up with solutions.”
Every StructureCast employee also participates in a profit-sharing bonus plan based on the firm’s overall performance. And while he admits that the economy has made it difficult to distribute bonuses over the last few years, Dezember says giving employees responsibility over business performance – and then letting them share in the profits that are generated – is an important foundational aspect of the precaster’s business model.
To companies interested in setting up ownership-centric cultures, Coons says “get ready to reveal some financial information” to those managers and employees who are expected to buy into the program. “Precasters in general are reluctant to do this, but it’s a necessary step in getting the buy-in across your organization,” says Coons, who adds that in order to be most effective, the initiative must also have the full support of the company’s ownership ranks.
Without that support, it will surely fail. “The buy-in and the follow-through have to be there on the part of the ownership,” says Coons. “This isn’t a top-down approach to solving day-to-day issues on the shop floor or in the office. It has to be a team approach and a ‘we’re all in this together’ mentality, or the results won’t be there.”
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is a winner of the Florida Magazine Association’s Gold Award for best trade-technical feature statewide.