For the more than 20 years that SAI has worked with home building companies to help them improve operating performance and business outcomes, we have consistently maintained that the key lies in getting the job done--viewing the issue, sustaining the effort, and obtaining the results--in the four critical dimensions we call discipline, context, perspective, and focus.
- the discipline to focus the operating model--the combination of processes, management systems, business structure, and culture--on its ability to deliver exceptional levels of distinctive value demanded by a narrow segment of homebuyers;
- a perspective towards workflow, the natural, horizontal, process-centered manner in which work is performed and value is created on behalf of home buyers and other stakeholders;
- a focus derived from a constraint-management approach, one that understands operations must be managed and problems must be solved without the benefit of unlimited resources, whether time, capacity, or money;
- perhaps, most importantly, the context created by a business logic that underlies everything else.
That context--the business logic that underlies everything else--is a function of what is known as Open Book Management.
Open Book Management flows from the work Jack Stack did in the 1980’s as CEO at Springfield Remanufacturing Corporation, to rescue this former International Harvester (Navistar) division from almost certain bankruptcy. Following a 99% leveraged employee buyout, Stack took virtually the only avenue that was available: he opened the company’s books and made it everyone’s business at SRC to improve performance.
Stack recounted the effort in two books (The Great Game of Business and A Stake in the Outcome); John Case subsequently reported on open book thinking in other industries and companies (Open Book Management and The Open Book Experience); and, Steve Wilson developed the basics of OBM-inspired team-based performance compensation at Mid-States Technical Staffing Services (The Bucket Bonus Plan).
We are specific in our application of the principles of Open Book Management.
- We push our clients towards transparency (openness) and candor (the courage to tell and hear the truth) in the internal disclosure of operating and financial data, whether in meetings, or through dashboards and heads-up displays.
- We push our clients towards imparting business literacy (understanding) to teammates, so that they understand the business of home building, not just the home building business; we do it through the teaching of business and production principles.
- We push our clients towards a team-based approach to performance compensation, via an all-inclusive, self-funding, progressively-weighted milestone plan based on achieving targeted performance above a baseline in a specific business outcome.
We have always said that the deliverable of Open Book Management is a savvy, mutually-accountable, motivated home building team. And, as far as we are concerned, the efforts of a home building company to improve operating performance and business outcomes will largely fail, if it does not first succeed in creating a home building team that works toward commonly-held and commonly understood business goals, versus being a collection of so-called teammates working toward individual goals.
Because, what would be missing, is that underlying business logic that forms the necessary context for understanding everything else.
To become a savvy, accountable, and motivated home building team, everyone on the team has to learn the “business” of home building, they have to understand their individual responsibilities as part of the overall team, and they have to understand what is at stake, individually and collectively. But, it is not enough that teammates merely understand the business outcome that is at stake, they must have a stake in that business outcome. That is the role of performance compensation.
What attributes should a good performance compensation plan have?
It should be simple. It should be visible and transparent. It should be compelling. It should bonus on a single business outcome, one impacted by the actions of every single teammate. It should pay bonuses fast and frequently. It should be self-funding; the bonuses must pay for themselves out of the additional income that the company produces over and above the baseline plan (the one where everyone justifies their salaries and gets to keep their job). It should represent a very significant portion of the compensation of every teammate.
It should include every single employee in the company. It should provide only for the possibility of winners or losers, not winners and losers. It should give managers the right to lead and to demand results. It should contribute--in a major way--to the building of a sense of urgency towards those results.
Who has the P&L responsibility in your company?
The answer had better be “everyone”.