Last month in this space, I reviewed a series of market projections for 2014 from Harvard University as well as the industry’s leading associations.
The 'Great Game' of the Remodeling Business
Top business coach Bill Fotsch shares his insights on making the economics of remodeling come alive to your employees
|Since founding The Great Game of Business Inc., Bill Fotsch has
consulted with more than 100
In the early 1980s, International Harvester prepared to shut down a nearly bankrupt division in Springfield, Mo. In a desperate attempt to save their jobs, Jack Stack and 12 other managers pooled their money — $100,000 — and bought out International Harvester. The chance of success was so small that the bank fired the loan officer who approved their $8.9 million loan. The managers laid out the situation to the staff and opened the books to them so they could clearly see the impact of every employee’s efforts, the potential if they succeeded — and the stakes if they failed. They called the process they developed The Great Game of Business.
Since then, SRC Holdings has outperformed its competition and grown into a healthy, profitable company. In 1994, Bill Fotsch started The Great Game of Business Inc. as a consulting firm to share SRC’s strategies with other companies. As its head coach, Fotsch has worked with more than 100 corporations, including Southwest Airlines, Harley-Davidson, British Petroleum -- and several home remodeling firms. He talked to Professional Remodeler about how engaging employees in addressing the economics of the business can impact its profitability.
Q: Some of our readers probably aren’t familiar with the principles of the Great Game of Business. Can you give us an overview?
A: In a way, it’s incredibly simple. It’s making the economics of a business come alive in a way that helps the business generate more profits by tapping the hearts and minds of its employees, engaging them in driving the business, such that both the business and the lives of the employees improve.
Most employees in the remodeling world have not had much of a window into the economics of the business they participate in — really understanding the economics of the business — because, quite frankly, many of the folks in management aren’t really attuned to the economics that drive it.
Q: How does it help employees to understand the economics of the business? Don’t they have enough to do keeping up with the particulars of their particular job?
A: If you go up to an employee in a typical company and ask them if the company is winning or losing, what are the measurements? If they don’t know, what’s the likelihood they’re helping as much as they can?
The thing that launched The Great Game of Business was all of these former International Harvester employees who were about to be unemployed. … The probability of success would go up if everybody knew what the enemy was. They had to make the bank payment. That simple objective became the galvanizing force around what everybody did.
Q: Do you get a lot of resistance to that from small business owners?
A: I kid with folks all the time and ask them, “Why aren’t you doing this?” Most of the time, there isn’t a particularly rational answer to that. The concerns people have are things like, If my employees knew how much money I made, I’d be in trouble. I have a standing bet — I advise people not to bet with me because it’s a sucker bet. If your employees have no visibility of the financials of the company, I’ll bet my $100 to your $50 if we ask them how much money the owner made last year, their estimate will be twice as much as reality.
Q: So, are you saying that owners should just pass out the company’s financial statement to all the employees?
A: If you just handed them income statements and balance sheets, you’d scare the hell out of them. You want to engage them around the economics of the business first. Chances are, that’s much easier to get your hands around. You may migrate to the point of going through income statements and balance sheets, but it’s a lousy place to start.
Q: Let’s make all of this specific to our industry. While accepting that every company’s situation is unique, what are some general points that could apply to any remodeler?
A: If you were to ask most employees in remodeling what is their biggest concern right now, how high up the list do you think job security would be? In a remodeling business, what really drives job security? Referrals and backlog. If you have a backlog of work, you’re probably in better shape than a lot of companies — and you’ve made that visible to everyone, right? In fact, it’s not something they put a lot of visibility on.
Q: How does a remodeler get to the point of understanding the economics of the business?
A: Start by identifying what winning means in your business. We start with an anonymous employee survey to ask employees what they see as key issues. A next step, typically done in parallel, is to get input from the management team. The notion that management and employees see issues the same way is not what we’ve seen. Now you have a window on the company from the perspective of the employees and management. Pull together financials from the last five years, look at the debt, the backlog and so forth. Also, look at the competitive and customer data that you already have. If you get those perspectives, the likelihood that you’ll have a decent view of the issues is pretty high.
That process gets folks thinking. We’ll distill all that down. We want to make the whole process transparent. You’ve got this view of the issues; what would be an objective measure that would define winning based on those issues? Once you define that objective measure, that’s what you build the scoreboard around. That’s what you track and build incentive plans around.
Q: Can you give us an example?
A: Let’s say the number you identify as a key measurement is gross margin dollars. What are going to be the gross margin dollars we generate this month? We break it down into each job. Let’s say they’re currently working on six jobs. Let’s estimate costs and invoicing and see how close they were at the end of the month. Keep the teams’ critical numbers in focus for a year and you’ll have folks who will get real smart about what drives those numbers.