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Business Innovation: Survival and Success for Springfield Remanufacturing

Testing Equipment at SRC

Testing Remanufactured Equipment

Occasionally I hear about a good business and good business person in the same breath; Springfield Remanufacturing is one of those good businesses, and Jack Stack is one of those good business people.

For today’s business world, the intertwined story of Springfield Remanufacturing and Jack Stack is uniquely important.  Today we’re looking for the kind of business that revives languishing companies, inspires despondent communities, and lets everyone earn a part of success.  Can it happen?  Yes.  Is it sustainable? Yes. Here’s how.  It took business innovation born of desperation and commitment.

A subsidiary of International Harvester

In 1979 the International Harvester Company sent a 30 year old middle manager to its facility in Springfield, Missouri.  IH’s Springfield Remanufacturing plant wasn’t going to make a profit (it was on track to lose $2M on $26M in sales) and every one of the 120 employees knew it.  Generally, it wasn’t a good time to do anything.  The U.S. economy was in recession, the inflation rate topped 21% and unemployment was running 11%.

 This assignment wasn’t his first challenge at IH; he’d developed a unique way of handling them.  Jack Stack recalls his first meeting with Springfield Remanufacturing’s employees.

 I went in the first day and talked to the organization. I told them I was there to help them and do what I can to get them the tools to do the job—the same thing I tell everybody. I promised them I would give them a visible idea of everything that goes on and they’ll be as transparent as they want. And I said, “Do you guys have any questions?” And this guy raised a question: “How old are you, anyways?” I said, “I’m 30 and feeling like 50.  (1)

While Springfield’s employees were turning the plant’s performance around, demand for heavy equipment was falling.  IH, a venerable old line heavy equipment manufacturer, was looking for ways to survive.  That included selling off parts of the business, like Springfield Remanufacturing.

 Jack Stack, too, had a problem.  He liked Springfield, its people and Springfield Manufacturing.  IH had many problems, and Springfield Remanufacturing wasn’t one of the larger ones.  Jack came to the conclusion that the Springfield Remanufacturing’s future was in its own hands.  What he did next surprised himself almost as much as Springfield’s employees.

 I dreaded the fact that I had to lay them off, so I thought if I said, “Let’s try a buyout,” and if I failed at that at least I felt I tried. The employees were so petrified at that meeting they would have followed anybody—they would have followed Rin Tin Tin. So I ended up trying to do an employee buyout. It took me two years of negotiations. (1)

Thus was born the strategy of business innovation through desperation.

Springfield Remanufacturing, the Phoenix

 In January 1983, Jack and 12 Springfield managers bought Springfield Remanufacturing from IH.  Each of them had contributed $100,000; with 7 million dollars owed in two loans, Springfield Remanufacturing’s future was in its own hands.  At the time it was the largest debt-to-equity ratio buyout in American history.  Jack suggests it might be a high water mark….

Bank of America was in tremendous disarray: they had fired their CEO out in California, and they’d fired their president out in New York. They were desperately trying to survive and we got caught right in the middle, and we were very fortunate to get the loan. Because they were getting out of leveraged buyouts at the time, so it was like divine intervention.

 In the two years after the buyout Springfield turned around. It was hard work, but Jack somehow found the time to change Springfield’s entire way of doing business.  Out of the desperate need to involve every employee in the turnaround, Jack Stack invented The Great Game of Business.  The Game is business innovation par excellence; you can learn a lot about The Game by going to http://www.greatgame.com.  But here, in a nutshell, are the essentials.

  1. games have rules and a way to keep score; so does the Great Game
  2. figure out the “numbers” of the business, both financial and operational
  3. put the numbers together; look for cause and effect
  4. for every number, find the owners
  5. pick the most important numbers needed to reach the most important business goals
  6. set a goal for those important numbers
  7. set the rewards for meeting the goals
  8. talk it up and focus everyone’s attention
  9. celebrate a win, regroup and try again, or change the goal… but keep playing

Lessons from Recession

At Springfield, at the start of 1987, things were going great.  Jack and the staff were looking forward to a year of consolidation after several years of strong growth. Instead, Springfield’s biggest customer announced their own severe slowdown.  No matter how many different ways Jack calculated the effects, Springfield would have to lay off 100 people.  To avoid it, Jack would have to diversity, but failure would cost 200 people their jobs.  At a company meeting he put it to the whole company.  They decided that, to save their friends’ jobs, everyone would risk their own in a full tilt campaign  for new customers and new business, wherever, and at whatever price it could be found.

It was incredibly hard. We took any job we could get. We sold into any kind of market we could sell into. We got into product lines we had no previous experience with. We worked an incredible number of hours to make sure that by the time that product went out the back door it would run right. Through it all, that entire year, they took it on. It was brutal. I remember in July, one guy called me on the phone and absolutely broke down, he was that burned out. It was that tense. But we ended up the year doing $40.8 million, $2 million more than ’86… (3)

No one lost their job; instead, Springfield ended up hiring 100 more people in the midst of recession.

Moving forward to 2009, Inc. magazine’s Bo Burlingham interviewed Jack Stack, asking him about Springfield’s health during this latest recession.  I’m going to reprint a lengthy quote because I think there are good things to be leaned.

Burlingham: Most American manufacturers are in terrible shape right now. And yet you seem to be doing well. What do you attribute that to?

Stack: Paranoia. We’ve always been terrified of being forced to lay people off, and so we’ve spent the past 26 years trying to make sure we would never have to do that.  (4)

Burlingham: How does that work in practice?

Stack: We measure each piece of business by the amount of labor that goes into it. Then we see how concentrated our labor is. When we were starting out in the 1980s, more than 75 percent of our labor hours were in the truck market. We did some investigating and found out that the truck market has a recession every six years. So we had to ask ourselves what we’d do if we had a recession.

Burlingham: And the answer?

Stack: We thought about what goes up in a down market, and we discovered that automobile parts go up, because people keep their cars longer and fix them. That’s how we got into the automotive aftermarket business. That kind of thinking became part of our culture and our way of doing business.” (4)
Burlingham: A lot of people would say you took a big risk by getting outside your core competencies. The common wisdom is that you’re supposed to stick to your knitting.

Stack: I think that’s really bad advice in most cases. Sure, if we’d stayed in our core competency, we might have been very successful in the truck market. We could have reduced our expenses and increased our margins, but we would have been tremendously vulnerable. We would have had 100 percent of our eggs in one basket.

Burlingham: Certainly, some people have been successful by sticking to their core competencies.

Stack: Oh, sure. It’s not too bad a strategy if you plan to sell the business. You build up your earnings and your sales, and then you cash out. But to create something sustainable, you have to be totally paranoid. You have to be realistic that you’re going to get hit with a lot of unknown events. If you diversify, you can handle those unknowns. But it takes a lot of courage to fix a weakness when it’s not immediately painful. (4)

Again, business innovation, born of a desperate commitment not to take one step backwards.

 Springfield Remanufacturing Today

Today Springfield Remanufacturing Holdings is 17 businesses that employs 1200 people.  About 80% of them own stock in the companies. Each share, worth 10 cents in 1982, is now worth about $99.
Springfield Remanufacturing Corporation is a GoodBusiness and Jack Stack is a GoodBusiness man.  And please, don’t pass up a visit to The Great Game of Business web site.

References

(1) http://www.ethicsandentrepreneurship.org/20110411/interview-with-jack-stack/

(2) http://www.greatgame.com/

(3) Stack, Jack, “Crisis Management by Committee” Inc. magazine, May 1988

(4)  www.inc.com/magazine/…/why-a-ceo-needs-to-have-a-plan-b.html

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