Ownership Thinking

7/29/2019 Ownership Thinking

1/15B RAD HAMS

How to End Entitlement

and Create a Culture

of Accountability,

Purpose, and Profit

OwnershipThinking

Readable, thought-provoking, and makes you hungry for Hams

next bit of wisdom. Should be on your short list.

Dave Logan, Ph.D., New York Timesbestselling coauthor of

Tribal Leadershipand The Three Laws of Performance


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introduCtion

This Is Not

Your Typical

Business Book


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In 1973, at 17 years of age, I left my home in Scottsdale, Arizona,

and hitchhiked to Berkeley. I was the youngest of three kids, and

my brother and sister had both gone to Pomona College in Cal-

iforniaa rather expensive private school. We were comfortable

enough when I was a child, and though my dad didnt make a huge

amount of money as a structural engineer and my mom didnt

work at the time, we lived in middle-class neighborhoods and went

to decent public schools. Although Ive never talked much about it

with my dad, I assume that putting my brother and sister through

college (even though they contributed) was not an easy task for

him. Id gotten into a bit of trouble a year or so before I left home,

and to be honest, I wasnt the best student in high school (although

I did graduate). I should qualify that statement. I was, in fact, agood student, but perhaps a dierent kind of student. I read inces-

santly, but I just was not particularly engaged in school. Given

this, it is understandable that my dad was not all that interested

in paying for me to go to college, no doubt thinking it a dubious

investment at best. So he told me that he didnt think that college

was all that important and did not intend to help me out with it.

So, I hitchhiked to Berkeley. I was angry about the situation

at home, and I suppose in the back of my mind I was thinking

something along these lines: Ill show everyone. I dont need help

from anyone, and I can take care of myself anyway. Id gotten

hooked on skiing while in Arizona (yes, there is skiing in Arizona),

and I thought working at a ski shop would be cool. I pounded the

pavement going to every ski and sporting goods shop in the area


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INTRODCTION: THI I NOT YOR TYPICAL BINE BOO

until one hired me. I worked full time at Kellys Sporting Goods

for a few years, making something like $2.50 an hour at rst, and

I skied every chance I had. And I read incessantly.

I left Kellys at some point and began working at a boot

store in Oakland. I worked my way up to store manager and ran

their location in Walnut Creek. I was there for a few years (taking

a six-month hiatus at one point to travel through Europe), then

went on to take a manager position with a bakery/caf chain in the

San Francisco area, which looked like a good opportunity since it

had recently been purchased by PepsiCo. I worked at PepsiCo for

several years, working my way up in operations and nance and

eventually into leadership roles in their corporate oce. During

that time, I also put myself through college, obtaining an under-

graduate and a graduate degree at the University of San Francisco.

Ultimately, I went on to run a business in Mexico and founded a

successful consulting company in 1995.I believe that life is largely about learning and growth. My

opinion that neither of these is exclusively found in the classroom

probably doesnt surprise you, after reading the short biography

above. School has been important to my learning and growth;

however, I have learned far more by surrounding myself with

intelligent people, by experiencing life, by taking risks, and by

struggling and even failing on occasion. My learning has also come

from reading. From a young age, reading has been a signicant

part of my life. I read anything and everything: business books,

political books, self-help books, motivational books, textbooks,

spiritual books, psychology books, and an occasional novel. Also,

I stay on top of current events by reading several newspapers and

various Internet publications and blogs.


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I am telling you about my life for several reasons. I want

to point out that I am something of a self-made man and that I

believe lifelong learning and personal achievement are among the

most important things in life. I mentioned earlier that I was angry

when I left home. My perspective at that time didnt leave room for

understanding why I was not going to have the same opportunities

given to me that were given to my brother and sister. Today, I am

immensely grateful for how my adult life started and progressed.

Were I not in a position of great need and signicant personal

motivation, it is unlikely that I would have achieved the things Ive

achieved, learned the things Ive learned, and had the opportunity

to help the people and businesses Ive helped. This great country

that I was blessed to be born in has grown more self-made, bril-

liant, and inspirational people than any other country on earth.

Why? Because the United States of America was founded by and

has prospered as a result of people who escaped oppression anddesired to create a life of liberty stemming from solid values and

hard work. And by God, they did.

As we Americans have prospered over the decades, Im

afraid we have lost sight of what made us great. We have become

a bit soft and have created more and more entitlements that allow

us to have smaller lives focused on day-to-day satisfactions and

gratications that are, in the great scheme of life, not all that com-

pelling. I am saddened by this and, on occasion, greatly disturbed

by the direction I see us heading.

This book is not your typical business book for more than

one reason. In it, I am going to introduce you to a way of doing

business that will demand quite a bit from you and from all of

your employees. It is a way of doing business that requires liter-


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ally everyone in an organization to participate in the business of

the business, not just the tasks they happen to perform in it. It

requires that people take responsibility for becoming better and

more knowledgeable every day. It requires that they are active

participants in their organizations nancial success and ultimately

their own. I also hope to convince you that, although your employ-

ees may not know it, this is what most of them, deep in their hearts

and souls, really want. I know from experience that it will make

them happier and more fullled.

This is not your typical business book also because over the

years Ive learned that business is not only about business. There

is an important spiritual side of great companies. There is also a

political element to business that needs to be confronted, as well

as a psychological component. And, of course, there is the human

and emotional side of businesses. I am fully aware that this think-

ing can be somewhat controversial. Maybe it would be ideal towrite a book that creates no basis for contention or argument and

that is accepted with enthusiasm by every reader. Of course, that

would be unrealistic, and an eort to do it would most likely result

in a wishy-washy tome with signicantly less value than what I

hope this book will provide. Therefore, I will do my best to present

my experience and observations in a manner that will engage and

not oend. I have implemented Ownership Thinking in virtually

every type of industry at this point (prot and non-prot) and with

people of many dierent political leanings, religious beliefs, and

ethnic backgrounds.All of them have beneted from pursuing this

way of doing business, and I would venture to say that they have

beneted both professionally and personally.


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The Origin of Ownership Thinking

Prior to 1990, most of my career had been in operations and

nance. I held leadership positions at PepsiCo for several years and

also at Mrs. Fields Cookies. My education was quite far removed

from nance, however. I had gone to college in my twenties for a

couple of years, but wasnt very clear on what I wanted from it, so I

went back to work (I have had jobs since the age of 12). I decided in

my thirties that change management was interesting, so I enrolled

at the University of San Francisco (USF) and got an undergradu-

ate degree in organizational behavior and a graduate degree in

organizational development and human resources (nishing at the

rather late age of 35). I am grateful for this unusual mix of opera-

tions, nance, and human resources because it has led me to look

at business quite holistically. I understand that when you sum itall up, business is about making money, so I have made it a point

to become very literate in the area of nance. However, I also

look at business from the human resource perspective, knowing

that you can be nancially focused, but can do so in an interactive,

high-involvement, transparent, and far more enjoyable way than

what the vast majority of companies out there are currently doing.

After nishing my graduate degree, I began to tire of work-

ing in a corporate environment where personal agendas were prev-

alent and decision making was sluggish, so I started a one-man

consulting company in 1990 called Action Research. I borrowed

the name from a methodology I learned while going to school

at USF. The name of my company has changed twice since that

time, and Im quite certain that the name weve had for the last 15


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years now will be our last: Ownership Thinking. I love the name

of our company because it communicates perfectly what we want

to achieve: the creation of organizations whose employees think

and act like owners toward creating wealth (which, in turn, creates

opportunity). Ownership Thinking goes beyond this, however,

and is also about creating great cultures that are fun and reward-

ing to work in.

To be honest, I was rather clueless when I rst went into

business about what it meant to be a consultant (Ive since learned

that there are more than a few clueless consultants running

around). Given this, I was simply looking for any project that I

thought might t my rather unusual background. As luck would

have it, Mrs. Fields was looking for someone to help it with its

international development. The company representative called me

shortly after Id hung out my consulting shingle, and I agreed to

give the company 50 percent of my time for a while to help (no onehad to twist my arm much). If you are unfamiliar with Mrs. Fields

Cookies, it is primarily a retail cookie and baked-goods chain. At

the time, it had in operation several hundred locations domesti-

cally and did over $200 million in annual revenue. After spending a

couple of years opening up cookie companies around the world, I

began supporting the licensee for Mexico, a company by the name

of Bimbo, with their development of the Mrs. Fields brand. Bimbo

(pronounced Beembo in Spanish) is a multi-billion dollar bread

products manufacturer and distributor based in Mexico City and

now a big player in the United States, as well.

In 1992, after about six months in business, the Mexico

operation (MFD de Mxico) had eight locations open and a small

corporate oce and was nowhere near to meeting its nancial


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plan. Ownership was very concerned about this, and during one

of my visits, they asked me if Id be interested in moving to Mexico

City to take the reins as president of MFD. I decided that moving to

Mexico might be a once-in-a-lifetime opportunity, so I took the job.

I knew that MFD de Mxico was having some diculties,

but I had a good deal of experience with the Mrs. Fields concept,

and felt condent that the company could be turned around with

the right leadership. It was a bit frightening when I arrived, how-

ever, to discover that none of the employees seemed very con-

cerned that the company wasnt performing well. Not wanting to

waste any time (or having the luxury to do so), I dug into why this

might be the case and discovered a few things very quickly about

doing business in Mexico. First, management is very centralized,

and in most organizations, virtually all decisions are made at the

very top. In addition, very little information is shared with employ-

eesespecially nancial information. So, my assumption regard-ing employees lack of concern was not accurate: they just didnt

know that the company wasnt performing well. The second issue

in Mexico is the huge disparity in wages. Senior-level people make

pretty good moneymore or less what we are accustomed to in

the United Statesand everyone else makes next to nothing. When

I arrived to take over my responsibilities, employees working in

the Mrs. Fields Mexico retail locations were making substantially

less money per hour than it cost to buy one cookie in their stores.

Paradoxically, I also learned that the people in Mexico (by

and large) are extraordinarily entrepreneurial. I have noticed this in

developing countries in general, and I believe it is due to the levels

of poverty. In Mexico, 2 percent of the population is wealthy (and

I mean really wealthy), 8 percent is middle class, and 90 percent is


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poor (by our standards). Given this, being entrepreneurial (con-

stantly looking for opportunities) is just a survival mechanism. Add

to this the extreme volatility of the economics, and people grow up

understanding that if an opportunity presents itself, theyd better

take it now because it may not be there tomorrow. I learned about

this volatility rsthand. Near the end of my second year as presi-

dent of MFD, the peso lost half of its value overnightliterally.

At the time, we were importing all of our product; a frozen dough

product manufactured in Southern California. Our cost of goods

doubled. In addition, the government raised interest rates to an

astonishing 107 percent after the devaluation to encourage inves-

tors to keep their money in the country, even if they were simply

banking it to take advantage of these high rates. Unfortunately,

MFD was holding several hundred thousand dollars in debt at the

time, so our interest payments became crippling. Incredibly, we

survived this (many companies did not), and Im convinced thatwe did because we had created a culture and a way of doing busi-

ness that was extraordinarily powerful on many dierent levels.

It was simple. It got results. It was fun. It developed people. And,

it got to the heart of what drives me, both personally and from a

business perspectivethe notion of eradicating entitlement (more

on this in Chapter 1).

To reiterate, when I arrived in Mexico none of the MFD

employees knew that the company was struggling. They were

making very little money. But they were very entrepreneurial, and

I sensed that they would like to get more involved in the business

and would certainly like to make more money. How could we

capitalize on this? After pondering it for a few weeks, my sta

and I came up with a program that we called Socios. Socios is a


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Spanish word, which translates roughly to partners in English.

This t beautifully with the message we wanted to convey: Were

all partners in this eort to turn things around here.

Fundamentally, there were three components to Socios,

which later became the principal elements of Ownership Thinking

(the name of our process is the same as the name of our company).

If you consider the desired resultwhich is to create an organi-

zation of employees who think and act like ownersthen these

elements are quite logical (perhaps even intuitive).

First, if a business is nancially successful, the owner is

nancially successful. So, we gured we needed a method of

rewarding employees if they were successful in turning the nan-

cial performance of the company around. My experience with

incentive plans had not been very positive in the past, so I knew we

had to be careful here. Most incentive plans are not only ineec-

tive, but also actually damaging to the company. Why? They are fartoo complicated. They are typically tied to nancial performance,

but employees are not taught anything about nance, much less

the specics of how they are supposed to fund their plan. In fact,

they are not even taught that incentive plans must be self-funding.

Therefore, in a typical incentive plan, there is little connection

between what employees actually do and the incentive dollars they

receive or dont receive. So what happens? They get to the end of

a quarter (given that the plan provides for a quarterly payout) and

receive a big bonus check. They dont know why, but, of course,

they are happy to receive this gift. Perhaps they receive bonuses

for several consecutive quarters.

Lets stop for a moment and consider something: What is

the purpose of an incentive plan? I believe that its purpose is to


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shape employees behavior toward improving the nancial perfor-

mance of the company. The typical plan, described in the previous

paragraph, is clearly not doing this; it is simply an entitlement.

And, as I alluded to earlier, this plan will ultimately damage the

company. Why? Because eventually there will be a quarter with

poor business performance. Employees dont know this because

they have not been seeing nancial information and have not been

engaged. The only thing they know is that they will not be getting

a bonus this quarter. What do you suppose they are thinking now?

Given how they have been conditioned, they are most likely think-

ing that they are getting screwed. The thinking goes something

like this: Im doing the same thing I always did. I always got this

money before. They must be doing something. Now we have

a morale problem. This is very frustrating for business owners.

They created an incentive plan to change behavior and improve

performance (and to give something back), but the outcome is (1)little or no change in behavior, (2) a new expense, and (3) an angry

and ungrateful workforce.

Given these considerations, I knew I had to be cautious

about any reward system that I designed and provided for employ-

ees at MFD. The design of the plan had to be simple and under-

standable, and it had to be directly tied to the improved nancial

performance of the company. What we learned at MFD ( and

from considerable research Ive done since my work with MFD)

is discussed in detail in Chapter 2.

My sta and I also thought wed better teach the employees

about the business and how it made moneythe next compo-

nent of Ownership Thinking. If one wants an organization of

employees who think and act like owners, then those employees


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had better have some understanding of how companies operate

and make money and how their jobs aect the companys opera-

tional and nancial performance. To accomplish this, we devel-

oped a program to teach everyone at MFD the basics of business

and nance, helping them to understand how that all worked and

how the tasks they performed aected the business from a nancial

perspective. I will discuss how to educate employees in nance and

why I believe it is important in Chapter 3.

Finally, we created a way for everyone to get involved in

monitoring and measuring the companys performance so that

we could follow our progress in a highly visible fashion. While

considering how we might do this, we looked at how companies

typically monitor performance, or keep score, which is with their

nancial statements. We then asked ourselves a few questions:

Is this method of keeping score engaging everyone?

Do employees typically see nancial statements? Would

they understand them if they did see them?

Do nancial statements focus on the things that create

nancial performance or simply on the nancial result

itself?

Given the above, is this method of keeping score proac-

tive or reactive?

Do nancial statements help to create an environment of

visibility and accountability?


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The answers to these questions were obvious. We then con-

sidered what we might do dierently and decided that the best

approach might be to create an environment something akin to

a game. Most people enjoy games and become engaged when

they play them, no doubt because people like to have fun and

because (almost universally) they like to win. So, we created a

scoreboard. But instead of things like runs, hits, and errors, we

focused on those leading, measurable activities that drove our nan-

cial performance (we now call these Key Performance Indicators,

or KPIs) and got everyone focused on those. More about this in

Chapter 4.

These became the three components of Socios, now called

Ownership Thinking: The Right Incentives, The Right Education,

and The Right Measures (we have since added The Right People,

which is the foundation of any good company and one of the

outcomes of practicing Ownership Thinking). We designed androlled out the program a few months after my arrival in Mexico,

and the results were even better than I had hoped for. We had

a signicant operational and nancial turnaround in very short

order (in fact, we doubled our protability in less than a year). Just

as important, however, was the eect this had on the employees:

they became engaged, they had fun, they made more money, and

several of them became leaders.

Upon returning to the United States and settling in Denver,

I eshed out the details of a model based on our experience at

MFD and created something I was condent could be replicated

in virtually any industry (a belief that has proved to be true). As of

this books publication, Ownership Thinking LLC has helped over

1,000 companies to implement Ownership Thinking throughout


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the United States, Canada, and Australia. The results have been

truly inspirational.

In addition to the chapters detailed above, Chapters 5 and 6

will provide you with other tools available to lead your organiza-

tion toward Ownership Thinking, including Rapid Improvement

Plans (Chapter 5) and Employee Stock Ownership Plans (Chapter

6). In Chapter 7, you will nd the tools we have created at Own-

ership Thinking that will help you tap into the community of

business leaders and organizations that have created cultures of

employees who think and act like owners toward creating wealth,

opportunity, accountability, and purpose. Using the tools and infor-

mation detailed in this book is your rst step toward joining this

community.

Documents

Ownership Thinking