Ownership Thinking: new business model

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Ownership Thinking describes exactly what is trying to be achieved: to create cultures of employees who think and act like owners, with the purpose of creating wealth.

Creating wealth creates opportunity. Without wealth, there is no opportunity. At the same time, create a great place to work.

As a business owner or leader, you’ve probably agonized over these questions: Why can’t my employees see the issues I see? Why don’t they focus on the important issues? Don’t they understand the cost of doing business?

The problem is simply that your employees haven’t received the education and tools to begin thinking and acting like owners focused on the company: sales, cash, profitability, the marketplace.

Employees tend to focus on “me”: compensation, benefits, job security, getting my work done.

Ownership Thinking will move your employees from “me” to “us,” creating a better work environment and significantly improving financial performance.

There are four requirements in creating an environment of Ownership Thinking. The first is talent, the right people to move the business forward. Second is business and financial education for all employees. Third is identification and utilization of the critical leading indicators (measures) that will drive financial performance. Fourth is design and implementation of incentive and/or equity plans that benefit employee and employer.

The Right People. In a high visibility/accountability environment, the cream will rise to the top. Your best employees will latch on to the opportunity to become more actively involved. Incentives and/or equity will be important to them, but their primary motivator will be the opportunity to contribute and the clear association of their work with the organization’s success.

Employees uncomfortable in this new environment live in entitlement, believing they are owed a job and paycheck, often have poor attitudes and have learned how to hide. They believe they are contributing simply because they keep busy. With increased visibility and accountability, they typically choose to leave. Research from the National Center for Employee Ownership suggests that companies practicing Ownership Thinking retain employees at a 200 percent better rate than companies that don’t.

The Right Education. If employees are to become more actively involved in financial performance, they must have a fundamental understanding of business and how companies make money. Teaching them about finance is not as difficult as you might think — companies run much like a household.

Sales people have a fairly good idea how they help the company — they generate revenue. Other employees have more difficulty. But in a company with 5 percent profit, five cents of every dollar’s worth of product or service sold goes to the bottom line. But every dollar saved goes directly to the bottom line.

The Right Measures. How do businesses measure success? They utilize financial statements such as the income statement (sales — expenses = profit). That’s important information, but there are problems with focusing only on this data.

First, statements are “rear view.” The data is historical, and nothing can change it. Second, most employees cannot read statements, so they are not useful tools. Finally, they do not deal with activities that go on in the business. If we are to proactively manage financial performance, we must identify measurable activities that drive our financial performance, and get our employees focused on these.

We call these measures Key Performance Indicators, or KPIs. Your leadership team needs to identify the appropriate KPIs for you, then build a scoreboard to proactively manage financial performance.

The Right Incentives. Most incentive plans don’t work. They are too complicated. They are tied to financial results, but we do not teach employees about finance or provide them with the tools to fund the plan. Since there is no connection between work employees do and incentive payouts they receive (or don’t receive), the plans become nothing more than entitlements.

Ownership Thinking utilizes cutting-edge methodologies to create incentive plans that are self-funding and clearly aligned with business objectives. We provide employees with education and tools required so they can become actively involved in funding their plan.

The objective of an incentive plan should be to shape employees’ behavior toward driving financial performance. To do this, employees must understand that the plan needs to be self-funding, and it is their responsibility not only to fund the plan, but to improve the company’s financial performance.

We often hear that “change takes years.” At Ownership Thinking we know that change can occur quickly with the right commitment, training and tools.

David Cohn is the owner of David Cohn and Associates of Denver, working with business owners and their families. Reach him at david@davidcohn.net.