By the standards of management pundits and consultants, Mr. Stack and the other SRC people are rough-spoken and informal. Even though a number of business schools use SRC as a case study, it’s hard to imagine SRC’s culture being taught. SRC managers tend to work out their own theories at a local bar, with managers from the various companies continually dropping in for discussion of the future over beer and chicken wings.
Most of his ideas, Mr. Stack insists, came from ad hoc efforts to deal with problems and issues that naturally emerged as he put the Great Game into practice: “Our story could be a whole new series of the ‘Three Stooges.’ We stumbled from one challenge to the next.
Cash and Schmozzle
SRC began life 18 years ago as a last-ditch effort to keep alive an obscure International Harvester engine-rebuilding plant that was losing $2 million a year
Originally assigned as the plant manager to shepherd the facility’s demise, Mr. Stack chose to revitalize it instead, using a technique that had worked for him in Illinois: setting up competitions based on productivity targets. This naturally led him to revamp cost measurements to make it easier for shop floor people to discern, say, the various expenses that went into making one component. He and his colleagues turned the plant around and made it profitable, even ripe for new business
But International Harvester wasn’t interested in expansion. During the 1981 recession, which hit agriculture particularly hard, the farm and construction equipment manufacturer demanded that some of its plants, including the one in Springfield, cut back production. But Mr. Stack and his wife had fallen in love with the convivial small city of Springfield, and he also felt there was a better way. “I came from a strict Catholic family,” Mr. Stack recalls, “and didn’t realize how sheltered I’d been … I learned about factories closing down, people getting laid off, and the total disregard that most companies have for their people.
He and 12 of his fellow Springfield managers decided to ignore the demands and keep the plant’s staff employed, even if it meant trolling for business on their own. From there it was natural to offer to buy the plant from Harvester and set it up as an independent company
Mr. Stack and his partners had very little money of their own at that time, and it took two years to secure the financing, with the 31-year-old Mr. Stack taking on the grueling but eye-opening task of wooing investors. Their task was complicated further because, to enlist the workers’ commitment and help, the new managers had promised to give everyone shares in the company. He never forgot one venture capitalist telling him the company lacked “schmozzle” — meaning a credible story, backed up with detail, of how the company could return the investment in a reasonable time. Soon Mr. Stack realized that all the employees, as shareholders, would also be investors, and they’d want schmozzle too.
Ultimately, the partners raised just enough money to buy the plant — and, immediately upon opening SRC, they lost one of their key customers. Burdened with an 89:1 debt-to-equity ratio (“on a par,” Mr. Stack later commented, “with the government of Poland”) at 18 percent interest — an enormous cash crunch even if they were profitable — and unforgiving creditors, Mr. Stack and his 12 confederates felt they had no choice but to let everyone in the plant know exactly how bad things were.
It turned out that people appreciated the opportunity to learn and to take part proactively in saving their jobs. “We realized that we could run out of cash any moment and not make payroll,” says Ron Guinn, then an hourly worker at SRC and now a senior manager at ReGen. “Pulling together and watching our cash became a way of life. If you bought a tool, you realized what the effect of that expense would be. It finally dawned on me that I didn’t have to trust those 13 guys in management. If I learned the numbers, I could figure out the business for myself and determine if it would do for me and my family what I thought it should do.”