Entrepreneurial Management for the Twenty-First Century: Three Breakthroughs

Three extraordinary companies have been built or revolutionized since 1980: JetBlue; Springfield Remanufacturing Corporation of Springfield, Missouri; and Johnsonville Sausage of Sheboygan, Wisconsin. Inde­pendently and unbeknownst to one another, these companies created what we describe as "high-standard, perpetual-learning cultures," which create and foster a "chain of greatness." The lessons from these three great companies provide a blueprint for entrepreneurial management in the twenty-first century. They set the standard and provide a tangible vision of what is possible. Not surprisingly, the most exciting, faster-growing, and profitable companies in America today have striking sim­ilarities to these firms.

David Neeleman and JetBlue

U.S. airlines has been considered one of the stoogiest, large-company-dominated industries ever. It requires very high fixed costs; its largest variable cost (at 2 5 percent) is outside the business's control; profits are low or even negative; and it is dominated by the highest-paid union in business. How could any start-up begin to think it could raise money, get off the ground, and succeed in 1999? David Neeleman, and his ven­ture capital lead backer, Michael Lazarus of Weston-Presidio Partners, epitomize the entrepreneurial thinking and process, creative strategies, and breakthrough management approaches that we have highlighted in this book. And they are revolutionizing the airline industry in ways none of the established players ever imagined: fly people where they want to go rather than where you want to build hubs; make everything elec­tronic - from tickets to flight and maintenance logs to all record keep­ing and documentation (Neeleman invented the first electronic ticket); customize and create highly flexible and the highest paid jobs in the industry; build a great team and don't insist that they all work at one location (the vice president of human resources, Ann Rhoades, lives and works out of Santa Fe, New Mexico, while JetBlue's headquarters is on Long Island); and create and live by a culture of five core values: (1) safety, (2) caring, (3) integrity, (4) fun, and (5) passion. The company in its first year (2000) operated ten Airbus 320s and employed nearly 1,000 people. By 2004, it expected to have 5,000 people on its payroll. JetBlue has had an initial public offering of stock and has a market cap­italization over $8 billion. This is an industry with a lot of technology-based innovation but surprisingly little entrepreneurial thinking, with the exception of People Express and Southwest Airlines. JetBlue is a stunning reminder of how the entrepreneurial revolution is driven by people and leadership.

Jack Stack and Springfield Remanufacturing Corporation

The truly remarkable sage of this revolution in management is Jack Stack. His book The Great Game of Business is a must-read for any entre­preneur. In 1983, Stack and a dozen colleagues acquired a tractor engine remanufacturing plant from the failing International Harvester Cor­poration. With an 89-to-1 debt-to-equity ratio and 2 1 percent interest, they acquired the company for 10 cents a share. In 2003, the company's shares were valued near $30 for the employee stock option plan (ESOP), and the company had completely turned around with sales exceeding $160 million. What had happened?

Jack Stack created and implemented some management approaches and values that deviated radically from the top-down, hierarchical, cus­todial management commonly found in large manufacturing enter­prises. At the heart of his leadership was creating a vision called the Big Picture:

Think and act like owners, be the best we can be, and be perpetual learners. Build teamwork as the key by learning from each other, open the books to everyone, and educate everyone so they can become respon­sible and accountable for the numbers, both short- and long-term.

How can the Big Picture be implemented? Stack puts it this way:

We try to take ignorance out of the workplace and force people to get involved, not with threats and intimidation but with education. In the process, we are trying to close the biggest gaps in American business - the gap between workers and managers. We're developing a system that allows everyone to get together and work toward the same goals. To do that, you have to knock down the barriers that separate people that keep people from coming together as a team.1

At Springfield Remanufacturing Corporation, everyone learns to read and interpret all the financial statements, including an income state­ment, balance sheet, and cash flow, and how his or her job affects each line item. This open-book management style is linked with pushing responsibility downward and outward, and to understanding both wealth creation (i.e., shareholder value) and wealth sharing through short-term bonuses and long-term equity participation. Jack describes the value of this approach thus: "The payoff comes from getting the people who create the numbers to understand the numbers. When that happens, the communication between the bottom and the top of the organization is just phenomenal."3 The results he has achieved in ten years are nothing short of astounding. What is more amazing is that he has found the time to share this approach with others. To date, over 150 companies have participated in seminars that have enabled them to adopt his approach.

Ralph Stayer and Johnsonville Sausage Company

In 1975, Johnsonville Sausage was a small company with about $5 mil­lion in sales and a fairly traditional, hierarchical, and somewhat custo­dial management. In just a few years, Ralph Stayer, the owner's son, radically transformed the company, with a management revolution whose values, culture, and philosophy are very similar to the principles of Jack Stack and David Neeleman.

Remarkably, by 1980 the company had reached $15 million in sales; by 1985, $50 million; and by 1990, $150 million. At the heart of the changes he created was the concept of a total learning culture: everyone is a learner, seeking to improve constantly, finding better ways. High performance standards, accompanied by an investment in training and performance measures that made it possible to reward fairly both short-and long-term results, were critical to the transition. Responsibility and accountability was spread downward and outward. For example, instead of forwarding complaint letters to the marketing department, where they are filed and the standard response is sent, they go directly to the frontline sausage stuffer responsible for the product's taste. They are the ones who respond to customer complaints now. Another example is the interviewing, hiring, and training process for new people. A newly hired woman pointed out numerous shortcomings with the existing pro­cess and proposed ways to improve it. As a result, the entire responsibility was shifted from the traditional human resources/personnel group to the frontline, with superb results.

As one would guess, such radical changes do not come easily After all, how are such changes ever initiated in the first place? Consider Ralph's insight:

In 1980, I began looking for a recipe for change. I started by search­ing for a book that would tell me how to get people to care about their jobs and their company. Not surprisingly, the search was fruitless. No one could tell me how to wake up my own workforce; I would have to figure it out for myself. . . . The most important question any man­ager can ask is: "In the best of all possible worlds what would I really want to happen?"5

Even having taken such a giant leap, Ralph was ready to take the next, equally perilous steps:

Acting on instinct, I ordered a change. "From now on," I announced to my management team, "you're all responsible for making your own decisions." . . . I went from authoritarian control to authoritarian abdication. No one had asked for more responsibility; I had forced it down their throats.6

Further insight into just how challenging it is to transform a com­pany like Johnsonville Sausage is revealed in another Stayer quote:

J spent those two years pursuing another mirage as well - detailed strategic and tactical plans that would realize my goals of Johnsonville as the world's greatest sausage maker. We tried to plan organizational structure two to three years before itwouldbe needed. . . . Later I real­ized that these structural changes had to grow from day-to-day work­ing realities; no one could dictate them from above, and certainly not simplifies the process and understates the extraordinary commitment and effort required to pull it off, but it does show how the central ele­ments weave together.

Exhibit 8.4 summarizes the key steps in the transformation of John­sonville Sausage over several years. Such a picture undoubtedly over

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