PDF Summary:The Great Game of Business, by Jack Stack and Bo Burlingham

In The Great Game of Business, businessman Jack Stack and writer Bo Burlingham propose that the best and most efficient way to create a successful business is by encouraging employees to take ownership—by encouraging them to see the company as theirs rather than just somewhere they work. If employees see the company as theirs, its success becomes their success as well—and people will work harder to ensure their own success than that of others.

In this guide, we’ll explore the principles of fostering employee ownership that let Stack take a failing division of International Harvester and turn it into a corporation comprising over 60 businesses. We’ll examine the benefits and difficulties of implementing these principles and the authors’ advice on how to do so. In our commentary, we’ll compare the authors’ ideas to those of other business experts such as John Doerr and Tony Hsieh and examine how their suggestions intersect with psychological principles.

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For example, let’s say Shelly is a car saleswoman. When her company increases accessibility, she learns that its purpose is to decrease crashes and protect its customers. Shelly realizes that she’s contributing to this purpose by selling features that are designed to protect customers—for example, upgraded mirrors or airbags. This inspires her to be more passionate when selling upgraded cars to customers, since she now knows the features exist to help and protect people, rather than just existing to make the company more money.

Stack and Burlingham argue that directly stating the company’s goals, purpose, and operations is the most effective method of education. Tell employees what the company as a whole cares about and how it's supporting those things. The onboarding process and meetings with established employees are good opportunities for sharing this information.

The Psychology of Memory in Business

Stack and Burlingham explain that many employees only understand the parts of their company they’re directly involved in, and this narrow view can discourage ownership. But why do employees lack this broader understanding? It might have to do with how memory works: Humans have a limited amount of memory, so the brain has to prioritize remembering relevant information while forgetting irrelevant information.

Unfortunately for companies, what the brain deems relevant depends on the individual and may not include the larger operations of a company. In the employees’ minds, remembering the details of their personal tasks is most important, since those are the memories that can directly affect them—if they forget how to complete their tasks properly, they can lose their jobs. In comparison, the company’s overall goals and operations are less immediately important and so are forgotten.

Discussing the company's organization, goals, and purpose in the onboarding process and meetings, as Stack and Burlingham suggest, is a great way to counter this memory loss. Stressing these larger concepts’ importance and relevance to a job’s day-to-day activities encourages employees to form connections between these concepts and their tasks. These connections make the company's organization, goals, and purpose feel more relevant and thus make them more easily remembered. In turn, this encourages employees to work harder to fulfill them.

Step #2: Explain the Numbers

Once employees understand the big picture of the company’s purpose, goals, and operations, introduce them to the numerical details of how the company works toward these goals—particularly financial numbers. Stack and Burlingham say that numbers are the language of business, and employees must understand them to effectively take ownership and help the business succeed.

(Shortform note: Understanding financial statements is arguably important because it reduces misunderstandings between employees. For example, if two colleagues, Sarah and Hank, weren’t taught how to read and understand financial documents, Sarah might define ‘sales’ as transactions that have already been completed, while Hank may believe ‘sales’ include promised future transactions. If Hank tells Sarah that they’ve sold 30 copies of a book, she’ll order enough copies to replace those orders. However, if only 20 of those sales have actually been completed, they could end up over-ordering and clogging up their inventory.)

Explain Balance Sheets and Income Statements

The most important numbers for employees to understand are balance sheets and income statements, Stack and Burlingham argue. (Shortform note: A balance sheet provides a detailed snapshot of the company’s financial status on a specific day, usually the final day of a set accounting period. It shows the state of the company’s specific assets and liabilities, such as cash and accounts payable. An income statement shows how the company’s been progressing financially over time. It provides a more general overview of the company’s revenue and expenses.)

Balance sheets expose financial problems in the company, Stack and Burlingham explain, while income statements can help diagnose the cause of those problems and find a solution. With access to this financial information, employees can diagnose and solve these problems as they occur, rather than waiting for upper management to notice and diagnose them.

For example, let’s say a car company’s balance sheet shows that the company is losing money. Employees look at the income statement and realize that the manufacturing department’s expenses have been increasing over the past several months. A closer look at the manufacturing department’s expenses shows that they're over budget because one of their suppliers increased prices. The employees alert upper management and recommend a cheaper supplier that they know makes quality items. Thus, the company is able to offset the increased expenditure quickly and effectively.

Offer classes and tutoring in reading balance sheets and income statements, Stack and Burlingham recommend, both for new employees and established employees that need a refresher. The authors maintain that the increase in productivity and problem-solving that knowledgeable employees offer is worth the cost of educating them.

(Shortform note: Before worrying about employee education, financial experts recommend making sure your financial statements are easy to read and understand. Many businesses use poorly constructed or confusing financial statements, and teaching employees how to read these is difficult and inefficient. However, if your financial statements are accurate, clearly organized, and regularly updated, your employees will be able to understand them faster and more accurately.)

How Balance Sheets and Income Statements Help Solve Financial Problems

According to Stack and Burlingham, balance sheets expose financial problems in the company while income statements can help you diagnose the cause of those problems and find a solution. While it’s true that these documents are both important to recognizing and diagnosing financial problems, the authors are arguably wrong about how they do so.

Balance sheets show the specific state of every asset and liability, which seems useful for identifying the root cause of a larger issue, rather than the general existence of the issue. For example, a balance sheet may show that a quarter’s equipment repairs cost $1600, but it doesn’t show that this is higher than previous quarters. As a result, employees may not recognize this higher price as a problem.

Similarly, income statements expose general fluctuations in revenue and expenses, so they may be more useful for identifying the general presence of a financial issue rather than the specific cause of that issue. For example, an income statement may show increasing expenses, but it won’t show the specific high equipment repair costs that are causing that increase. As a result, employees may recognize that there’s a problem, but they’ll be unable to find or solve the root cause of the issue if they only look at the income statement.

Step #3: Keep Employees Updated

Teaching employees about the company and the numbers that dictate its success or failure are just the first steps in accessibility. Stack and Burlingham note that going forward, employees need a constant flow of updated information. A company’s goals and numbers are always in motion as it adjusts policies, tries new manufacturing or marketing techniques, and adapts to any changes in the market. If employees make decisions using outdated information, they can harm the company, meaning it fails to meet its goals and may stagnate or even collapse.

For example, let’s say last year, a car company focused on making as many types of cars as possible to keep up with customer demand. However, over time, the market shifts as customers decide they want higher-quality cars, rather than a greater number of options. To keep up with the market, the company has to shift its focus to improving the quality of just a few of its cars. However, if employees only have access to information about last year’s goals and policies, they won’t realize this shift has occurred. They’ll continue manufacturing as many types of cars as possible, leaving the company stagnant and failing in the wake of a changing market.

(Shortform note: Having a constant flow of updated information is arguably important because it encourages employees to develop a flexible mindset. This is an important trait for modern companies because, as Stack and Burlingham allude to, the modern market is constantly shifting—likely due to rapidly updating technology. To survive in this environment, leaders need to view their companies as constantly evolving, rather than as static entities undergoing temporary changes. By continually sharing information, companies equip their employees to evolve with the company, instead of being left behind.)

To mitigate the risks of employees having outdated information, the authors recommend creating a schedule of regular staff meetings to keep everyone updated on the company’s evolving status. These meetings should be frequent enough that everyone in the company remains informed. Stack and his management team met once a week to discuss the company’s progress toward its annual goals, and managers scheduled meetings with their subordinates in turn. This short time frame kept everyone informed and let them adjust their plans and strategies in real time.

(Shortform note: Stack and Burlingham recommend holding weekly staff meetings to keep everyone updated on the company’s overall progress, but some experts argue that some types of updates call for meetings of different frequencies. They say weekly meetings are primarily suited to short-term updates and day-to-day issues, monthly meetings to managerial or departmental meetings, and quarterly meetings to the company’s larger goals and progress.)

Posters, scoreboards, and charts are valuable tools for keeping employees updated, Stack and Burlingham add. These provide a clear visual of the company’s current status and what employees must do to meet their goals. (Shortform note: This is called a visual management system, and it caters to humanity's natural affinity for processing information visually. Humans can process colors, shapes, and pictures faster and more accurately than words. These systems are used in many industries. The most well-known is likely traffic control: Every driver in the US knows a red octagon means "stop", while a double yellow line means "do not cross".)

The Benefit of Engagement

Now that we’ve covered the importance of accessibility, we’ll look at the second key to fostering employee ownership: engagement. As discussed, we’ve defined engagement as employees being active and interested at work.

Stack and Burlingham explain that engagement helps companies succeed by unlocking employees’ true intelligence, creativity, and dedication. Engaged employees care about their jobs and the company they work for, so they’re more likely to use all their available faculties at work. This helps the company succeed because employees who use their full intelligence make better business decisions, while those who use their full creativity find innovative solutions to problems. Those with a strong sense of dedication work harder for the good of the company.

(Shortform note: It’s possible that engaged employees work harder and fully use all of their skills because of a psychological phenomenon called reciprocity. As discussed previously, early humans relied on group membership and cooperation to survive. To promote this cooperation, humans evolved to dislike being in debt to others. When someone feels indebted to another, they’ll try to repay that debt. Since engaged employees are more likely to feel fulfilled and happy at work, they might feel indebted to the company that provided them with these positive feelings, which encourages them to work harder to help the company succeed and repay that debt.)

On the other hand, unengaged employees are at higher risk of losing motivation and becoming lethargic at work, Stack and Burlingham warn. They’re more likely to focus on completing their specific tasks and collecting their paycheck, rather than on the company’s success as a whole. As a result, they’re more likely to use the minimum intelligence, creativity, and dedication required to complete their tasks, leaving a wealth of potential untapped.

(Shortform note: How can you avoid the negative effects of having unengaged employees and keep your workforce motivated? The key may be managing your employees effectively. According to First, Break All the Rules, the biggest risk to employee engagement is inefficient and hostile relationships between employees and management. These negative relationships are often caused by mismanagement, such as micromanaging or putting employees in a role that doesn't fit them. Training or hiring managers who can understand employees' weaknesses, talents, and personalities can make employees happier and more engaged, give them the autonomy to take ownership, and make the company more successful.)

Creating Engagement

So, how can you cultivate employee engagement? According to the authors, one important factor is promoting accessibility: Businesses that are accessible are usually also more engaging because employees are constantly learning new, interesting information that helps them take an active role in the company. (Shortform note: Accessibility is engaging because learning something new or mastering a skill releases a burst of dopamine, according to Raph Koster in A Theory of Fun For Game Design. This burst of dopamine generates pleasure and motivation, making employees more likely to learn more about the company and become more active in its operations in the hopes of earning another burst of dopamine.)

However, Stack and Burlingham maintain that accessibility is just the first step in generating engagement. We’ve synthesized his further suggestions for creating engagement into two main categories: setting goals and offering rewards.

Step #1: Set Company-Wide Goals

To create engagement, you need employees who are active and interested at work, Stack and Burlingham say. Setting specific company-wide goals achieves this by giving employees something concrete to work toward. For example, employees who are told that everyone has to make 100 sales this week will be more willing and able to take action and make those sales than employees who were abstractly told to increase sales.

(Shortform note: Concrete goals are motivational because they’re easier to break into actionable steps. For example, “make 100 sales this week” is a good goal because it has an exact endpoint. If Sarah sold 70 books already, she knows she needs to sell 30 more. With this in mind, she can evaluate her marketing and resource options—such as paying to boost a post on social media—and implement the most effective and cost-effective ones. In contrast, “increase sales” is too vague. There are many potential ways to increase sales, but without knowing exactly how many sales to make, Sarah wouldn’t be sure how much time and resources she should spend on marketing.)

In addition, setting goals increases employees’ interest in the work by showing them how they can influence the company’s success or failure, Stack and Burlingham explain. Seeing how their actions move the company toward reaching its goals shows employees that their jobs are meaningful and therefore more interesting.

(Shortform note: Stack and Burlingham note that employees see meaningful work as more interesting. This interest may arise because feeling meaningful and influential strengthens the employees’ sense of purpose—it makes them feel like they’re living according to their overarching values and goals. There are nine main types of purpose, and feeling meaningful and influential is especially engaging for people who value achievement. However, these feelings may not be as effective for employees who value other types of purpose more, such as freedom or tradition. Consider how your company can foster every type of purpose so all employees can be better engaged.)

Set Baseline and Ambitious Goals

When setting goals, Stack and Burlingham recommend identifying the minimum level of success that will allow the company to survive. Meeting this level is the company’s first priority, since it’ll fail otherwise, so it should be your first goal. The level of activity you need to hit can change depending on the company’s circumstances. For example, when a car company is young, it might focus on making a certain number of sales, as it needs the revenue to survive. Once established, the company may focus on building dealerships in a certain number of states instead, as the company must grow to succeed in the long term.

(Shortform note: As well as ensuring survival, modest baseline goals can provide all-important employee motivation. Employees may believe that reaching ambitious goals is impossible, which ruins their motivation and makes them give up. In contrast, smaller goals are more achievable, so employees are more motivated to complete them. For example, if Sarah’s stretch goal is to sell 100 books but she’s only sold 60, she might believe that selling 40 more books is impossible and give up. As a result, she doesn’t sell any more books. However, if she has an additional baseline goal of selling 75 books, that provides a much less overwhelming target she’ll feel motivated to shoot for. This motivation may not be enough for Sarah to reach the 100-book goal, but she’ll at least sell more books than if she gave up.)

Identifying the minimum level is important as a baseline, the authors believe, but it’s just the first step: A baseline goal ensures the company will survive but not whether it will thrive or succeed in the long term. They recommend using the company’s sales and profits projections to create more ambitious goals for company profit and growth, as these projections are usually accurate and feasible enough to be good starting points.

(Shortform note: Sales and profits projections use data from past years, competitors, and overall industry trends to predict how the company will fare in the coming year. These projections show what will happen if the company maintains its current level of success and effort. This forms a sort of middle-ground or comfort zone when setting goals, as meeting this goal is better than just surviving, but it doesn’t necessarily force the company to improve. Once you have this middle ground, though, you can use it as a gauge to set stretch goals—goals you might achieve if everyone involved in the company gets out of their comfort zones and increases their effort.)

Consult Other Departments When Setting Goals

Stack and Burlingham stress that consulting other departments when goal-setting is essential. While sales and marketing can provide an abstract estimate of potential sales and profits, the other departments are vital for concretizing these projections and determining if they’re really feasible and accurate. For example, sales and marketing may project $3 million in profit for the year and want to set this as a goal, but the manufacturing department knows that requires them to make 500 cars. With this concrete goal in mind, the department can consider costs and labor to determine if making 500 cars is feasible, if doing so will actually result in $3 million in profit, and if the goal is reasonable.

(Shortform note: Stack and Burlingham’s advice is similar to how OKR goal-setting systems function. According to John Doerr in Measure What Matters, OKR stands for Objectives and Key Results. Objectives are larger, overarching goals—such as the estimates provided by sales and marketing—while key results are the smaller, concrete steps required to meet those objectives—such as the information provided by the manufacturing department. Doerr recommends letting employees set most of their own key results, since they usually understand their tasks and goals better than a manager would. It’s also more efficient for individuals to set their own goals instead of waiting for one person or group to set goals for everyone.)

Step #2: Offer Rewards

Offering rewards is also important for promoting engagement. People love getting rewards, Stack and Burlingham imply, and the existence of a reward interests them and encourages them to be active so that they can earn it. (Shortform note: Rewards encourage engagement by associating active participation at work with positive feelings. Receiving a reward activates the pleasure centers of the brain, providing a burst of dopamine that makes people feel happy. Thus, employees will be more engaged because they want to earn more dopamine.)

Stack and Burlingham recommend two methods of offering rewards:

Method #1: Institute a Bonus Program

According to the authors, instituting a bonus program is a great way to offer rewards and encourage engagement. Bonus programs reward employees with extra money when they reach certain goals. The promise of the bonus captures employees’ attention and encourages them to actively work toward the company’s goals.

These programs must operate on a company-wide level, the authors say: Everyone in the company works together to meet the goals, everyone is judged with the same metrics, and everyone gets a bonus if the company meets the goals. This method works better than offering individual bonuses because it encourages employees to work together to meet a joint goal. In contrast, when employees compete against each other for more limited bonuses, conflict and a lack of cooperation arise as co-workers see each other as threats instead of allies.

Stack and Burlingham recommend constructing your bonus program with tiers. The minimum level of effort discussed above forms the baseline that employees must meet to earn their salaries, while the company’s other goals form the bonus tiers. As the goals grow more ambitious, the bonuses that employees earn for meeting each one increase as well. Slack also advises paying out the bonuses every few months. This structure helps employees remain engaged throughout the year—the more frequent payouts keep them interested, while the increasing bonuses encourage them to remain active.

(Shortform note: As mentioned above, rewards trigger the pleasure centers of the brain, providing a burst of dopamine that increases motivation and positive feelings. This positive reaction can be enhanced by staggering these rewards and using a tier structure, as Stack and Burlingham suggest. This kind of bonus program concretely shows employees how far they’ve progressed in meeting their goals, and according to business experts, making progress is the single most important factor for encouraging motivation, inspiration, and positive feelings.)

Preventing Inter-Employee Competition

As Stack and Burlingham note, competing for bonuses can lead to conflict because competition requires one person to fail so the other person can succeed. For example, let’s say Sarah and Hank’s employers give a bonus to whoever sells the most books in one year. For Sarah to win the bonus, Hank must fail to sell more books than her. Her success relies on his failure, which might make Hank feel resentful. These negative feelings increase conflict, making Hank and Sarah less likely to appreciate or support each other.

Stack and Burlingham recommend mitigating this problem by only offering company-wide goals, but there’s another option: Offer individual bonuses that make employees compete against themselves, rather than their co-workers. This prevents conflict, helps employees appreciate each other’s work, and can make employees happier.

For example, let’s say Sarah and Hank’s employers change the program so any employee who sells 100 books in a month earns a bonus. For Sarah to win the bonus, she has to push herself out of her comfort zone and work hard to reach more customers and make more sales. Her success doesn’t rely on Hank’s failure; in fact, he can sell 100 books and earn the bonus as well. Since neither Sarah nor Hank has to fail, there will be less resentment between them. They’ll be better able to appreciate and support each other.

Method #2: Offer Equity

Equity is another reward Stack and Burlingham recommend offering. (Shortform note: Equity refers to the value of a company, or how much money the owner would make if all the company’s assets were sold and all its debts paid off. When a company offers equity, it gives its employees percentages—or shares—of company ownership. Employees can then sell their shares, with the value of the shares fluctuating depending on how successful the company is.)

According to Stack and Burlingham, offering equity encourages engagement by directly connecting employees’ success with that of the company: When employees work hard to help the company succeed, the company’s value increases, thereby increasing the value of their shares. The ability to influence the value of their reward interests employees and encourages them to be active in improving the company.

However, the authors caution that offering equity is only truly effective in an accessible work environment. Employees must understand what factors contribute to share value—such as fluctuations in the market—or they’ll get upset when their share price is temporarily falling or won’t appreciate having equity.

Equity and Participative Management

Equity is a particularly effective reward for encouraging engagement and making companies more successful. Studies show that businesses with employee stock ownership plans—also known as ESOPs—grow faster, perform better, and retain more employees than their counterparts. ESOP companies are also 75% less likely to go out of business, making them much more resilient in the face of economic hardship than companies that don’t offer employee equity plans.

Equity is so effective because it literally gives employees ownership, a privilege that provides not only financial benefit but also the ability to vote on how the company is run. Thus, employees with equity are able to directly influence the company at the highest level. As discussed previously, this influence is a strong motivational force and encourages employees to work hard to help the company succeed.

Equity is powerful on its own, but when paired with participative management, it’s even more so. Participative management allows employees to not only have a vote on major company issues but to also have a say in day-to-day operations. This extends employees’ sense of influence, motivating them further.

To start having a more participative management style, include employees in important meetings and regularly interview them for feedback on how the company operates. Discuss possible solutions to problems with employees. To be effective, this management style may also require some education—part of an accessible work environment, as Stack and Burlingham recommend—so managers can better encourage employee participation and employees can participate more effectively.