Entrepreneurs: Ken Iverson

After I thoroughly enjoyed Iacocca's book I decided to continue reading entrepreneur's books - I don't really see a negative, if I don't learn something from them, I still like reading them.

So the next book on my list is by Ken Iverson, called Plain Talk.

Iverson was the President of Nucor for about thirty years. I'd heard of how successful Nucor was in competing with the big steel companies (I think from a Peter Lynch Book actually) and my interest in his management style was renewed when I read an article in a magazine I've saved for the past couple years on the top 50 entrepreneurs of all time.

Here are the three parts of Iverson's management style, in my opinion.

Decentralization

This was Iverson's first innovation in the management. At Nucor there were only four layers of management: supervisors,department managers, general managers, and the CEO. So an hourly worker needs only four promotions to be the CEO.

I really like this theory as it eliminates a lot of the bureaucracy inherent in most big companies.

In the company each general manager is in charge of his mill, he is the CEO of that business. He gets funding from the central company, but he sets his own standards and makes his own rules for his mill.

All the managers meet a few times each year, where they set goals, review the financials, share techniques which work and decide where the funding will go.

This does put a lot of responsibility on each level (where I work the supervisors have 6, and at most 8-9 employees working for them at any one time, at Nucor each supervisor will work with 45-50 guys at a time), but Nucor's methods (which are discussed below) create great, hard-working and innovating employees who can handle it.

Innovation

One of the talking points on the back of the book is that Nucor pays the most per worker in the industry, yet has the lowest total labor cost.

This is done through a Charles Schawb like bonus structure. At Nucor the base rate that each employee makes is lower than just about every other company in the industry. But, then Nucor sets a number on each area of the mill for production. After that number is passed every percent over that number that is produced is an extra percent bonus the employee gets in his pay check that week.

This spawns a lot of innovation, Iverson tells the story of a machine that had a rated capacity of 10 tons per hour.The employee's base number was 8 tons per hour, and within a year they had made enough adjustment to the machine and added enough things on that they were making 20 easily.

Iverson tells a similar story from when he was still an engineer. The company needed a $200,000 machine to make a certain product, but at the time they didn't have enough funds to build it.

So Iverson and his men built a similar machine that did everything they needed form only $5,000 in raw materials they found in the plant.

It is obvious that Iverson knew there was a type of person (he was one of them) who loves to innovate and make constant improvements - he is not content in just sitting around watching the same-old same-old. Iverson created the right environment and culture and gave the right incentives to employees to take advantage of the trait.

Egalitarianism

Iverson says Nucor's relations with employees follow these four principles:

1. Management is obligated to manage the company in such a way that employees will have the opportunity to earn according to their productivity;
2. Employees should feel confident that if they do their jobs properly, they will have a job tomorrow;
3. Employees have the right to be treated fairly and must believe that they will be;
4. Employees must have an avenue of appeal when they believe they are being treated unfairly

This sounds like it's coming straight from a union handbook - which probably explains why Nucor never had any (and in fact the hourly workers once ran union guys off, when they tried to get Nucor workers to join their union).

If you think about each of these, they all make sense:

1. At Nucor allowing employees to earn according to their productivity is what fosters their endless innovation.
2. How would it make sense to fire someone who is doing his job properly?
3. A big part of Nucor's operation is to be as decentralized and small as possible. They also try to eliminate any barriers between levels of management and hourly workers - when supervisors are working there is no way to tell who is the supervisor most times. This could not work if employees were not being treated fairly
4. Part of number three upper management needs to know if lower management isn't doing his job correctly.

One of the things Iverson did to show this egalitarianism was to make all the hardhats the same color, that way there would be no differentiation (except with maintenance) in the look of employees and management.

When the company puts a huge amount of differentiation between management and employees, the employees tend to get restless and see themselves as doing the 'real work,' and the managers as not doing important things.

I've seen this at KFC, they make a big deal of just being a shift supervisor. I had a different color shirt and a different name tag than everyone else. And the manager and co-manager had still different shirts, with their names sewn in. So when the managers or supervisor had to do work in the office, the new people or people who didn't want to move up would get upset that they were out dealing with customers while the manager was, "just sitting in the office."

In my experience I've been able to counter this by simply not being a jerk and always working hard.

If the other people always see me working hard to get things done and I explain to them how what I'm asking them to do will help us get done faster, in stead of just yelling at them to do it, they will see what needs to get done and do it. Also, when I don't have to go into the office as much as other managers because I don't waste time, people don't complain that I'm, "just sitting in the office."

The same thing happened at Nucor, manager who treated employees poorly would fired, and there were no barriers between management and the workers - the workers never had a reason to think management was just sitting in the office.

Conclusion

I enjoyed this book a lot more than Iacocca's, it was not burdened by economics non-sense, but it was also written better and read more like a group of stories, with principles attached.

I would recommend it to anyone who likes business.

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