Best-Kept Secrets of the World's Best Companies
Great management formulas aren't handed down on stone tablets. At even the smartest companies, they emerge from years of trial and error. Here are 25 best practices you've probably never heard of--and might want to start implementing tomorrow.
By Paul Kaihla

(Business 2.0) – SECRET NO. 01: Compare everything you do against your rivals. HP

Extreme Benchmarking

HEWLETT-PACKARD CEO Mark Hurd loves numbers--and insists that his managers learn to love them too. Since Hurd came onboard last March, one of the key tools he's used to keep pace with rivals is his extreme form of industry benchmarking. Instead of comparing HP's sales and profits with Dell's or IBM's, the company now tracks itself against rivals by every conceivable measure. "We want to make sure we break down every unit and business function," explains Marius Haas, senior strategy officer at HP, "so we can become best in class in each one."

Here's how it works: Imagine a matrix with various business units running down the side (printing, servers, storage, IT services, etc.) and business functions across the top (finance, HR, marketing, R&D, etc.). Now create benchmarks for each of the 72 resulting cells and you have a good idea of how Hurd is managing the $87 billion company. The benchmarks are the best guess of where HP's rivals are going to be in 2007, based on more than a dozen variables, from real estate cost per square foot to operating expenses as a percentage of gross margin.

Before Hurd took over, HP measured itself primarily against IBM, using one very blunt tool: costs as a percentage of revenues. That ignored IBM's higher gross margins and the fact that it has more gross profit to spread around. Hurd's new benchmarking method formed the basis of HP's reorganization effort announced last July, through which HP has promised to save $3 billion by 2008. Already there is key evidence of success: Operating expenses as a percentage of gross margin dropped 2 percent in 2005, helping to fatten profits by $385 million. -- E.S.

SECRET NO. 02: Create a lending library of ideas. IDEO

The Tech Box

Ideo helped create the Treo phone for Palm, the Leap chair for Steelcase, the stand-up toothpaste tube for Procter & Gamble, and hundreds of other products for top manufacturers. But there's one invention the Silicon Valley design shop keeps in-house: the "tech box," a freezer-size chest of drawers in each of its seven offices around the world. Inside each is the same library of up to 2,000 gadgets, materials, textiles, and artifacts that keep the creative gears of Ideo designers in constant motion. In drawers with labels like "thermal optical technologies," "amazing materials," and "cool mechanisms," designers can browse through everything from a swatch of fabric that glows in the dark to holographic candy, plywood tubes, and space shuttle tiles.

"It's not a typical lending library," says Ideo designer Dennis Boyle, one of the company's principals and co-creator of the tech box along with Rickson Sun, Ideo's chief technologist. "People will pick out 20 items and bring them to a brainstorming session. We use the tech box to cross-pollinate every new project."

Take the Swiffer CarpetFlick, a recent Ideo project for P&G. During prototype tests, users gave the portable rug sweeper low marks for picking up carpet lint and other clingy materials. "The design team ran into a real roadblock," Boyle recalls. After a designer returned from the tech box with a lint brush, "we found that if we put a strip of it on the bottom of the Swiffer," Boyle says, "it rolled up lint in a way that gave it enough mass to be picked up by the scoop." The cheap fix helped support premium pricing: The CarpetFlick now sells for $12.99. -- P.K.

SECRET NO. 03: Appoint official devil's advocates to challenge the merits of deals. TORO

The Contra Team

The appetite for mergers only gets bigger: U.S. companies consummated an estimated $1 trillion worth of M&A deals last year, up from $781 billion in 2004. All this despite the grim reality: Two-thirds of all acquisitions fail to meet their goals, according to a study by Booz Allen Hamilton.

Toro, the $1.8 billion lawn-mower giant, knows how to curb the urge to merge. Anytime an M&A pitch reaches the desk of CEO Mike Hoffman, he asks a due-diligence group to make the case to the company's board. But he also turns to the "contra team"--half a dozen vice presidents and directors--to deliver the voice of dissent. According to chairman Ken Melrose, who got the idea from reading about a similar practice at Japanese firms, a few years ago the contras killed an eight-figure acquisition of a manufacturer that had pitched itself as a turnaround success. The contras' number crunching showed that its sector was facing a slump. The prospect's revenues have since tanked, while Toro has nearly doubled its sales. "Nay-saying in corporate America isn't popular," Melrose says. "The contra team is a way to create negative views that are in the shareholders' best interest and the company's best interest." -- P.K.

SECRET NO. 04: Use office design to keep the queen in touch with the worker bees. Bloomberg

The Corporate Beehive

Bloomberg's new Lexington Avenue headquarters in Manhattan is more than just architectural shock and awe. Its centerpiece--a courtyard enclosed by a six-story elliptical "curtain" of tubular steel and glass--resembles a cross section of a beehive, with workers exposed on each level. Modeled after the trading floors where founder Michael Bloomberg got his start, the building is a wide-open expanse of workspaces devoid of private offices and cubicles. Even the conference rooms have glass walls.

CEO Lex Fenwick, who sits at an open desk on the sixth floor surrounded by some 125 sales and customer service staffers, doesn't mind the praise he's received for the striking design. What he cares about most, though, is the view he has from the catbird seat. "I know quicker than any piece of damn software when we have a problem. I can see it right in front of me when it happens," Fenwick says. "I watch the phone calls; I see the stress level on faces. Someone can look at me and say, 'We've got a problem.' What does it allow me to do? Get on someone to fix it in seconds. The communication this setup affords is staggering." -- P.K.

SECRET NO. 05: Keep a constant eye out for trouble. cp

Bad News Folders

Business was good at Colgate-Palmolive during the 1990s--so good that CEO Reuben Mark began worrying about what might go wrong. So he decided to install an early-warning system to flag problems before they blew up into company-wrecking crises. Each day at Colgate, half a dozen or so clear red plastic folders land on the CEO's desk, as well as the desks of other top execs. Inside each is a "situation report," a form that regional managers fill out to describe brewing trouble of any sort--from factory slowdowns to worker injuries. On a recent day, one folder mentioned the robbery of one of the company's delivery trucks in the Dominican Republic. Another reported the discovery of counterfeit toothpaste tubes in a South African market.

Local managers handled those issues. But when a report alerted Mark that officials in Baddi, India, had questions about how a plant treated wastewater, Colgate quickly involved an engineering team to avoid potential embarrassment. Another perk of the process? Its self-policing power. "No one is going to report a problem," a company executive says, "and then not do anything about it. You can say it's boring, but process does make the world go around." -- H.C.

SECRET NO. 06: Bring in experts to help spark new ideas. CORNING

Outside-In R&D

This year Corning will spend about $450 million--some 10 percent of its revenues--on research and development. And it will also realize the fruits of such lavish spending, with plans to launch dozens of high-tech products, from a new diesel emissions technology to exotic green lasers. But the company's new-product pipeline doesn't begin and end with R&D. Rather than relying solely on scientists toiling in the labs, Corning regularly teams up its workers with entrepreneurs and big thinkers from outside the company to come up with ideas for new products.

A few times a year, the company runs half-day brainstorm sessions at its New York headquarters to kick off the quest for innovations. First, managers from a special marketing group--a 15-person unit tasked with identifying $500 million-plus business opportunities--gather for several hours to listen to outside experts, from renewable-energy gurus to nanotech engineers.

The group then breaks into teams of five, each assigned to drum up ideas related to the talk. After that, the most promising ideas are handed off to teams of two employees: one with a marketing background, the other with technical expertise. ("We find great constructive conflict this way," says Deborah Mills, head of the early-stage marketing team.) The two spend up to four months hashing out feasibility and market potential, and then present the plan to execs, who give it the go-ahead or send it back for more research. In October 2004, one team devised a method for making water desalinization faster and cheaper, using carbon electrodes. Up to $74 million has been set aside to bring that project, and several others, to market. -- B.F.

SECRET NO. 07: Take no stake until you earn it. HONEST TEA

Equity as You Go

Since its launch in 1998, Honest Tea has become the top bottled-organic-tea brand in the United States. Sales have climbed an average of 65 percent per year, and revenues recently hit $10 million. What's its special brew? A funding formula gave the founders zero equity until they doubled the company's value.

Honest Tea chairman Barry Nalebuff, a Yale business school professor, and president Seth Goldman, his former student, figured there was a more honest way to get funding than to make wild guesses about future sales. So they proposed a plan to investors whereby they would earn equity in the company only after raising the value of shares by multiples of two, three, five, 10, and 15. "We said, 'We don't know what Honest Tea is worth,'" Nalebuff says, "'but we'll give you the whole thing until we double your money.'"

Within a few weeks, the pair landed $500,000 to get Honest Tea started. One hundred shares in the company, valued at $5,000 apiece, were split among several investors. Today shares in the privately held company are worth $42,000 each, and Nalebuff and Goldman have--deservedly--earned their current 25 percent stake. -- P.K.

SECRET NO. 08: Turn the interview process into an all-encompassing tryout. SOUTHWEST

The Job Audition

You don't just get interviewed when you apply for a job at Southwest Airlines. You get auditioned--and it starts the moment you call for an application.

Given that ultrafriendly service is critical to the $7.6 billion carrier's success, it's little wonder that HR managers don't wait until the interview to start screening. When a candidate calls for an application, managers jot down anything memorable about the conversation, good or bad. The same is true when the company flies recruits out for interviews. They receive special tickets, which alert gate agents, flight attendants, and others to pay special attention: Are they friendly to others or griping about service and slurping cocktails at 8 a.m.? If what the employees observe seems promising--or not--they're likely to pass it on to HR.

Even when recruits aren't on the spot, they're on the spot. During group interviews of flight attendants, applicants take turns giving three-minute speeches about themselves in front of as many as 50 others. The catch? Managers are watching the audience as closely as the speaker. Candidates who pay attention pass the test; those who seem bored or distracted get bounced. "We want to see how they interact with people when they think they're not being evaluated," says Southwest recruiter Michael Burkhardt. The screening method not only keeps turnover low (about 5.5 percent annually) but keeps customers happy. Every year since 1987, the carrier has received the lowest number of passenger complaints in the industry. -- M.V.C.

SECRET NO. 09: Turn going-through-the-motions meetings into no-holds-barred debates. P&G

Strategic Strategy Reviews

Since A.G. Lafley became CEO of Procter & Gamble in 2000, the company's portfolio of billion-dollar brands has swelled from 10 to 17 and sales have jumped from $40 billion to more than $57 billion. So what's behind the good-to-great transformation? Lafley chalks it up to the way the company conducts annual strategy reviews--the all-day powwows that set the tone and direction for every product.

When Lafley arrived, the reviews were more theater than debate. Division presidents would march to the podium, click through preapproved PowerPoint slides, and wait for the execs to rubber-stamp the plan. The problem? "They were justifying why bad performance wasn't so bad if you looked at it properly," says Roger Martin, an adviser to Lafley and dean of the University of Toronto's Rotman School of Management. "And they had thick briefing books to back that up."

So Lafley junked the old agenda and installed a new one. First, he asks each division head to send the presentation to him before the formal review. He sends it back with a handful of key concerns to concentrate on at the gathering. (Presenters are limited to three pages to save time for questions.) Second, the reviews don't wrap up by 5 p.m.; the process can last days or weeks until everyone agrees. Third, Lafley focuses each debate around two objectives: "where to play" and "how to win." According to Martin, the bare-knuckles review process is responsible for Pampers's recent market-share gains over Kimberly-Clark's Huggies. Lafley and other execs helped division president Deb Henretta plot "where to play" (in the more profitable training-pants segment instead of regular diapers) and "how to win" (attacking Pampers's cost structure so that P&G could better match its rival's prices). "When we get it right," Lafley says, "we can boil it down into a one-page document that provides clarity for everyone--and more consistent execution." -- P.K.

SECRET NO. 10: Let employees choose their leaders. GORE

Peer-to-Peer Promotion

The invention in the mid-1970s of wonder fabric Gore-Tex, an offshoot of W.L. Gore's development of high-speed computer cables, put the Delaware-based company on the map. But the successes that have come since that breakthrough--including Glide dental floss and high-end Elixir guitar strings--owe more to the company's grassroots management structure than to high-tech R&D.

Except for a handful of top executives, all 6,800 employees have the same title: associate. From there, upward mobility follows an unusual path. Some associates act as "sponsors" to help pair colleagues' interests to particular projects. If you want to become a "team leader," you don't lobby the higher-ups for a promotion; you form an alliance of people willing to commit to a specific goal, whether it's pitching a product or a new health plan. Beyond the egalitarian appeal, the org structure helps ideas bubble up faster than they might through conventional R&D. Elixir strings, for example, came about after engineering associate Dave Myers wondered whether the hard coating on cables might make guitar strings more durable. He paired up with a musician colleague, and the company green-lighted the project. Today, Elixir has become the top-selling acoustic guitar string in the United States. And worker turnover at Gore averages 5 percent annually, far lower than the manufacturing industry average of 13 percent. -- H.C.

SECRET NO. 11: Reward workers for keeping their hands off the merchandise. MEN'S WEARHOUSE

The Shrink Shrinker

"Shrink"--not to be confused with the Seinfeld term "shrinkage"--is nonetheless a mortifying issue for retailers. The term refers to the percentage of inventory that goes missing between audits (mostly as a result of employee theft), a problem that cost U.S. companies an estimated $31 billion last year.

Men's Wearhouse has a novel method for shrinking the shrink. The $1.7 billion retailer pays managers quarterly bonuses when stores report shrink levels deemed good or excellent. Company president Charlie Bresler declines to share exact figures, except to say that "good" means below industry average and "excellent" means "well below." The bonuses, he says, are "more than a couple hundred bucks, but not enough to buy a car." Of course, it's not all about the cash, he says: The bonuses reinforce the notion that "when workers steal from you, they are stealing from themselves and their colleagues." -- M.V.C.

SECRET NO. 12: Determine pay using just two factors: Profits and seniority. Egon Zehnder International

The Anti-Star System

Despite having 900 employees in 38 countries, Egon Zehnder, the world's fourth-largest headhunting firm, keeps no records of billable hours and doesn't hand out a cent in commissions or bonuses. Compensation for its 300 or so partners is determined by two variables alone: seniority and corporate profits.

Here's how it works. When consultants are elected to be partners (usually after five years), they become shareholders, with each owning an equal slice of the company. For up to 15 years, partners also earn one "seniority point" per year, each worth a small percentage of annual profits. The system "guarantees total collaboration," explains Dan Meiland, the company's New York-based executive chairman. "No one has to ask for favors. The only way people can increase the profit pie is by helping colleagues please their clients. We want new consultants to be better than the old ones because it's the only way to increase the profit pool. So the talent pool is always upgraded." The company's 2005 profits were estimated at more than $100 million. -- P.K.

SECRET NO. 13: Use prediction markets to tap hidden knowledge. Microsoft

A New Office Pool

If so-called prediction markets--betting pools in which shares are traded to gauge the odds of upcoming events--can call presidential elections and Oscar races with accuracy, why not use them inside companies to identify their next hit products? The answer: It's a lot harder to tap into collective brainpower about a product's market potential, and other key business questions, than it is to foretell the winner for Best Picture.

Microsoft, though, is trying to crack the code--and has been developing prediction markets as a serious alternative to blunt forecasting tools. Todd Proebsting, director of Microsoft's Center for Software Excellence, began running a series of prediction markets in 2004 to better gauge how many bugs a new software application might contain and to make more accurate calls about product ship dates. In his first effort, Proebsting chose 25 programmers and quality-control testers from a team of more than 50 working on a new Windows testing application. Via an internal website, workers could buy shares for the month they believed the product would ship. Shares were valued at $1 apiece, and the engineers drew on accounts stocked with $50 each to fund their bids. Within minutes of the site's launch, shares for a February ship date shot up in value while those for November, the scheduled release date, dropped to almost zero. That came as a shock to the project director, who had heard nothing but optimism in meetings and e-mail updates.

Exposing such communication gaps gives prediction markets even more potential value to businesses, Proebsting says. "Face-to-face communication breaks down, and opinions are filtered," he says. "Prediction markets show where the gap is and allow you to short-circuit it." In this case, the project manager did more troubleshooting ahead of time and avoided a delivery crisis. On the strength of those results, Proebsting ran another two dozen markets on a variety of software projects. Each, he says, accurately predicted the completion date. What's next, then, for this nascent technology in Redmond? Daniel Ling, chief of Microsoft Research, will say only that it's something the company "continues to explore." -- P.K.

SECRET NO. 14: Let workers speak their minds. Google

Office Graffiti

For a company that has roughly doubled its workforce each year since 2002 (current headcount: 5,800), Google doesn't much act like the big company it has become. One of the ways it has preserved its tech-startup ethos is decidedly low-tech: dozens of whiteboards placed in common areas and corridors throughout its Mountain View, Calif., campus. Some are businesslike, used by product teams to swap ideas. But the two largest ones, about 30 feet long, are devoted to the equivalent of corporate graffiti. One is packed with cartoons and jokes that workers have scrawled under the slogan "Google's Plan for World Domination." "It's collaborative art," says David Krane, Google's director of communications and one of its earliest whiteboard posters. "We're in a growth period, and when new hires see the boards they get a quick, comprehensive snapshot of our personality." -- P.K.

SECRET NO. 15: Use kickbacks--the legal kind--to attract executive talent. SAIC

The Pyramid Scheme

It's a far cry from selling soap, but $7.2 billion defense contractor SAIC has for years stolen a page from Amway in the way it recruits and rewards top executives. When certain managers land a new contract, they get a bonus. Then a cut gets passed up to their boss, and their boss's boss. The practice creates incentives for VPs and directors to recruit high earners instead of cronies and is credited with helping SAIC to achieve 33 consecutive years of sales growth through 2002.

In a traditional pyramid-sales model, people at the top skim from the newest and lowest hires. SAIC's pyramid involves only a few layers in the upper half of the org chart. While the company confirms that the practice continues today, it declines to elaborate on the details. -- P.K.

SECRET NO. 16: Keep retirees in the labor pool. intel

The Long Goodbye

Forget gold watches and engraved plaques. When workers at Intel retire, they get a strangely utilitarian going-away present: a laptop or PC (Intel inside, of course), along with a printer, free Internet access, tech support, and--most important--invitations to quarterly briefings with senior executives about the company's performance and new products.

If that sounds almost like a job, you're onto Intel's scheme. "They're part of the family, and you want to keep them in it as much as possible," says Tom Galvin, Intel's director of compensation and benefits. More important, Intel wants to keep retirees available for consulting work, since demographic trends predict that demand for skilled workers will soar during the next couple of decades. Today, Intel's senior talent pool stands at about 1,200. Says Galvin, "We want them to stick around for when things get tight." -- P.K.

SECRET NO. 17: Let your customers do the marketing. Mozilla

Open-Source Ad Campaigns

In the 18 months since Mozilla released its open-source Firefox browser, more than 150 million users have downloaded it. Not bad, considering the nonprofit foundation has no marketing staff to speak of.

So what keeps Firefox hot? SpreadFirefox.com, a Mozilla website where users post ideas for marketing schemes and volunteers put the most popular ideas into action. Don't laugh: The site has more than 160,000 members, and Mozilla claims it has lured 10 million users away from other browsers.

Last year one fan suggested a series of online greeting cards that included a Firefox link. Graphic designers signed up to create dozens of e-cards, which triggered thousands of downloads. Next came a feature that invites fans to record 30-second video ads and post them to a gallery for viewing. (Think of Apple's "Switch" campaign, minus the Hollywood budget.) This month a panel will vote on the best, and the winner gets $5,000, donated by electronics retailer B&H.

The genius behind it all? Mozilla staffer Asa Dotzler pitched it to Firefox co-creator Blake Ross, who says the site is "one of our superhigh-return-on-investment projects." Dotzler, 32, is now SpreadFirefox's community coordinator. -- P.K.

SECRET NO. 18: Turn employees into trendspotters. urban outfitters

Late-Night Recon

Finding the next big thing isn't just the job of Urban Outfitters's designers and buyers. The $1 billion retailer counts on everyone from store managers to interns to help it stay ahead of the curve. In return for free concert tickets and nights on the town, workers "communicate what is seen and heard back to the buying and design teams," says merchandise manager Laura O'Connor. The eyes-and-ears tactic has led to hit products, she adds. So who do they keep the closest tabs on? That's the one thing she won't share: "I'd rather not give the folks we shadow cause for keeping us at arm's length." -- S.H.

SECRET NO. 19: Head off shareholder trouble before it starts. Coca-Cola

The Chief Shareholder Officer

When you're a multibillion-dollar household name, it can take more than shareholder meetings and proxy mailings to keep thousands of investors in the loop--or from stirring up unnecessary trouble. One of the few public companies to make investor relations something more than just an extension of PR is $23 billion Coca-Cola. Mark Preisinger, Coke's director of shareowner affairs since 1999, is considered the top-ranking investor-relations chief in the United States. Not because of his title, but because of his clout and independence from the CEO.

Unlike his counterparts at the vast majority of public companies, Preisinger reports directly to Coke's general counsel, not to CEO Neville Isdell, and relays investor concerns straight to the company's board. That's a tough job at Coke, which is a constant target of activist shareholder resolutions. Many stray far outside the realm of day-to-day business, demanding everything from an investigation of antiunion violence in Colombia to a review of Coke's impact on the AIDS and avian flu crises. "When most companies get hit with these resolutions, they adopt a bunker mentality and never call the shareholders who file them," says Nell Minow, a top corporate governance critic and co-founder of the Corporate Library. "Mark calls all of the people who file resolutions, and he often gets them to withdraw the resolution."

And when he can't, on more substantive issues? He pushes both sides to broker a deal. Preisinger recently spent 12 months working with the International Brotherhood of Teamsters General Fund, which demanded a cap on executive severance packages. In 2005 the board signed the deal, limiting severance to three times annual salary and bonuses. -- B.F.

SECRET NO. 20: Start each day with a lightning-fast, all-hands briefing. ups

The Three-Minute Huddle

How does UPS keep 220,000 drivers and package handlers on time? Wireless transmitters, reliable trucks, and a world-class logistics network are critical, of course. But managers have their own safeguard against slack. Every morning, and often several times per day, managers gather workers for a mandatory meeting that lasts precisely three minutes.

The talks start with company announcements, from benefits updates to bulletins about software upgrades on drivers' handhelds. Then managers go over local information: traffic conditions or customer complaints. Every meeting ends with a safety tip.

The meetings ensure that workers are always kept in the loop, and the 180-second limit helps enforce systemwide punctuality. If drivers are late to start their routes because meetings run long, they'll earn overtime pay and deliver fewer packages--exactly what UPS strives to avoid. The practice has proven so successful that many hourly office workers now start their days with a three-minute huddle of their own. -- O.T.

SECRET NO. 21: Get the directors out of the boardroom. THE HOME DEPOT

Always-On Board Members

At $82 billion home-improvement king Home Depot, corporate governance is practically a full-time job. Eager to keep the directors better in tune with the company's operations--and less dependent on chairman and CEO Bob Nardelli for their intelligence--five years ago Nardelli began requiring all 12 board members to make daylong visits to a dozen stores a year and relay their findings to the board.

Directors choose the stores they visit (typically dropping in unannounced) and go into action. In the parking lot, they chat with customers about what they like and don't. Inside, they do the same with managers and staff, and also do spot checks of customer service and inventory assortment. At quarterly board meetings, the agenda always includes time to discuss the field trips.

The reconnaissance missions aren't just a public-relations ploy. In fact, the Corporate Library's Minow considers the practice a rare exemplar. "It's not good for directors to operate in a closed loop and only get information from the CEO," she says. "It's the difference between examining store shelves and reading a PowerPoint." The program also helps weed out directors who aren't up to the task: Two Home Depot board members have resigned since 2004, in part because they couldn't make the time. -- B.F.

SECRET NO. 22: Seek brutally honest feedback from customers. Medtronic

Surgical Visits

Aloof. Arrogant. Inwardly focused. That's how Bill George recalls customers describing Medtronic when he became CEO of the $10 billion medical-device maker in 1991. So George set out to change the perceptions. During his first month on the job, he watched a surgeon perform an angioplasty using a new Medtronic balloon catheter. As the device was fed through an artery, it disintegrated. In a fury, the surgeon flung the bloody mess at George, who avoided a direct hit.

A perfect opportunity, it turned out, to make some changes. Chastened, George made sure that an improved catheter hit the market within three months. Then he began requiring all engineers and designers to attend one surgical procedure a year to see Medtronic products in action. Their presence doesn't only give surgeons a chance to vent; the company claims it gets new product ideas just from watching. "Observing helps to constantly improve product design," says George, who retired in 2002, "because the customer is never going to be completely satisfied." -- H.C.

SECRET NO. 23: Pass cost savings on to those who achieved them. WHOLE FOODS MARKET

Gainsharing

At $4.7 billion Whole Foods Market, when store department "teams" finish a four-week period under their payroll budget, the company doesn't keep the surplus. Rather, it gets handed down to the employees whose efficiency created the savings.

Here's how it works. Managers constantly track their payroll spending against their budget. Every four weeks they divide any surplus by the hours logged and add the result, or "gainshare," to workers' hourly wages. If the surplus is $2,000, on 1,200 hours, each employee gets an extra $1.67 per hour. The company claims the incentive not only pushes workers to step it up a notch but also aids in recruiting. Newcomers need a two-thirds vote from colleagues to be brought on permanently. As company spokeswoman Amy Schaefer notes, "It's a chance for team members to say, 'This person is not catching on, they're not productive,' because they're going to share their gainsharing with them." -- D.J.

SECRET NO. 24: Neutralize your customers' worst fears. HONDA

The "Just Looking" Badge

Car shopping as entertainment has always been the draw at Planet Honda in Union, N.J., one of Honda's fastest-growing dealerships. A giant video wall shows footage of the latest models, and new-car buyers get a G-force ride on an 18-foot spaceship simulator. The best part of the show? The "tech cafe," where the presence of salespeople is strictly verboten, and where a receptionist asks shoppers if they need help. If you respond the way most do--"Just looking, thanks"--you get a yellow smiley-face badge emblazoned with the letters "JL" to stick on your lapel, which alerts the sales guys to back off.

Not for long. Planet Honda owner Tim Ciasulli says JLs turn out to be his best customers, because the badge helps to lower their defenses. "The magic is when they peel it off after 15 minutes and they're ready to do business," Ciasulli says. The dealership sold 3,300 new cars last year, more than three times the average for independent dealerships. -- P.K.

SECRET NO. 25: Become your own customer. Guitar Center

Phone Shopping

When the phone rings at any of Guitar Center's 165 stores, the salespeople are expected to pick it up before the fourth ring--especially if the manager happens to be off at one of the company's motivational sessions. That's because the offsites include a kind of hazing ritual called "phone shopping" that keeps store workers on their toes. At past meetings, held three times a year at a rock club near the company's Southern California headquarters, it's worked like this: A woman in a tight skirt stands on the stage spinning a container of ping-pong balls, each representing a Guitar Center outlet. When a ball pops up, the lucky store manager is called up to the stage as a company executive calls the store. The exec not only checks that the clerk on the other end answers the phone quickly, but then grills him about the company's core principles or techniques for closing a deal. The entire conversation is broadcast over the PA system for all the other managers to hear. "It's brutal--a complete public flogging--but very effective," says Maxx Galster, who got his start on the sales floor and now oversees the chain's store operations. "You really see the truth come out." -- P.S.

ADDITIONAL REPORTING BY Patrick Baltatzis, Harris Collingwood, Michael V. Copeland, Bridget Finn, Susanna Hamner, David Jacobson, Jeff Nachtigal, Erick Schonfeld, Paul Sloan, and Owen Thomas

SPECIAL THANKS TO Kevin Freiberg, San Diego Consulting Group; Thomas Malone, MIT Sloan School of Management; John Maloney, Colabria; Roger Martin, Rotman School of Management; Nell Minow, the Corporate Library; Barry Nalebuff, Yale School of Management; Jeffrey Pfeffer, Stanford University Graduate School of Business; Robert Shelton, Navigant Consulting; Jeffrey Sonnenfeld, Yale School of Management; and Robert Sutton, Stanford Engineering School

Patrick Baltatzis, Harris Collingwood, Michael V. Copeland, Bridget Finn, Susanna Hamner, David Jacobson, Jeff Nachtigal, Erick Schonfeld, Paul Sloan and Owen Thomas contributed to this article.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.