Want a fast way to jump-start your workers' productivity? Open your books to them--that means the P&L statement and much of the rest of your financial recordkeeping. Can it really be that simple?
Apparently so. Since we wrote about the subject four years ago, numerous companies have jumped on the bandwagon. "Companies that have done this have seen higher productivity and large increases in profits," says Craig Minnick, managing director of American Express Tax and Business Services Inc. (TBS) in Chicago.
"There's no question that productivity goes up in an open-book business," agrees Terry Lauter, a principal at Humanomics Inc., a Granada Hills, California, human resources consulting firm that helps companies implement open-book programs.
"The bottom-line advantage," adds John Case, author of Open-Book Management (HarperBusiness), "is that it focuses employee attention on what matters to a business: money. People have talked about various goals--Total Quality Management (TQM), teamwork and so forth--but if you don't put the business numbers out there for employees to see, those objectives are meaningless. When you put the numbers out there, you're involving your employees in the guts of your business and helping them see how they can play a role in the business' success."
At the end of the day, how do you judge your business' success? Not by how great the teamwork is or how successful the TQM initiative is, but by the bottom line. You sift the numbers and look for ways to increase profits, perhaps by cutting costs or raising productivity. Study the numbers closely enough, and, odds are, the route to greater business success will emerge. And if this works for you, why not for your staff, too?
Skeptical? Although businesses nationwide are thriving under open-book management, first-glance dubiousness about the idea is common, according to Case, who says a primary fear--at least in privately held companies--is that employees will quickly decide the boss makes too much money. But, he adds, that fear is usually groundless. "They probably already think that," he says, "and in most cases, they think you make more than you do."
The second common reservation is that, given the numbers, employees will be in a position to turn this sensitive information against you, perhaps by job-hopping to a competitor. It happens, admits Case. "People leave companies all the time, and they take secrets with them." Even so, the fear is overblown. "The fact is," says Case, "most companies already know more about their competitors than the competitors like to think. Yes, employees might take away information, but it's generally less secret than owners believe."
Still a third hesitation is that there are some financial secrets you want to keep secret. Does that bar you from implementing open-book management? Nope, says Minnick, who has helped many American Express TBS companies, most closely held, open their finances to employees. That's because disclosure doesn't have to mean full disclosure. The numbers you give employees should be limited to those that are meaningful to them and that they can influence. That way, their focus is narrowed to their own spheres of influence--the areas where they can potentially make a difference.
Will employees instantly grasp what the numbers are all about? Probably not, and the business that prints copies of its spreadsheets, hands them out to workers, and announces "we're now open-book" is making the classic goof. "The main way to wrongly implement this program is to tell people the numbers but not what they mean," says Lauter. "Sharing information is good, but to make this approach effective, you need to help them understand what it all means."
At American Express TBS, for instance, open-book implementation starts by bringing employees together to play "Profit and Cash." The board game, similar to Monopoly, teaches workers the meaning of accounting touchstones such as sales, profits, cost of goods and cash flow.
Whether via a formal game or simply through talking about business economics, you've got to raise your employees' comprehension at the starting gate. "For this program to work, the first thing employees need is an understanding of how a business operates," says Minnick. "The goal here isn't to turn everybody into accountants. But you do want them to understand how the company makes money and what effect they have."
Then there's the second most frequent goof, which is not letting employees become more involved in decision-making. "Once they have the information, they have the [ability] to become more involved," says Lauter. "If you fail to let them, you'll only create more problems for yourself. Open the books, and you have to be prepared to let your workers have a voice. If you're not ready for this, don't try open-book management."
Let's say you go over the numbers with your shipping department and they come back with a suggestion to switch delivery services to cut costs. You may be used to responding "No, I'm happy with the present service," but that won't cut it once you implement open-book management. Now when you make a decision, you need to offer an explanation. That's because as employees grasp the numbers, their sense of ownership of their jobs soars. And they simply won't put up with a boss who barks commands and expects them to be followed no matter what. "Open-book management transforms workers into active, involved, thinking employees," says Case. If the downside is those kinds of workers won't meekly obey every whim of the boss, the upside is that "these are exactly the kinds of workers your success in today's highly competitive marketplace depends on," Case explains.
How often should you go over the numbers with workers? Again, there's no set rule. "Some businesses do it monthly, others do it twice a month," says Lauter. The only must-do is to look beyond the numbers. Presenting the numbers in terms of goals for individual workgroups helps cement the context in which the numbers are viewed. Remember, the real purpose is to get each employee thinking about how he or she can contribute in a bigger way to the bottom line.
Raising The Stakes
Once your business starts experiencing results is when the third goof arises: not giving employees a piece of the action. "Open-book management won't work unless employees have a stake in the outcome," says Case. "Why should people put out extra effort just to make someone else rich? They won't do it for long unless there's `something in it for me.' " How much extra should you pay? A teenager in a fast-food restaurant might be happy with an extra $10 or $20 a week when the restaurant hits its target goals. Higher-paid workers will, of course, expect more. The only guideline, says Case, is that "it has to be enough of a stake to be seen as more than just a token in the eyes of your employees."
Open-book management sounds intriguing, but isn't there a way to get your feet wet without diving headfirst into these unknown waters? Case confirms there is a way to do just that. "Focus on a short-term objective [and offer] a specific reward for success," he suggests. As a case in point, he tells about a drive-thru restaurant owner who challenged his employees to reduce food costs from 34 percent of sales to less than 30 percent--and he promised to split the savings. He revealed all the numbers to employees, gave a green light to most of their cost-cutting suggestions, and kept them abreast of the changing numbers on a regular basis. The upshot? "In a few months, food costs had fallen below 28 percent," reports Case.
"Open-book management isn't easy to implement," says Case. "But when you do the work, open-book management gets results. It's a very powerful way to run a business."
American Express Tax and Business Services, fax: (312) 917-0680
John Case, (617) 499-2990, http://www.openbookmanagement.com