Open-Book Test Expose your financial secrets to employees? Are you crazy?

Want a fast way to jump-start your workers' productivity?Open your books to them--that means the P&L statement and muchof the rest of your financial recordkeeping. Can it really be thatsimple?

Apparently so. Since we wrote about the subject four years ago,numerous companies have jumped on the bandwagon. "Companiesthat have done this have seen higher productivity and largeincreases in profits," says Craig Minnick, managing directorof American Express Tax and Business Services Inc. (TBS) inChicago.

"There's no question that productivity goes up inan open-book business," agrees Terry Lauter, a principalat Humanomics Inc., a Granada Hills, California, human resourcesconsulting firm that helps companies implement open-bookprograms.

"The bottom-line advantage," adds John Case, author ofOpen-Book Management (HarperBusiness), "is that itfocuses 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 businessnumbers out there for employees to see, those objectives aremeaningless. When you put the numbers out there, you'reinvolving your employees in the guts of your business and helpingthem 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 TQMinitiative is, but by the bottom line. You sift the numbers andlook for ways to increase profits, perhaps by cutting costs orraising productivity. Study the numbers closely enough, and, oddsare, the route to greater business success will emerge. And if thisworks for you, why not for your staff, too?

Not-So-Full Disclosure

Skeptical? Although businesses nationwide are thriving underopen-book management, first-glance dubiousness about the idea iscommon, according to Case, who says a primary fear--at least inprivately held companies--is that employees willquickly decide the boss makes too much money. But, headds, that fear is usually groundless. "They probably alreadythink that," he says, "and in most cases, they think youmake more than you do."

The second common reservation is that, given the numbers,employees will be in a position to turn this sensitive informationagainst you, perhaps by job-hopping to a competitor. It happens,admits Case. "People leave companies all the time, and theytake secrets with them." Even so, the fear is overblown."The fact is," says Case, "most companies alreadyknow more about their competitors than the competitors like tothink. Yes, employees might take away information, but it'sgenerally less secret than owners believe."

Still a third hesitation is that there are some financialsecrets you want to keep secret. Does that bar you fromimplementing open-book management? Nope, says Minnick, who hashelped many American Express TBS companies, most closely held, opentheir finances to employees. That's because disclosuredoesn't have to mean full disclosure. The numbers you giveemployees should be limited to those that are meaningful to themand that they can influence. That way, their focus is narrowed totheir own spheres of influence--the areas where they canpotentially make a difference.

Open-Book Lessons

Will employees instantly grasp what the numbers are all about?Probably not, and the business that prints copies of itsspreadsheets, 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 tellpeople the numbers but not what they mean," says Lauter."Sharing information is good, but to make this approacheffective, you need to help them understand what it allmeans."

At American Express TBS, for instance, open-book implementationstarts by bringing employees together to play "Profit andCash." The board game, similar to Monopoly, teaches workersthe meaning of accounting touchstones such as sales, profits, costof goods and cash flow.

Whether via a formal game or simply through talking aboutbusiness 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 abusiness operates," says Minnick. "The goal hereisn't to turn everybody into accountants. But you do want themto understand how the company makes money and what effect theyhave."

Then there's the second most frequent goof, which is notletting employees become more involved in decision-making."Once they have the information, they have the [ability] tobecome more involved," says Lauter. "If you fail to letthem, you'll only create more problems for yourself. Open thebooks, and you have to be prepared to let your workers have avoice. If you're not ready for this, don't try open-bookmanagement."

Let's say you go over the numbers with your shippingdepartment and they come back with a suggestion to switch deliveryservices to cut costs. You may be used to responding "No,I'm happy with the present service," but that won'tcut it once you implement open-book management. Now when you make adecision, you need to offer an explanation. That's because asemployees grasp the numbers, their sense of ownership of their jobssoars. And they simply won't put up with a boss who barkscommands and expects them to be followed no matter what."Open-book management transforms workers into active,involved, thinking employees," says Case. If the downside isthose kinds of workers won't meekly obey every whim of theboss, the upside is that "these are exactly the kinds ofworkers your success in today's highly competitive marketplacedepends 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 isto look beyond the numbers. Presenting the numbers in terms ofgoals for individual workgroups helps cement the context in whichthe numbers are viewed. Remember, the real purpose is to get eachemployee thinking about how he or she can contribute in a biggerway to the bottom line.

Raising The Stakes

Once your business starts experiencing results is when the thirdgoof arises: not giving employees a piece of the action."Open-book management won't work unless employees have astake in the outcome," says Case. "Why should people putout extra effort just to make someone else rich? They won't doit for long unless there's `something in it forme.' " How much extra should you pay? A teenager in afast-food restaurant might be happy with an extra $10 or $20 a weekwhen the restaurant hits its target goals. Higher-paid workerswill, of course, expect more. The only guideline, says Case, isthat "it has to be enough of a stake to be seen as more thanjust a token in the eyes of your employees."

Open-book management sounds intriguing, but isn't there away to get your feet wet without diving headfirst into theseunknown waters? Case confirms there is a way to do just that."Focus on a short-term objective [and offer] a specific rewardfor success," he suggests. As a case in point, he tells abouta drive-thru restaurant owner who challenged his employees toreduce food costs from 34 percent of sales to less than 30percent--and he promised to split the savings. He revealed all thenumbers to employees, gave a green light to most of theircost-cutting suggestions, and kept them abreast of the changingnumbers on a regular basis. The upshot? "In a few months, foodcosts 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 managementgets results. It's a very powerful way to run abusiness."

Contact Sources

American Express Tax and Business Services, fax: (312)917-0680

John Case, (617) 499-2990, http://www.openbookmanagement.com

Humanomics Inc., tlauter@humanomics.com,http://www.humanomics.com

Robert McGarvey writes on business, psychology and managementtopics for several national publications. To reach him online withyour questions or ideas, e-mail rjmcgarvey@aol.com