Q: I am a relatively new owner of a small business, though the business has been around for a while. We only have 10 employees. I keep hearing about open book management. Can you give more background on this and how it works?

A: Some believe open book management (OBM) to be one of the most significant trends in business. Described in many ways, OBM is generally thought to include:

  • Sharing financial information with employees – the income statement and balance sheet – along with other key metrics,
  • Training employees to understand financial numbers, and
  • Sharing the profitable outcomes through some type of a gain sharing program.

Opening up the books, teaching employees how the business makes money and offering employees a financial stake in the company can be powerful ways to ignite greater engagement from the workforce. And there is evidence that this approach pays off. In a research study conducted by the National Center for Employee Ownership (NCEO), companies that shared such information with their employees experienced better results:  a one to two percent annual increase in sales growth over what would normally have been expected.

Winning Workplaces staff has worked with and learned from many business leaders who have implemented OBM. As a leader, if you have been thinking about such strategies consider the following 10 tips.

1. Take advantage of the available resources. There is a wealth of resources available on open book management. Here are a few that have stood the test of time:

  • The Great Game of Business and A Stake in the Outcome, Jack Stack with Bo Burlingham
  • Equity: Why Employee Ownership Is Good For Business, John Case, Corey Rosen and Martin Staubus.

2. Ask yourself these questions:
On a scale of 1-3, how comfortable are you sharing company information with employees?

1

2

3

Not comfortable

Somewhat comfortable

Very comfortable

How much time do you presently spend developing your employees? (Circle one)

Very little

Every once in a while

Lots of time

Chances of successfully implementing open book management increase if you are comfortable sharing financial information and understand that management must spend a considerable amount of time developing employees’ financial acumen.

3. Be clear as to why you want to do this and what your real “game” is. One of the toughest challenges for many owners interested in creating an open book work environment is to determine the most critical business metrics to monitor: the number of products or services sold; the number of times the inventory turns over; the number of new clients; profit per project, etc. Whatever metrics you decide to monitor, they should be ones that all employees have the ability to impact.

4. Determine what information you are willing to share with employees (and start with the easy things). Take a look at the types of information to which you are privy and determine which could be useful to your employees in understanding the business and what you are willing to share: gross and net revenue, labor costs, costs of benefits, sales figures, outsourcing costs, utilities, cost of workman’s compensation claims, outlays for equipment, or any other business cost. (Note: most open book companies do not share salary information except in aggregate.)

5. Take a “temperature read” of your present work culture. Is your work environment one in which employees and managers communicate honestly and openly? What percentage of your employees seem to be truly engaged in their jobs now? How do you know? Ask those employees who will give you straight answers. Or, consider conducting an anonymous employee opinion survey which will provide useful information that you may not be getting. Winning Workplaces and NCEO both have surveys to get you started.

6. Start the conversation with your managers. How informed are your managers about company finances? What do they think the challenges and opportunities may be to instituting more of an open-book environment? Have them read relevant information on the topic such as the Great Game of Business and generate discussions. Front line supervisors have been called the real “opinion leaders” in an organization. Make sure they are on board and fully informed.

7. Start the conversation with your employees (be patient and expect skepticism). A bit of skepticism is only natural. Some employees may ask, “Why is he sharing this information with us now?” or “Are these financial numbers real or fabricated?” Implementing any new organizational change takes time and requires building trust, communicating in a straightforward manner and setting clear expectations. Most importantly, it requires patience as it can take a couple of years for people to truly understand how the business makes money.

8. Realize that some employees may never get it. OBM is not for everyone. Some employees and managers may never be comfortable with this approach so owners will need to be prepared to make tough staffing decisions. As the owner of a small manufacturing firm we worked with who transformed his business though OBM stated, “Like any company culture, bad eggs can and will spoil it for others. They will try to fight it and prove you wrong at any cost – even sacrificing their job.”

9. Be honest with yourself and be prepared for your own reaction. Be genuine. Leading change by example requires honesty and authenticity. Understand your own reaction to change so that you can be straightforward with others. Be prepared to have many of your decisions questioned. Opening up the company books is not for all owners. But it may be worth it as research shows that firms that implement OBM grow faster and are more profitable.

 

— Winning Workplaces, August 06, 2007 |