Tools for Improvement – An E-Newsletter
September 2009
What do you mean, share information?
In their November 2001 issue, INC magazine told the story of Logical Net Corp., an internet service provider in New York. The owner of the company had just finished a financial analysis of the company and discovered that they were losing $130,000 a month. 
He briefed his key leaders on the situation and their reaction as he described it was “Three minutes of silence.” He realized that drastic action was needed and that the actions could not be limited to the top decision makers. So he opened the books of management to all of the employees. For the first time the employees had all the information available to them and, now armed with this knowledge, could make better decisions. His engineers discovered that the company spent more than $3,000 a month on an online news service that grossed less than $500 a month. They stopped selling that service and within a few months went with another provider for a few hundred a month. A wire installer discovered that when Logical Net acquired another provider they ended up owning two lines that served identical functions and they shut down the duplicate circuits. The sales staff, instead of just turning over invoicing and collections to the finance department began nudging late payers themselves – collections sped up an average of 20 days.
This is the principle of Open-Book Management. The best known practitioner of this is the Springfield Remanufacturing Corporation, known as SRC. SRC calls its system the “Great Game of Business.” SRC transformed itself from a small, money losing division of International Harvester into a money making miniconglomerate with annual revenues of $100 millions.
There are three major differences between open-book companies and conventional companies.
- Every employee sees and learns to understand the company’s financial and other numbers that are critical to tracking the business’s performance. Employees are trained to read and understand profit and loss statements, they are taught how to develop performance metrics and how to collect, report, and understand these metrics. In short, they are empowered with knowledge.
- Employees learn that, whatever else they do, part of their job is to move those numbers in the right direction. This is continuous process improvement at its best, when making the company better is everyone’s job, not just the job of management or the quality department.
- Employees have a direct stake in the company’s success. If the company grows, so do their paychecks. If it doesn’t grow, well……….. To use a phrase that TV newsman, Tom Brokaw, once used, it gives them some “skin in the game.”
The significant impact of Open Book Management is that it bridges the gap between learning how to make the company better and wanting to make the company better. It gets employees to think like owners.
So how do you make this work? First you need to realize there is no cookie cutter solution. However, there are some general steps that must be taken.
Step one – Get the information out to the people that need it and can use it.
This can’t be limited to just operational information; it has to include financial information as well. People need to be able to see how this affects the company’s bottom line and their personal bottom line. In open book companies there are charts in the offices, shop floors, break rooms, and lunch rooms. These charts display current data that the employees need to know to make good decisions and these are updated on a weekly, daily, and sometimes hourly basis. Balanced Scorecard systems are good tools for this purpose.
Step two – Give them training.
Revenues are not the same as profits, but not everyone realizes that. I once traveled in a rental car with another consultant. She didn’t get the prepaid fuel option and didn’t fill up the tank before she turned in that car. “Oh, the company will pay for that,” she said, never realizing that she had just reduced the profit on the contract she was working on. Not many employees can tell you the expenses their company must pay, or how little of the revenue is left at the bottom line. This lack of knowledge is paid for by the company and it pays for it in three ways.
- Resentment – “They’ve got all this money and I want a bigger cut!”
- Bad decisions – The consultant example is typical of such bad decisions.
- Ignorance takes the fun out of business – The secret that every entrepreneur knows is that business is fun. You take on the competition, overcome obstacles, make customers happy, and every month you total up the numbers and see how good you are. Let the employees share in the fun! Chuck Mayfield, president of Foldcraft teaches a six hour course that uses a fictional chocolate-chip cookie manufacturer with simple financials to show his employees how it works. Then he brings out Foldcraft’s financials and ties it all together so they can understand the “game of business.”
Step three – Empower people to make decisions based on what they know.
Push the decision making authority as far down the totem pole of the organization as you possibly can. Armed with information, your employees are the closest to the action and can make good (and timely) decisions that will increase profits. How about turning the company into the equivalent of a bunch of small, independent companies, all tracking their bottom lines and contributing to the larger company success?
Step four – Make sure everyone, yes everyone!, shares directly in the company’s success and in the risk of failure. As opposed to giving employees a bonus at the end of the year and the employees don’t know the size of the bonus until they get it, open book employees know what they are shooting for, they can see their progress, and they know why they did or didn’t hit their target.
Knowledge is power, but too many managers think if they hold onto the knowledge they will be more powerful. In reality, when you keep your cards close to your chest and don’t share that knowledge you are powerless, not powerful!
