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The Business Case for Open Book Management

Guest post by: Gene Siciliano

Article Overview: What if there was a way for you to get your employees truly invested in helping your company earn a profit and achieve its key goals? You’d just tell your employees what you’re trying to accomplish and how you’re progressing, and they’d become rabid fans and supporters. Does this sound too good to be true? Well, it actually happens in some companies where management has been able to adjust its way of thinking about the employee-employer relationship and practice true Open Book Management, or OBM.

The Business Case for Open Book Management

What if there was a way for you to get your employees truly invested in helping your company earn a profit and achieve its key goals? You’d just tell your employees what you’re trying to accomplish and how you’re progressing, and they’d become rabid fans and supporters.

Does this sound too good to be true? Well, it actually happens in some companies where management has been able to adjust its way of thinking about the employee-employer relationship and practice true Open Book Management, or OBM.

Think about this for a minute: Public companies share their financial results with the world, but primarily because they have to in order to freely sell their stock. However, most privately owned companies don’t share their financial results with anyone, unless they have to in order to get a loan, file their tax returns or sell the company.

Public Information: Good or Bad?

By definition, a public company’s financial information is available to every employee of the company. Is that a bad thing? Given the extraordinary efforts that most privately held company CEOs go to in order to keep financial information away from their employees, you would think so.

The mutual feelings of mistrust between employers and employees often run deep, perhaps stemming from the lack of loyalty they perceive from each other. Employees think their companies will lay them off at the drop of a hat (or net income) and employers think their workers focus largely on doing as little work as possible while pocketing office supplies and looking for a better job somewhere else. Management’s thinking often sounds something like:

• “If they know we’re making a profit, they’re going to demand raises, bonuses and a membership in the local health club.”

• “If they know what our goals are and we don’t reach them, we’ll have to explain why.”

• “If an employee leaves and goes to work for a competitor, there goes our competitive advantage when he tells them all about our plans and strategies.”

• “Explaining this stuff in lay terms is a lot of work, and periods of poor profits can create anxiety that we can handle but our employees can’t.”

• “If our employees find out how much money we make, our customers will find out and we’ll get requests to cut our prices, or our suppliers will find out and they’ll want us to pay more for what we buy.”

Now think about this: On any sports team, every player knows the game plan, their evolving role in it and what the end goal is. And they all know at any given time whether they’re making progress toward reaching this end goal.

So why do so many business owners and managers consider it anathema to keep their employees (i.e., their team) informed about their progress? Or in other words, why do so few owners practice Open Book Management? Ironically, it seems that companies are more likely to practice OBM when they get into trouble.

I tried to find a publication, article or speech that discussed problems encountered with OBM—a pros and cons analysis, if you will. I couldn’t. To the contrary, there are volumes describing the improvements that companies have made in productivity and profits as a result (whether directly or indirectly) of making the move to share more of their financial and business planning information with their employees by using OBM.

What About Your Company?

Are you practicing OBM at your company? If not, could it be because you’re afraid that risks like those described above are greater than the potential benefits of having your employees truly invested in your company’s success? Maybe you don’t think your employees really want you to succeed. Or maybe you don’t believe that employees’ feelings about the company’s success really have anything to do with actual results.

If you haven’t been willing to consider practicing OBM at your company, either you haven’t heard any success stories of companies that have, or you don’t believe them. I’ll go with ‘you haven’t heard them,’ so here are a few:

Pool Covers Inc.—This company, which has been using OBM since 1994, was featured in a Wall Street Journal article last year. The CEO credits OBM with helping the company’s value grow an average of 23.8 percent a year from 1997 to 2007. During the recession, the company had to consider its first-ever layoff. Astonishingly, six employees volunteered to be laid off based on the financial information they had seen, rather than have the company struggle and perhaps not make it and everyone else lose their jobs.

Dorian Drake International—When this company’s employees began seeing the financials in 2002, they realized that some departments were getting better deals from vendors than they were for similar purchases. The resulting changes in purchasing procedures helped the company go from a $500,000 loss to a $200,000 profit in one year—with no increase in sales.

Springfield ReManufacturing Corp.—This was an ailing division of International Harvester when a new CEO assumed control as part of an employee-led buyout. The biggest change he directed was cultural. The company created and embraced an environment of open communication, learning and development, and trust.

Management taught employees how to read a balance sheet and began sharing key financial information with them. As a result, employees learned how key performance measurements such as defect rates and order backlogs impacted the bottom line. The result? From 1983 to 2004, the company’s sales grew from $16 million to more than $160 million.

So, do you think OBM might be worth a try at your company? Experience has proven that the rewards far outweigh the risks. Go ahead, give it a try—I’m willing to bet that, like thousands of other business owners, you’ll be glad you did.

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