What if there was a way for you to get your employees truly invested in your company making a profit and achieving your key goals? You just tell them what you’re trying to do and how you’re progressing, and they become rabid fans and supporters. Sound easy? Too good to be true? Well it actually happens in some companies where management has been able to adjust their way of thinking about the employee-employer relationship.
Public companies share their financial results with the world; mostly because they have to in order to freely sell their stock. 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. What both have in common is that they only share when it’s a requirement. What they don’t have in common is that public companies’ information is, well, public. More to the point of this article, financial information is available to every employee of every public company in the land.
Is that a bad thing? You would think so from the pains that most private company CEOs go to in order to keep that information away from their employees. The mutual feelings of mistrust run deep, perhaps stemming from the lack of loyalty that employers and employees perceive from each other. Employees think their employers will lay them off at the drop of a hat (or net income) and employers think their employees focus largely on doing as little work as possible while pocketing office supplies and looking for a better job somewhere else. In management terms that sounds like:
• “If they know we’re making a profit they’re going to demand raises, bonuses and a membership in the local health club” or
• “If they know what our goals are and we don’t reach them, we’ll have to explain why” or
• “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” or
• “Explaining this stuff in lay terms is a lot of work, and periods of poor profits can create anxiety that we know how to handle but our employees don’t” or
• “If they find out 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.”
OK, maybe that’s a bit overstated, but come on, folks. We know that a football team’s goal of winning will fail if all the members of the team don’t work together. That means every player knows the game plan, their evolving role in the game plan, and what the end goal is. And they all know whether they’re making progress at any given time. So here’s where I’m going with this: if teamwork requires mutual trust and mutually well informed team members, and if profit is the “end goal” of the company, then why is it anathema for the team leader to keep the team informed about their progress? In other words, why isn’t Open Book Management, or “OBM,” the rule for private companies, rather than the very rare exception?
In a weird bit of irony, it seems that OBM practices are more visible when a company gets into trouble. The logic goes like this: ‘We’re really hurting, team, and we need you to sacrifice without blaming management so we can find a way to hold the team together and get to the goal.’ Of course once the sacrificing is over, we won’t need to share all that stuff with the team, because they’ll go right back to the raises and bonuses pitch and we’ll have to explain why we’re buying a boat instead.
Am I being too cynical? I tried to find a publication, article or speech that spoke of the problems encountered with OBM – the pros and cons, if you will. No one speaks, writes or teaches against this method of sharing information. To the contrary, there are volumes of information describing the improvements that companies have made in productivity and profits as a result – directly or indirectly – of making the move to share more of their financial and business planning information with their employees.
So why isn’t OBM happening in your company? Could it be that the perceived risk of the bullet list above is greater than the perceived benefit of having your employees invested in your company’s success? Perhaps you don’t believe they really want you to succeed. Or you don’t believe the employees’ feelings about the company’s success will have anything to do with your actual results?
Maybe I’m not the cynical one after all. If everyone who has had exposure to OBM thinks it’s beneficial to the company, but you’ve not been willing to consider it for your company, either you haven’t heard the success stories or you don’t believe them. I’ll go with ‘you haven’t heard them.’
Here are some examples.
• Pool Covers Inc. – the poster child for a recent Wall Street Journal article – has been using OBM since 1994. The CEO credits the practice with helping the company’s value grow an average of 23.8% a year from 1997 to 2007. During the current recession the company had to consider its first ever layoff, and six employees volunteered to be laid off based on the information they had seen, rather than have the company struggle and perhaps not make it.
• Dorian Drake International – when the employees began seeing their company’s financials in 2002 they realized 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. (SRC) was an ailing division of International Harvester when a new CEO assumed control as part of an employee-led buyout. The biggest change under his direction was cultural. The company created and embraced an environment of open communication, learning and development, and trust. SRC taught its employees how to read a balance sheet and began sharing key financial information. 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, might it be worth a try?
Wall Street Journal, 2/23/2009, page R8.
Wall Street Journal, 2/23/2009, page R8.
Open Book Management, The Coming Business Revolution, John Case, HarperBusiness, 1995.
My close colleague, Gene Siciliano (our “CFO for rent” at www.cfoforrent.com) provides training in finance for non-financial managers, and helps companies develop performance metrics that are the leading indicators of profitability. His website is filled with resources and articles, and you can sign up for his newsletter. I wanted to share this article with you.
