Here’s a paradox. On the one hand, the two of us have devoted much of our careers to the business philosophy known as open-book management. Bill runs a company called Open-Book Coaching. John coined the phrase in these pages a number of years ago and has written two books on the subject.
On the other hand, we now don’t use the term much, if at all.
It’s not that our beliefs have changed. We think every company should help its employees learn to think and act like partners, rather than like hired hands. Everyone in a company–and we do mean everyone–should understand the economics of the business, take responsibility for improving the company’s performance, and share in the wealth they help create. These are the precepts of open-book management, and we think it’s all just common sense.
You can see the approach at work in companies all over the country, from Missouri-based SRC Holdings–the granddaddy of open-book management–to young entrepreneurial businesses like Adams + Beasley Associates (ABA), a home builder and remodeler in the Boston area. ABA’s project managers and front-line employees track gross margin on every job. They earn a bonus pegged to results–bonuses that have been paid regularly during the last couple of years.
Boardman, a custom steel fabricator in Oklahoma, implemented the system a few years ago. We like to quote the CEO’s amazed reaction to what he saw. “I don’t have employees in my plant anymore,” he told us. “I have entrepreneurs who are looking to find ways to make more money.”
So why do we avoid the phrase open-book management?
One reason is that it scares off a lot of people who would otherwise be receptive to the fundamental ideas. Open my company’s books? Are you kidding? We’ve heard that response more times than we care to count.
A more important reason: The phrase is misleading. You really don’t have to share your full financials with your employees. Most people wouldn’t understand them anyway.
What we advocate instead is that you develop a key number that links directly to financial results. ABA and other project-based companies often use key numbers like job margin dollars by month. Engineering and other professional-services firms might use revenue per person. These are numbers that teams can readily identify with, and that drive the company’s financial results. In a future column, we will describe how to develop your key number–and how to change it when conditions warrant. (Spoiler alert: How you develop your key number is at least as important as the number itself.)
Once you have a key number, you can put it up on a scoreboard and get people to track it from week to week. Watching the results, employees learn how to move the key number in the right direction. They can also learn to forecast where the number will be two or three months out, which gets people thinking about cause and effect. The forecast helps everyone prepare for coming threats and opportunities.
You can also create a bonus program tied to specific improvements in the key number, as ABA and many others have done. The prospect of extra money has a way of focusing people’s attention on what they must do to hit the targets. Since the incremental earnings fund the bonus, both the company and the employees gain. We think that’s the way any business should operate.
A lot of companies are struggling right now because of the coronavirus pandemic. As the pandemic ebbs, many will be looking to rebuild their organizations to make them stronger and more resilient. In the months to come, we will elaborate on the ideas outlined here, and on other ways to transform your business into an organization of trusted partners rather than hired hands. We’ll use terms like partnership and economic engagement.
But we probably won’t call it open-book management.
Bill Fotsch is founder and president of Open-Book Coaching Inc. John Case, a former senior writer for Inc., is author of Open-Book Management and The Open-Book Experience. Some of the companies we write about are current or former clients of Open-Book Coaching.