Bill Fotsch and John Case Jul 25, 2017, 07:07am
Open-book management is a way of running a
company that engages employees in making money. People learn to understand
the economics of the business. They track and forecast key numbers. They figure
out how to move those numbers in the right direction, and they share in the
rewards of better performance.
But why should anyone bother with a whole new
approach? Why not just keep on keeping on, managing your business the same way
you always have?
One reason is simple: open-book management
nearly always improves near-term financial results. In our experience,
companies register as much as a 30% increase in productivity and profitability
in the first year alone, when they implement the approach properly.
But the real business case for open-book
management is that it makes a company stronger over the long haul. It improves
the lives of employees, building loyalty and commitment. It helps create a
business that can thrive year after year in today’s mercurial economy—and that
can be sold for top dollar when and if that time comes.
Let’s look at the seven sources of strength
and competitive advantage:
More engaged employees. Every company would like its workers to
put their shoulders to the wheel. Engaged employees go the extra mile for
customers, come up with new product ideas, figure out how to save money. But
very few companies get this kind of involvement. It’s a well-known statistic:
only about 30% of US workers say they are engaged in their work.
An open-book company can double or even triple
that figure, because employees see the effects of their actions on the
business’s performance and know they will benefit when results improve. “I
don’t have employees in my plant anymore,” says Roger Grommet, co-owner of
Boardman Inc., a specialty manufacturer based in Oklahoma. “I have
entrepreneurs who are looking to find ways to make more money.”
Lower supervisory costs. People who view their work as “just a
job” need supervision. Supervisors make sure that these hired hands work hard
and don’t screw things up. People who view their work as helping to build a
business—a business in which they share—don’t need that kind of supervision.
Coaching, sure. Someone constantly peering over their shoulder? Not so much.
The less a company spends on supervisors, the better its bottom line.
Better front-line relations with
customers. A hired hand’s typical
response to an irate customer is usually something like this: “Sorry, ma’am,
I’m just following policy,” or “Sorry, that’s not my job.” A business owner’s
typical response in the same situation: “We’re terribly sorry, ma’am. Let’s
talk about how we can make it right.” At open-book companies, employees learn
to think like owners—which means they act like owners toward customers.
Faster, more agile response to changing
customer needs. The difference
isn’t relevant only to customer problems. Open-book employees also keep an eye
out for longer-term changes in what customers want and expect from their
interactions with a company. The owners of FA Engineering have seen employees repeatedly identify
and solve new client problems, resulting in more revenue and an incredibly
strong reputation.
A built-in competitive advantage. Advertising yourself as an open-book
company conveys a powerful message. You have nothing to hide. You can be
trusted. You are providing your employees with a great place to work, and you
are expecting them to think and act like owners. Who wouldn’t want to do
business with a company like that? More and more open-book companies are
teaching the approach to customers and suppliers through webinars and other
methods. One software company found that advertising itself as an open-book
organization led to several new hires in the highly competitive market for
programmers. You might say that open-book management is the ultimate competitive edge.
More fun. Like other employee-centered companies,
open-book businesses sponsor their share of bowling nights and barbecues. But
they also make work fun in a way that it can never be in an ordinary
organization. Look at the typical open-book weekly meeting, with its highly
participatory review of sales, cost initiatives, or anything else that affects
the company’s key numbers. As we wrote last fall, people “cheer, laugh, clap, sometimes
groan, and nearly always have a good time.” That’s because business itself is
fun.
Higher company valuation. An open-book company requires robust, transparent
financial systems. It asks everyone in the organization to learn certain
numbers that affect financial results and how they can make these numbers move
in the right direction. Many such companies draw on practical techniques such
as lean and kaizen to ensure continuous improvement. These are all factors that
affect a company’s appeal to potential buyers and hence its valuation. When Dan
Foley sold his landscaping business, those were just what the
acquirer was looking for.
Are you persuaded? We hope so. It’s a tough
world out there, and company owners who blindly try to go it alone are likely
to be left behind by their open-book competitors. Rest assured, moreover, that
open-book management is coming to your industry. The case for it is just too
strong.
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