Is Open-Book Management Right For Your Company

by Robert Driscoll on September 22, 2009

open book management image_medOpen-book management (OBM) has been around for over 25 years since Jack Stack implemented it at Springfield ReManufacturing Corporation in 1983 and wrote, “The Great Game of Business”.  The concept is simple, yet implementing it can be overwhelming and it could be years before a company starts seeing significant results.  Some have called OBM the most important management trend in the country.  Others see it as a possible threat to their business as proprietary information is shared with employees that could be spread to rivals, and if business is bad, could be demoralizing to employees.

So what is OBM and why implement it?

Open-book management is:

Giving employees all relevant financial information about the company so they can make better decisions as workers.  This information includes, but is not limited to, revenue, profit, cost of goods, cash flow and expenses.

The basic rules for Open-Book Management are as follows:

  • Give employees training to understand the financial information
  • Give employees all relevant financial information
  • Give employees responsibility for the numbers under their control.
  • Give employees a financial stake in how the company performs.

Companies that practice OBM teach their employees how to read and understand the company’s financials and get them to think like owners.  Not only are employees focused on increasing top line revenue, but decreasing expenses that are under their control, in turn having a more significant impact on the company’s bottom line.  A study done by The National Center for Employee Ownership in 1998 showed that companies that implemented OBM grew 1.66% faster than their competitors, and 2.2% faster if the companies created an employee stock ownership program (ESOP). 

Simply providing your employees with an ESOP will not guarantee increased revenues or profits.  Think of how many companies that have done this with little success such as United Airlines, Enron and WorldCom.  Granted, there were several breakdowns in all of these companies, but most of them operated in the labor tradition where most executives believed their employees disliked their work, were task oriented and couldn’t think for themselves, worked for only pay and security, felt they needed to be closely monitored and told what to do.  In this type of environment it’s an us versus them atmosphere between management and the company’s employees. 

There are four critical steps if you are wanting to implement OBM within your company:

  1. Develop trust between management and the company’s employees.  Trust by management that their employees will make sound decisions with the information that is provided to them and trust by employees that their management is providing them with accurate information. 
  2. Determine what the critical numbers that need to be measured are, both on a macro and micro level, and create a line-of-sight for what the company is striving for.  This will help employees understand how they individually can impact the organization as a whole. 
  3. Eliminate the bureaucracy that can develop within organizations and in turn flatten it as much as possible to allow for employees to be heard, for information to flow more efficiently between management and employees and more importantly, for decisions to be made quickly.
  4. Both the company’s management and its employees need to be patient and persistent as improvements will not be seen overnight.  Both sides will also need to be diligent in ensuring that in order for OBM to continue to prosper and succeed, they must keep their commitments to each other in improving the company’s financials and work as a team.   

I’ve had the pleasure of working for a company that implemented OBM, Atlas Container Corporation, and when implemented properly as it was there, it is an amazing thing to see and be a part of.  OBM is not for every company, but in today’s tough marketplace, it is something that, in my opinion, every company should look at.

To learn more about OBM and how it might help your company, please visit the following websites:

http://www.greatgame.com/

http://www.inc.com/guides/finance/23178.html

Related Articles

Previous post:

Next post: