“I don’t have employees in my plant anymore. I have entrepreneurs who are looking to find ways to make more money.”
—Boardman co-owner Roger Grommet
Boardman Inc. is a specialty manufacturer based in Oklahoma. The company employs roughly 100 people at plants in Oklahoma City and Wichita, Kansas, and does roughly $25 million a year in sales. For years, co-owners Roger Grommet and Jim Hagemann did their best to grow the company, but it was marginally profitable and vulnerable to the ups and downs of the business cycle. Employees did their jobs well but seldom went the extra mile.
A couple of years ago, Grommet and Hagemann heard about open-book management. Finding the simplicity and transparency of the concept appealing, they came to believe they could achieve greater results by engaging their employees more intensively in the business.
How Boardman Implemented Open-Book Management
With the guidance of their open-book coach, Bill Fotsch, Boardman’s management team launched confidential surveys of employees and managers. Among the questions: What can the company do to improve its relationship with customers and grow sales? What are the primary challenges we are facing? Where is the biggest opportunity to improve profits?
The team also reviewed the company’s financial trends for the past five years, highlighting strengths and weaknesses and looking closely at variances to budget in the most recent year. People began calling up customers to assess their experience doing business with Boardman, a process that provided a wealth of market and competitive data.
The purpose of all this information gathering in an open-book situation is twofold:
- to pull in as much data as possible about the business (instead of relying on what you think you know)
- to help managers and employees learn to think like owners—like businesspeople—rather than like hired hands.
At Boardman Inc., managers and employees agreed that the key number was job margin dollars per month, meaning shipment revenue minus direct labor and direct materials. (Shop-floor employees in open-book companies learn to understand and use terms like that.)
The metric linked directly to the company’s critical issues, including on-time shipping, labor efficiency, rework, and material costs. A review of the past 12 months’ worth of data showed that the company’s profits tracked closely with monthly job margin.
Once they identified their key number, they naturally wanted to track it. So a Boardman team moved on to creating a scoreboard, combining existing reports into a master spreadsheet tracking each job each month so they could forecast monthly job margin dollars. Employees began to self-manage to improve the results of what they were measuring. With monthly job margin information available for everyone to see, people began figuring out how to lower material costs, squeeze in an extra job, or get a shipment out the door.
Boardman’s managers could act more like coaches than like supervisors, because the people they once supervised were now reading off the same sheet music and marching to the same tune.
Boardman began to forecast its monthly results. Forecasting is an essential part of the open-book approach. It allows people to take action in advance, thus reducing or avoiding those negative variances. It also demonstrates to employees that business isn’t wholly random, that you can predict results quite accurately over the short term and plan your efforts accordingly. And when the actual results become available, variances to forecast are learning opportunities, creating a learning organization.
Boardman’s results for 2012 far exceeded expectations. Job margin rose from $6.6 million in 2011 to $9.5 million the following year, far above budget. This increase translated into incremental profits of roughly $3 million.
Results continued to improve in 2013—and in 2014 the company is on track to set further records in operating performance and profits. Rework, which had been running well above 5 percent, is now below 1 percent. On-time delivery has also improved substantially, generating additional orders from satisfied customers. This magnitude of improvement is fairly typical for successful open-book implementations.
But the intangible payoffs—people learning to think and act like owners—are as important as the tangible ones.
Boardman is a relatively small company, but we have seen open-book principles implemented in multibillion-dollar enterprises as well. The trick is to focus on the local economics—one plant, say, or one business unit. And the system always works best when companies arrange their incentive compensation to reflect improvement in the key numbers.
Boardman, for example, linked bonuses directly to improvement in job margin dollars. When the company blew away its targets in 2012, workers received a bonus of 10 weeks’ worth of pay, and the company enjoyed its most profitable year to date. Both the company and the employees won. Extra pay on that scale has a way of focusing people’s attention on how they can make the business even more profitable the following year.