Open-book management is a way of running a company that gets everyone involved. Teams learn to understand, track, and forecast the business’s key numbers. They typically share in the wealth created by better performance. In short, the company engages every employee—in making money.
Usually that’s the wrong thing to do, because not many employees will have the training to understand it. Open-book companies have gotten started in a dozen different ways, but we recommend (a) a fact-based diagnostic of your company’s situation, getting input from everyone and (b) an initial focus on just one number, usually linked to the financials. Sharing the full financials can come later.
Some practitioners make individual salaries and wages public, but most don’t. We have not seen providing individuals salaries to be helpful, so we don’t recommend this.
That’s the beauty of open-book management: in a small company, it doesn’t need to cost anything. You can see how we at Open-Book Coaching go about our business. And you can implement it yourself, a step at a time. Even if you decide you want to pay for coaching services, it won’t cost much, because we scale our fees to the size of the company. Our clients almost always make back their investment in the first few months. This stuff works.
OBM isn’t about generosity, though many of the people who practice it have generous impulses. It isn’t about creating a good work environment, though it does that, too. OBM is a business strategy, a way of organizing a company to survive and prosper in a tough, fast-changing marketplace. It’s also about treating people like adults. Southwest Airlines is legendary for its great culture and generous compensation. Yet the company found their version of open-book management, dubbed Plane Smart Business, to be quite helpful.
We know of one company that declared every employee an insider and shared all the financials with them all the time. But you don’t have to go that far. A public company’s consolidated financial statements probably are pretty far removed from what’s going on in individual workplaces. What you need to do is figure out the local economics—the key numbers for your business unit or branch. There’s no law against sharing those numbers.
What many people see as the biggest risks are actually pretty small. Employees won’t be amazed at how much profit your company makes. (Chances are they believe it makes far more than it does.) They’re unlikely to share information with your competitors, since they have a vested interest in the business results.
Candidly, the biggest risk is that you won’t follow through. You’ll get people excited about seeing the real numbers, taking on the job of boosting performance, and earning more money through an incentive plan. But if you don’t keep at it, the enthusiasm will fade. People will go back to the old ways of doing things—and to their old cynical attitudes..
Every company needs short-term profits most of the time, or else there will be no long-term profits. But you’re right: any company can pay too much attention to short-term earnings at the expense of long-term prosperity. The key is to focus on the right performance metric, and then to change this annually to reflect business priorities. If employees own equity, or if they have a bonus pegged to some measure of share value, they’ll have as much interest as any owner in building up the company for long-term sustainability..
The point of open-book management is to get people thinking like businesspeople, not like bean counters. Certain costs just aren’t as important in some businesses as they are in others. Still, you can bet that the CEOs of ad agencies and software companies and every other business that depends on creativity and innovation know some key financial numbers as well as they know their ATM codes. The financials alone don’t guarantee success, but not watching them is a sure guarantee of failure. Anyway, employees need a way of knowing whether all the creativity and innovation they’re engaging in is paying off. We can provide several case studies of design, engineering, and software companies that are benefiting from OBM.