Three Key Elements

1. Transparency

 

In open-book companies, everyone sees and learns to understand the most important numbers. What are these numbers? They’re whatever metrics management uses to run the business and to gauge its performance. For instance:

  • Operational measures, such as units shipped or customers service
  • Financial figures, such as gross margin or return on assets
  • Budget numbers
  • Actual compared to plan
  • Forecasts

Numbers like these are a company’s guidance system. They shape management’s actions. They enable employees to gauge the success of what they do. When everybody sees the same information, trust grows. Everybody knows what’s working and what isn’t.

2. Joint accountability

Executives and senior managers understand that a business unit’s performance reflects dozens of different elements: sales, costs, customer satisfaction, labor productivity, budget variances, R&D expenditures, and so on. Managers responsible for these numbers learn to identify and track the variables that drive them. They learn to forecast and reforecast, to analyze the budget for possible trade-offs and fallbacks, to figure out ways by which they can get more or better work done in the same amount of time.

In open-book companies employees, too, learn some of these skills. They have to, because they—and not just their bosses—are jointly responsible for hitting their goals. They have a hand in setting those goals as well. Who knows what’s possible better than the people accountable for achieving it?

3. A stake in success

Employees work for a wage or salary. Owners share in the profits, and ultimately in the wealth, that their companies create. If you want people to think and act like owners, you have to pay them accordingly. So open-book management necessarily involves a healthy bonus plan pegged to business goals. It works best when employees own shares or phantom stock as well.

Unlike conventional bonuses, open-book bonuses are always tied to some easily understood measures of business performance, and progress toward the goal is tracked publicly. The system is wholly transparent. People see and understand the numbers that determine success. They learn to take responsibility for their part in making the numbers. They know beforehand how they will be rewarded if their unit achieves its goals.

What the experts say…

“What a sensible and timely idea—to treat people like adults and surround them with enough business information to do the right thing. Opening your books will do your employees and your bottom line a favor.”

—Rosabeth Moss Kanter, professor, Harvard Business School