The Business Case for
Open Book Management
By Gene Siciliano
What if there was a
way for you to get your employees truly invested in helping your
company earn a profit and achieve its key goals? Youâ€™d just tell
your employees what youâ€™re trying to accomplish and how youâ€™re
progressing, and theyâ€™d become rabid fans and supporters.
Does this sound too
good to be true? Well, it actually happens in some companies where
management has been able to adjust its way of thinking about the
employee-employer relationship and practice true Open Book
Management, or OBM.
Think about this
for a minute: Public companies share their financial results with
the world, but primarily because they have to in order to freely
sell their stock. However, most privately owned companies donâ€™t
share their financial results with anyone, unless they have
to in order to get a loan, file their tax returns or sell the
Good or Bad?
By definition, a public companyâ€™s financial information is
available to every employee of the company. Is that a bad thing?
Given the extraordinary efforts that most privately held company
CEOs go to in order to keep financial information away from their
employees, you would think so.
The mutual feelings
of mistrust between employers and employees often run deep, perhaps
stemming from the lack of loyalty they perceive from each other.
Employees think their companies will lay them off at the drop of a
hat (or net income) and employers think their workers focus largely
on doing as little work as possible while pocketing office supplies
and looking for a better job somewhere else. Managementâ€™s thinking
often sounds something like:
“If they know
weâ€™re making a profit, theyâ€™re going to demand raises, bonuses
and a membership in the local health club.”
“If they know
what our goals are and we donâ€™t reach them, weâ€™ll have to
“If an employee
leaves and goes to work for a competitor, there goes our
competitive advantage when he tells them all about our plans and
this stuff in lay terms is a lot of work, and periods of poor
profits can create anxiety that we can handle but our employees
employees find out how much money we make, our customers will
find out and weâ€™ll get requests to cut our prices, or our
suppliers will find out and theyâ€™ll want us to pay more for what
Now think about
this: On any sports team, every player knows the game plan, their
evolving role in it and what the end goal is. And they all know at
any given time whether theyâ€™re making progress toward reaching this
So why do so many
business owners and managers consider it anathema to keep their
employees (i.e., their team) informed about their progress? Or in
other words, why do so few owners practice Open Book Management?
Ironically, it seems that companies are more likely to practice OBM
when they get into trouble.
I tried to find a
publication, article or speech that discussed problems encountered
with OBM—a pros and cons analysis, if you will. I couldnâ€™t. To the
contrary, there are volumes describing the improvements that
companies have made in productivity and profits as a result (whether
directly or indirectly) of making the move to share more of their
financial and business planning information with their employees by
What About Your
Are you practicing
OBM at your company? If not, could it be because youâ€™re afraid that
risks like those described above are greater than the potential
benefits of having your employees truly invested in your companyâ€™s
success? Maybe you donâ€™t think your employees really want you
to succeed. Or maybe you donâ€™t believe that employeesâ€™ feelings
about the companyâ€™s success really have anything to do with actual
If you havenâ€™t been
willing to consider practicing OBM at your company, either you
havenâ€™t heard any success stories of companies that have, or you
donâ€™t believe them. Iâ€™ll go with ‘you havenâ€™t heard them,â€™ so here
are a few:
Pool Covers Inc.—This company, which has been using OBM since 1994, was
featured in a Wall Street Journal article last year. The CEO
credits OBM with helping the companyâ€™s value grow an average of 23.8
percent a year from 1997 to 2007. During the recession, the company
had to consider its first-ever layoff. Astonishingly, six employees
volunteered to be laid off based on the financial information they
had seen, rather than have the company struggle and perhaps not make
it and everyone else lose their jobs.
Dorian Drake International—When this companyâ€™s employees began seeing the financials in
2002, they realized that some departments were getting better deals
from vendors than they were for similar purchases. The resulting
changes in purchasing procedures helped the company go from a
$500,000 loss to a $200,000 profit in one year—with no increase
Springfield ReManufacturing Corp.—This was an ailing division of International Harvester
when a new CEO assumed control as part of an employee-led buyout.
The biggest change he directed was cultural. The company created and
embraced an environment of open communication, learning and
development, and trust.
employees how to read a balance sheet and began sharing key
financial information with them. As a result, employees learned how
key performance measurements such as defect rates and order backlogs
impacted the bottom line. The result? From 1983 to 2004, the
companyâ€™s sales grew from $16 million to more than $160 million.
So, do you think
OBM might be worth a try at your company? Experience has proven that
the rewards far outweigh the risks. Go ahead, give it a try—Iâ€™m
willing to bet that, like thousands of other business owners, youâ€™ll
be glad you did.
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