Open-Book Management: Framework of Inclusion for Business Success– Paradigm Shift in Business Management Thinking…

Open-Book Management is a way of running a company that gets everyone to focus on helping the business make money: Nothing more, nothing less.

Open-Book Management (OBM) is a framework for managing businesses… it’s a process… it’s a way to unleash entrepreneur spirit inside every employee… it’s a way to get everyone informed, involved, and engaged in making the company successful. Quite simply, change through Open-Book Management is focused on responsibility. Open-Book Management wasn’t born in prestigious think-tank or Ivy League business school or fancy consultants… It was born in the Ozarks in 1983 out of sheer necessity.

Jack Stack and 12 other managers at Springfield Remanufacturing Co. (SRC) had a choice… either teach everyone to think like business people, or lose 119 jobs… Open-Book Management is a unique and well-proven strategy based on a very simple belief; the best, most efficient, most profitable way to operate a business is to educate everyone on the business, give them a voice in saying how the company is run and provide them a stake in the financial outcome, good or bad.

Open-Book Management is not about just sharing numbers or data. There are no super-managers that decide how things must get done, no finance department gurus to watch the performance of every operator and operation to ensure profitability…

According to OBM, those responsibilities are best handled by those who have the most direct impact on them, and who are taught to make sound business decisions. It’s the individual workers that make important decisions and contributions that drive the well-being of the business. Open-Book Management was coined by John Case at ‘Inc Magazine’ and began using the term in 1993. However, the concept’s most visible success was by Jack Stack and his team at SRC…

Open-Book Management involves four basic practices; (1) training employees so they become business literate and can understand financial statements, (2) empowering them to use that information in cost cutting and quality improvement, (3) trusting them as business partners on equal footing, (4) rewarding them fairly for firm’s success.

According to Donald Barkman;  OBM is not a panacea. It doesn’t make things easier. It makes them better. It’s simply another  approach for managing the business. In the end, Open-Book Management is about informed and passionate workers tackling challenges, making-decisions, and adding-value to their lives, their business, and to the world around them…

In the book The Great Game of Business by Jack Stack writes: The true success of Open- Book Management is when companies allow ‘performance numbers’ to come ‘bottom-up’ (as opposed to traditional top-down management). While employees need to training to understand income statements and balance sheets; open-book’s true triumphs are when workers know and understand the ‘numbers’ to a level that they are able to report their meaning to upper-management. In order to motivate workers to strive for change,

Open-Book Management focuses on this ‘critical number’ for their business: The ‘critical number’ is mostly different for every business, but it’s a number that represents the prime performance indicator for the business, e.g., profitability, break-even point… Discovering ‘critical number’ is a key component of creating an open-book company. Once discovered, then a ‘scoreboard’ is developed that brings together all the numbers needed to calculate the ‘critical number’.

The ‘scoreboard’ is open for all to see, and meetings take place to discuss how individuals can influence the direction of the ‘score’ and therefore, ultimately, the performance against the ‘critical number’. Finally a ‘stake in the outcome’ is provided, e.g., bonus plan, equity share… which is tied to ‘critical number’ performance. The basic  rules for Open-Book Management are:

  • Know and teach the rules: Every employee should be given the measures of business success and taught to understand them
  • Follow the Action & Keep Score: Every employee should be expected and enabled to use their knowledge to improve performance
  • Provide a Stake in the Outcome: Every employee should have a direct stake in the company’s success-and in the risk of failure

In the article Introduction Open-Book Management by Harrington Group writes: Open-Book Management is a process that motivates employees to help improve the business bottom line. However, there is a catch: you have to open-up. Open-Book Management is information received by employees that should not only help them do their jobs effectively, but help them understand how the company is doing as a whole.

According to John Case, a company performs best when its people see themselves as partners in business rather than as hired hand. The technique gives employees relevant financial information about the company so that they can make better decisions. This information includes, but is not limited to; revenue, profit, cost of goods, cash flow, expenses…

As employees learn inner workings of business, they align their daily activities accordingly. By sharing information, you give workers the ability to leverage their knowledge. As result, managers gain insight, interests align, trust grows, and everyone wins…

In the blog What is Open-Book Management? by Jonathan Goldhill writes: Open-Book Management has two critical elements: sharing business information (open-book) and developing a process that enables everyone to use information to improve the company (management). It’s about running your business in a strategic, forward thinking fashion.

Employees are taught rules of business, enabled, and expected to improve performance based on that knowledge and given a ‘stake in the outcome’– good or bad. Business is a game, after all. It’s a competitive undertaking with– rules, keeping score, elements of luck and talent, and winners and losers. It can be as exciting, challenging, interesting and as fun as any game– provided that you understand the rules and are given a chance to play. The difference in business– the stakes are higher, much higher.

How do you teach people the business and make it understandable, interesting, meaningful, and maybe even a little fun? That’s the challenge, and that’s ‘The Game’… What if we could approach the day-to-day business activities with the same state of preparation, same level of knowledge, same enthusiasm, and most importantly, the same desire to win as we do with any competitive endeavor we pursue? ‘

The Game’ is strategy and management practice that takes the basic components of any game, applies them to the challenge of running business, and provides employees (the players) a way to understand, participate, and contribute in the overall performance of the business. ‘The Game’ levels the playing field and gives everyone the opportunity to act and take responsibility for the success of the company…

In the article Beyond Open-Book Management by Jeff Metzger writes: Companies that experience the real power behind Open-Book Management go far beyond simply opening up the books. People are not handed the numbers, they’re asked to help create them and improve them. They’re given a chance to act and take responsibility for the success of the company and rewarded for it, rather than just ‘doing their job as hired hands’. If you approached an everyday employee from any company and asked them; who creates the financial numbers in your company?

Nine times out of ten they would tell you it’s the financial guy… When in all reality they do! Working people create the financial numbers– by the decisions they make and the actions they take every day. Open-Book Management is just plain common sense. It wasn’t theorized in a business school or dreamed up at some consulting think tank. It was created by everyday business people… The pioneers of Open-Book Management didn’t always share the same language or use the same techniques, but they do operate according to some remarkably similar principles.

They discovered first hand that when you harness the collective wisdom of your people, great things can and do happen. If you have something to hide, or want to use numbers and information to manipulate and control people, then find another approach. If you are not prepared to learn, teach, share and be involved, then Open-Book Management will not work for you. However, if you are interested in making more money while improving the lives of the people who help you drive those results, then Open-Book Management is the answer…

In its simplest form, Open-Book Management is a way of running a company that gets everyone’s focus on building a better business– helping the business be more successful. It teaches all employees the goals of the company and how they can make a difference – both individually and as part of a team. Open-Book Management works because workers get a chance to act– to take responsibility…

According to Joy Maitland; if OBM appears at first to be unlikely strategy for achieving employee buy-in within your organization, you’re not alone. The model does require shift in thinking about the dynamics of the employer. The number one reason that businesses are reticent to implement OBM is lack of trust. Workplace distrust is common and somewhat disturbing:

Employees distrust employers; employers distrust employees… certainly not an ideal breeding ground for sharing sensitive information. Distrust runs deep, and can lead to disloyalty. There are, needless to say, pros and cons to the approach. According to Jack Welch; the more data and information you share with employees about costs and other competitive challenges, the better.

When people know what they’re up against, they can feel a greater sense of ownership and urgency, often sparking improvements in processes and productivity… And, the sense that– we’re all in this together– can certainly jump-start teamwork and innovation. But, go slow… Welch warns that there are real perils involved with opening the books… 

The key to any successful Open-Book Management system is to design it to fit an organization’s particular business needs and corporate culture… According to Carl E. Frahme; to unleash some real power in your company, then give some serious thought to Open-Book Management. It could unlock a lot of profits and growth. But it takes an honest, open approach to employees, and a great deal of hard work and trust-building…