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Is Open-Book Management Dangerous?

Jim Bado

September 1999

(Jim Bado)If you are a leader at your company, is it dangerous for you to share financial information, have employees know the business's performance on a regular basis, and have them understand their role in its success or failure?

You bet! With the books open, employees identify their company's weaknesses and discover the business's competitive challenges. They gain the knowledge to question decisions, the insight to challenge day-to-day operations, and the motivation to upset the status quo. If that wasn't frightening enough, with an effective short-term reward, they know the bonus targets and hold themselves and leaders accountable for reaching them. Sharing performance information can put a leader on the hot seat.

Moreover, and more troubling, more than just your rear end could get burned. Once you begin discussing financial results and performance statistics, your company's sensitive information could fall into the hands of competitors.

Given these headaches, why would anyone put himself in this position? Why share performance information? That's a good question: why are companies doing it?

The answer: better results. As a recent NCEO study showed, open-book management companies outperform their competitors. Evidence from companies also supports the notion that sharing information improves performance. Springfield Remanufacturing rejuvenated itself via open-book management and Jack Stack wrote a book about it (The Great Game of Business); Physician Sales and Service used it to go from start-up to industry leader and you can read that book too (Patrick Kelly, Faster Company).

The Fallacy of Secrecy

Despite success stories and studies, many leaders are concerned that sharing information will hurt their companies more than it helps; that the dangers of open-book management outweigh the benefits.

However, not sharing information can create problems, too. Imagine the negative impact that uninformed, demotivated workers have on your business. I hope you have a hard time envisioning it, but, alas, many leaders don't. They have seen it: employees who don't understand how their company makes money and are disconnected from business performance. Employees who act like hired hands, not business people.

Think about all the lost opportunities to improve your company because employees are acting like hired hands. Chances to bolster the bottom line in a competitive marketplace that are missed. Opportunities that appear and disappear everyday. Opportunities for your business that you know are out there.

When employees are hired hands who "go along to get along," everything may seem great. But they are not challenging themselves to better serve customers, to grow new markets, or to help your business achieve its strategic goals. Having no stake besides their paycheck, the vast majority of employees are uninterested in giving any more than they have to. Nine of ten wouldn't know a strategic goal if it popped out of the vending machine and hit them as they grabbed their M&Ms. In these companies, the bottom line is that the bottom line is your responsibility, not theirs. Rather than working to grow the business, employees focus on hitting minimum standards. Without knowing the business' status, they are "in the dark" and susceptible to the latest rumor. The worse it is, the more believable. "You see all the trucks going out of here," is a common refrain, "this place is making millions, but they can't give us a raise." Maybe you've heard people talking like that. Uninformed. Thinking that they ought to be given things, rather than earn them. Acting like hired hands instead of business people.

It's not a rosy picture, but you can survive operating that way. And most companies do. For how long? Who knows. Maybe long enough that it will not matter. Long enough so that you'll be gone and someone else will have to deal with it. But the question is: why would you want to work like that? That's a hired hand mentality; the same mentality we despise in employees.

Wouldn't it be more profitable to invest your time and energy into something better? To develop a proactive, rather than reactive culture? To plant seeds that can grow and blossom into--can I actually say this?--a fun, stimulating work environment. A workplace where ten, a hundred, a thousand or ten thousand minds were all thinking about how to make money. Where the vast majority of employees--let's be realistic, we both know you can never convert all, but you can convert many more than you realize--were earning rewards rather than whining about how they're entitled to them. Making money for the company and themselves and acting like business people. A place where the vast majority were there hands and mind, everyday, instead of just a few every once in a while?

I don't know about you, but I'd rather be there. Definitely.

Are You Ready to Share Financial Information?

It boils down to that: are you ready? Find out. Based on your beliefs, answer true or false to the following statements:

The more times you responded false, the closer your beliefs are to those who have conquered their concerns and started sharing performance information. Many of them, however, are still answering some of these questions as true.

From being "out there" talking to people about open-book management, I've found that the hesitation and fear revolve around two issues: (1) "people cannot understand financial information" and (2) "our competitors will get our information."

Those are the two big stumbling blocks; the two sacred cows. Two cows that need to be "put to pasture" if you're going to get started.

Almost anyone who thinks about it for a second will agree that with some education, simplification, and repetition, people can understand how a business works and the financial numbers. People use the concepts in their daily lives. With open-book management, you're just trying to engage some of that brainpower at work. If you don't believe that people can "get it"—and I've met a fair number of leaders who think they can't—then forget it. Read some other article, because you're wasting your time here.

If you do believe they can "get it," then consider the second issue: your competitors. This a tougher nut to crack. It's insidious to ask you to do this—and people have told me it is—but think about how much you know about your competition. Is there any reason to believe that they don't know just as much, or, perish the thought, more about you? And what exactly is the really, really essential information that would kill you if it got out? It's less, much less than you think.

A lot of companies, especially privately held, family-owned firms, operate on a CIA-esque information management principle: everything is a competitive secret. Reexamine that notion. Is holding all the information "secret" helping you be more competitive? What are the real reasons are for not sharing performance information, especially relevant information that would help people improve the business?

Beyond Risk?

If you can move beyond those stumbling blocks, you still may be concerned about starting because of misconceptions about the term "open-book management." It's a catchy term, but, like many snappy phrases, somewhat of a misnomer. Many assume it means sharing everything (it doesn't). Others think you have to begin sharing everything immediately (you won't) and that all employees must receive detailed financial statements (they don't). Worst of all, people assume that it means sharing salary information (it doesn't).

In essence, opening the books means sharing information to help people improve the company's performance, most often information close to their jobs. You could call it "sharing financial information to improve performance," but that lacks the cache of open-book management and makes for a terrible acronym (SFITIP). Open-book management is really about building a "line-of-sight" from employees' daily jobs (which they know better than anyone else) to the firm's big picture financial performance. And developing a regularized process to communicate about performance: an effective feedback loop.

Like any performance improvement initiative—and that's what open-book management is, a strategy to improve performance, nothing more, nothing less—open-book management is a process. Companies that open the books do it strategically. How? There are many ways. All, however, lead down the same path: as employees build skills and knowledge, more information is shared. At some firms, the result is sharing virtually all information, including salaries; at others, it is not. At conferences, some companies are vehement about information sharing, dramatically uttering that "it's all or nothing," which could scare you off because it's not.

The salient point is sharing information that will help people to improve the company's performance. Sharing information to improve performance.

Getting Started with Open-Book Management

So let's assume that you're still interested and want to explore this. What should you do? How do you get going?

A key is investing some time at the outset planning what you want to share and why you want to share it. Just as you wouldn't install a new computer system without extensive study, an implementation timetable and contingency plans, the same critical thinking ought to be put toward developing your human resources ("human-resources strategy" is not an oxymoron). If you want to get there, what should you do? Get started as soon as you can. First, learn. Go to a bookstore or an online bookseller and look for books on open-book management. Invest in a couple of the books. Some of them are short enough to read the next time you're stuck on the runway as number nine in line to takeoff. You can also find articles on the Web, as in the ownership culture section of this Web site.

If you like what you read, go to an open-book management conference. Talk to some other open-book management companies. Ask them how they did it, what went right (and wrong) and use your knowledge to tweak their experience to fit your company.

You might get lucky and run into an open-book company that's close by—there are more out there than you think—and be able to visit. Or you might be fortunate enough to have an open-book management network in your region. Go to one of their meetings.

If you still think it's a good idea, then get some other leaders involved. Prepare yourself for blank stares and negative reactions when you mention open-book management. The last time I checked it wasn't on the menu of the local college's MBA program. Other leaders are going to need time to absorb the concept, just as you did. Once you get some buy-in, you'll be well on your way, but, of course, just beginning your open-book journey. And you ought to think of it as that: a journey to improving your company, to building a culture where people think and act like business people.

Opening the books is a movement away from the dangers—and they are real—of an uninformed, demotivated workforce, toward the challenges of leading a group of business people. As Marcel Proust wrote, "the real voyage of discovery is not in seeking new lands, but in seeing with new eyes." Eyes wide open. Eyes on the prize. Eyes that have the spark of a business person.
About the Author

Jim Bado of Workplace Development Incorporated has worked with employee-owned businesses since the late 1980s to communicate ESOP ownership's benefits. His practical experience includes rolling out new ESOPs, ownership and business education, ESOP committee development, leadership coaching, and strategic planning in an ownership environment.

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