One way that some of the fastest growing and most profitable companies around keep everyone focused on the growth is by sharing key metrics, including financial data that is often considered for management only.
By creating a “dashboard,” or even a simple one-page, high-level view of key strategic, marketing, and financial indicators even those in entry-level positions can get a much better view of their role in achieving the company’s success and strategic vision. It’s also a great way to keep everyone in the organization focused on key goals like referral generation.
Open Book Management is born
In 1982, International Harvester sent a young manager named Jack Stack to Springfield, Missouri, to fix their ailing engine-overhaul plant. Shortly, International Harvester decided to pull the plug on the plant and ordered Stack and his team to lay off the entire staff.
Instead, in what has now become a much chronicled story, Stack and twelve of his fellow managers pulled together $100,000 and borrowed $9 million more to buy the place, renaming it Springfield ReManufacturing Company, or SRC.
I’ve interviewed Stack on several occasions, and he readily admits that, given the size of the loan payment and the inexperience of the staff, including himself, he decided to open the books as a way to get everyone in the company focused on the financials, so that all the employees could help the company make money and survive.
To him, traditional closed-book management strategies, the kind he experienced rising from mailroom to shop floor to management, didn’t make any sense, because the reason behind budgets and quotas, profits and losses were never explained. So he and his managers decided to create an entire business where everyone knew everything behind the numbers and everyone was expected to find ways to contribute to the numbers. With that decision, the concept known as “open book management” was born.
SRC’s and Stack’s complete story can be found in a wonderful book by Stack and coauthor Bo Burlingham known as The Great Game of Business. Burlingham covered SRC and the great game as a columnist for Inc. magazine. “Stack had figured out how to tap into the most underutilized resource available to a company,” Burlingham wrote. “Namely, the intelligence of the people who work for it.”
If it were your company, what would you do?
New Belgium Brewing Company, based in Fort Collins, CO, was named one of fifteen “Top Small Work- places” in the United States by the Wall Street Journal in 2008. A brief tour of the place provides a glimpse into why. (And no, I’m not referring to the unlimited supply of Fat Tire Amber Ale.) New Belgium’s staff is made up of owners, and it shows in the pride and enthusiasm demonstrated through every contact, from the phone to the tasting room.
New Belgium began operations in a Fort Collins basement in 1991. Today they are the third-largest craft brewer in the United States. At the time of the WSJ award, New Belgium boasted a 97 percent employee retention rate and practiced open book management.” And at the end of one year of employment, a staff member becomes an owner.
This note from the company’s Web site speaks to the culture of ownership at New Belgium: “Employees are guided by this simple principle: If it were your company, what would you do? Look for ways to be less wasteful, be more efficient, recycle, and reuse? Yep. It’s infectious. Once you start thinking of ways to make your company better, you can’t stop.”
New Belgium CEO Kim Jordan explains their open-book philosophy like this: “The way it works here is that each employee knows precisely what it costs to make a barrel of beer, and how much their department contributes to that cost. Since they have a vested interest in the profits, they often meet to set performance targets to bring those costs down. They determine which costs trouble them -- keep them up at night -- and then they recommend how they can do better. We’re proud of the corporate culture we’ve established here. Our employees care -- about the product, about costs, and about each other. It’s not unusual for an employee to stay late to help a coworker get a certain job done.”
Create your key strategic indicator dashboard
An Inc. magazine survey last year found that 40 percent of the companies on its list of the five hundred fastest-growing private companies in the nation use some form of open book management. There is a misconception in some circles that open book management is simply about sharing the full financial picture with every employee.
While some firms may choose to provide full financial details, the real power of any open book management strategy is in giving employees the key measures of business success and teaching them to understand those measures and to use them to improve their performance
I find that many business owners aren’t that hot at tracking and measuring the important indicators of success. When you are just starting out, perhaps you can get away with this, but as your business grows, analyzing key success indicators can mean the difference between smart growth and chaos.
Most of the books on the subject of business or marketing metrics are so full of jargon that they don’t provide anything in the way of a simple and effective approach. I firmly believe that if you mine your data for just a handful of key indicators, you can create a dashboard of information that you can actually react to, affect, and lead from. Keep it simple and build elegant processes to extract and monitor just a handful of key indicators.
John Jantsch is a marketing consultant and author of Duct Tape Marketing and The Referral Engine.
Image credit: Dave Dugdale