In today’s tough climate, when you need to be operating at full throttle, wouldn’t it be a good idea to encourage employees to give their all—to make frequent, constructive suggestions that help boost the bottom line?
That’s what open book management is all about. It involves showing employees the numbers—key financials, from sales to overhead—helping them to understand what the metrics mean and providing a forum for them to suggest how to address problems revealed by the numbers. As a result, you not only hear insights you might never have thought of on your own, but you also build a more committed workforce. The upshot, says Richard Armstrong, president of The Great Game of Business, a consulting firm that specializes in open book management, is “a more productive successful company.”
But opening up the books to employees so they understand the significance of the numbers and also feel free to make suggestions—that’s easier said than done. Here’s how to get started.
Set up a regular meeting system and a standard set of metrics. Best is to hold weekly meetings during which you distribute the numbers and discuss them. Along with important metrics, that should include a forecast of where you think you’ll be at the end of the month. You don’t have to include every number, either. In fact, according to Ellen Rohr, CEO of Bare Bones Biz, which helps companies put open book management systems in place, it’s most effective to produce a one pager with a handful of metrics. “You want the numbers that really drive the business” she says. She suggests including sales, labor and the cost of materials as a percentage of sales, profits and cash flow. But you can also include other measures, from customer satisfaction levels to return on assets.
Practice learning by doing. Keeping the numbers to a minimum and the meeting short—no more than half an hour—will also help you in your efforts to educate employees about just what the metrics mean. In fact, the best way to provide those lessons is through your weekly discussions. By continually going over the same numbers and ratios, you’ll have an easier time teaching the basics—not just what the metrics mean, but how they relate to your business.
It won’t happen overnight. But after perhaps six months or so, you’re bound to have what Rohr calls an “ah hah moment.” She points to the owner of a 20-employee Midwestern roofing company who made labor as a percent of sales a regular part of open book meetings about a year ago. At one discussion several months later, an employee asked why the number had spiked since the previous conversation. Turned out, they’d had a spate of bad weather and hadn’t been able to go out on many jobs. As a result, sales had dropped. With that bit of information, the employees began to understand the real implications of the metric—and started suggesting new potential revenue sources, like signing annual maintenance agreements or starting a new division to sell window and door replacements. The company is putting the ideas in place now.
Provide opportunities for further discussion. If your metrics point to weak results, encourage employees to discuss ways to address the problem outside the regular meeting. Armstrong points to a 60-employee manufacturing company that recently had a sudden drop in sales and profits when a major customer had to change an order. After the owners shared the information at their regular open book meeting, department heads met separately with their employees to brainstorm ways to cut costs over the next quarter. Thanks to the suggestions that came out of those discussions, the company was able to reduce the $50,000 drop in profits in half.
Have employees share in the gains. For best effect, provide your staff with a reward for participating. “If employees come through with ways to improve the business, you should share part of that gain with them,” says Armstrong. At some companies, employees receive a bonus of 10-20 percent of their compensation based on the performance of key metrics. But, according to Armstrong, it’s most effective to pay bonuses monthly or quarterly, rather than once a year. “That way you give employees an opportunity to win early and often,” he says.