For small businesses looking to recruit employees, closed doors, private offices and secrets must be a thing of the past. Today, employees want to work for companies that are transparent and authentic—which means business owners are expected to disclose the business's financial results, including compensation.
This open book management philosophy is about sharing almost all financial and operational information with every employee in order to make a firm more profitable.
In the past, company financial statements of private corporations were only shared with senior executives. Open-book management strives to extend this feeling of responsibility to every team member and forge trust with them. It not only focuses everyone on helping the business make more money, but has a tendency to reduce workforce turnover. If done right, this makes every employee feel like a business owner.
Basics of Open Book Management
What are some of the basic principles that make up a successful open-book management program?
All financial accounts are open to all employees. This shouldn't include the breakdown of salary for each employee. While the business owner should have nothing to hide if team members compare their W-2s, many employees do not want this information shared with others.
Train employees to understand financial statements. It does little good if the information is available, but employees don’t know what it means. Teach them the numbers that are particularly important to their departments and ones that they have control over.
Empower employees. Let employees use the information they learn for cost cutting and quality improvement on a daily basis. Employees must be free to make changes in how they do their jobs based on what they learn from the financial results.
Reward employees for the firm’s success. Team members need to have a direct stake in the company’s success by being paid an incentive based on financial results that are being tracked.
Why It Works for All Types of Companies
A commitment to total transparency can also save a company. When a technology crisis triggered problems in its warehouse, CPO Commerce found that open-book management fixed it. Alan Lenertz, CPO's vice president of operations, says that because everyone had access to inventory and order information, employees spotted the problems quickly and were able to collectively brainstorm on new solutions. He also believes that this type of transparency kept morale from nose-diving in this tough environment. Employees knew the company had problems and that management wasn't sugarcoating any of it.
Open book management can work at any type of company. Eileen Michaels, who founded A Yard & a Half Landscaping, uses it with her 18 employees. She says that "if the employees can see how the company is doing, and how their contributions make a huge difference in not only sales, but expenses, they feel much more engaged.” Michaels conducts the company meetings once a month in Spanish and English.
Small-business owners should realize that there are no secrets. Many resist open-book management because they worry that if the company is too successful, employees will be resentful. This only happens if they're not engaged and not being paid fairly.
Do you feel comfortable sharing all of your company's financials with your staff? Let us know your thoughts in the comments section.
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