Open Book Management

"Great things in business are never done by one person. They’re done by a team of people." (Steve Jobs)

Open Book Management (OBM) is the philosophy that businesses will experience greater success by sharing relevant financial and operational information with every employee. It’s the practice of communicating with people via the numbers. Employees receive information that not only helps them do their jobs well but gives them an understanding of how the company is doing as a whole. According to John Case, who coined the phrase “open book management”, “a company performs best when its people see themselves as partners in the business rather than as hired hands". The intent is to give employees relevant information about the company so they can make better decisions as workers. This information includes, but is not limited to, revenue, profit, cost of goods sold, cash flow and expenses.

Open Book Management involves four basic practices:

• Train employees so they become business literate and can understand financial statements
• Empower employees to use the information to improve efficiency and profit
• Trust employees as business partners on equal footing
• Reward employees fairly for the company’s success.

John Stack, who is likely the most successful advocate of OBM, says, “the more people know about a company, the better that company will perform. This is an iron-clad rule. You will always be more successful in business by sharing information with the people you work with than by keeping them in the dark.” He uses three basic principles in his management practice called The Great Game of Business[1]. His basic rules for OBM are:

1. Know and Teach the Rules: Every employee should be given the measures of business success and taught to understand them
2. Follow the Action & Keep Score: Every employee should be expected and enabled to use their knowledge to improve performance
3. Provide a Stake in the Outcome: Every employee should have a direct stake in the company's success and in the risk of failure

Similarly, John Case made sense of open book management with three main points[2]:

1. The company should share finances as well as critical data with all employees
2. Employees are challenged to move the numbers in a direction that improves the company
3. Employees share in the company prosperity.

There are significant advantages to OBM.  Employees gain an accurate financial picture and feel a greater sense of investment and responsibility for the success of the company. OBM encourages employees to look for ways to improve efficiency, increase profit and avoid mistakes. It teaches them to think and act like business owners. It encourages opportunities to celebrate successes. It allows staff to become better decision-makers in their jobs because they know and understand the bigger picture. And it builds consensus and teamwork.

Former General Electric CEO Jack Welch contends workers in an open-book setting “feel a greater sense of ownership and urgency, often sparking improvements in processes and productivity” when they know what they are up against. As such, the mentality that they are all in the business effort together can serve as a jump-start of innovation and teamwork.

In order to become an open-book company, the owner needs to understand the numbers. This can be a deterrent to open-book management if the owner does not have a clear understanding of the numbers. It can be embarrassing for the owner to admit that they don’t have a strong understanding of the company financials, but this is also an easy fix and should not be a reason to dismiss OBM.

It can also be overwhelming to think about implementing OBM in your business. When implementing the system, it should be broken down into smaller, achievable goals that should be celebrated when reached. This keeps momentum and keeps everyone engaged.

Some business owners will be afraid of sharing too much financial information with the staff. However, Jack Stack explains that “a company of owners will outperform a company of employees any day of the week. We do everything we can to instill the habits of ownership in people, and to encourage them to think and act like owners. But people will only think like owners if they have a larger purpose, if they’re not just working for a pay cheque. You can’t turn employees into owners simply by letting them choose their hours or paint their work areas. People have to see the Big Picture. They have to know what they are doing, why it’s important, where they are going, and how business is helping them get there.”

If you’re interested in implementing OBM, there are a few things you can do:

• Hire a professional to help with the process
• Teach your staff about business finances before handing them any financial statements
• Make the education fun and practical.
• Keep the financials summarized to revenue, labour, equipment, materials, subcontractors, overhead and profit. If possible, get industry averages to compare to your local area and type of work
• Communicate the WHY to your staff

The best argument for open-book management is this: the more educated your workforce is about the company, the more capable it is of doing the little things required to get better.

[1] Stack, J. (1992). The Great Game of Business. New York, Currency Doubleday.

[2] Case, J. (1995). Open-book Management: The coming business revolution. New York, HarperCollins.