I read an interesting article recently in Inc. Magazine about the "open book management" philosophy -- basically letting the employees see all of the business' financials and educating them on how to understand and positively influence them.

I was wondering how fellow Covers felt about this type of policy, and if you've ever done it or been in a company where it was done, etc.

I was wondering how fellow Covers felt about this type of policy, and if you've ever done it or been in a company where it was done, etc.

I'm not sure you are addressing the right audience Mike. .

I haven't seen this done in my experience, but I have seen instances where the REAL books weren't even open to me as a VP in the company. I think it all goes hand-in-hand with Trust and Integrity.

I am not sure that every person would, even with training, understand what they were being shown...that being said:

We have a pretty open arrangement. Twice a year there are meetings with all employees and a lot of financial information is shared. Is it all? who knows, most of us are not accountants. But, the price of raw materials, production costs, sales figures, etc are shared. Beyond that, all of the supervisors are shown most of these numbers on an ongoing (monthly) basis, and they in turn share it with their crews.

I find it valuable when I talk about improvement, correct or preventive actions, etc., that employees see how the bottom line is impacted. Therefore, I am all for sharing financial information, but I still don't think that you can really share all financials with everyone.

Interesting subject:applause:

I read an interesting article recently in Inc. Magazine about the "open book management" philosophy -- basically letting the employees see all of the business' financials and educating them on how to understand and positively influence them.

I was wondering how fellow Covers felt about this type of policy, and if you've ever done it or been in a company where it was done, etc.

Do they see the whole of the accounting spreadsheets? No. Do they see the breakdown of capital projects? No.

What they do see (or we are in the process of determining how to meaninfully communicate to them) is:


Cost of (un)Quality - focusing on internal failures (those costs they can control)
Customer Complaint costs - $200 per complaint received, plus credits, etc.
Gap - our current performance to our best performance / the company's best performance / benchmark performance (they see where we are and what we could have earned if we had attained our best/company best/benchmark best) - they are also aware that our goal is reduce the gap between our current performance and company best by 20% this year.

At my Ford location we are quite transparent regarding sharing and having an open management phiosophy.
I've mentioned before that we use the SQDCME measurables relating to Safety, Quality, Delivery, Cost, Morale and Environment.
All internal information is defined and known by the measurables, giving all employees the big picture or (As Claes says') "The girrafe view" of the state of the business processes.
Interestingly enough, the SQDCME format does cover system thinking and CI communication and knowledge initiatives nicely.
wallace.

I'm not sure you are addressing the right audience Mike. .

I haven't seen this done in my experience, but I have seen instances where the REAL books weren't even open to me as a VP in the company. I think it all goes hand-in-hand with Trust and Integrity.basically letting the employees see all of the business' financials and educating them on how to understand and positively influence them.
Wow! This is a tough topic, Mike. I don't mean to sound namby-pamby on this, but I can see lots of reasons to DISCLOSE info on finances to employees, but also reasons to LIMIT the detail of that info.

I presume, without reading the INC article, the detail proposed to be disclosed (regardless of public or private status of company) goes far beyond what is disclosed in

a public company's annual report
its 10K and 10Q filings with the SEC
its Proxy solicitations.
Things like

profitability of a single product or customer
detailed salaries and bonuses of executives and coworkers
detailed expenses of travel, entertainment, maintenance, repair, overhead, scrap
If this were an ideal world and employers and employees worked in each other's best interest, I'd say "OPEN THE BOOKS!"

The curse is it's not an ideal world.
EMPLOYERS:
Countless employers exploit their employees and have no more regard for them than the sweeping compound used on the plant floor. They like keeping employees uninformed and scared.
EMPLOYEES:
Given such easy access to financial data, some employees might look for personal enrichment by selling or disclosing that info to a competitor or a customer who could use it to the company's detriment. Others might use the info to squeeze profit and get higher pay.

MY VIEW:
I doubt the ideal situation would rarely develop where everyone on the disclosure list would work more diligently to eliminating waste and improving profitability. (That old bugaboo - "What's in it for me?")

Bottom line:
Disclosure in relative terms:

Rank products by profitability
Rank processes by efficiency (actual output versus theoretic output)
Rank customers by percent of gross income, per cent of man hours expended, soft costs (hand holding, extra paperwork, etc.)
Rank products by market share
Comparisons with benchmarks
Salary ranges for job descriptions
All seem to me to be reasonable and desirable to disclose.

My own experience has ranged from

Taz's "not even open to me as VP"
to
"being the guy who kept the books and disclosed what I thought was 'needful or 'fair' for employees to know."
Some employees always want to know more - others say this is "more than I need or want to know."

Interesting topic, Mike. I'll be interested in seeing where it goes.

Over the years I have either been employed, or consulted, with companies at varying degrees of "open-ness" on financials. As was hinted by the Taz, some companies don't even share the financials with officers (several of my privately held co clients are still this close); nobody shares every detail with everyone, but some are much more open.

I believe that in most cases where clients moved toward more transparency the benefits were greater than the costs. As Wes suggests, there are some possible downsides -- competive leakage, misunderstandings, etc.

In our consulting practice we usually urge clients to share more data with their people, but let them take their own pace. Using ratios, ranks, etc., as Wes suggests is a good way to do this.

Perhaps the most open on costs was a publicly held co. I worked for in the computer service industry. They published an operating P & L for every branch, every month, and shared the whole batch with all the branch managers. (Deming would not have approved of the degree of intra-company competition!) On the positive side, there was some good benchmarking and problem-solving that can be done with this. A former neighbor employed by McDonalds had a similar operating report, where each store could see how they compared to others; this helped identify problems very specifically.

So all in all I will continue to press clients to share a bit more than they have been in the past.

Regards,

Brad

Like many, I've been in totally closed companies where about all you get is vague references to being "in the black" or "in the red" to companies where I saw all the financials.

I have a feeling that most of the resistance to OBM ideas is due to phantom fears. I'm not a financial guru, but I'm wondering what real benefit it does a competitor if they know what kind of profit my company is making.

If my employees are gonna talk, and really want to undermine my company, there are enough ways for most any employee to learn my selling prices.

I remember hearing Tom Peters speak very positively about this years ago, and have read a few articles over the years -- this INC. article just kind of reminded me of the concept.

Like anything, there can be varying degrees of OBM implementation. Maybe it is counterproductive for every employee to know what every other employee earns in salary, etc. but I firmly believe that letting the employees see more financial info. than they typically see is a good thing, especially as it relates to the products they are involved in. But I fully realize that it takes a certain culture for this to happen, and such a culture is more likely IMO to be ahead of the competition in other areas such as QMS, marketing, R&D, HR management, etc.

I have a feeling that most of the resistance to OBM ideas is due to phantom fears. I'm not a financial guru, but I'm wondering what real benefit it does a competitor if they know what kind of profit my company is making.

If my employees are gonna talk, and really want to undermine my company, there are enough ways for most any employee to learn my selling prices.

I remember hearing Tom Peters speak very positively about this years ago, and have read a few articles over the years -- this INC. article just kind of reminded me of the concept.

Like anything, there can be varying degrees of OBM implementation. Maybe it is counterproductive for every employee to know what every other employee earns in salary, etc. but I firmly believe that letting the employees see more financial info. than they typically see is a good thing, especially as it relates to the products they are involved in. But I fully realize that it takes a certain culture for this to happen, and such a culture is more likely IMO to be ahead of the competition in other areas such as QMS, marketing, R&D, HR management, etc.In general, I agree with your views, Mike.

I like to address one point:I'm wondering what real benefit it does a competitor if they know what kind of profit my company is making. When I was in the investment banking business, we used to spend a lot of time (and money) trying to ferret out real profit and loss figures from targets and their competitors. We wanted to know what privately-held competitors were doing compared to publicly-held targets so we could make "informed" decisions on investing or divesting in the public companies or whether to approach private companies with a view to taking them public.

Direct competitors like to know how much the other is making (or losing) to plan whether to invest more time and money in improving processes or to invest in price cutting and other marketing ploys to gain market share. The true executives at the top of the heap spend much more time in planning and scheming than in day-to-day operations. (It's why so many CEOs seem to be "disconnected" from their operations and employees.) In their defense, the best CEOs surround themselves with staff capable of running the day-to-day operation so the CEOs CAN have time to plan and scheme instead of fighting fires.

In their defense, the best CEOs surround themselves with staff capable of running the day-to-day operation so the CEOs CAN have time to plan and scheme instead of fighting fires.[/color]

VERY good point Wes. . .same in any successful business. . . and at various levels. . . VP's want Directors and Managers who can Direct and Manage. . . Managers want Supervisors who can supervise so that they can manage. . .etc.

Hi, all.

Interesting topic, and I'd like to add my 2 cents (call it Income Before Interest and Taxes, IBIT, if you like!).

First, I am now in a closely held company that holds its fianacial cards very close to the vest. That said, I agree with the use of ratios (Wes' "relative terms") which can mask the true numbers while giving a useful picture of the system in question.

Now, about the financials themselves. As an accounting major (years ago) in college, I would have some problems using raw numbers from the annual report, 8K, 10K, etc. A better source would be numbers compiled at the source, as long as the compensation/reward system did not encourage creative accounting on that end.

One of the best things I have learned about statistics is that a look at the data itself, and where it is coming from, is a MUST. That might be hard to do with numbers from an annual report.

There are several basic tenents that accountants use when working on data. One of these is the assumption of complete information. Is it ever? The best place to get real process data is very often at the process itself, where there should be less tendancy to "lump together" data into large piles. The aim of financial accounting is reporting and monitoring. The company wide reports do this in general terms. Improving processes requires specifics.

So, are there any accounting systems in place that lend themselves to process improvement? Well, a cost (managerial) accounting system might, but be careful of how the overhead is applied. That is often an arbitrary figure based on labor hours, units produced, or another basis that attempts to capture the "true" cost of a unit of production. There are several assumptions made in such a system that, in the aggregate work well, but when applied to a specific system could serve to confound and confuse.

Finally, as with any type of data, it is possible to make the presentation so complex that the main result is the total confusion of the users. IMHO, process improvement needs to be as simple, and elegant, and effective, as possible.

Sorry about the rant.

Craig

Interesting replies so far! Let's look at it another way...

Let's say you are the new hands-on owner of your own small business -- maybe making $5-10M worth of widgets per year. The previous owner gave out no financial info at all. The company is kind of in the middle of the pack of it's competition as far as you can tell. You now get to do things -- all things --your way for a change! What kind of financials (if any) would you want to share with your employees, and why?

Interesting replies so far! Let's look at it another way...

Let's say you are the new hands-on owner of your own small business -- maybe making $5-10M worth of widgets per year. The previous owner gave out no financial info at all. The company is kind of in the middle of the pack of it's competition as far as you can tell. You now get to do things -- all things --your way for a change! What kind of financials (if any) would you want to share with your employees, and why?


Ok, how about the cost of scrap, as expressed as the percentage of total production?

Late billing and/or AR aging?

Cost of returns and allowances due to ordering errors or poor quality (seperate)?

A pareto for each would be nice, too.


Craig

Ok, how about the cost of scrap, as expressed as the percentage of total production?

Late billing and/or AR aging?

Cost of returns and allowances due to ordering errors or poor quality (seperate)?

A pareto for each would be nice, too.


Craig

Craig,

This is why QM's and AR Managers drink. . . IMHO, you need to show some of the positive impact people can have on the business also.

Express the measureables in positive terms. . .

Achievement of goal not miss from goal. 98% Achieved instead of 2% missed. I want to know Machine UP time not DOWN time. . . My goal is 100% acceptable product not <10% returns. . .100% On-time delivery instead of <10% late delivery.

I was just shown a "censored" version of our 2003 financials which mainly focused on components of cost of goods sold and the component parts of operating expenses.

Our company has been accused many times of spending dollars to save dimes. These figures were shown so that we might gain a better understanding of WHY we're not supposed to order a package of Sharpie markers without first checking the stockroom, to borrow a recent example. The employee complained "but its just a box of Sharpie markers" and these figures showed how all those little purchases add up - and quickly - not just for office supplies.

I thought it was pretty neat - never seen any numbers like that anywhere I worked before.

Ok, how about the cost of scrap, as expressed as the percentage of total production?

We show:


Cost of nonconforming product above the "cost of doing business scrap" (but not as a percentage of total production, we give straight dollars)
Spread - Difference between incoming costs and payment for final product
Whether we meet the goals on items like reword, seconds, utilization, power-off time and other items that mean money out the door.


Late billing and/or AR aging?

We show:


Manual cheques generated (meaning someone/thing was screwed up in the system)
Costs of mistakes on cheques
Days to consolidate
And a bunch of other credit and accounting key indicators (not all have $ assigned to them, though)


Cost of returns and allowances due to ordering errors or poor quality (seperate)?

We show:


Cost of complaints @ $200 per complaint
Sum of settlements
Number of Invoicing complaints (Sales-based error)
Number of Service-Sales complaints (Sales-based error)
Number of Service-Mill complaints (Mill-based error)
Number of Quality complaints (Mill-based error)
Number of complaints disclaimed
Total value of credits issued


A pareto for each would be nice, too.

We have several tools depending on where the information is located, however the majority of these items can be found in an Excel spreadsheet with information like:


Past 4-5 years of performance
Current year's goal
Benchmark (as applicable)
Unit of measurement
January - December : Actual data and colour codes indicating if goal was met
Year To Date: Traditionally, either an average or a sum from Jan-Dec data and colour coded as well to indicate if expected goal was achieved.
Explainations when goals were not attained
Source sheet explaining item being measured, formula used, etc.


Much of the information can also be located in our Cost of Quality spreadsheet.

Craig,

This is why QM's and AR Managers drink. . . IMHO, you need to show some of the positive impact people can have on the business also.

Express the measureables in positive terms. . .

Achievement of goal not miss from goal. 98% Achieved instead of 2% missed. I want to know Machine UP time not DOWN time. . . My goal is 100% acceptable product not <10% returns. . .100% On-time delivery instead of <10% late delivery.


Taz

EXCELLENT POINT!

I admit to falling into the quality costs trap. I also think that may be part of the reason some people avoid talking to QMs.


RC

Sounds like you have some good reporting built into your accounting system. Is this something like SAP, or was it developed internally?

The ideal would be not a financial accounting system, not a quality management system, but a business management system.

Accountants have GAAP (Generally Accepted Accounting Principals) and we have ISO 9001, TC, etc. This, I think, tends to lead us specialists toward compartmentalized thinking. Not the first time something like that has come up in the Cove.

Craig

These figures were shown so that we might gain a better understanding of WHY we're not supposed to order a package of Sharpie markers without first checking the stockroom, to borrow a recent example. The employee complained "but its just a box of Sharpie markers" and these figures showed how all those little purchases add up - and quickly - not just for office supplies.



:topic:
I know this is off topic, but I couldn't help recalling an incident in my past regarding office supplies and spending (or wasting) dollars to save dimes. In a $30M company the purchasing mgr. decided that everyone, including other managers and even VP's, had to send a written request to purchasing for any office supplies they wanted (pencils, pens, paper, etc.) by 9AM and they could come back and get their supplies after 3 PM. So, to get a pencil, you fill out a form, carry it to purchasing, wait 6 hours while they process the order and keep records of who is ordering what, and then go back to purchasing to get your pencil. I could be responsible for making a call on $10,000 worth of product, managing a staff of 9, visiting critical customers, or selecting $60,000 worth of capital equipment, but I darn sure could not be trusted to get my own pencils! And at the time it is not like we didn't have some real big problems with yields and raw material purchases to address, but hey, someone was doing their part to "control costs". :bonk:

Our company only discloses numbers on a need to know bases, and even then, you can never tell if you really got to see the real numbers or the brushed version. Being Fortune500 apparently does that to a company as there are so many internal and external factors. I know the financial basics but if i hear our CEO babble about EBIDTA and return of shares in a wizard-kind-of-manner, i lose track, heh. No wonder he used to be the financial advisor of the Reagan administration! :tg:

I can accept being open only to the point where numbers are not actually expressed, but the "differences" for those numbers are. These can usually be expressed in percentages of some base, or at times a benchmark.

Does a company want to publish that;

Payroll is $50,000/month or express it as:
a) Direct Labor = 80% of total labor
b) Indirect Labor = 20% of sales
-----------------------------------------------------------
Material is $70,000/month or express it as:
a) Material Cost = 55% of sales
b) Lost Material Cost = 5% of sales
-----------------------------------------------------------
Scrap cost is $10,000/month or express it as:
a) PPM
-----------------------------------------------------------

By using relational data as opposed to actual numbers there is a way keep employees informed and protect proprietary/potentially harmful data. An Activity Based Costing process is beneficial in accumulating and reporting beneficial information to those who have a need.

Just my opinion:

75% of employees don't care as long as the paycheck does not bounce.
Those who "need" to know will find out even if not told.
Those who "want" to know will find out even if not needed.
There are no real "secrets" to those who seek.

Have a good day all,

Al...

Al

Ratios also have another neat feature, if designed properly.

Say we want to reduce scrap by 15%. Ok, that is a good goal, but what if the scrap amount is the only one we get, and yet this month we produce 100 widgets, 200 next month, 78 the next, and 500 the month after that? If the amount of scrap is directly related to the number of units run, and we only look at scrap, that relationship kicks in (and kicks us) (ouch).

I have seen a similar situation, believe it or not.

But, if we say we want to reduce the scrap/good unit ratio by 15%, well then we may have something we can work with.

I am sure this is obvious to those here, but like I said, I've seen the "isolated measurement" thing before. If your main goal is raising the FUD factor, this one is sure to work.

Craig

Craig,

Normailzed indexes such as PPM would eliminate the quantity differences.

Even the "vague" indicators without the financial or "numbers" can be used by competition as benchmarks if they were able to get their mitts on them. This is not necessarily a bad thing. . . JMHO

Craig,

Normailzed indexes such as PPM would eliminate the quantity differences.

Even the "vague" indicators without the financial or "numbers" can be used by competition as benchmarks if they were able to get their mitts on them. This is not necessarily a bad thing. . . JMHO


Taz

Not wanting to pick nits but parts/million is another ratio, and a useful one at that.

Craig

Taz

Not wanting to pick nits but parts/million is another ratio, and a useful one at that.

Craig
understood

I can accept being open only to the point where numbers are not actually expressed, but the "differences" for those numbers are. These can usually be expressed in percentages of some base, or at times a benchmark.

Does a company want to publish that;

Payroll is $50,000/month or express it as:
a) Direct Labor = 80% of total labor
b) Indirect Labor = 20% of sales
-----------------------------------------------------------
Material is $70,000/month or express it as:
a) Material Cost = 55% of sales
b) Lost Material Cost = 5% of sales
-----------------------------------------------------------
Scrap cost is $10,000/month or express it as:
a) PPM
-----------------------------------------------------------

By using relational data as opposed to actual numbers there is a way keep employees informed and protect proprietary/potentially harmful data. An Activity Based Costing process is beneficial in accumulating and reporting beneficial information to those who have a need.

Just my opinion:

75% of employees don't care as long as the paycheck does not bounce.
Those who "need" to know will find out even if not told.
Those who "want" to know will find out even if not needed.
There are no real "secrets" to those who seek.

Have a good day all,

Al...

Al,

Not trying to pick on you, but let me play Devil's advocate...

If there are no real secrets to those who seek, why fight it so? To me as a line worker, 3000 ppm defects on my line doesn't mean too much, but $10,000 per month sure does give me better perspective. If we say we need another person on the line and someone tells me this will increase direct labor to 81% of total labor, it doesn't mean much, but if you say the total cost of this employee with benefits, taxes, etc. is $45,000 it means something.

As for 75% of employees not caring as long as the paycheck does not bounce, I think that when this is true this is often because management doesn't treat employees too well. In some of the examples I have heard of where management has opened the books and empowered the employees to make a difference in the profits, which they have some stake in, 95% or more of the employees started to care a great deal and it transformed the business. The product or workforce doesn't need to be too exotic either -- one place just made sausage. I contend that quite often a workforce that does not care was created by poor management -- most people want to care if given the opportunity.

JMO.

Al,

Not trying to pick on you, but let me play Devil's advocate...

If there are no real secrets to those who seek, why fight it so? To me as a line worker, 3000 ppm defects on my line doesn't mean too much, but $10,000 per month sure does give me better perspective. If we say we need another person on the line and someone tells me this will increase direct labor to 81% of total labor, it doesn't mean much, but if you say the total cost of this employee with benefits, taxes, etc. is $45,000 it means something.

As for 75% of employees not caring as long as the paycheck does not bounce, I think that when this is true this is often because management doesn't treat employees too well. In some of the examples I have heard of where management has opened the books and empowered the employees to make a difference in the profits, which they have some stake in, 95% or more of the employees started to care a great deal and it transformed the business. The product or workforce doesn't need to be too exotic either -- one place just made sausage. I contend that quite often a workforce that does not care was created by poor management -- most people want to care if given the opportunity.

JMO.In one of my earlier lives, our investment bank did some Employee Stock Ownership Plans (ESOPs), using Employee Stock Ownership Trusts (ESOTs) as the ownership vehicle. (see http://www.nceo.org/esops/index.html for description of ESOPs)

Without getting TOO detailed:lol: suffice to say the concept was to lend money at tax-sheltered rates so employees could buy some or all of the stock of the company with the ESOT.

As part of the deal, all the employees who elected to be part of the ESOT got the same disclosure about the company books as if they were the CEO or CFO.

Sometimes, the ESOP/ESOT results in survival, even success, of a company that might have otherwise been dismantled when the original owner died.

Sometimes
(United Airlines as an example - http://www.nceo.org/columns/cr129.html), the outcome is more problematic.

Bottom line:
Mere disclosure of the financial details or even a stake in the ownership does not assure a smooth running organization. There has to be an underlying CULTURE which is adaptable and amenable to changing conditions in order to USE the financial information for the organization's advantage.

Bottom line:
Mere disclosure of the financial details or even a stake in the ownership does not assure a smooth running organization. There has to be an underlying CULTURE which is adaptable and amenable to changing conditions in order to USE the financial information for the organization's advantage.

I agree. But IMO a company that would disclose financial info. and offer the employees an ownership stake is much more likely to have an "advanced" culture.

I agree. But IMO a company that would disclose financial info. and offer the employees an ownership stake is much more likely to have an "advanced" culture.Maybe. That was not my experience. Neither is it representative of many stories (mostly anecdotal) I've heard from financiers and employer/employee participants.

Many of our own deals, for example were primarily structured to give the seller (employer) a higher after-tax return than an outright sale to a third party. We spent a lot of time trying to "structure the culture" to fit the deal so it would stay viable long enough for us to get repaid. (The higher dollar amount to seller was due to tax breaks on the deal financing.)

The instances (our deals or those of other financiers) where the employer/seller had some "altruistic motive" to keep the employees working were so rare, they were topics of discussion and outright awe and wonder among finance industry insiders.

Deals initiated by employees, rather than employers, were primarily "first strike" to ward off impending sale or down-sizing. Initiators were primarily non-equity executives who saw their own jobs disappearing if the employer/seller went through with another plan. Other initiators were executives who were unable to put together other deals for a leveraged buy-out (LBO.) In point of fact, about one-third of our deals had first been proposed as an LBO by a non-equity executive.

I'm sorry to report the world of corporate finance is normally a very pragmatic place with very little emotion spent on considering the well-being of anyone other than the guys who put up the money. Certainly, the ranking was like this in importance of care and feeding in descending order:

guys who put up the money;
executives who would guide the company;
the rank-and-file employees;
the least amount of emotion was spent on the seller.
Sometimes, life isn't nice.
(if the reasoning behind the ranking isn't obvious, ask, "Why?")

The whole idea of sharing financial data is a recycled idea from the early 90s. I remember a Wall Street Journal article that was routed around by my VP who suggested we should share the data with the employees to get them to reduce waste.

Since I knew enough of our accounting systems and financial statements to know that we would spend more time explaining what they meant (assuming we could) than we would ever get out of it, I was able to discourage him. We did have the accountants review the financial data with the management team each month. Every month our poor accountant had to explain to the Sales Manager why there was a parentheses around a number but it was not subtracted from the number above it since that was what the sales manager thought it meant. The accountant made things worse by trying to explain debits and credits.

As far as giving shares in the company, I remember coming into work one day with one of the executives and he suddenly stopped me at the escalator, turned around and made the comment that if you asked the people that were coming in the door what the company's stock price was that they would not be able to tell us. He thought that they should know it since we were providing stock shares to them and the better the company did then the more their wealth would grow.

I knew those same people on a more personal level then him and my thought was that they would have preferred some more pay now since they were struggling to pay bills and retiring wealthy was the least of their worries. In addition, the executives were getting shares that would be worth hundreds of thousand if not millions of dollars. The workers would starve to death if they had to count on their token share of stocks in their retirement. I kept my thoughts to myself because I couldn't think of a polite way to tell him he was clueless and even if I did tell him, he was clueless enough he wouldn't have understood it anyway.

Bill

Just "sharing the data" alone won't do much good, any more than sharing the details of ISO 9001 will do much to improve quality. But I think too few "higher-ups" appreciate just how much the average worker is capable of understanding regarding finances. Sure you can confuse them if you go in spouting off about EBITDA, G&A, and other geeky acronyms the same as I could confuse them spouting off about DOE, Z-scores, and PDCA without explanations. But that proves nothing. These folks run their households, pay their bills, get loans, do their jobs, etc. so they are not stupid (if they are you are probably stupid for hiring them). Most employees are ignorant about the impact of various things on costs because no one tells them anything. I used to get some major ooooh's and ahhhh's when I told workers some of the selling prices, costs, etc. of the parts they were making.

I also believe most workers are willing to do more and care more than ever before if they were just treated well and given the chance.

My primary personal philosophy of how to be a good manager is simply to ask myself how I would expect or like to be treated if I were in the worker's shoes. This simple philosophy handles the majority of my questions as to what to do, the only question then is can I get by with it or will my boss have a cow about it.

The whole idea of sharing financial data is a recycled idea from the early 90s. I remember a Wall Street Journal article that was routed around by my VP who suggested we should share the data with the employees to get them to reduce waste.

Since I knew enough of our accounting systems and financial statements to know that we would spend more time explaining what they meant (assuming we could) than we would ever get out of it, I was able to discourage him. We did have the accountants review the financial data with the management team each month. Every month our poor accountant had to explain to the Sales Manager why there was a parentheses around a number but it was not subtracted from the number above it since that was what the sales manager thought it meant. The accountant made things worse by trying to explain debits and credits.

As far as giving shares in the company, I remember coming into work one day with one of the executives and he suddenly stopped me at the escalator, turned around and made the comment that if you asked the people that were coming in the door what the company's stock price was that they would not be able to tell us. He thought that they should know it since we were providing stock shares to them and the better the company did then the more their wealth would grow.

I knew those same people on a more personal level then him and my thought was that they would have preferred some more pay now since they were struggling to pay bills and retiring wealthy was the least of their worries. In addition, the executives were getting shares that would be worth hundreds of thousand if not millions of dollars. The workers would starve to death if they had to count on their token share of stocks in their retirement. I kept my thoughts to myself because I couldn't think of a polite way to tell him he was clueless and even if I did tell him, he was clueless enough he wouldn't have understood it anyway.

BillYea, verily!

I can accept being open only to the point where numbers are not actually expressed, but the "differences" for those numbers are. These can usually be expressed in percentages of some base, or at times a benchmark.

Does a company want to publish that;

Payroll is $50,000/month or express it as:
a) Direct Labor = 80% of total labor
b) Indirect Labor = 20% of sales
-----------------------------------------------------------
Material is $70,000/month or express it as:
a) Material Cost = 55% of sales
b) Lost Material Cost = 5% of sales
-----------------------------------------------------------
Scrap cost is $10,000/month or express it as:
a) PPM
-----------------------------------------------------------

By using relational data as opposed to actual numbers there is a way keep employees informed and protect proprietary/potentially harmful data. An Activity Based Costing process is beneficial in accumulating and reporting beneficial information to those who have a need.

Just my opinion:

75% of employees don't care as long as the paycheck does not bounce.
Those who "need" to know will find out even if not told.
Those who "want" to know will find out even if not needed.
There are no real "secrets" to those who seek.

Have a good day all,

Al...


Dear Al:

I just saw this thread. I feel like both agreeing with you and also disagreeing with you at the same time.

I feel like agreeing, because "confidentiality" cannot be assured when financial data is shared widely. Can all employees be expected to keep everything strictly "confidential"? Human nature being what it is, confidential data will not be confidential for too long.

However, I also see a problem with using just percentages. 5% of $100 is just $5. If you are spending $100 on office supplies (say per employee, per month) then a 5% or even 10% savings is not very meaningful.

But, look at what 5% means when you are purchasing raw materials on a monthly basis, or an annual basis to the tune of $1 million, or %10 million, or even $100 million. Now, even 1% means a lot of money. Employees cannot get a feel for what the savings will be just from the percentages.

I have seen charts, when I have visited purchasing departments, where they had calculated how much the savings would be for each $0.01 saved when we are ordering 100,000 parts, or 1,000,000 parts. I also know suppliers who lost their bids because they quoted just $0.01 above the nearest competitors. Whole plants have been closed because of such purchasing decisions, based on pennies saved when volumes were in the millions.

Now, of course, we can save $0.10 per part, or even $0.20 per part by using a very radical approach - it is called ..... - anyway, I don't want this thread to get too political.

:topic: BTW, where is Oregon, MI? When I saw your post, I tried to look up a map of Michigan, and even Googled it! No luck but saw some great pictures of a summer picnic you folks had. Was looking for you in those pictures.

Charmed,

It's Oregon Township, Michigan. Which is a couple of miles from Lapeer MI just East of Flint.

Al...:)

This thread started with the idea of sharing detailed financial information with all employees (Tom Peters was mentioned).

I believe the book to look at is "Maverick by Ricardo Semler".

If memory serves correctly, he inherited his fathers company in Brazil and it is pretty much unbelieveable what he did. Open book management is not the half of it.

I loved this book (and anything Tom peters writes).

I gave my copy to my old Boss and never got it back - I think he burned it as heresy!

I just googled Ricardo to see if he was a flash in the pan, and it looks like he is still alive and kicking!

http://www.cioinsight.com/article2/0,1397,1569009,00.asp

Do you remeber all those cheesy 1950s Sci-Fi movies where after all the mayhem, the scientist says something like "mankind was not ready for this knowldege"? Well, be careful who you share this with - management isn't ready for this stuff.

Open book management philosophy. Hmmm Seems a little too radical. I can see it now. Physicians and nurses in attendance at all senior management and boardroom meetings. Heart attacks everywhare. ... Just me being cynical again. :bonk:

Open book management philosophy. Hmmm Seems a little too radical. I can see it now. Physicians and nurses in attendance at all senior management and boardroom meetings. Heart attacks everywhare. ... Just me being cynical again. :bonk:

Now, now, David....you must stop being so jaded. Just because Ontario's doctors and nurses...ummm...okay, bad example.

Who says they need to go to a meeting? The College of Doctors and Physicians (or whatever that pretty building in Ottawa is called), could send out flyers or annual newsletters showing costs, goals, budgets, etc. and whether they achieved what they had set out to achieve.

Not everything needs to be done via meetings. Open-book management is about communication, to and from all levels...various ways to achieve this. :)