Open Book Management Philosophy - Letting the employees see all information

[Mike S.]

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.

 

[The Taz!]

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.

 

[SteelMaiden]

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

 

[RoxaneB]

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.

 

[WALLACE]

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.

 

[Wes Bucey]

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.

 

[bpritts]

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

 

[Mike S.]

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.

 

[Wes Bucey]

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.

 

[The Taz!]

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.