Opening your books to profit
Open book management can be just what your firm needs to win the battle against the competition
By Phil Perry -- Industrial Distribution, 11/1/1998
Business is war, and you want to win. But how can you win the battle when all of your employees think like foot soldiers?The answer is you need a staff of officers who solve business problems in the heat of the battle, take charge of customer needs, and lead the campaign for greater profits. Turning your order-takers into captains of industry isn't easy. Maybe you've tried a suggestion box to inspire people to think for themselves. The result: A host of unusable ideas.
Maybe you've also tried "management by objectives," or listing critical business missions on the employee bulletin board, and asking everyone to follow them as guidelines. The entire staff responded with a resounding: "Huh?"
To top it off, you informed your employees they were empowered, but they just looked at you and smiled. No wonder you feel like you've run out of ideas. Meanwhile, customers are angry at poor service and competitors are gaining ground. And frustrated employees are exercising the grunt's time-honored prerogative: grousing about everything they can.
How do you turn things around? Motivation experts say that before employees can fix your clock, they need to know what makes it tick. Successful businesses must:
* Educate employees about business financial statements.
* Show how employee actions can affect business profits.
* Establish employee rewards, based on increased business earnings.
"You need to change your business culture from a traditional employer-employee relationship, into a business partnership where everyone understands how the business makes a profit, who the customer is and what the margins are," says Kenneth H. Blanchard, author of the long-time best seller, "The One Minute Manager." "People need to know how their actions impact profitability."
It's called "open book management." In this approach, everyone has equal access to the financial reports of the business. Employees understand how their actions affect the critical financial indicators of the business. Motivated to create a stronger business and a bigger paycheck, employees are transformed from order-takers into "partners in profit."
"We used to say to employees: 'tell us your ideas,' " says John P. Schuster, principal of Capital Connections, a Kansas City, Mo., consulting firm. "Trouble was, they didn't know enough about our business to come through with good ideas. Educating them about the business puts some real teeth in the empowerment beast."
Not exactly how you've been running things? Well, here's some good news. You can do all this much more easily than your bigger competitors, where employee attitudes are ingrained in a calcified corporate culture. "It's faster to turn around a speed boat than the Queen Mary," says Blanchard. So here's the battle plan.
Plan for success
"Make sure you have your plan firmly in place before announcing a big new initiative to employees," warns Ian Jacobsen, president of Jacobsen Consulting Group, based in Sunnyvale, Calif. "You really have to prepare the organization properly" by answering the following questions.
* What are the financial goals of the plan?
* How much time will be spent training? Who will do it?
* How will you communicate business results to employees?
* How will you track employee involvement in the plan?
* How will employees be rewarded for performance?
Thomas J. McCoy, a partner with The Performance Services Group, located in Kansas City, Mo., suggests preparing a tactical plan that covers your goals for the next year, three years, and five years, and outlines the steps you will take to get there.
"Unless you keep this plan in front of you throughout the year, you will easily get lost," explains McCoy. "A common error is to hold one or two financial workshops with employees, then let things drop."
When that happens, employees see the program as yet another red herring.
"Tell employees specifically what they should have accomplished by the end of each year," says McCoy. What knowledge should they have mastered? What performance improvements should they have achieved?
Move gradually and steadily
Don't bite off more than you can chew. Start small and build. You'll risk your credibility by going too fast.
Begin where it makes the most sense for your business. "Before you launch the new plan for the whole business, start with a single department," suggests William Byham, president of Development Dimensions International, Pittsburgh, Pa. "Train the employees, get some feedback and see what the results are. Then rethink what you said. Did you communicate fully? What could you do better? After you assess the results, move on to another department."
Show the numbers
"You can't have power without numbers," says Jacobsen. "Financial knowledge is an essential ingredient of empowerment."
You need to educate employees so they understand the financial information, which can be very easy to misinterpret. And you must be willing to answer the sometimes uncomfortable questions that get asked. The organization will be stronger for having done so -- as long as your answers are credible and timely. You need to start small with basic concepts of sales, expenses and net profit before moving on to the more arcane aspects of the balance sheet.
Yet such education is critical. Without knowledge, employees will get charged up about a new results-based bonus system, but have no idea how to take concrete steps to improve the business. Schedule regular, short training sessions throughout the year. Tie the learning into current business reports. "You need constant communication on how you are doing on those numbers," says Schuster.
Let the games begin
Make "open book management" a game. That's the surest way to keep employees interested while fattening your bottom line. The goal of the game, of course, is to improve the financial results of the business.
"Some businesses post the key financial indicators for various parts of the business in a secure area such as the employee lunch room," says Jacobsen. This lets employees track "the score" and see the effects of their actions.
Indeed, score keeping is as essential here as in any game. "Let's say you go bowling, but you are prevented from seeing what pins the ball hits. But you have a supervisor who every so often says you are 'doing okay.' You can't perform well under these conditions. You need information to see exactly how you are doing," says Jacobsen, adding that the whole objective in disclosing numbers is to allow employees to monitor their own performance.
Share the wealth
Tell employees they can succeed. Then put your money where your mouth is by focusing pay on key business indicators.
"To transform your business culture into a partnership, consider what partners have that traditional employees do not: a vested stake in the business," says McCoy.
A fatter P&L and a bigger employee paycheck assures that the new game is a win-win affair. When pay is linked closely to performance, employees focus on it. The actual reward system can be any combination of bonuses, profit sharing, team incentives, or an employee stock ownership plan.
Incentive pay for performance is critical. But open book management also causes something magical to happen in your workplace. When employees are rewarded for initiative and performance, their work becomes meaningful and enjoyable. People begin to feel achievement. They feel they can create their own future. They pull together with other employees to make success happen.
"Increased pay is the scorecard that helps people know they are winning," says Schuster. "But it's the greater sense of internal growth and personal achievement that are the lasting motivators."
One thing's for sure: the business that puts "open book management" in place will trounce the competition. Says McCoy: "Suppose you improve your business culture to the point where every employee is a partner who knows as much about the business as the other partner. So each employee makes the right decisions that affect company profitability. How can any of your competitors beat you?"
Ultimately, it's the customer who drives the movement toward employee empowerment.
"Customers don't care about the company president's ideas and actions," says Blanchard. "People decide where to buy based on how they are treated by the sales clerk, cashier, delivery person, or telephone operator. So we know we have to get our people 'gung ho' enthusiastic and ready to go."
What is "openbook management?"
Open book management is the process of opening the financial "books" to all employees, and showing them how their actions affect business results. This is combined with an incentive pay system that rewards employees for improved performance of the business as a whole. The ultimate goal is to improve the bottom line.
How to create a "gung ho" staff
How do you turn a listless staff into an enthusiastic team? We asked Kenneth H. Blanchard, author of "The One Minute Manager." Blanchard has just published a new book, "Gung ho!," which tells how to infuse enthusiasm into employees. Blanchard says there are three secrets to super-charging an organization.
The secret of the squirrel. "Squirrels work hard because they think their work is important," says Blanchard. "The lesson here is that people first need to understand that their work is worthwhile."
It's up to management to communicate how the work of the employee contributes to success with the customer.
The secret of the beaver. "When you see a group of beavers repairing a dam that has been hurt by rain, you see there is no real leader," says Blanchard. "The beavers work together as a team."
The team is able to accomplish their goal because they are empowered with knowledge of how the dam works, and what needs to be done to fix it. That's why it's so vital to provide the information that the team needs, and to educate them on how to use it.
"Everyone says, 'I want my people to act like they own the place,'" says Blanchard. "But if you don't see them as your partners, they will not act that way. Open book management ... helps people understand how a business makes profits."
The gift of the goose. A flock of geese is noisy. Are they yelling in fear? No, says Blanchard. They are actually cheering each other on.
Once people know what their work is, then the job of management is to walk around and catch people doing things right," says Blanchard.
This is an important function: it is cheering people on to do more of what they have discovered is correct. Blanchard points out the important sequence here. Employees first need to know the business financials and how their actions impact business results. Then they can make informed decisions about what actions to take, and can truly feel that they are responsible for the success of the business.
"If you start applauding people's work, and they don't have control over it, then your praise has no meaning," says Blanchard.
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