The Business Case for Open Book Management

Theo Etzel’s Management Matters

An archer stands tall, takes an arrow from his back-slung quiver, notches his arrow in his powerful bow, draws the bow taught for maximum effect, eagerly raises up to sight the target — but wait, where’s the target?

Better yet, what’s the target? Who decided on the target? Pretty much a waste of energy on his part, especially when he lets the arrow fly and someone says, “Nope, didn’t hit the target this time.” “What target?” he says with valid frustration.

This is the same scenario our staffs face if we do not involve them in the business by sharing key financial data with them. Remember, the numbers are the target of the company. If people don’t know what they are aiming for, they can’t respond accordingly to make necessary corrections along the way.

Opening the books up and seeking employee involvement is a great motivating method. While the payoff is worth it, the process involves time, education, and trust.

Open book management has different meanings to different people. Some run scared when the concept is mentioned, thinking that everybody will see every last penny of every person’s paycheck and owner bonus and on and on. For others it means just sharing the gross revenue with certain people. If implemented in these ways, both are detrimental to an operation; the first for too much confidential information and the second for too little information, leaving room for mere speculation.

Somewhere in the middle is going to be the best place for you to go with this concept. That means enough meaty information to be useful and analytical but not so detailed as to get people focused on the wrong things. The decision as to how deep in the organization to share what numbers is also discretionary.

Conditioned Air has been using open book management with its managers for the past six years. Prior to that there was an informal, limited amount of information shared and results were hampered by this action. Once we formalized the process of reporting the facts and figures, company performance took off.

Today, a monthly financial meeting with all the department managers is held to review the prior month’s performance and year to-date performance. Each department is shown as a profit center and all overhead accounts are shown in sum total by account. Therefore, payroll shows up as one number, not by names and salaries.

We do not departmentalize overhead accounts due to my team philosophy and abhorrence to building walls and silos between departments. Each department sees its gross revenue, direct costs, and gross profit. Warranties also are broken out by department and other general information is divulged and discussed.

Equally important, each department manager and their staff is involved in setting goals and targets for the year and these then become the building blocks of the budget. Of course, I have a say in that but I rely heavily on each manager to assess their production capabilities to achieve their goals. This is the first step in connecting them in the business and not just wondering if they make a difference or not.

We do have a hierarchy of information for employee levels that we practice. This is the part where you have to decide who gets to see what and how often. Somewhere between the previously mentioned extremes is going to be right for you. I don’t think there’s a one-size-fits-all solution for this. The goal is to make it understandable, accurate, timely, appropriate for each level, and results oriented.

We show full disclosure of numbers to all our managers. I let all employees know what the level of business is and how we’ve grown. We are currently working on a formal office staff disclosure of appropriate information. Of course, productivity levels, job cost analysis and the like are discussed — that’s a two-way conversation — with job supervisors and service techs on a weekly or monthly basis.

For example, having a job supervisor believe that a job is going smoothly and should be a good job for us isn’t enough. Knowledge of how we expect the job to come in (the target) and then periodic reviews lets him know how the job is really performing. This approach helped one supervisor focus in on the importance of change orders and accurately account for costs to produce better results.

Consequently, more attention was placed on these important factors and job gross profit went up significantly, beating expectations. The result came from his understanding of what direct impact he could have on the job with focused attention to the target. He is a better and more involved teammate today.

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