What if there was a business process that could motivate your best employees to do better and help to weed out the employees that are causing problems?

Open-book management is a process that doesn’t involve firing or aggressive bonuses. Instead, the system intrinsically motivates employees to help improve your bottom line. However, there is a catch: you have to open up. Maybe you also need to open up emotionally, but we’ll save that for another day. What we’re talking about is even deeper – opening up your business’ financial statements.

Why would you want to open-up your business’ financial statements?

via Wikipedia:

The basis of open-book management is that the information received by employees should not only help them do their jobs effectively, but help them understand how the company is doing as a whole (Kidwell & Scherer, 2001). According to John Case, “a company performs best when its people see themselves as partners in the business rather than as hired hands” (Case,1998 as cited in Pascarella, 1998).

The technique is to give employees all relevant financial 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, cash flow, and expenses.

As employees learn the inner workings of your business, they align their daily activities accordingly. By sharing the information, you give employees the ability to leverage their knowledge. As a result, managers gain insight, interests align, trust is grown, and everyone wins.

The 3 Main Principles of Open-Book Management

Employees become aware of how their jobs fit into the bigger picture. By opening up financial statements, employees gain the ability to influence the numbers. But, opening your books isn’t everything. John Case made sense of open-book with three main points:

  1. The company should share finances as well as critical data with all employees. Businesses should Know and Teach the Rules: Every employee should be given the measures of business success and taught to understand them.
  2. Employers are challenged to move the numbers in a direction that improves the company. Businesses need to Follow the Action & Keep Score: Every employee should be expected and enabled to use their knowledge to improve performance.
  3. Employees share in company prosperity. Businesses need to Provide a Stake in the Outcome: Every employee should have a direct stake in the company’s success and in the risk of failure.

Where did open-book management come from?

Open-book management was originally coined by John Case of Inc. magazine in 1993, but the concept was born from Jack Stack, who applied the process to SRC Holdings and achieved resounding success. He wrote about what happened at SRC and how to apply his principles in The Great Game Of Business. Open-book management has turned into a movement since the the book was published. Jack has continued writing on his blog at greatgame.com. We highly recommend looking into his work and trying to apply principles of open-book management to your business. If you would like to learn more about how we’ve applied OBM, look for our upcoming blog, Implementing Open-Book Management In Harrington Group – coming soon!

By Jeff Harrington, CEO and Founder of Harrington Group, Inc.