How open-book management can help your small business
By Jenny C. McCune • Bankrate.com

Life's an open book at companies that have embraced open-book management -- a style of management in which employees learn about a company's bottom line, their contribution to it, and are rewarded for meeting financial targets.

One convert is Kryptonite Corp., the Canton, Mass.-based bicycle lock company. "I believe that open-book management is one facet of our business philosophy that has allowed us to be successful," says Kryptonite's chief financial officer, Jim Mills.

In 1996, the first year the company rolled out an open-book program, it saved $800,000 -- most of which came from workers' suggestions, Mills says. Today, it's a cornerstone of the company's strategy to boost growth every year.

Benefits beyond money
Experts such as Kevin Ruble, founder of the Pearl Group, a management consulting firm in Dallas that works with emerging companies, says that as open-book management improves a company's bottom line, it also can reduce turnover, help retain employees and streamline operations.

It's also a great way to get business done in today's swiftly changing times. "We are in an economy that moves so fast that small businesses don't have the option of having all decision-making and creative ability and brains repose in its management team," Ruble says. "Nobody has the time to have things passed up and down the management chain. To be organized for success, everyone -- all employees -- have to be involved and working together."

To get them involved, you need to explain to them about your business: what makes for profitability and what makes for loss. You also have to give them a stake in the company by giving them bonuses for meeting financial objectives.

A visit to where it all began
That's the basic premise of open-book management, but to implement it, most companies start by making a pilgrimage to Springfield, Mo.

That's the town where Springfield Remanufacturing Corp. (SRC) is based. SRC is where open-book management was effectively born. It was pioneered there by Jack Stack, who used it to turn SRC around after he bought the then-troubled division of International Harvester.

The strategy worked so well at SRC that Stack wrote a book on the subject -- The Great Game of Business -- and the International Harvester spin-off now has a subsidiary of the same name. The division has taught more than 3,000 companies -- including Kryptonite -- how to incorporate open-book management and other management principles. Those who forgo the Great Game of Business training can hire a consultant like Ruble and the Pearl Group to help with the switch.

Begin with the basics
Although books and seminars abound on the subject, meaning that it can take more than a few pointers to ensure success, a quick lesson in how to implement includes the following, according to Ruble, Mills, and Tom Samsel, president of the coaching division of SRC's The Great Game of Business:

• Start with Business Economics 101, says Ruble. "Many companies just start off with handing out financial statements, but that's premature," the Dallas-based consultant says. Some workers only know of management what they've seen on TV, he says. "Quite a few employees' concept of how businesses work come from Dallas or Falcon Crest." So before you hand out the numbers, give workers the perspective they need to interpret the data, he says.
• After workers have the vocabulary and knowledge necessary to analyze a balance sheet or a profit-and-loss statement, the company needs to share that information with them. Kryptonite holds monthly meetings at which workers are given financial information and a chance to discuss it, Mills says. Such meetings give workers a sense of how well the company is doing and how they can help improve its performance.
• Companies that want to be successful with open-book also need to reward their workers. It's not enough to explain how well (or how bad) business is. You have to give them rewards for succeeding -- a personal stake in the company's fortunes. In the case of Kryptonite, that means handing out bonuses for exceeding certain financial targets. In the first year, it was the amount of money to be saved by instituting operating efficiencies. Today, it's more likely focused on how to boost before-tax revenue, Mills says.

Three reasons for failure
Open-book management often fails for three main reasons. Companies may fail to do the groundwork necessary to let open-book management take root in their organization, Ruble says. They skip or skimp on the training that's required. Another common problem is employee resistance and the failure to overcome it. Employees, especially middle managers, may be afraid of the new approach, and will view it as a threat and resist it, unless they are adequately prepared about how the new management system will work, Ruble says.

Companies also have a tendency to embrace open-book like any other "hot" management theory as the "charter of the month."

It's not a fad, but an ongoing commitment, explains Tom Samsel, who equates it to a "lifestyle change" rather than a crash diet for a company. Treat it as a one-night stand and it won't treat your company kindly, he says. It requires commitment.

For companies that are willing to commit, open-book management can have big payoffs. This form of management can work for companies in just about any industry -- from manufacturing to professional services.

"I've had some clients, many of whose employees didn't speak English. That didn't stand in their way at all," Ruble explains.

And it's easiest to implement at small companies like Kryptonite, which currently has 65 workers. That's because it's a lot easier to teach 65 people about it vs. 650. It's also easier to come up with solutions when you have 65 employees devising them as you would in an open-book company vs. just one or two executives doing all the thinking at an outfit where the books are kept closed to all but a privileged few.

Jenny C. McCune is a contributing editor based in Montana

-- Posted: Sept. 15, 2000