Step one was to develop a detailed cost-accounting system. The company had always billed customers a per-diem fee for conversions and training, but to J.D.'s knowledge his former bosses had never tried to monitor costs. Under the new system, each employee would keep a record of time spent on each job, materials costs, travel and entertainment, and so on.
Step two: J.D. had the computer track each employee's time, daily billing, salary costs, and expenses. Not so unusual; just good management. But then he explained that employees were responsible for their own profitability. Each month J.D. would provide his 12-person staff with printouts showing how much the company made or lost on each job. Every individual would also get a printout showing how much money she made or lost for the company. Going out on a job, the employee would know projected revenues and expenses and would be responsible for managing them.
Not surprisingly, employees were nervous.
"When the new system was introduced, it was a little scary," says Robert Cole, 30, a fresh-faced programmer hired only a few months before. "People said, God, they're gonna find out I'm not making the company any money." Gradually, the fears eased up; most people, after all, were doing their jobs passably well.
But then two other effects began to take hold. For one thing, employees such as Cole learned to do their jobs more efficiently, without involving management in every little decision. "Let's say you're doing a project with a deadline, and you need to decide whether a trip [to the customer's facility] is in order. You can decide whether to do it or not. Other companies I worked for, you had to justify everything, and you didn't have access to the information you needed." On a recent job for Re:Member, Cole saw that the software module he was using wasn't going to work -- and with a quick OK from J.D., promptly spent $15,000 on a replacement. "I've never been able to go out and spend $15,000 in one day; programmers just don't do that. But without that expenditure we wouldn't have brought the contract in [on budget]. I had all the numbers, and the decision was made by the numbers."
Cole's colleagues, newly enlightened as to their group's bottom lines, began coming up with other ways their department could generate revenue. Bob Terrell, Cole's immediate supervisor, proposed that Re:Member offer its customers hardware maintenance contracts on the Digital Equipment Corp. computers they sold. DEC would do the actual maintenance, but Re:Member would handle the paperwork for a share of the fee. Others began thinking about expanding their skills to improve their individual accounts. "One way was to learn data communications so they could do hot-side tests," says J.D., referring to a disaster-recovery test the company offered its customers. "That's an income-generating test. Every time you do one, we get $1,000, and that hits your account."
By summer J.D. was seeing a payoff: the conversions and training department, which was budgeted for a $106,000 loss in the first four months of 1990, came in at a loss of only $69,000. The difference was attributable partly to employee-initiated cost savings, partly to new revenue. Terrell's idea brought in as much money in the first quarter as it was expected to bring in all year. J.D. had also shown his employees their stake in the savings. Not only would the bonuses from the company's regular 6% pool reflect their individual performances, but the pool itself would likely increase.
"I said, Suppose we can actually make a profit of, say, $20,000. Dave Becker can get 90% of that -- but don't you think he'll be receptive to giving us the other $2,000? When I throw those financials on him, we'll get out of that 6% pool in a hurry."
Open-book management -- letting information permeate a company -- may be a revolution of sorts, but it's not a brand-new idea. "The worker should be enabled to control, measure, and guide his own performance. He should know how he is doing without being told." Management guru Peter Drucker wrote that back in 1954. A variety of progressive-management movements since then -- Theory Y, participative management, employee involvement, and so on -- have been predicated on the free flow of information. Indeed, information sharing is the one element that nearly all such methods have in common.
Like the movements themselves, however, the open-book approach has been slow to catch on. In large corporations it has foundered on mistrust of unions or on the insecurity of middle managers whose claim to authority seems to rest on the fact that they know more about corporate affairs than their subordinates. Entrepreneurial companies can be equally close-mouthed. An owner whose assets, income, social status, ego, and tax liabilities are all wrapped up in how the company is doing may not want anyone else to know the bottom -- or any other -- line.
So why are things changing now? Well, the marketplace has a way of altering even the crustiest of habits -- and today's marketplace, as company owners everywhere have discovered, is exceptionally demanding. Consider three major trends, each of which has hit American business full force only in the last decade or so.
* New demands on a manager's time. It isn't just operations, marketing, and finance anymore. Suddenly company managers -- chief executive officers most of all -- are expected to oversee new-product development, implement stricter quality-assurance routines, scout out new training programs, investigate overseas markets, deal with a dozen new government regulations, and develop a new compensation plan, all by yesterday. The proliferation of responsibilities runs right down the managerial line, particularly since most companies are leery of bringing on more executives than they absolutely need. Result: any system that saves management time and effort will get a good looking over. "Our system decreases the number of decisions J.D. has to make," says Robert Cole. "Anyway, no middle manager can track every dollar and cent that comes through by himself."
