Many CEOs are adopting a management style based on one simple, radical idea: if you want your employees to act like owners, you've got to give them all the information any owner gets
Of all the misbegotten notions that have muddled the minds of American managers over the years, there is one, I'm happy to report, that may soon be vanishing from the business landscape.
The ill-conceived idea: that a company's employees don't need, don't want, and indeed shouldn't have access to the information that is any business's lifeblood. Don't show them the financials. Keep 'em in the dark about upcoming strategic moves. Don't tell them how their department's faring, even how they themselves are doing.
Recognize the mind-set? I hope not, because it should have gone the way of your mechanical typewriters. Think about it: these days, everyone wants employees to work smarter, to take initiative, to act like owners, right? Then tell me, how are they supposed to do any of that if they don't get the regular, nuts-and-bolts information -- the financial feedback -- that an owner gets?
All over the country, chief executives have at last begun to see this fundamental contradiction, that you can't treat people like serfs and expect them to work like colleagues. These same CEOs are letting employees into the business -- simply by providing them with the information top managers take for granted -- and are beginning to reap the rewards. Profits in lieu of losses. Growth instead of sluggishness. Even, as we'll see, a solution to that perennial problem of getting ordinary people to work together in extraordinary ways.
Now, I don't mean to get too grandiose about this. Here at INC., I confess, we discovered the phenomenon almost by accident.
For years we had heard chief executives brag about all the information they imparted to employees -- the newsletters, the videos, the staff meetings. Trouble was, most such information peddling reminded us of high-school principals at an assembly. ("And next week, everyone, we'll be getting a new copier.") Compare this all-too-conventional approach with the wholly unconventional attitude of a company such as Springfield Remanufacturing Center Corp., in Springfield, Mo. There workers on the line know -- and are taught to understand -- damn near everything president Jack Stack knows about costs and revenues, departmental productivity, and strategic priorities. When we began hearing stories of other companies taking this approach, we figured we should take a look.
Take a look indeed. In just a few days we turned up dozens of companies finding scores of ways to cut employees in on the information action. At Reflexite Corp., in New Britain, Conn., and at Reuther Mold & Manufacturing, in Cuyahoga Falls, Ohio, managers prepare annotated financial statements for employees, spelling out what every line in the company's P&L means. At Visual Information Technologies, in Plano, Tex., CEO Mike Allred conducts an employee meeting right after his monthly board meetings, covering 99% of the same material. At Re:Member Data Services, in Carmel, Ind., and at Solar Press, near Chicago, top management makes a point of walking employees through the company's business plan (see "Outline for an Open-Book Company," page 6).
Hal F. Rosenbluth, president and CEO of Philadelphia-based Rosenbluth Travel, prefers the indirect approach: every employee has an open invitation to schedule a day tagging along after him. "Nothing is kept from them," Rosenbluth says.
To be sure, we also encountered our share of rock-ribbed -- not to say rock-headed -- traditionalists. "If we told our employees how the company's doing, the first thing they'd want is a raise in pay," scoffed an incredulous businesswoman to whom I broached the subject. A middle manager at a manufacturing plant remembers sitting in a conference room with a consultant, reviewing hourly rates and job expectations for blue-collar employees. "Not one word of any of this gets out there," admonished the consultant, gesturing suspiciously toward the shop floor. Everyone nodded -- automatically.
But the traditionalists are fighting a rearguard action: more and more companies are joining the movement toward what you might call open-book management. Consider the case of Re:Member Data, which illustrates how easy it is for a manager to get started and how dramatic an effect the new approach can have.
John Davis -- colleagues call him J.D. -- is a vice-president at what is now Re:Member Data's Memphis office. The company sells data-processing systems to credit unions, and J.D. runs the department known as conversions and training. Once a sale is made, his people convert the customer's database to the new system, then train the customer's employees.
Until 1989, when Re:Member bought it, J.D.'s office was owned by a big Minneapolis firm, which seemed to delight in keeping him in the dark. He'd learn about a new job when it landed on his desk, deadline attached. He never knew which prospects were being courted or what the salesperson was promising them or how many jobs he and his colleagues would be faced with in the next month or three. Nor did he know how much money his department made or lost or indeed how the office itself was doing.
All this ignorance was costly. On one memorable job, the salesman had told the customer, sure, our system can handle all your forms. He had neglected to find out -- or maybe to mention -- that the customer had some 120 separate forms, each one requiring custom programming from J.D.'s department. The conversion took several months longer than expected.
When Re:Member came in, J.D. was made a vice-president and thereby had access to all the information he needed. But the frustrating experience of working in the dark stuck with him. What would happen, J.D. wondered, if every employee knew as much as I know now -- about upcoming jobs, about how our department's doing, even about how much they themselves contribute to the business? Dave Becker, owner of the newly consolidated $6-million company, was already preparing to discuss his five-year business plan with his employees and had no objection if J.D. wanted to do a little information sharing of his own. So J.D. developed a plan.
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."
* The redefinition of work. When work meant hoeing a field or tightening four bolts on a motor assembly, employees didn't need to know much. The rules of factory labor, so it was said, were designed so that any plowboy fresh off the farm could begin doing a job on day one. Today, of course, factory jobs are likely to involve producing diverse collections of parts or maybe putting together intricate subassemblies, all while monitoring just-in-time inventory levels and statistical-process-control readouts. Service-industry jobs, which typically involve processing information or interacting with people, are seldom any simpler. Employees undertaking complex tasks invariably have to confront and solve unexpected problems. For that, they need information.
* The computerization of the workplace. In the past, information was scarce. Accounting might still close out the books and produce an income statement. But if you wanted to know how much revenue a particular machine generated or how much one salesperson's customers did in repeat business, forget it. At Re:Member, John Davis is planning to extend his system to the customer service department, which means tracking every call that comes in and ascertaining which employee is responsible for closing it. Before computers, such information gathering would have required an army of clerks.
Look closely at how these trends affect a company's day-to-day operation, and you'll see why information sharing is spreading so quickly. Five years ago, for example, a seasoned NCR Corp. executive named Malte von Matthiessen agreed to take over the presidency of a small manufacturer then known as Yellow Springs Instruments Inc., in Ohio. Von Matthiessen had his hands full from the start. The business wasn't growing, and financially it was barely breaking even. It was overstaffed but undermanaged. No one, for example, knew much about who was buying the company's probes and measuring devices, let alone what these customers might want to buy next year.
Von Matthiessen set about reorganizing things: targeting specific market niches, setting up joint engineering and marketing teams, laying the groundwork for strategic alliances with other companies in the United States and overseas. One critical element of the revamping was a boost in product quality, so that the newly renamed YSI Inc. would come to symbolize the best products. A second was the company's new focus on products with higher added value, not just sensors and probes but systems capable of gathering, recording, and transmitting information. At the same time, von Matthiessen was quietly letting the work force and managerial ranks shrink through attrition. Resources were tight.
Higher quality, more complex products, no spare managers to mother-hen YSI's 360 employees -- the only way through this potential Gordian knot, von Matthiessen figured, was to give employees the information they needed to regulate their own work. The company already distributed financial data, along with a good deal of information about its plans; it was partly owned by employees, and YSI managers had always treated the workers more as partners than as hirelings. Still, von Matthiessen wanted to go a good deal further.
So last year he began a program of what he likes to call empowerment. One by one, shop-floor units have been reorganized into work centers. The centers are responsible for hiring their own members, solving their own production problems, and acting as first-line quality inspectors. And what's the key element of this devolution of authority? You guessed it. The centers have explicit rights of access to all the information they need to do their jobs effectively -- information about customers, inventories and budgets, manufacturing procedures and engineering alternatives.
One way for a YSI team to gather such information is simply to invite a specialist -- a customer service rep, say, or a manufacturing engineer -- to attend a regular weekly meeting. Another method, often simpler, is to ask the computer. Last year YSI introduced a new MRP-II software package capable of tracking not only inventory levels and production records but also job costs and quality variances on every project of every work center. Dozens of people throughout the company were trained in a query language called Sequel, and computer terminals were installed all over, on the shop floor as well as in the offices.
Today product leaders such as Marilyn Capper of the Bioanalytical Products center pull rolling three-week workloads off the computer, which her teammates then use to divvy up and schedule their work. Computer-generated charts show the centers exactly which decisions pay off and which don't. The bioanalytical group, for example, knew that customers wanted a more even flow of the Model 2300 glucose-and-lactate analyzers it manufactured. So the group decided to switch from batch production -- several constructed at once, over a week or 10 days -- to "daily build," with three complete analyzers turned out every day. Presto: they could see from the chart that labor variance, measuring actual building time as compared with budgeted time, dropped like a shot. "It made me a lot more confident we were doing the right thing," says Capper.* * *
The most powerful reason for the spread of open-book management, of course, may be the fact that it works. J.D.'s departmental deficit plunged. In the year or so since von Matthiessen set up work teams, YSI's manufacturing costs have dropped from 56% of sales to 52%, saving roughly $1 million and pushing earnings up "to levels we never saw before." By the Darwinian law of the marketplace, companies that gain so sizable an edge are likely to elbow their competition aside.
A more immediate reason, though, is that information sharing isn't an all-or-nothing proposition. American managers are a pragmatic lot: despite the fads and fancies that periodically sweep through the business world, most are loath to turn their companies upside down in the pursuit of the Grail of Good Management. But show them an approach they can try out a step at a time, making mistakes if need be, then stand back and watch things change.
At COMPS, for example, a new chief operating officer named Michael Arabe began what you might call a series of experiments in open-book management. When he hit some snags, he modified his approach a little and plunged on ahead.
San Diego-based COMPS -- an imperfect acronym for Commercial Property Information Services Inc. -- compiles and sells information about commercial real-estate transactions. It had grown to about $3.4 million in sales by the time Arabe came on board. But it was a company in need of an overhaul. It hadn't been profitable in three years. Competition was heating up. Morale was low, because the future seemed uncertain. "People were walking on eggshells," remembers one veteran employee. "Are we making money or not? Will we have jobs tomorrow? No one knew if the ax was going to fall."
Arabe first began regular monthly meetings at the company's headquarters. All home-office employees attend, along with representatives from COMPS's offices in San Francisco and Phoenix. The main topic: COMPS's financial performance and budget. Next Arabe and his managers developed a system for tracking performance, by employee and by department, at every level of the company. People responsible for gathering data on real-estate transactions monitor the files they complete each day and each month. Controller Karen Goodrum's five-person financial staff tracks the timeliness of billings and financial statements, the age of receivables, and the daily cash situation. Charts on the wall, visible to all, indicate progress on such measures -- or lack thereof -- over time.
The connection between individual performance and company profits is thus clear to all. "People in this department are aware of the impact of [their] goals on our costs and on the financials," says Goodrum. Down the hall Blaine Huber handles calls requesting specific data packets -- information, say, on recent shopping-mall sales of more than $250,000 in San Diego County. He has developed goals for the revenue he hopes to generate, right down to the day, and can tell you on any given day where he is in relation to his targets. Maybe not by accident, Huber's monthly sales were up about 25% from the end of 1989 to the middle of 1990.
Despite such accomplishments, Arabe's experiments in information sharing haven't gone completely smoothly; in fact, he has run into at least two problems that are among a CEO's worst fears. One was that some of COMPS's plans seemed to be leaking out to the company's chief competitor. That was easily fixed: Arabe decided to play some of his cards closer to his vest. Early last summer, for example, the company was in the process of changing some aspects of the way it delivers its information. These changes were not among the information shared with rank-and-file employees.
Even more damaging, potentially, was the company's inability to deliver the rewards Arabe had seemed to promise. Last fall the budget he took to the employees projected net earnings of $365,000, with $112,500 set aside for employee bonuses. As the months rolled by, the bottom line -- and the bonus pool -- got smaller and smaller. "The numbers were way off," says Arabe ruefully. "Sometimes you just screw up. In February we had to go to them and say, 'Forget about the bonus.' "
Employees were predictably furious. "People were angry and were venting their anger," remembers Lori Nelson, who works in the data-gathering department. "Some were maybe thinking about looking for another job." Rather than pulling back, however, Arabe walked employees through exactly what had happened to the budget numbers and what was being done about it. Subscription-renewal revenues were lower than expected? Someone would be assigned to call customers just before their subscriptions ran out. Operations in Florida were losing money? They would be closed.
In Lori Nelson's view, what ultimately got employees over the hump was simple: they believed that management wasn't lying. "Being shown the financials month after month, you come to realize why you're not getting a bonus." This year Arabe, who recently became CEO, will take the concept one step further: departments are being divided into teams, and each team has been given responsibility for developing its own budget. That, he figures, will not only produce more accurate numbers; it will create a sense of budget ownership among the employees.* * *
On its face, open-book management is no more than a business technique, analogous to matrix management or that old standby, management by objectives. You follow certain procedures, you realize certain benefits. In practice, the approach seems to affect managers and employees more deeply, creating a different culture and different motivations.
One hard-to-miss phenomenon is the eagerness about work that seems to permeate information-sharing companies. "People are excited about the new teams," says COMPS's Lori Nelson. "It's really a challenge," adds Karen Goodrum, referring to the wall charts tracking her performance. "It's created a lot of excitement, and it's helped me become a better manager." That level of enthusiasm shouldn't be hard to understand. Tracking your performance, after all, is one of the chief rewards of running a company. Why should employees be any different?
Maybe more important, there's a sense of growth in these companies, a sense of people learning new skills and taking on new responsibilities. That, of course, is what U.S. companies will more and more have to rely on as they compete in global markets.
To many CEOs, the "good worker" has all but disappeared from the American landscape. Would-be employees are poorly educated, lazy, and possessed of an exaggerated view of their own worth. INC. not long ago queried a sampling of subscribers on work-force issues, and the responses were dismally similar. "No one takes pride in being a good worker." "The schools are so bad." "Everyone thinks they're worth more than they are."
To Malte von Matthiessen, the view that employees are dumb and lazy is "rubbish" -- and it's hard for a visitor to von Matthiessen's company not to concur. YSI's shop-floor employees, most without extensive formal education, discuss performance-to-schedule ratios, yield rates, and Kepner-Trego methods of problem solving, which the work centers utilize in their hiring procedures. All hold stock in the company, either as individuals or through an employee stock ownership plan. They're generally aware of the company's profitability and of what that means to them. Last year -- partly because of the changeover to work teams and the investment in the new computer system -- YSI didn't make any money. Management proposed that everyone forgo a wage increase; the employees agreed. Like a lot of companies, YSI has invested heavily in training its workers. Unlike many, it also gives them an opportunity to exercise their minds in taking responsibility both for their jobs and for the business.
To be sure, all such potentials won't immediately be realized everywhere: open-book management is a process, not a packaged product, and not every practitioner will be willing to take it as far as von Matthiessen. But even early-stage experimenters such as Re:Member's John Davis and COMPS's Michael Arabe are learning something of its power and are laying plans to extend their sharing of information deeper into their organizations. A year from now both businesses are likely to be further down the road toward what might be called the open-book company. A year from now, too, a lot of other CEOs are likely to be taking those first commonsensical steps toward sharing information -- toward letting their employees work with them as well as for them.
And when the old, keep-'em-in-the-dark attitude finally disappears, there won't be many mourners.* * *
Research assistance was provided by Anne Murphy.
MANAGING BY THE OPEN BOOK
As employees think more like owners, owners can think more like leaders
The main claim for open-book management is that it makes for better employees. Sharing company plans and financial results -- costs, revenues, productivity numbers -- is said to promote initiative, innovation, commitment. Reason enough, it would seem, for any business to drag its inner workings into the open air. But that is only part of the open-book benefit. If sharing information empowers employees, it liberates managers. As employees think more like owners, owners are free to think more like leaders.
Here are some reasons why:
1. Banished Ego
"I feel incredible pressure on performance from inside the company when everyone sees the results -- and it minimizes your ego involvement in decisions that don't work out. You recognize your mistakes sooner. If the results are kept secret and not shared, there's a temptation to let ego drive the decision and to stay with a strategy longer than you should. But when everyone sees the score, it requires managers to put their egos away. Sharing results focuses my attention on facts, not emotions."
-- Cecil Ursprung, president and CEO of Reflexite Corp. in New Britain, Conn.,
a reflective-materials manufacturer
2. A Smarter Company
"Maybe people like H. Ross Perot and Harold Geneen are smart enough to think of everything themselves, but I'm not. I don't want to do it by myself, and I'm not going to. If the team wins, I win. That's good enough. I am willing to suffer the discomfort of doing business this way -- the potential morale troubles if results are off -- because now the owner isn't the only one thinking. Our people have started coming to the table with ideas. We're working together to create value here. The idea of an aloof manager who knows it all is a lie."
-- Michael Arabe, CEO of COMPS Inc.,
in San Diego, an information-services provider
3. Tougher Oversight
"Every month after our board sees our presentation, we make it to employees. But they're a tougher audience than the board. They're not afraid to ask how much money we have in the bank or what funding sources we're lining up.
If we've lost a key deal, we have to be ready to explain why we lost it. If we're considering a new market, they're quick to ask, Why are you entertaining that idea? I'm getting a report card from 90 people, not just 9 board members. So I really have to be sharp. And anything that makes me sharper is better."
-- Mike Allred, president and CEO of Visual Information Technologies Inc., in Plano, Tex., an image-processing systems maker
4. Emotional Support
"When the company wasn't making any money and the banks weren't applauding, it was all on my shoulders. I wanted a company that was a success, but I couldn't do it by myself. I had to start sharing the burden. It meant showing employees the holes, showing them your dirty underwear. And that's tough. But because I share information and problems now, people care more. They have a sense of dignity they never had. And the burden is lifted some. I am not lonely anymore."
-- Karl A. A. Reuther, CEO of Reuther Mold & Manufacturing, in Cuyahoga Falls, Ohio, a machine parts maker
5. The Right Role
"Traditionally, every idea had been bounced off me first. But now that people have information, they'll come in and say, We've done this, and here's why. I went from being a quarterback to a cheerleader. So I can focus on integrating two new acquisitions that have nearly tripled our size. And I've finished our five-year business plan. I'm able to concentrate more on new trends and the long-range aims of the company -- the jobs I should be doing.
-- David Becker, president of Re:Member Data Services, in Carmel, Ind., a provider of computer products and services
OUTLINE FOR AN OPEN-BOOK COMPANY
Writing chapter one
Open-book management doesn't mean overhauling a company overnight. In fact, it's rarely introduced as some full-blown program or thoroughly mapped re-formation that upends every policy and practice in its path.
Learning to manage by sharing information is simpler than that. Company builders who've tried it in their own businesses point out that information sharing can begin step-by-step. The process is as flexible and as varied as the companies that try it. Open-book management can -- and, once undertaken, will -- evolve.
Looking for a first step? Here are some options.
Tell employees where you want to go
Last year Solar Press Inc., a $45-million direct-mail company in Naperville, Ill., took its business plan to the shop floor. In a one-day, off-site affair called Brain Day, the company confessed its yearly and long-range plans to its full-time employees.
During a two-hour morning session, managers reviewed the coming year's sales projections, production goals, and personnel plans and equipment needs. They disclosed when new products would hit the market and how big those markets were. They even delivered the tough news about plans to discontinue certain product lines or consolidate operations.
Discussing department head counts was "sensitive," chief financial officer Joe Hudetz admits, and a few employees worried about losing their jobs, but "you don't get many sour grapes when ou're honest and tell them up-front." Fair warning allowed people to transfer or train for new positions in the company.
Once employees were given a glimpse of where the company was headed, they could concentrate on their own departments. During the afternoon of Brain Day, each department met to plan for the year. "It gave me a chance to think about the portion of the plan that involves me," says Sue Smith, a scheduling manager. "That way we could avoid some mistakes in advance."
According to Smith, prior warning about the company's European expansion plans allowed her department to install more timely and accurate shipping systems. "We'll have fewer weighing errors and delays shipping overseas," she says.
The payoff for the company? "Everything came in on target," Hudetz says. Sales increased 18%. Solar added almost 100 people and opened a new plant in Missouri. "With that kind of growth, there was no way we could have met the goals without everyone knowing what the game plan was."
REPORT JOB PROFITABILITY
Let employees know how they're doing
In a monthly newsletter, Karl A. A. Reuther, CEO of Reuther Mold & Manufacturing Co., in Cuyahoga Falls, Ohio, posts descriptions of the company's operating profits on jobs of more than $4,000. In some cases, Reuther publishes the hourly income and the break-even for each job; workers can see whether the jobs they worked on made money. They watch those reports closely, Reuther says, and in some cases, don't hesitate to dispute the numbers he prints.
In one case an accounting error led Reuther to conclude that the company had lost money on a $50,000 job. "It looked very bad. The numbers suggested we hadn't even recovered our labor costs." But the employee who had worked on the job begged to differ. "He told me either you didn't quote the job right or your numbers are all wrong," Reuther recalls. "We had to have made money on that job," the worker insisted. When Reuther checked the figures, he found out the man's calculations were right. It had been a very profitable job. The practice of posting the numbers had made productivity a point of pride and peer pressure in the company. It also helped the P&L. "I gladly retracted the statement in the following newsletter," Reuther says.
EXPLAIN COMPANY PERFORMANCE
Annotate and distribute your financials
Every business keeps a score -- it's called the profit-and-loss statement -- so why shouldn't every member of the team know it?" So says Cecil Ursprung, president and CEO of Reflexite Corp., a privately held reflective-materials maker in New Britain, Conn.
Since 1984 Reflexite has been publishing annotated annual and quarterly income statements for its 170 U.S. employees. Disclosing financials is a rare gesture for any private business, but explaining them is virtually unheard of -- even among companies that are public. At Reflexite, Ursprung uses a simple tool to teach machine operators, assemblers, and shippers the mechanics of a financial statement: he provides a glossary.
Reflexite's reports annotate the blizzard of numbers that appear on a financial statement with straightforward definitions. For example, a note in the margin tells what the cost of sales represents and how it is calculated. Additional annotations distinguish gross profit from operating income and net income. On the balance sheet, even such inscrutables as depreciation are spelled out.
"They need to know whether we're winning or losing," Ursprung says. "Why would you tell 5% of the team what the score was and not the other 95%?"
POST DEPARTMENT REVENUES
Help teams compete and cooperate
Measuring up is no private affair at Environmental Compliance Services Inc. (ECS), in Exton, Pa. By posting the revenues produced in each department, CEO Bill Kronenberg III says he opens up each profit center's performance to companywide scrutiny.
Every month managers in six departments at the environmental insurance firm chart actual gross sales, compare them with the budget, then post the information on boards for all to see.
The result, says Kronenberg, is not only more competition but more cooperation among teams.
Last year, when ECS's retail insurance unit hit a slump, several other departments -- which had been tracking the downturn on Kronenberg's boards -- came to the rescue. The underwriting group, ahead 40%, jumped in to provide new leads. Marketing helped make some cold calls. Thanks to the push, the retail shop came in 7% ahead in a flat market.
"It pays us dividends," Kronenberg says. "I don't have to watch as closely. I used to track the budget almost daily. Now I do it once weekly, and I don't even need to, really. They're watching those boards more closely than I ever would have expected."
-- Anne Murphy