Inc.'s editor-in-chief discusses the new social trend toward economic literacy and financial accountability.
Open-book management did not even have a name in August 1986, when we published "The Turnaround," a cover story about the improbable success of a band of managers who transformed a dying factory into a thriving enterprise by teaching employees how to understand and use financial statements. The name was supplied four years later by senior writer John Case in a groundbreaking article titled "The Open-Book Managers." Since then, Case has continued to spearhead our coverage of the phenomenon. Much of the material used in this month's cover feature is adapted from his new book, Open-Book Management: The Next American Business Revolution, to be published this month by HarperBusiness. It is the definitive examination of the subject, a concise account of the forces that have shaped the evolution of organizational life in this country, and a discussion of the steps required to put open-book management into practice.
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This month's cover feature concerns a subject that is no doubt familiar even to casual readers of this magazine. After all, we've been documenting the emergence of open-book management for the better part of a decade now. During that time we've witnessed an extraordinary phenomenon. We've seen an entirely new approach to running a business being invented, not by consultants or academics or gurus but by company owners, managers, and employees, all building on the simple but radical notion that making money is the appropriate work of everyone in an organization. Along the way they have discovered a competitive advantage that we believe will be very hard to beat.
Lately, however, I've begun to think there is an even bigger story here. It has occurred to me that open-book management is only one facet of a much larger change taking place in our culture. By way of illustration, let me tell you about my friend who works for an advertising agency -- on the "creative side," as she is quick to point out. In her mind, accounting and business have long been two of the dullest words in the English language. So you can imagine my surprise when she spent a recent dinner talking about nothing but money -- her own personal finances, to be exact. Finally, I interrupted and asked about her newfound interest.
"Oh, it's Quicken," she replied, referring to the best-selling software program from Intuit. "I started using it to write checks. Then I got into analyzing my family's finances. One night, I had an epiphany. I suddenly realized that my household is a small business. We have revenues, we have fixed and variable expenses, we make investments. The next thing I knew, I had set up a budget for the family, and at breakfast I was explaining our finances to my husband and kids. When we thought about buying a television or taking a vacation, I'd lay out the numbers for them. We all began to realize we have choices to make with our discretionary income.
"But what amazes me more than anything," she went on, "is how much fun I'm having, thinking this way about money. I enjoy it. It gives me a sense of control over my personal finances I've never had before."
Of course, my friend is not alone. Over the past decade there's been a sea change in the way people view their personal finances. The fact is that millions of Americans are taking great pleasure in, and becoming increasingly sophisticated about, activities that a generation ago were widely viewed as arcane, intimidating, and downright boring.
Meanwhile, there's been another interesting development on the economic front. As you have no doubt noticed, institutions are suddenly being held financially accountable to an unprecedented degree. It's even happening in church. A few months ago I attended a Roman Catholic mass and was taken aback to learn there would be no sermon. Instead, we viewed a video of the cardinal presenting an income statement for the Archdiocese of Boston. I was stunned. In effect, the church had replaced the sermon with a report to shareholders. Church officials won't say why they decided to air their finances in this way, but the reason seems obvious. Like leaders in every segment of our society, they are experiencing pressure to explain to contributors where their money is going.
My point is that we have entered a new era of heightened economic awareness. The language of business and finance is no longer confined to the business pages. It informs the great political, environmental, social, and scientific debates of our time. It even dominates the sports pages. Need I mention the baseball and hockey strikes?
To me, all this suggests that the open-book revolution is part of a broader and deeper change occurring around us, a change that will alter the environment in which everybody does business. I'm not saying that every company will open its books. Far from it. But I do think that every company will be affected by this new environment of increased economic literacy and financial accountability.
How can companies adapt without going the open-book route? I couldn't say. But if I were running one of them, I'd sure try to figure it out soon.