First he started holding monthly "state of the business" meetings, at which he showed everyone Cin-Made's financials and explained what the numbers meant. Then he instituted a generous profit-sharing program. The adversarial era was over, he said. Thenceforth everyone would get involved in helping the company succeed.
The employees were dubious -- wasn't this the guy who had cut their pay? Periodically, Frey would ask them how they'd solve one or another problem and they'd shoot back, "That's not my job." He'd lose his temper. "People had to understand that those were words they weren't allowed to utter."
But slowly -- very slowly -- the face-offs grew less frequent. Employees began paying attention to the numbers Frey kept showing them. They learned quality-control techniques. They began tracking scrap rates and labor efficiency. Before long, Frey and his employees were spending their meetings discussing year-to-date sales and operating efficiencies and profit projections. An employee committee took over scheduling. People began to solve problems on their own.
Half a dozen years after Frey's acquisition of Cin-Made, a new spirit was permeating the place. "I couldn't see how we were going to protect ourselves and keep our jobs if the company went under," reflects Ocelia Williams, a shop steward. "And I couldn't see how the company could work unless we all took our share of responsibility." Responsibility, indeed. Hourly workers now do all of Cin-Made's purchasing and have a voice in every hiring decision. They schedule their own hours, hire and supervise all temporary employees, oversee the company's safety program, and administer its skill-based-pay system. Productivity has more than doubled since Frey bought the company. Profit sharing accounts for about 35% of everyone's compensation. As for Frey, he admits to "having a hell of a lot of fun."
Granted, any thousand-dollar-a-day TQM or reengineering consultant can tell similar war stories. But what makes for lasting change? After all, workers in those famous Hawthorne experiments in the 1920s upped their output when the lighting was turned up -- and again when it was turned down. Trouble was, the improvements didn't last.
TQM and virtually every other hot new management idea suffer from a common failing. "We've gotten pretty good at teaching the 'how-to," says Mark Miller, an executive with the Chick-fil-A chain of restaurants in Atlanta. "But we forget about the 'want-to." TQM often peters out because nobody but the managers really cares about it. Once the first burst of enthusiasm wears off, why bother?
Open-book management, by contrast, teaches the want-to. Instead of telling employees how to cut defects, it asks them to boost profits -- and lets them help figure out how. Instead of giving them a reengineered job, it turns them into businesspeople. They experience the challenge -- and the sheer fun and excitement -- of matching wits with the marketplace, toting up the score, and sharing in the proceeds. As Bob Frey discovered, there's no better motivation.
Open-book management by itself isn't enough to turn a company around. Frey says he still needed a better product strategy and better marketing as well as better people management. No company can succeed without good leaders, adequate financial resources, and the ability to deliver a combination of price and value that appeals to customers.
But open-book management -- "lightning in a bottle" -- changes the essential logic of how people work together. No longer are those at the top trying to haul everyone else along. Everyone pulls in the same direction -- because all can see where they're going.
* * *
How to Implement It
There isn't any cookbook-style recipe for open-book management. "It's more a philosophy than a how-to-do-it, step-by-step program," says Ronnie Miller, a plant manager at Pace Industries' Cast-Tech Division, in Monroe City, Mo. Still, if you put all the open-book practitioners into a room and asked them what they do, I think they'd come up with four precepts -- four steps you have to take before open-book management can work.
* * *
Step One
Get the Information Out There
Tell employees not only what they need to know to do their jobs effectively but how the division or the company as a whole is doing.
Every company has some pivotal operational numbers: On-time shipments. Customer returns. Most managers understand that employees have to see and track those numbers if they're going to affect them. Operational numbers alone, though, won't get anybody to think like an owner. Employees may keep a wary eye on the charts. But they're likely to feel as much resentment -- "Big Brother is watching us" -- as motivation. People aren't lab rats; if they don't understand why they're supposed to lower the defect rate or take those calls faster, they soon figure it isn't worth the trouble.
Open-book management is about the why -- and in a business, the why is told by the financials. So along with the operational figures, show people the income statement, the cash-flow statement, and the balance sheet.
Will they understand those documents? Not until you explain them, a subject we'll take up later. But numbers alone send a powerful message, even if they don't yet make sense. Everybody is a part of the company. Everybody sees the same information.
Then too, chances are good that employees will readily understand some financial figures -- the ones that are most important to your business.
· At Commercial Casework, a Fremont, Calif., furnishings and cabinetry company, the crucial number is variances on each job. So CEO Bill Palmer posts "Job Cost, Over and Under" up on the lunchroom wall. No one needs an M.B.A. to know which direction is good.
· At Acumen International, the personnel-assessment company, employees keep a hawkeye on the company's weekly cash. "What hits everybody's gut? How much money we have in the bank," says one manager.
· At Sprint's Government Systems Division -- it has operations in Kansas City, Mo., and Herndon, Va. -- revenues per employee is one of several critical financial gauges. "It's one way of looking at how well the organization is doing," explains Rick Smith, director of services for state and major local government. Again, no M.B.A. required.
