The Open-Book Revolution

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· Employees have a direct stake in the company's success. If the business is profitable, they get a cut of the action. If it's not, they don't.

In effect, open-book management teaches people to quit thinking of themselves as hired hands (with all that implies) and to start realizing that they are businesspeople (with all that implies). Their job security, their chances for advancement, their hopes for the future all depend not on the whims of some boss or department head but on the company's success in the marketplace and each person's contribution to it.

Those are the bare bones. The stories of open-book management flesh things out; they show how the principles are implemented in real situations. Bob Frey told one such tale not long ago in the august Harvard Business Review.

Frey and a partner had bought Cin-Made in 1984. The little Cincinnati company was not what you'd call high tech: it made mailing tubes and other cardboard-and-metal containers on antiquated machinery. Nor was it a model of progressive labor relations. The previous owner, seeing profits dwindling to the vanishing point, had told her unionized workforce she couldn't afford the generous contract she had signed two years earlier. The response: Tough luck. No givebacks.

Not that Frey helped much when he took over. He stood around with a stopwatch, timing employees' moves. He once declared that the work looked like something a moron could do. By noon that day, he remembers, all the employees on the shop floor "had heard that I thought they were mentally retarded."

A few months later the contract expired. Frey said he'd have to have hefty wage cuts. The union went out on strike.

Frey and his partner tried to keep the factory going. That caused no end of mirth on the picket line. The obvious joke made the rounds: "Now there really was a moron running the machines." Before long, though, the strikers got scared. When Frey threatened to hire permanent replacements, the union advised its members to return.

So Frey had won the battle -- a 12.5% wage cut. But the war was raging as furiously as ever. The disgruntled workers "stuck to their job descriptions like glue," he recalls. They filed grievances at the drop of a hat. Peeved, Frey quit buying dinner for those working overtime, ending a long tradition. Morale plunged.

At some point, says Frey, he wised up.

The constant skirmishing and bickering were making him miserable. If they didn't stop, his business would be in jeopardy. He began to see that the company really needed the loyalty and cooperation of its employees. He began planning a change.

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.

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