The Open-Book Revolution

Tweet

Step Two
Teach the Basics of Business
It's amazing how little most Americans know about business. Some believe that revenues are the same as profits. Or that profits are whatever a company has in the bank. Not many employees can tick off the expenses a company must pay. Not many know how little is often left at the bottom line.

Companies pay for that ignorance in at least three ways.

It spawns resentment. "When you're doing well, the question everyone asks is, 'Gee, that money must be stacked up in the basement -- we want more of it," says Clarke Kawakami of Black Diamond Equipment, a Salt Lake City maker of mountaineering hardware.

It leads to bad decisions. Should we throw out this part or remachine it? Does that customer deserve a refund? Should maintenance check the funny noise in the truck motor or just wait till it breaks? Companies these days expect employees to make those decisions, not to run to a supervisor (who has probably been let go, anyway). But if workers don't understand the financial impact of decisions, how can they make smart ones?

Finally, ignorance takes the fun out of business. Every entrepreneur knows that little secret: business is fun. It's a game. You take on the competition. Obstacles and opportunities crop up as frequently as in a video game. Every month or quarter you tally up the results and see how you did. What's more, there's real money at stake. Employees can share in the excitement -- and once they do, they'll give your company a kind of turbocharge. But not many people get excited about a process they don't understand.

How do you teach business? Start in a classroom -- maybe the way Foldcraft's Mayhew does. He developed a six-hour course in the basics, which he teaches to employees in groups of 30 or 35 at a time.

First Mayhew focuses on employees' personal finances. The class compiles personal "income statements" and "balance sheets." It's an easy way to learn financial language.

Then he creates a fictional chocolate-chip-cookie company, with simplified financials. Like Foldcraft, the company has bills of materials -- ingredients -- and routings, or the steps in the recipe. The class figures out standard costs and the effect of variances in, say, the price of flour, and compiles income statements and balance sheets for the cookie company.

Mayhew next brings out Foldcraft's actual financials and shows how the company's numbers correspond to the cookie company's simplified ones. At this point he delves into more complex matters, such as inventory costs. He explains the effect of purchasing variances, usage variances, and labor variances.

Finally, he brings it all home. "I go around the room and try to get an understanding of who's in there and what jobs they have. I actually try to talk to them individually in the classroom about what their jobs are and how they see them impacting profitability."

Classroom lessons won't stick, of course, unless they're reinforced every day -- on the job.

That's why Web Industries, a Westborough, Mass., converter of roll materials, often asks a frontline employee to explain the income statement at the monthly plant meeting. The designated teacher, usually a machine operator, sits down with someone in accounting a day or two before and, like any teacher, must know the material better than the students do.

And learning by doing is why Jim Jenkins of Jenkins Diesel Power, a Springfield, Mo., truck dealership, might give homework to his 18 service technicians. One recent exercise went something like this: You've learned how much the company bills for your time. You've learned what costs have to come out of the revenues you bring in. Now calculate how much more the company could earn if you could do in 59 minutes what now takes you 60. (The answer: $21,000 -- "right to the bottom line.")

What reinforces the learning best, of course, is the open-book system itself. When people see important information regularly, they find ways to learn what it says. If part of their income depends on that bottom line (see step four), you can bet they will soon understand which numbers have the biggest impact on it.

Step Three
Empower People to Make Decisions based on What They Know
Plenty of companies give lip service to the concept of empowerment, or employee involvement. They want participation! They call meetings! They set up project teams, cross-functional teams, self-managing work teams -- so many teams, a wag once remarked, that companies these days could be mistaken for bowling leagues. But since they don't share financial information, not many employees know how their work affects the bottom line.

That's like empowering someone to drive a truck -- without giving that person a map or a destination. Open-book management provides both.

Of course, you can't just announce that people are now empowered, any more than the Founding Fathers could just announce that the United States would have a democratic government. You need structures and procedures.

One approach, pioneered by SRC and widely adopted by others, is the so-called huddle system.

 PREV  1 | 2 | 3 | 4 | 5 | 6  NEXT 

Read more:

Sign-up for our Leadership and Managing Newsletter

Email Address: