An up-close look at how one company came to embrace open-book managament and what that has done for business.
In the end open-book management works for one reason: it transforms human behavior. It gives individuals reason to care, knowledge to work with, and the power to act. It connects every worker with the ecstatic buzz of business and enables ordinary people to perform better than anyone ever expected. People like Leo Henkelman
Leo Henkelman is built like a bear. He speaks slowly, and his voice rumbles. His eyes have a way of making other people nervous. Strange, then, that for so many years, Henkelman was an invisible man.
To his employer, Sandstrom Products -- a $5.5-million maker of paints, coatings, lubricants, and other chemical soups -- Henkelman was no more than a strong back clothed in a blue-collared shirt, attending to a mill all day, mixing paint. Same platform, same mill, for more than a decade. It was his destiny.
Luckily for Henkelman, though, Sandstrom Products lost so much money for so long that eventually his bosses decided they had no choice but to give open-book management a try. The financial consequences of that decision were staggering. Sandstrom Products rebounded from a loss of more than $100,000 in 1991 to earn almost $800,000 in 1993. "Sales stayed about the same," says founder Jim Sandstrom, now retired, still amazed. "No new product lines. No new customers." Just profits, lovely profits.
But why? How did that happen? Where did the profits come from? That's our story here. The source of open-book management's power to transform company balance sheets is the power it has to transform lives. Doors open, walls crumble, ceilings rise. Sleeping potential wakes up, and ordinary people prove themselves capable of extraordinary achievements. People like Leo Henkelman. Open-book management gave Henkelman a shot at altering his destiny, and he made the most of it.
"I have a hard time remembering Leo being around when I first started," admits Rick Hartsock, a longtime manager at Sandstrom Products who bought a big piece of the company in 1992. "Didn't say much, didn't talk to many people, didn't have much of a presence." Now when Hartsock looks at Henkelman, he can only wonder, "Where have you been?"
* * *
Leo Henkelman had needed a job, any job. For several years -- summers during high school, then full-time after graduation -- he had worked in a slaughterhouse. His dad -- Leo senior -- was a foreman there and had helped bring him in. That was in the mid-1970s, when manufacturing jobs were still plentiful in the Midwest. Henkelman's particular task, when he started, was to stand at a certain spot on the production line and hammer purple USDA stamps in nine places on every side of beef that swung by, carcass after carcass, five days a week, on a shift that began at 3 a.m. "An extremely boring job," he says.
But the pay was good -- so good that Henkelman never saw much point in going to college. Not that college was ever really an option. There were eight Henkelman children -- four girls and four boys. Leo was the oldest. (When he was in 12th grade, Wendy, the youngest, was in kindergarten.) For years, to keep food on the table, Leo's mother, Bettie Henkelman, worked in a grocery store. "She never really got a check," says Henkelman -- she just signed it over to pay the bill. Bettie died of emphysema in 1989, the day before her 52nd birthday.
The family was forever on the move, following Leo senior, who was following the money -- from Glidden, Iowa, where he worked on a farm (for $180 a month, plus a house), through a succession of meatpacking jobs in tiny towns in western Iowa, ending up finally in Erie, Ill., a farming community on the Rock River, just up the road from the huge Iowa Beef Packers plant in Joslin. There Leo junior completed high school and began his working life. "It was one of these choices," he says now. "I could either go into the military or go to work."
But then Henkelman got fired from the meatpacking plant for fighting with another employee (who ended up in the hospital). It made no difference that his dad was the foreman; it was Leo senior, in fact, who delivered the bad news.
Henkelman worked in construction for a while after that, but the pay was lousy. The boss kept promising him a raise, but the raise never happened. Then some friends who already had jobs at the company told Henkelman about Sandstrom Products, in Port Byron, Ill. The base pay -- $4.20 an hour -- was $3 less than what he had been making at the meatpacking plant, but the work was steady and reasonable (no weekends, no overtime, "a 40-hour-a-week job, and that was what I was interested in"). And above all, it was available just then. Henkelman put in an application and was hired as a paint runner, the bottom job in the plant, no experience necessary. "Putting paint in cans, and cans in boxes," he says.
Shortly afterward, Henkelman moved out of his parents' house and rented a one-bedroom apartment on Main Street in Port Byron, next door to Peacock's tavern, two blocks from the job.
* * *
Port Byron, population 1,002, is a Mississippi River town -- the oldest river port in Illinois, according to a forlorn sign that faces the water. Today a visitor to Port Byron can still get a pretty good sense of what kind of company Sandstrom used to be just from the layout of the place, which hasn't changed. There's the plant, first of all, toward the south end of Main Street, a squat building with a sheet-metal skin that opens onto a loading dock, where the plant workers take breaks in the afternoon sun. The cinder-block laboratory adjoins the plant, but it's on a different level -- lower in physical space, higher in the organizational hierarchy. Behind the plant and the lab, up on the hill, is the office, a handsome clapboard building with views of the plant and the river.
When the new office building was built, in 1982, so was a covered wooden staircase leading from the back door of the plant up the steep side of the hill to the office driveway on High Street. Forever after, to Henkelman and the other plant workers, management was "up on the hill." To get there, you took "the stairway to heaven."
Henkelman's world, the plant floor, was dark and noisy and smelled strongly like a high school chemistry classroom. After about a year Henkelman became a mill operator, mixing paints in a giant blender, following formulas supplied by the lab. The pay was a little better, and the work was more engaging, but there were frustrations at every turn. The problems that came up were somehow always different and always the same: Henkelman would think he had a better idea about how to do something, he'd take it to the guys in the lab (who had college degrees and carried business cards and wore to work the kinds of clothes they could afterward go home and eat supper in), and they'd tell him, in so many words, to blow off. "It was like they hired me from the neck down," says Henkelman. "Warm body, strong back, weak mind."
Henkelman bristled. He had never been content to let others worry about the right way to do things. His father recalls how Henkelman, not much more than a toddler, butted in while his dad was working on a piece of machinery in the yard one day to say, "Hey, Dad, let me wrench that a little while."
Over time Henkelman learned to rely less on the formulas supplied by the lab (which were often no more than lists of ingredients, in no particular order) and more on his own knowledge and experience, which he stored on a shadow set of formula cards. The mill operators all helped one another out. "We'd get these mandates coming from the lab that you got to do it this way or else," Henkelman says. "We did a lot of things under the cover of 'Don't tell nobody that we did this, but we're gonna check this out to see whether it works, because we don't believe the guys in the lab.' And we would succeed, and we'd kinda strut into the lab and, you know, 'Suppose we can try it this way once?' And they'd say, 'Well, OK,' begrudgingly. It's like we didn't know what we were talking about or what we were doing."
It was an elaborate game -- costly, inefficient, demeaning to all parties, and increasingly untenable. As Sandstrom faced growing pressures from quality-conscious customers demanding consistent output the war between the lab and the plant escalated. Profits suffered, and so did morale. Henkelman, after 13 years, was thinking about quitting.
Meanwhile, events were spiraling toward another crisis, this one in Henkelman's personal life. Henkelman, you see, was a drunk, and also a pothead. Finding nothing at work to challenge him, he looked, he says, "into the bottom of a bottle." More and more, he lived for getting wasted. "That was the only reason I showed up for work."
* * *
There were days, more days than he can remember, when he showed up at work with a hangover, and the smell on the plant floor would overwhelm him and he would be sick. One day the alarm went off and he rolled out of bed and into his coat and down the stairs, nearly making it all the way to work before the strange quiet on Main Street led him to examine a newspaper box, which come to find out was filled with Sunday papers. And there was the day following too many lost days spent driving around, drinking beer in his friend's convertible, when he noticed through a hole in his T-shirt a spot of sunburn on his shoulder, and only then wondered how long it had been since he last changed his shirt. The wonder is that he managed to stay employed.
In 1987, after years of slurred roadside apologies to troopers (a wink with a warning to drive straight home was the standard reply), Henkelman finally got arrested and lost his license for three months. That shook him up. By then he was living in Rapids City, the next town downriver from Port Byron, one mile and seven-tenths from the plant. He knows the distance because he walked it every day. His friends offered him rides, but he always refused. He was thinking, "I'd better walk, because if I don't walk, I'm not gonna remember why I gotta ask for a ride."
For a time after that, things were a little better. What started out as a twice-daily 40-minute forced march was, by the end, taking him 25 minutes door-to-door, and he was enjoying the exercise. He lost 20 pounds. He completed a court-ordered counseling program and actually quit drinking for seven weeks. ("I didn't quit smoking dope. I couldn't give them both up," he says.) But then it happened, barely six months after his conviction, that he woke up one morning in bed without the slightest idea how he'd gotten there. It was just like the old days. "It was like the cycle started all over again," he says.
He wasn't ready yet, that's all. What the situation wanted was more time. Time for Henkelman to face up to the fact -- through the slow accumulation of failure, humiliation, and pain -- that "this ain't living." Time to discover, if not a cure, then at least a means to help himself, a way out, which he later found in a 12-step program for substance abusers. Time, finally, for an alternative to present itself, a way to fill the void, if ever he could bring himself not to get wasted anymore . . . something else.
He found it at work, during the late winter of 1991, in the tantalizing promise of open-book management. "Here's a really good reason to not do this," he remembers thinking. "There's opportunities here."
* * *
Before things could get better, they had to get worse. Henkelman had back surgery in August 1990 and missed three months of work. In early November his wife threw him out of the house. They'd been married less than three years, and there were no kids, but that didn't make it any easier for him. The plan had been to straighten his life out by starting a family -- a big family, like the one he'd grown up in -- but the plan had failed. Henkelman was looking into the abyss.
Meanwhile, up on the hill, Jim Sandstrom, Rick Hartsock, and the rest were coming to terms with their own sad set of facts. The company was hemorrhaging cash, losing money for the third year out of the last five -- years during which the company's aggregate income would be a negative number. The situation was dire and called for a radical fix. Sharing numbers, giving up power, letting other people make important decisions about your business: those are not easy things to do. Unless, as Hartsock puts it, "it was do that or die. We didn't have any choice. We were gonna go broke."
So began, in January 1991, Sandstrom Products' experiment in open-book management. Henkelman was skeptical at first. He'd seen so many management fads come and go over the years. "What are they after?" he remembers wondering. "What do they really want?" But what struck Henkelman early on about open-book management was the focus on results, not process -- the simple but radical idea that "we'll tell you what we want, and you guys figure out how to do it." It spoke of trust and respect, which Henkelman craved.
Like many other open-book companies, Sandstrom divided its workforce into teams. Actually, the word team is misleading, if only because it implies competition. The teams exist to divide up the work, but no team operates in a vacuum, and every team has the same goal: to maximize profits. On the third Thursday of every month, Hartsock and vice-president of finance Jim Morrison host a companywide meeting to go over the numbers. If the profits are there, everybody gets a gain-sharing check; if not, then the teams know what they have to do.
Henkelman signed up for three teams right away: plant equipment, process control, and merit pay. The first real test was a proposal by the plant-equipment team to buy a new $18,000 forklift. There was a meeting in the conference room next to the lab -- foreign ground for the managers who had come down from the hill. The team members made a compelling argument. The forklift they were using was more than 20 years old. It was unreliable and unsafe. (A month before, it had caught on fire.) And the data they'd assembled comparing the cost with the anticipated productivity gains made it plain that a new forklift would soon pay for itself. Still, the corporate triumvirate -- Sandstrom, Hartsock, and Morrison -- reacted badly. As in "jaws hit chests," says Henkelman.
After the team finished its presentation, Jim Sandstrom spoke. He stressed a key point that the team members were still learning: resources were finite. While it might make sense to spend $18,000 on a new forklift, it might make even more sense to spend the same amount on, say, research and development, which after all was the lifeblood of the business. The management had to think about those things; so did everybody else now that the books were open. The message was clear: you can't always get what you want.
Listening, Henkelman squirmed. The big question in his mind coming into the meeting had been, "Is this gonna fly or not?" Not the forklift -- that wasn't the issue. If the company had other, more pressing needs, so be it; common goals had to outweigh parochial ones in the pursuit of profit, Henkelman understood that. But he had to know that the process was more than just a tease; that if a team did its homework and made its case, the management could be moved. That wasn't clear to him yet. After the meeting, as he filed out of the room with the other plant workers and headed back up the stairs to his platform, he felt a tremendous letdown. "It was like, 'God, what are they trying to do now? This is the same old story."
So it was both a surprise and a lift to learn a few days later that a new forklift was indeed on its way. "That definitely boosted some spirits -- in my own case, for sure," says Henkelman. "Because it was like, 'This didn't fall apart.' It gave me the idea that we can make a difference. It made me feel that we weren't doing all this work for nothing."
That helped. So did Henkelman's early experience with the process-control team. What had long made work such a deadening experience for him was the yawning gap between what he felt he had to offer and what he was asked -- or allowed -- to contribute. He was reminded of it every day, in the never-ending battle between the plant and the lab. What the lab ordered, the plant did, period. Knowledge was power, and the lab had it all. But during the spring of 1991, as Sandstrom set about transforming itself into a company of owners, mistrust slowly evaporated and the doors to knowledge began to open. For example, the conference room -- its shelves lined with technical manuals -- was no longer off-limits to plant workers. If a batch of paint came out lumpy, Henkelman was free now to check the manuals and try to solve the problem himself.
Eventually, Henkelman got a password that gave him access to the formula menu on the company computer. Before, the formulas had been the sacred texts of Sandstrom Products, closely guarded by the priests in the lab, handed down like commandments to the workers in the plant. It made all the difference, Henkelman says, when he could finally "get in there and look around and update a formula, actually change it so the process was on file differently."
Henkelman was living now in a one-room apartment so small that the bed and the table folded up into the wall. And, as of November 19, 1990, he had stopped drinking. So he was alone, and he had a lot of time on his hands. He had his own key to the plant and took to coming in on weekends, just so he could log on to the computer and explore. It was a way to fill the empty hours, but it was more than that. Henkelman was also filling himself -- with knowledge about the business, with confidence in his skills and abilities, and with hope.
Once his whole world at work had been the mill he stood over and the platform it was bolted down on. Now his sense of what mattered -- of what he could influence and what he was responsible for -- was rapidly expanding. He was working hard, trying to absorb "the whole process," he says, "rather than just bits and pieces of it." Getting the password "was definitely a big step. It gave me, I don't know, self-esteem, I guess I'd call it. It was like, 'Hey, they finally trust me."
* * *
In the summer of 1991 Henkelman and the other members of the merit-pay team took on by far the most challenging assignment yet: designing a new compensation system. In the past, deciding how workers would be paid had been the plant manager's prerogative; seniority and favoritism were the key variables. Many plant workers were unhappy with that. They thought pay should reflect usefulness on the job, period: the more things you know how to do and the better you can do them, the more you should make. That was fine with Hartsock, who wanted basically the same thing: a highly skilled workforce with interchangeable skills.
By July the team was ready with a proposal that offered plant workers incentives to cross-train. But as Hartsock quickly pointed out to the team, it was unrealistic. Together they studied the numbers -- looked at the cost of labor and its necessary relationship to raw materials, overhead, and packaging -- and eventually came up with a figure for total payroll that made fiscal sense to everybody. Then Hartsock stepped aside, and the team went back to work.
By now, though he doesn't say it exactly this way, Henkelman was thinking like an owner. "It boiled down to realizing that there are constraints," he says, "and incentives aren't the only things to consider. Then it became, 'How can we make this work?' And the only way was to take from some people."
That was too big a leap for some of the original team members; rather than going back to the drawing board, they quit. But Henkelman stayed on and was joined by others. It was hard work, and it went on for months -- the group was meeting formally once a week, debating continually with coworkers on the job, searching all the time for a balance between an incentive system ("whoever does the best job should get the most") and what Henkelman calls the "union perspective of equal work, equal pay." But one day, says Henkelman, "it all kind of fell together."
The new system identified 10 essential skill sets. Every plant worker was entitled to a peer evaluation three times a year, resulting in a numerical ranking in each skill set: one (experienced), two (qualified), or three (proficient). The higher the total score, the bigger the paycheck -- more than $15 an hour for anyone who could demonstrate proficiency across the board -- and the higher the multiplier for the gain-sharing checks. The shipping, maintenance, and purchasing employees were given special consideration, on the theory that the company was better served by not having those key personnel wasting time learning how to mix paint. Otherwise, no exceptions. Annual raises were out. Seniority no longer meant a thing.
"One of the things that clicked for me," says Henkelman, "was the fact that when it was all said and done, there were smiles on all but a couple of faces. And the ones that weren't smiling were the ones that were gonna be hurt by it."
Including, as it happened, a plant worker with 20 years at Sandstrom, who went straight up the hill to Hartsock and complained. When Hartsock advised him to speak to a member of the team, he admitted he was one, that in fact he had voted to approve the new system. But, he said, only because he figured Hartsock would make an exception for a loyal employee.
It was a defining moment. Had Hartsock tried to circumvent the team's authority -- and there were many on the team who feared he might -- it would have undermined the whole concept of open-book management at Sandstrom. What Hartsock did instead was broker a compromise, which the team approved: a grandfather clause affecting anyone whose pay was slated to go down, granting that person six months to make up the difference by acquiring new skills. For this particular disgruntled worker, the story does not have a happy ending: six months later his pay went down; a year after that, he quit. For the others, though, it was a confirming experience. Compromise was possible. Hartsock was not going to undercut them. Open-book management was real.
"That was probably the one that empowered us the most," says Henkelman. "Because of that I felt and still feel today that I have control of my own destiny."
* * *
Those were heady days, when open-book management was new, but they were also trying days, unsettling days. Henkelman breathed deeply of the new atmosphere and was swept up in the lifting of limits. No longer simply a mill operator, he took on added responsibilities. For a while Hartsock put him in charge of scheduling production, and for a while after that he was de facto plant manager. Neither role suited him exactly. Henkelman was a doer; that was his strength. "All of my discussions with him seemed to center on the idea that, 'Well, I'd rather do it myself than tell somebody else to do it," Hartsock explains. "In a nutshell, he found it really hard to delegate."
Then, a year and a half ago, a technician job opened up in the lab, and a new, previously unimaginable future presented itself to Henkelman. It was a stretch. He should have had a college degree, and he hadn't even taken chemistry in high school. But Bob Sireno, the lab's technical director, was adamant. He wanted Henkelman, and Hartsock went along with it.
So last winter Henkelman left the plant, took off his blue-collared shirt, and moved down to the lab, to a desk in front of a window with a view of the Mississippi. In a sense, Henkelman's doing what he always did -- making paint. Only now, instead of following orders and doing only the grunt work, he guides the process from beginning to end -- working with customers, developing new products and refining old ones, and doing it all better and faster than others who don't have his hands-on experience. "In a year he's developed skills that most college graduates would take three to five years to develop," says Sireno.
Once the "Hunter Thompson of Sandstrom Products," Henkelman has made a new identity for himself since the transition to open-book management: clear thinking, capable, responsible, "a guy that I can depend on to throw into a really complex problem and solve it," says Hartsock. Today Henkelman can no more imagine going back to the old way of working than he can drinking again or smoking dope. "I would find it really difficult to go work for somebody else that wasn't doing this kind of stuff," he says. "It would be really, really tough. Because I have been allowed. I've been trusted."
Still, it seems almost incredible to him, the way things have worked out. He's still pinching himself. "I would never have dreamed 16 years ago coming down here that I would be sitting at a desk looking out over the river, watching the business grow," he says. "With me as a part of it."
* * *
On a late-winter Saturday morning, Henkelman stands in front of the picture window in his kitchen, bathed in sunlight: barrel chest, strong brow, muscular nose, balding on top but with a ponytail behind. He looks a little like James Carville -- he's got the same smoldering mischievousness behind the eyes.
Henkelman got married again recently, to Debi, a nurse who has long brown hair and green eyes and a strength to match his (born of her own commitment to sobriety -- two years and counting). They live together in a frame house (childless for now, but hoping) on two acres in tiny Cleveland, Ill., on the Rock River, with their black Lab, Molly; their cats, Little Bit, Cocoa, and Squeaky; and birds, lots of birds, drawn from distant parts to a yard filled with birdbaths, birdhouses, and bird feeders. "I like to watch 'em, listen to 'em, everything," Henkelman says.
He points to the birds, one by one, and names them: a cardinal, a black-capped chickadee, a common house sparrow, a purple finch, a white-breasted nuthatch. He talks about the sighting he's most proud of, a white-crowned sparrow that visits twice a year (it's the same one, he's certain), stopping for a day or two on the long flight between its summer nesting grounds above the Arctic circle and its winter home on the Gulf of Mexico. The bird itself is nothing special. It's the journey Henkelman thinks is so amazing.
* * *