Open-book management is nothing if not a study in contrasts.

The subject of a dozen business books and hundreds of articles, it's been hailed as one of the most important management innovations of the past hundred years. It's also been called--by a chief practitioner--"one of the best-kept secrets around."

OBM is elegantly simple, based on four commonsense principles that should work in every company. At the same time, proponents emphasize that there's no standard formula for implementing OBM; the process will differ for each organization.

But among those who have adopted the inclusive approach to management, there's no question about one thing: It works.

Let's start with a definition from John Case, author of Open-Book Management: The Coming Business Revolution (HarperCollins, 1996), who's credited with coining the term: "Open-book management is a way of running a company that gets everyone to focus on helping the business make money. Nothing more, nothing less."

Wait a minute. Isn't that what everyone should be doing anyway? Of course. The difference is that in a culture based on OBM, the company's books are no longer shrouded in secrecy, available only to a few top executives (as is the case at many privately held businesses). Instead, employees are treated like business partners, receiving access to key financial information. The theory is that such knowledge will help them make better decisions that, in turn, will help grow and improve the business. Put another way: If employees can see how their work affects the bottom line--and if they stand to benefit from the company's success--they're more likely to make the right call, time after time.

So how do you convert to an OBM culture? That's where those four key principles come in:

  1. Share important financial information with employees.
    Give them real data not only for their own divisions, but for the entire company. Obviously, that means revealing details about revenues, profits, expenses, cash-flow trends and the like. But it also means looking the "critical numbers" for your particular company or industry, whether they involve volume of products shipped, number of billable hours or size of the average sale. And it's important to use some kind of scoreboard--whether it's posted on the wall or distributed by e-mail--to constantly update those numbers.
  2. Help employees make sense of that information.
    Handing over income statements and balance sheets isn't enough. Most workers won't fully grasp those documents simply because they've never learned how to read them. They don't need to earn accounting degrees; they just need basic business education. Provide training to help them become financially literate. That way, they'll understand the numbers they're seeing--and understand what those numbers mean to themselves and everyone else in the company.
  3. Offer employees both responsibility and authority.
    Empower employees to make decisions based on what they know about the company's financial picture, which often provides a strong, clear road map to what should be done. As they become better-educated businesspeople, workers will grow more confident about using those numbers to inform the choices they make every day.
  4. Provide each employee with a personal financial stake in the company's performance.
    Everyone should share in the organization's success--and in its failures. When the business does well, everyone gets a piece of the profit, whether it's a cash bonus, a contribution to an employee stock ownership plan (ESOP) or some other tangible reward. When the business doesn't do well, nobody benefits.

If that all sounds like a lot of work--well, it is. After all, you're upending the close-to-the-vest style of financial management that's been standard practice for decades.

But companies who have made the switch say the results are well worth the effort. A few years ago, an upstate New York Internet service provider that was losing $130,000 a month adopted OBM as a desperate last measure to avoid bankruptcy; the resulting staff suggestions saved enough money to put the company back in the black. A California software company credits OBM with helping it streamline its practices so that it's completed customer implementation on time and on budget--with no overtime--for several years. In 1998, Inc. and the National Center for Employee Ownership studied 50 companies before and after they adopted OBM; researchers found that open-book companies grew, on average, 1.66 percent per year faster than their competitors. (For those who also offered an ESOP, the average growth rate was 2.2 percent faster.)

Like any other management innovation, OBM comes with some potential pitfalls. Chief among them, of course, is the risk that sensitive information--details on a pending big deal, dismal quarterly results--could leak to competitors or the media. Another is that sharing bad news with employees might scare some into job-hunting. For those reasons, company leaders must determine the right balance of candor and confidentiality for their organizations.

But executives at companies who have adopted OBM say the approach tends to strengthen in-house relationships even during rough times. Being honest with employees and treating them as trusted partners, they say, will keep them loyal--and on the payroll.

Anne Stuart, a Boston-based freelance journalist and former writer for Inc., CIO and The Associated Press, writes frequently about business topics.

SIDEBAR: Open the Books on OBM

Following are selected resources for learning more about open book management.

Books

The Open-Book Experience: Lessons from over 100 Companies Who Transformed Themselves, by John Case (Perseus Books Group, 1998).

Open-Book Management: The Coming Business Revolution, by John Case (HarperCollins, 1995).

The Open-Book Management Field Book, by John P. Schuster, Jill Carpenter and M. Patricia Kane (John Wiley & Sons, 1997).

A Stake in the Outcome: Building a Culture of Ownership for the Long-Term Success of Your Business, by Jack Stack and Bo Burlingham (Currency, 2003).

Articles and Other Online Resources

Inc.com Open Book Management Guide
Links to many articles and other resources

"The Open Book Revolution," Inc. magazine
Excerpt from John Case's ground-breaking 1995 book

The National Center for Employee Ownership
Articles and columns on OBM

"Open Book Management," CPA Journal
Concise summary

"Open Book Management"
Concise summary by consultancy specializing in the practice