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Open Book Management

your thoughts on this approach to running a biz?

     
2:05 pm on Feb 25, 2007 (gmt 0)

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We've all heard of TQM and the other top-down business programs designed to improve performance, quality, and the bottom line. The problem with these has been twofold - 1) they are driven by management and it's management that reaps the benefits, and 2) the employees see little or no benefits other than more pressure to do more/better work in less time.

A few years ago (several?) the Open Book Management method came to light. I'm personally embracing this concept and working towards implementing it in my small firm. But it's somewhat daunting.

What appeals to me about this approach is that the employees are empowered with the knowledge of what it takes to run the business, how to analyze business data and make decisions, and given responsibility to help improve the bottom line. While there is no definitive formula for profit-sharing or ESOP or what have you, the basics of letting the employees have more than just a say in what the company does and then rewarding them when the company does well is a smart move IMO. Especially when I look at a smaller company in the midst of growing pains.

In our company, I finally decided I needed to hire some employees to help with workload. I did this last fall. While they have helped offload the backlog, now I'm faced with bringing the company up a notch in revenue generation and down a notch in costs so that we have a solid cash flow to pay us and our vendors. Typical small biz situation.

But I'm the owner and the responsibility has traditionally lay with me. I'm also a single dad and have/want a life outside of my job. Balancing work time and personal time is exasperating. The Open Book Management style made a lot of sense to me because it would allow me to offload some of the responsibilities to my employees. Not to mention that 3 heads focused on a problem is typically better than one. From my point of view, I want my company to serve both our customers and the employees (myself included) as we pursue the fruits of life. This means not only having a descent salary so none of us need worry about taking a trip to Disney land next year or having insurance coverage. But above all, I want my employees and myself to have time to enjoy our lives. It's also the reason my employees work from home.

So, I'm curious if anyone has or is involved with an Open Book Management company and what your thoughts or experiences are.

11:15 pm on Mar 1, 2007 (gmt 0)

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I read the book by John Case on Open-Book Management. I feel the biggest mistakes made in corporate leadership is that they don't apply the philosophy to the company culture effectively. It might seem that poor communication is the cause but more often that not it comes down to walking the walk, not just talking the talk.

I think it comes down to sharing your thoughts/ideas on what goes on in life outside of the company that matters most. Getting a job and getting a paycheck is one thing. Being able to spend time in the relationships you develop is another. I think the hardest part of this style of management is matching employees to the plan.

As a serious, valued employee, I would like to know that a business owner is sharing a good business plan and profit sharing. I want to be assured that if I work hard I will be rewarded. But, at the end of the day it comes down to how happy I am in my job, financial rewards aside. Am I able to live the life I want? The ability to understand the culture desired and to share in that culture is critical. If I knew that your goal for your life was just as you described, but it was also the same desire that I may share in the very same, I'm in. And I'm dedicated. But if the goal doesn't fit the employee, don't share the management.

Sometimes as the business owner and "chief culture-establisher" you find yourself in a catch-22. Sharing deep information about the business makes you and the business vulnerable, or at least it can seem that way. And then, how do you go about the matchmaking described? How do you find the right employee to fit the organization and the culture you intend to cultivate?

4:48 am on Mar 2, 2007 (gmt 0)

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Twenty-some years back the owners (husband and wife) who had hired me to 'manage' (it was funny because initially the three of us were it) their HVAC company followed the principles I later (1999/2000?) read described as Open Book Management.

I love the concept but witnessed some real problems:
* it will fail if the owner(s) are unable to delegate authority.
* the command and control lines must be clear. Opening books and some processes does not equate ownership which may be confusing to some employees.
* the reasons for change from a stated budget, timeline, etc. need to be made immediately and comprehensively. Trust is a fragile commodity.
* it will have problems if employees are unable to understand things such as the difference between mark-up and margin, gross and net, overhead costs, etc. What finally worked best in our situation was a limited open book with an intermediary (me) who translated the bare necessities and taught business skills and opened things to those who expressed more interest.

We had many exceptional people work absolute wonders (we did twice the work with a quarter the staff of our competitors and everyone was better qualified) but the owners simply micromanaged and dithered until we all left in frustration at what might have been.

2:07 pm on Mar 2, 2007 (gmt 0)

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>> If I knew that your goal for your life was just as you described, but it was also the same desire that I may share in the very same, I'm in.

So when can I expect your salary requirements? ;)

But seriously. I forgot to mention the profit sharing pieces. I'm approaching this from both a traditional and rather unusual angles. Traditional = $$ for company performance. Non-traditional = employess get to take over one or more revenue generating websites when they "retire" from the company. The company makes some residual income from this but the retiree takes most of it and then all of it after the company has earned back its investment.

Thanks iamlost. Yes, those are some of the issues I'm working out now. I ordered John Case's book and should be receiving it any day now. I have much work to do!

3:16 pm on Mar 2, 2007 (gmt 0)

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When I was just out of college, I spent a few years working for a very bright management consultant who specialized in 'self-managing' management systems. One of the pillars of his approach was Open Books. (Side Note: There was nothing funnier that seeing the look on the face of the CFO of a long-established corporation being told about Open Books; some of them looked like they were going into apoplexy on the spot.)

You obviously know the benefits, and all-in-all they far outweight the risks. The biggest downside we came across was that everyone knows what everyone else makes. While some employees were mature enought to handle this, others became very petty over who was earning what. Good luck with it, and if you're ever hiring sticky me. :)

1:54 pm on Mar 3, 2007 (gmt 0)

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>> knowing what each other makes

We're lucky to be small enough and I'm a very transparent person. I did commit to a policy of no one earning 3* more than anyone else in the company.

10:18 pm on Mar 5, 2007 (gmt 0)

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addendum

I now have John Cases book. Will be my night time reading until it's finished.

2:25 pm on Mar 13, 2007 (gmt 0)

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I am a retired manager and consultant. After an MBA from a particularly pretigious business school I worked for very large companies and small companies. I spent a number of years consulting with small companies.

I spend time at Webmaster World because it is a great place to learn about web stuff. I am working on a business site as an avocation. I am much interested in the type of issue that you all have been writing about in this thread

I don't really like the "coming revolution" type of management book. They do more harm than good particularly with larger companies. This is not to say that you can't learn from them if you apply common sense in taking what fits and rejecting the rest.

The comments on this thread were really very good. Iamlost hit a lot of the potential problems dead on. His first point, about delegating, is most important and can be usefully expanded.

From my experience the key to management, and particularly for small companies, is knowing yourself. There is no "right" way to run a company. It has to work for you.

The second most important thing is to know your business. I have known business situations where the "open book", if fully implemented, would be an invitation to disaster. It depends entirely on what constitutes the money making essense of your business, the industry you are in and the type of people that you employ.

Stay away from language such as "empowering" the employee. The Pygmalion urge is buried deep inside many or most of us. We are not God. We simply need to cut a deal with somebody about helping us with the work our business seems to need.

As owner/supervisor it is in our best interest to make sure that the employee has all the stuff that he/she needs to do the job that we believe we need. I have seen many successful small business people who didn't want people to think for themselves. They had to have complete control. These people are not unusual and are often quite successful.

What the employee needs to do the job depends on the job that you expect. If you are looking for initiative it may make sense to give the employee specific information. Best way to is talk through the job thoroughly with each other until you have a good mutual understanding. If it is clear that the employee needs contract-by-contract gross margin info, for example, then set that up so that it is made conveniently available. There is no advantage to also providing depreciation policy info nor full overhead details.

Iamlost is quite right about confusion and people not understanding.

The great advantage of the small company is that you don't have to go with "one size fits all" things such as job classification systems. (Nor "open-book" systems) You can work out a deal that satisfies you and the employee on a one by one basis. But don't forget about keeping them fully and promptly informed about matters that could affect your mutual job "deal." This is a must and will probably take more forethought and preparation than you might imagine.

 

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