Show Me The Money: How Four Companies Profit From Open Book Management
Employees who understand and have access to all the key financial information that makes a business tick will be more invested in the company's success and more productive in their jobs. That's the concept behind open book management, a phrase coined by John Case at Inc. Magazine more than 25 years ago. But does it really play out that way? OBM can be tricky to execute, but the CEOs who do it right inevitably become true believers in the practice. Here's how OBM looks at four successful companies:
Bomgar: CEO Joel Bomgar has a simple, but ambitious goal: he wants his Ridgeland, MISS company to sell a million licenses for its remote support software. For that to happen, all 150 employees must understand how increasing market share impacts the company. "We teach the basics," says Bomgar. "They understand profitability and cash flow and every morning, we email dashboards on how many licenses we've sold, the exact revenue we've generated, and a list of every deal. They know what the numbers need to be for us to break even and once we do that, they get bonuses." Three years ago, he also devised a creative way to give employees a dramatic picture of the company's progress. In the lobby, he installed two six-foot-tall acrylic cylinders -- one empty and one containing a million bee bees. For each license sold, a bee bee is moved to the second cylinder. "If we move all the bee bees, we'll be a billion dollar company," Bomgar says.
Pixibility. Serial entrepreneur Bettina Hein says that she "learned the hard way with my first company that open book management is the only way to go in a high-risk and high-growth startup." In that company, she says, "we completely lost the trust of our staff when they thought things were going well and one day we had to announce major layoffs. It was so painful that from that day onward we opened all of our books to everyone." So when she started Pixibility, a Cambridge, MA-based video production company, she decided to open the books from day one. "If you give people information, then they can adapt their behavior," she says. She posts sales, cash, burn rate and runway (cash divided by burn rate) every day on a white board. Hein also has a daily 10-15 minute huddle with her staff of seven. "First, we share good news, then the numbers and what they mean. We talk about what you've done since the last huddle and what's blocking you from making progress. We have a final cheer, then everyone goes about their day."
The Sky Factory. This company, started by Bill Witherspoon in Fairfield, IA, won an Inc. Magazine and Winning Workplaces Top Small Company Workplace award this year. The company creates images of sea and sky that are installed on the walls and ceilings of hotels, spas, hospitals and restaurants. 'Transparency, OBM and consensus have become so fundamental to our way of operating that it difficult to imagine relying on the inputs of only a few people," says Witherspoon. Every Friday, his staff of 34 (all of whom have ownership in the company) meets for an hour and a half to review the financial and non-financial metrics of the company. Everyone, says Witherspoon, is trained in financial literacy so that each employee knows how to interpret the key numbers. That knowledge is critically important since all decisions at the company are made by consensus. "The effectiveness of this group management style is demonstrated by remarkable nimbleness and financial strength - characteristics that have helped us grow even in difficult economic times," says Witherspoon.
A Yard & a Half Landscaping. If you think that open book management works only in white-collar workplaces, think again. Eileen Michaels, who founded A Yard & a Half Landscaping four years ago, swears by OBM as an effective tool for engaging and retaining her 18 employees. "If they can see how the company is doing and how their contribution makes a huge difference in not only sales, but expenses, they feel much more engaged," she says. She holds company-wide meetings at least once a month (all meetings are done in both English and Spanish with an interpreter) to go over the P&L statement item by item. Employees review the numbers, compare them to the budget, and come up with ways to cut expenses and get work done more efficiently. Small bonuses, often in the form of gift cards, are given out at least once a week to employees who go above and beyond. "The guys never know when they're going to be acknowledged," says Michaels. "We do it an a group and we always trying to celebrate accomplishment." By the way, A Yard & a Half Landscaping was also named a Top Small Company Workplace this year.
Do you practice open book management at your company? Tell us about it.
For further information, you might enjoy:
A live chat with Bill Witherspoon on Inc.com
This profile of A Yard and Half Landscaping on Monster.com
Is There a Memorable Brand Hidden in Your Name (about how Bomgar got its name)
A primer on Open Book Management from Winning Workplaces
Should "Democracy Now" Be Your Company's Mantra?
Image courtesy of Flickr user Timeflicks, CC 2.0