A critical question for you – is it possible to have respect from your employees and for them to be fully motivated and become productive teams – if they don’t know whether your company is winning or losing, if you don’t involve them in decisions that affect their ability to perform in their jobs, if you don’t share the profits with them when times are good, and if you don’t treat them as adults capable of learning to be business people too?
Our answer is a resounding ‘No’, and yet this exactly how 99.9% of businesses are run. You will struggle to survive in today’s massively competitive global market place if you stick to this very outdated way of managing your business.
More and more Entrepreneurs and CEO’s are discovering what was missing from all the past century’s management cures — and have invented a new way of running a company that overturns a hundred years of ‘Them Versus Us’ managerial thinking. The new system gets every employee to think and act like a businessperson — to compete — and it can achieve amazing results. It’s called by various names such as ‘Open-book Management’ (OBM), or ‘the great game of business’.
Here’s how OBM works:
Instead of telling employees how to do their job, it asks them to boost profits — and lets them help management figure it out. Instead of giving them a boring, mechanical job, it turns them into businesspeople. They experience the challenge — and the sheer fun and excitement — of matching wits with the marketplace, checking the score, and sharing in the proceeds. There’s no better motivation than being a real player in the game of business, rather than someone who comes to work, is paid to do a specific job, watches the clock all day and then can’t get away from work fast enough to have some fun and enjoy life again.
Open-book Management by itself isn’t enough to turn a company around. You will still need a bigger cause for being in business than simply to make money, a better product strategy and better marketing. No company can succeed without good leaders, adequate financial resources, and the ability to deliver a combination of price and value that turns customers into raving fans.
But OBM is the catalyst that makes these other things possible — “lightning in a bottle” (so named because every worker can see the scoreboard, i.e. the financial statements, they are all on the same team, they all benefit from winning and the game they are playing at work is fun) – changes the essential logic of how people work together. No longer are those at the top trying to pull everyone else along with carrots today and stick tomorrow. Everyone pulls in the same direction — because everyone can see where they’re going.
We think the OBM name is somewhat misleading because people think it is mainly about ‘boring’ financial statements. The better name might have been ‘Respectful Business Teams’ because this name pinpoints the essence of all pulling together and all playing the same game.
Business owners and entrepreneurs sometimes say to me, ‘It wouldn’t work for my business’. But we’ve implemented OBM in a number of businesses with a 100% success rate. It has been successfully introduced at accounting firms, law firms, marketing agencies, and local governments, along with a lot of industrial companies. It’s the most logical, inclusive, enjoyable business system there is.
How to Implement OBM
There isn’t any ‘one size fits all’ recipe. It’s more a philosophy than a cookbook recipe. Having said that, there are four key steps you need to take:
Share the Financial Information
Tell employees not only what they need to know to do their jobs effectively but how the division or the business as a whole is doing.
Every company has some critical operational numbers: Occupancy rates, on-time shipments, customer returns. Operational numbers alone, though, won’t get anybody to think and act like an owner. But if they don’t understand why they’re supposed to lower the defect rate or increase productivity, they will soon work out it isn’t worth the trouble.
Open-book management is essentially about the level of profitability in a business, and survival is the overriding goal of any business. If you can’t pay your bills you’re out of the game!
So along with the operational figures, show people the income statement, the cash-flow statement, and the balance sheet.
Will they necessarily understand those documents? Not until you explain it to them, and this will be an educational program that is suited to your specific business. But numbers alone send a powerful message, even if they don’t yet make sense. Everybody is a part of the company. Everybody sees the same information.
Teach the Basics of Business
It’s amazing how little most workers or contractors 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 on the bottom line.
Companies pay for that ignorance in at least three ways – It spawns resentment. It leads to bad decisions. 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.
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, self-managing work teams, top teams — but since they don’t share financial information, not many employees know how their work affects the bottom line.
Therefore you need structures and procedures.
Managers help employees address problems. Every unit is accountable for its own numbers — and every man and woman in that unit shares in the accountability.
Make Sure Everyone Shares Directly in the Company’s Success, and in the Risk of Failure
If you want people to think like owners, they must be rewarded like owners.
That isn’t a controversial proposition: thousands of companies already have some kind of profit-sharing bonus system or employee stock ownership plan. But most of those plans don’t have the motivational effects that management wants, for the simple reason that employees either don’t understand or don’t trust them.
Maybe the profit sharing is determined each year after the fact, at the management’s discretion. Since employees don’t know how the company is doing, any bonus that materialises might as well be like winning a small amount in the lottery.
An open-book company is different. Employees know what they’re working for when they start the year. Like businesspeople, they track their progress by watching the numbers. At the end of each quarter, they know if they have been successful — and they know why or why not.
In many OBM companies, employees collect payouts ranging from 10% to 50% of their total compensation. Want to know how we are going? Check out the lunchroom wall.
A bonus is a reward; it’s also a powerful educational tool. So a lot of open-book companies use the bonus to reinforce key business lessons.
Business is always a game of trade-offs between the short term and the long. Do we raise everybody’s wages and salaries, or pay a big profit-sharing bonus or do we invest more in expansion?
Capitalism has been stuck in a ‘them versus us’ mentality for hundreds of years. This means that some win and many lose and it doesn’t have to be this way any longer. We know what works a million times better than the old ‘what’s in it for me and bugger everyone else’ way of running a business.
So give OBM a red hot go. Sure there is some risk but it is a very calculated risk and the numbers don’t lie and there is massive upside for a low investment in your time and money and leadership.
People can do truly incredible things together when there is trust and openness and mutual respect. Let’s us help you implement this, contact us today.