Not everybody wants to be the boss — and not everyone is cut out for the role. Maybe that’s why some business leaders see risk in the idea of open-book management.
Why would you share balance sheets and details about business performance with all your employees?
It turns out, opening up the books a little wider can help employees from entry-level interns to C-suite leaders understand the impact their contributions have on the company’s bottom line.
If you think of an employee’s time and effort as their investments in a company’s success, then it’s easier to understand how key performance indicators (KPIs) can be motivating.
When employees connect their work to profitability, they can see their stake in the outcome. When they understand and internalize the principles behind the way the business operates, they’re often more inclined to engage and participate, contribute new ideas, and go the extra mile when the company needs it most.
So is open-book management the right style for your business?
What Does “Open-Book Management” Mean?
The practice is a fairly modern one; the term was first used by John Case (articulated in The Great Game of Business) and Jack Stack in the early 1990s. It’s not that complicated, and yet in some ways it can feel radical: give employees access to appropriately detailed financial information. Educate them to interpret and apply critical thinking to company results. When challenges arise, encourage them to contribute solutions.
It doesn’t mean throwing the back door open and giving all employees unmitigated access to leadership decisions or every financial detail. Certain information needs to remain protected, like trade secrets or product formulas, confidential employee information, and other sensitive data.
But open-book management does change a company’s position on what is and isn’t need-to-know information. Depending on the business, data such as revenue sources, projections, and some expenditures can help employees to see the big picture.
But it’s not enough to merely share information. Employees also need to learn which KPI is your critical number, what the various KPIs highlight, and how they are interconnected. And for companies practicing this level of transparency, confidentiality and nondisclosure agreements are more than just paperwork; they demonstrate the significance of employee access to business data.
A well-taught employee at an open-book company can trace a line between their daily work and the company’s mission. They can articulate reasons behind processes, policies, and practices. And they can see the relationship between their accountabilities and the company’s profitability.
In short, they see themselves as insiders, not hired help. They think more like owners. Here are a few ways open-book management can engender employee behaviors — and generate business results — that support long-term profitability and growth.
1. More Knowledgeable & Accountable Employees
Employees who are exposed to the ins and outs of the business develop a better understanding of management concepts and terms. It can take some time to get there; many management teams start sharing basic information and build over time, until a well-organized, monthly all-hands meeting with data visualizations is really all it takes to keep everyone on the same page. Tying profit-sharing or bonus programs directly to performance metrics can help emphasize those KPIs’ significance.
A bonus in the process is this: as employees learn and engage with the information, some may recognize a desire to rise to leadership roles. And when teams see concrete evidence of what is working and what isn’t, it may make for smoother process changes, or at least greater tolerance for the challenge of change.
2. Better Values Alignment
Opening the books helps employees see how company values play out: which expenditures are prioritized, for example. That enables people to understand and decide early on whether there’s a good values fit. That can lead to greater loyalty over time and longer employee tenure. It can also help employees internalize goals, which may reduce the need for enforcement-style management and oversight.
Putting employees at the center of management conversations encourages them to take ownership and contribute personally to the company culture. Colleagues establish stronger working relationships, appreciate one another’s humanity, and find ways to get more enjoyment out of their workdays.
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3. Customer Experience Improvements
A greater sense of ownership and awareness not only of policies and processes but of the “why” behind them, leads to more employees who apply critical thinking and problem-solving to challenges, rather than rote procedure-following. When they can think and act like owners, that can translate into faster problem-solving for customers — enhancing productivity, improving the business’s reputation, and increasing customer lifetime value.
4. Smoother Successions
Employees who know more about the way things work throughout the business become more familiar with one another’s roles and responsibilities. That helps develop greater empathy between colleagues and departments. It also sets the stage for succession planning and growing leaders from within. So whether the company needs responsive coverage for a short-term employee emergency or a long-term succession plan, open-book management can foster better awareness and competency across the organization.
5. Higher Company Valuation
How many of your employees know what EBITDA means — or KPIs like cash flow that point to a strong, resilient, and valuable company? Employees who are more engaged and productive have a better shot at supporting profitability and a strong future outlook. So when it comes time to sell, your business can achieve optimal value.
Open-Book Management is a Natural Fit for an ESOP
While transparency is a great way to encourage ownership thinking, an employee stock ownership plan (ESOP) gives workers an actual ownership stake, in the form of a qualified retirement plan.
At the same time, an ESOP creates a selling opportunity and exit strategy for shareholders of closely held businesses to get fair market value for their company — and stay as involved as they prefer, managing succession planning over the horizon of their own choosing.
Learn more ways to strengthen your culture of ownership to keep your business and employees thriving. Just click below to get the free guide.