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Business Smarts: Operating with Open-Book Management

Open-book management (OBM) is the philosophy that your company will perform better if you share the relevant finances of the company as a whole. By sharing this information with all your employees you can engage them more and build a loyal, informed team.

“It’s a great way to make sure all your colleagues are committed to quality management,” says Neal Glatt, managing partner of GrowTheBench.

When done right, open-book management can foster an owner mentality among your employees.

Why Operate with Open-Book Management

The company goes over the numbers on a regular basis.
Photo: CM’s Outdoor Solutions Group

CM’s Outdoor Solutions Group began practicing open-book management in February of 2018.

“We were looking for a way to engage employees in a different way. Especially in an industry with traditionally high turnover, it was important for us to make CM’s standout as a destination workplace,” says Bobby Byers, landscape designer and marketing coordinator for CM’s.

More specifically, CM’s follows the system called the Great Game of Business (GGOB). Byers says that GGOB goes beyond just sharing the finances, but teaches people financial literacy and enables all employees to make informed decisions as if they were business owners themselves.

At Sun Valley Landscaping, co-owner Paul Fraynd, LIC, says he’s always operated with open-book management as he had to trust his staff to take care of business while he was in school.

“To be honest, it just came naturally to share the numbers and how we are doing,” Fraynd says. “I know this information motivates me so I wanted everyone that worked for me to have the same sense of accountability and responsibility. We all know that a business won’t last long if it doesn’t make a profit, so it just seemed like the obvious thing to do in sharing the ‘score.’ I am a highly competitive person by nature, so I think my love of sports played a role in wanting to ‘win’ with my team.”

Fraynd says that open-book management is an extension of their business philosophy and core values, as they strive to operate an open, honest and transparent operation where everyone is an owner.

“When we share the big picture and our numbers, we can offer more trust in our team to make good decisions, decisions that affect our efficiency and profits,” Fraynd says. “We find that many of the best ideas come from those closest to the work and without all of the information and trust, these voices would have never been heard.”

Byers says in order to tap into their team’s knowledge and skills, all the players need to know the rules of the game, if they are winning or losing and how they can affect the score. He says GGOB helps employees have a stake in the outcome.

“Creating a strong, sustainable business eventually takes more than just a few people at the top,” Byers says.

Pros and Cons

When choosing to operate with open-book management, it allows your entire team to know the score. This empowers them and lets them know the trust you have in them.

Photo: Sun Valley Landscaping

“They know they will see the benefits of the company’s growth and profits,” Fraynd says. “We talk often about where profits go and how if we want to add benefits, upgrade our equipment and offer better career opportunities, it can only happen with all of us working together to make the company profitable.”

By having a more engaged workforce, companies tend to experience better efficiency, less absenteeism, lower turnover and higher profit. “Sharing the numbers means everyone knows the financial health of the company at any given time, as well as how they can impact those numbers,” Byers says. “Sharing the numbers — and the responsibility for producing them — enables people to make better, more informed decisions in their day-to-day tasks.

Byers says they don’t see any main drawbacks for open-book management in general but because GGOB is meant to engage employees and tell the story behind the numbers, some can see this as “extra work.”

“The key is to get people to realize that learning is a crucial part of their job and GGOB is just that —learning.

Fraynd says the biggest drawback is that it’s not for everyone. He says some people frankly don’t care that much about the team and want to just clock in, get a check and leave.

“Getting 55+ folks to care about what they are doing at work every single day is a challenge,” Fraynd says. “The numbers don’t take days off, and there is no place to hide. It’s important that we celebrate our wins, have good work-life balance and take enough time away from work to be able to rest and come with our whole self and best working energy when we are here. It’s very similar to a winning football team. Even if you win the Super Bowl, the next season starts in a few short months.”

Misconceptions About Open-Book Management

If implemented incorrectly, open-book management can backfire significantly.

“I think the biggest misconception is that open-book management means opening all of your finances and sharing everything without filtering and that’s not accurate,” Glatt says. “I think some people also confuse open-book management with an employee shareholder-owned company, which it’s not.”

Photo: Sun Valley Landscaping

Fraynd stresses that the business practice is not open salary management and advises against sharing that information.

“Some also fear that the team will be mad if they know how much profit the company makes,” Fraynd says. “It’s important to start your OBM journey with the purpose of profit and why it’s absolutely necessary. For most, you will be sharing information they have never studied before so you get a chance to explain all of the reasons a company exists and what profit does to help everyone. This is where we start every meeting, what is the purpose of our organization and how does profit help us get to where we want to go. Done correctly, this is a huge motivator!”

He adds while you don’t have to share what everyone makes in the company, you can’t hide expenses that aren’t honest and ethical.

“OBM is not for everyone, but for those that want to make their corner of the earth a little bit better from their work, I think it’s an excellent tool to express your values and purpose,” Fraynd says.

Byers says the biggest misconception for them was the realization that simply sharing the numbers is not enough. In order for the financials to be useful to people, they must first be educated and empowered to use it.

Implementing Open-Book Management

Financial literacy is key to getting your staff to understand the numbers and how their actions affect them. Byers says they’ve found the more people are engaged throughout the process – from annual budget planning to weekly tracking and reporting – the more equipped they are to connect the dots.

Fraynd says he uses the penny game from GGOB.

“In short, everyone starts with 100 pennies and we ask them how they believe money fall in certain buckets, i.e. wages, equipment, materials, insurance, taxes and even down to how much they think we make in profit,” he says. “Our team has grown a tremendous amount from where we started but it’s always amazing to see how wide of a range we get on these answers. At the end of the day, when we say there are maybe 5-10 pennies left for profit, they are shocked, ‘We need to do better!’ That’s the best light bulb moment of all and it’s when the real magic begins!”

He says it’s also important to break down the numbers to tangible goals and KPIs that team members can wrap their heads around and affect on a daily basis.

“This may be expense line items from admin and fleet team members or weekly sales figures for the sales team,” Fraynd says. “Our managers receive monthly goals for their team in earned revenue, billed labor hours (throughput) and gross profit (as a percentage and a dollar). We also bring this down to the crew level with weekly ‘efficiency’ scores showing them how they are doing toward man-hour goals.”

Photo: CM’s Outdoor Solutions Group

Fraynd recommends starting out simple with a few items like budgeted revenue, gross profit, overhead and profit and adding complexity as you go. Once your team does have a grasp on the numbers, be aware that they can be discouraged if your company is not hitting its goals. Reminding them they have the power and support to change that is empowering.

“It’s our job as leaders to support the team, make quick decisions based on data and to motivate people when they need it most,” Fraynd says. “It helps to keep a wide perspective, focused not just on the week’s or month’s goals, but in your ultimate vision and reflecting back on how far you have come. This pressure to perform is not for everyone, but we have found that by sharing the score, the top performers rise to the top and we are far better for it.”

Byers advises those interested in open-book management research GGOB as it has coaches and an online community to help practitioners with implementation as their “game” evolves. Fraynd also suggests GGOB, along with Scaling Up, Traction, E-Myth and The Hard Thing About Hard Things.

“If you need help or support, reach out to me or many of the other NALP members that operate using OBM,” Fraynd says.

Byers agrees and encourages reaching out to peers using the system and learning from their experiences.

“I would also caution that it is a learning process for all — from bottom to top and everyone in between,” Byers says. “It takes a sustained effort to educate and keep people engaged, so make the commitment and stay with it.”

Jill Odom

Jill Odom

Jill Odom is the content manager for NALP.

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