A few years back, an acquaintance of mine took over a family business from his dad. When I recently asked him what sorts of changes he’s been making since he grabbed the helm, he told me the idea he’s most eager to experiment with is a concept called “open-book management”—a system in which every employee, from the top managers down to the most junior guy on the factory floor, is walked through the detailed financial statements of the company on a regular basis.
“I watched my father run this business for many years,” said my friend, whose 25-employee firm manufactures corrosion-resistant plumbing parts that handle caustic fluids. “My father was always successful, but he had to be pushing all the time. He was herding cats when it came to his workers. He could never be away from the company for even a short while. To me, it seemed like a miserable way to live.”
For some time now, my friend has been reading, studying, and talking to other open-book managers. He even attended a specialized conference focused on open-book ideas as preparation for introducing the technique into his business. “It just makes sense,” he says. “It seems like the only logical way to run a company. It creates a system that empowers everyone at the organization, from the bottom up, to be an entrepreneur.”
The phrase “open-book management” was coined by the writer John Case in a 1989 story for Inc., the business magazine. But the most visible advocate for the concept—sometimes known as the godfather of open-book—is a man named Jack Stack. Stack bought a troubled engine remanufacturing plant in Missouri in 1983 and soon realized it would fail if he didn't make some radical changes. Case describes the transformation in his book, Open-Book Management:
The only way to survive, Stack decided, was to make sure everyone in the whole plant, all 119 employees, knew exactly how iffy things were. He began distributing the income statements, along with the various operational and budget numbers that made the income move one way or the other. He taught the managers and supervisors how to read the financials. They, in turn, gave an abbreviated course to hourly employees.
Everyone became aware of which departments and processes gained or lost money for the company and how their precise roles contributed to (or detracted from) income. They could see where waste—even small, forgettable kinds of wasteful behavior like frittering away office supplies—hurt the bottom line. Workers didn't need to quietly speculate about how much money was going to the ownership group, since the numbers were right there.
At the same time, Stack introduced bonuses dependent on moving those numbers. There was an employee stock ownership plan, so everyone had a stake. The entire staff was motivated to work in concert to hit goals, as they would all benefit from the successes.
By 1992, annual revenues at Springfield ReManufacturing Corp. had gone from $16 million to $83 million. The company's value had grown from $100,000 to $25 million. By 2013, the stock had risen from 10 cents a share to $348, and the original hourly workers owned, on average, stock worth more than $400,000.
The entrepreneurial Stack bottled his insight and labeled his philosophy the “Great Game of Business.” The metaphor refers to the notion that every employee can see the scoreboard (meaning the financial statements), they're all on the same team, they all benefit from winning, and the process is fun. Stack continues to give lectures based on his story and holds regular conferences for managers and owners who hope to inject these concepts into their own workplaces. In Springfield alone, where SRC's success was impossible for neighboring organizations to ignore, open-book techniques were adopted by a car dealership, a cleaning service, and even the local police department.