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Adopting an Open-Book Management System

(October 2009) posted on Wed Oct 07, 2009

Freely sharing information can lead to better decisions by employees.

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By Marty McGhie

Once your goal is set, create a reward for everyone in the company when the goal is achieved. In other words, you have to create a stake in the outcome for your employees to be motivated. The reward needs to be a financial incentive—offering a free ice cream sundae isn’t going to cut it.

The idea is to create a system where your employees understand the financial position of your company at all times, whether good or bad. Establish a common, measurable goal that everyone—management, production, sales, and administration—is working toward. By doing so, they will clearly understand that if that goal is met, they will reap a financial reward. Equally, they also understand that if the financial goals are not met, they get no financial reward.

Controlling their own destiny
As with most things in business and life, there are pros and cons to implementing an open-book management system.

In terms of the disadvantages, there is basically one: You are, in fact, opening up your books and exposing the financial side of your business to your employees. This can have some repercussions. First of all, if you’re like most business owners, you are pretty private about your financial information, and the concept of sharing all the financial information with all your employees can be challenging.

For example, some of your employees may resent the amount of compensation paid to the management team if that’s disclosed on a line item in the profit-and-loss statement, which it typically is. Or the production employees could take exception to the amount that the sales team makes. These situations can be resolved as you work through the basic financial concepts of how your company operates. It just takes some work and some patience.

The advantages of an open-book system, however, greatly outweigh the disadvantages. One of the primary benefits is getting your employees completely invested in what they are doing. Having a critical number that everyone in the company is working toward can generate an attitude of cooperation—not tension—between departments. While this doesn’t necessarily happen overnight, getting everyone heading in the same direction while trying to accomplish the same goals can be indispensable to your company’s success.

Another benefit is that your employees will now believe that they have some control over their financial destiny. Granted, they will still rely upon their base wage or salary for their personal living expenses, but that isn’t what separates a satisfied employee from a happy, fulfilled employee. The opportunity to earn a monthly or quarterly bonus (one that your employee isn’t relying upon for personal or family income) can create the right amount of motivation to do an excellent job instead of an acceptable job. That is the primary basis upon which open-book management operates: A company of employees, managers, and owners who are motivated to work in a fashion that will generate the best results—in other words, the greatest profits.

Sweet success
From your employees’ perspective, they make more money when the company is successful. Your perspective, as an owner, mirrors theirs—when your employees are making more money, this means only one thing: You, too, are making more money.

And while making money for all parties involved may be the foundation and motivation of your plan, I would argue this point: Establishing a workplace where everyone experiences mutual success and job fulfillment will end up being more important to the long-term success of your business than any of the extra profits in your or your employees’ pockets.