I’m hearing more and more buzz about open-book management across the managed services market. In theory, opening your financial books to employees allows everyone within your company to focus more aggressively on business results and profitability. But does open-book management really work?
First, a little background. I heard chatter about open-book management in three places in recent months:
- During HTG peer group meetings in Orlando, Fla.
- During our December 2009 webcast (archived at the bottom of this page) with TruMethods’ Gary Pica and ConnectWise’s Arnie Bellini
- In our own comment forums, where Everon Technology Services’ Mike Cooch raised the subject earlier this week.
What’s the Benefit?
Inc. Magazine summarizes open-book management nicely here:
“The beauty of open-book management is that if employees know whether they’re making money, your company will make money.”
For the deeper details, Inc. points readers to the following book: Open-Book Management: The Coming Business Revolution, by John Case.
On the upside, open communications about your company’s financials help employees understand why a company may — or may not — be able to make certain business or financial moves. Also, employees can feel empowered to keep their own business expenses under control.
But the big question: Just how wide do you want to open your books and what are the risks? Do you really want employees to know your monthly cash flow and other costs?
I’m avoiding the temptation to offer up more pros and cons because frankly I think readers can fill in the blanks better than I can…
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Tags: Managed Services cash flow | Open book management
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Good topic to write about Joe! I would say there are definitely pro’s and con’s that come with opening up your books to your employees. I think the decision depends on what type of employee you have. Certain employees will look at the big picture, while others may strictly be focused on their cut of the pie. In economic times like this, it might be worthwhile to reveal some of your costs to your employees. It is so easy to focus only on the digits on your paycheck that employees sometimes forget that being providing benefits and a workspace in an office costs are well beyond just a paycheck. Opening up the books could enlighten them to waste less in all aspects.
Joelle: Your raise the point of Employee Benefits. It’s a great point. One of my former employers (CMP Media) always provided me with a total compensation letter at the end of each year.
Sure, I knew my salary. But I was always surprised — and appreciative — to see the dollars and cents that my employer was paying for my health care, etc. A simple single sheet of paper outlined the “value” of my health care coverage.
Later, when I worked for a college, I was amazed by the number of employees who didn’t consider their 100% paid health care coverage part of their compensation…
-jp
I think it is a good idea and have already practiced it.
How wide? Whatever your comfort level allows.
During this recession I opened it pretty wide to give employees security as to where we were and that I was doing everything possible to save jobs. They appreciated that and stress levels definitely lowered.
When times are better, will I do that? Probably not. I’m sure that I’ll do with it with management, but not line employees. And even the management stuff will be more high level and budget focused versus looking at raw GL or P&L data.
I previously worked for a large southern California MSP that practiced open book accounting and as an employee I really appreciated it. It helped me see the greater vision and become more trusting of management. We also had a small profit sharing plan in place so at the end of the month we were all anxious to see how well it performed.
Caveat: Open Book accounting only works when leadership has cast the right vision for the company and all employees are excited about the vision. Then open book accounting really makes sense.
Joe
Great post and some good thoughts on a very important topic. Our experience has been that educating our team on financials is a very positive way to keep them involved in what we are trying to accomplish. Many feel that sharing numbers only gives employees information to turn and use against an owner. But with the right education, and teaching employees the need for solid cash management, correct levels of equity, the impact of margins etc. we have found that open book management is a good thing.
Employees already are making assumptions about how much money the company is making and the owner is taking home. And more often than not, it is not even close to reality. Of course employees always think owners are getting rich and they are getting crumbs. So open book can help put some reality into what the real bottom line is and then it all comes down to educating the team on why a small number there is bad for their future because there is no stability or longevity to their job if the company is not profitable.
There are lots of industry statistics out there to help drive home the point that making a profit is not bad, but necessary for long term success. It takes continual messaging and months to make a meaningful transition to open book but once there, it can be a strong motivator to get people to perform. We allow engineers and sales people to see performance of one another – and believe me that no one wants to be the bottom of the monthly report. Financial transparency is a huge driver if people understand what the numbers mean.
It also is an important part of leveraging the power of peer companies as well. Sharing between owners can be a very powerful way of identifying issues that need attention. I am not advocating publishing our financials on the web, but I do think that sharing with the right people and educating on what the numbers mean can be a great asset to leading a company to success.
Keep up the great work!
Arlin: Thanks for the insights. As I mentioned the “open book” theme first caught my attention at the annual HTG peer group event.
I’m intrigued by the concept. And I’m curious to watch as some MSPs embrace open book management, and even a few embrace open salary management. The latter seems a bit extreme to me. But perhaps I’m old fashioned.