What exactly is open book management?
For starters, it can have varying degrees of meaning depending on whom you ask, but in essence it is providing the company’s financial metrics to the employees. The goal is to show the employees exactly how the business makes money, how it generates cash, how their job affects the day-to-day operations/bottom-line, and essentially increase transparency within the organizations. This is a favorite tool of many employee owned businesses (as it should be) and is a good way to get everyone on the same page working to improve the bottom-line.
PFSbrands Case Study
At PFSbrands, open book management fits perfectly with our employee owned culture. It’s a great way for everyone to track their daily effectiveness to see how it affects the bottom-line. This results in innovative and ingenious ways to increase efficiency and revenue while cutting expenses… All accomplished on the ambitious nature of the employees to take it upon themselves to create the best company possible.
Why isn’t everyone practicing open book management?
Frankly, many CEOs are scared of what the actual numbers are and for letting everyone see them. First and foremost, if the numbers are critically bad, your employees deserve to know (especially if the place is about to go under). Most of the other unrealistic fears can be overcome with the knowledge that if you actually educate your employees on what the number means then it will improve your business overall. It’s a worthwhile tradeoff! Don’t believe me? Check out these excerpts from G3CFO founder Mark Gandy’s interview with PFSbrands CEO Shawn Burcham!
What is the worst that could happen if I share the numbers?
“In my mind, it doesn’t matter what type of business you are in. Even if your competitors know your numbers, how is that going to help them? There is far more benefit in educating your employees about how your business works. If you were coaching a youth football or baseball team wouldn’t you want them to know the rules of the game before they go out and play?
Too many business owners just want their people to show up and “work” without explaining how they can help the company win.”
Open Book Management Can Grow Your Business
When it comes to open book management, one of the perks is that the employees take it upon themselves to better know the numbers as Burcham explained,
“Our bottom-line performance has improved so much since we started open book management in late 2011. While the top-line revenue continues at double-digit growth rates, our bottom-line results have been more like 100% year-over-year growth due to everyone collectively working together to reduce expenses and enhance margins.
In reality, there is a lot more to “open book management” than simply sharing the numbers. Our journey at PFSbrands has been one where we teach everyone about the business and provide everyone a stake in the outcome.”
As we talked about in our previous Pro Tip Business Communication piece, huddles can be a great way to implement open book management and help your employees understand the great game of business!
“…Each week we huddle up to go over the Key Performance Indicators (KPIs). Each month we huddle up with the entire company to go over the financial results from the previous month and year-to-date results. We highlight any challenges we had and talk about those. More importantly, we look AHEAD because you can’t change the numbers from the past.
We show the income statement, balance sheet, and talk openly about cash flow. Everyone is focused on our “critical number” each year which we have historically identified as our EBT (Earnings Before Taxes). We wrap up each session by focusing on what we need to do in the next 30 days and I answer any and all questions in our own STRAIGHT-TALK ZONE,” said Burcham.
Open book management isn’t rocket science. It’s all about empowering and trusting your employees with the information they need to make sound, efficient business decisions during every facet of production. If you’d like more information about open book management contact us at Customer.Success@PFSbrands or read more about improving your business communication.