by Ari Weinzweig, Zingerman’s Co-Founding Partner

It’s been nearly a decade since Zingerman’s made the move to open book finance. “Open book basically means that we actively share all the financial information about our business with everyone who works with us. All in our organization—not just the bosses and the accountants—are responsible for the financial performance.

We’re still far from perfect in the implementation of this relatively modern approach to money and organizational life. We learn more all the time, and persistently work to improve our application of the open book model. Yet even though it’s a work in progress, I believe more strongly than ever that Open Book Finance is the right approach for us and many specialty food retailers.

Here’s why we are strong supporters of Open Book Finance:

1. Better Results.
We’re getting good, often great, results. Not always as good as we like—Open Book Finance is not perfect nor does it lead to perfection. But it’s a tool that can, and has, improved performance in almost every area in which we’ve used it, whether that be sales, margins, profit, service scores, cash flow, food quality, sanitation or safety. Ultimately, it enhances service, product quality and staff morale as well as financial results.

It’s just common sense. Despite good efforts and training, people at the top of organizations rarely are able to provide simple solutions to all the problems. Employees on the front line—the ones who do the work every day—usually have insight and ideas that are of great value. They see things we don’t see from the top (just as we see things that they don’t).

So the more people we involve in the financial operation, the more likely we are to attain success. As one staff member told me, “It’s not just being told we had a great year. We all know it. And that’s a lot more fun.

2. In Line with Our Values.
Our guiding principles (or you might call them “values or “ethics) were authored in the early 1990s. Because 60 or 70 staff members contributed, these principles belong to everyone in the organization and each of us is obligated to live by them. Our principles define the ways in which we are committed to working with each other and with the community around us.

One of the key elements of our principles is that: “We involve as many people as possible in the running of the business. And, “In so doing, Zingerman’s runs more effectively, benefiting from everyone’s abilities, creativity, experience and intelligence.

We strive to live this principle in every area of our organizational activity. All of our meetings are open. We involve front-line staff in interviewing and hiring. Our HR folks learn about merchandising. And our merchandising managers learn about finance.

We first became acquainted with Open Book Finance in the early 1990s. I read Jack Stack and Bo Burlingham’s The Great Game of Business, the single most insightful book on the subject. Then I read Ricardo Semler’s Maverick and John Case’s Open-Book Management. I realized that, while we were doing a good job of living our principles in many aspects of our business, we had fallen short in the area of finance. We were paying bonuses and had profit sharing, but weren’t sharing financial information with our staff.

In practice, we were putting ourselves as owners between the staff and the financial operation of the business. The entire financial load fell on us. Plus, we were asking people to operate in the dark. Open Book creates the opposite experience. As one of our staff said, “When things aren’t going right, it spreads the stress to everyone about where we stand.

(From a broader ethical standpoint, it would be almost impossible for things like Enron and World Com to happen in organizations run according to Open Book Finance principles. All the borderline unethical shenanigans that were rationalized away behind closed doors in high-level private office suites would never, ever have stood up in front of even a handful of trained front-line staff. The staff would have simply asked too many questions; red flags would have gone up s soon as some high-level exec tried to explain away the improprieties.)

Open Book Finance helps us all safeguard the values and principles we hold dear and keep unethical individuals from giving honest business folks everywhere a bad name.

3. Builds Commitment.
At our ZingTrain management seminars, attendees regularly ask what we do to motivate staff. We always give the same answer—we don’t motivate them. They motivate themselves. Our responsibility is to provide an environment in which they can motivate themselves to high levels.

That means creating a setting in which they can make a positive difference—for themselves, their peers, the organization, the community. Open Book Finance creates that opportunity. No matter one’s seniority, position in the organizational chart, or pay rate, an employee in a well-run Open Book company can influence things.

As an owner, I see that influence at work every day. The commitment that comes from that level of involvement and influence is very, very high. People feel themselves a meaningful part of something special, regardless of seniority, title, age or experience level. When it’s working well, it’s an amazing thing to see.

An Open Book environment attracts people interested in being involved, in learning how business works, and how they can contribute positively to group success. And those are the sorts of people we want to work with.

4. Better Decisions.
No one can consistently make good decisions when they lack information. Although every business asks the front-line staff to manage customers and product and make decisions about quality and complaint-handling, few organizations give those same staff members the information necessary to make sound decisions.

A lack of information causes a level of stress that, in turn, can lead people to make very different decisions. For instance, consider a front-line staff member who is taking heat from a customer over prices being high. If that’s the only pressure they feel, then they’re at best apologetic, at worst, they agree with the customer that prices are too high—not a great way to build long-term trust. Instead, by giving them more in-depth information, they will handle this sort of situation more gracefully and effectively. One Mail Order staffer told me, “It’s had strong impact on my daily performance. I do things differently because I’m armed with more information.

Check out this true story from one of our catering staff. Before she understood the numbers, she immediately would refund money to make a complaining customer happy. After she learned more about finance and saw how much it cost the business when she refunded money, she realized there were more effective, less costly, ways to make things right. Although she still refunds money at times, more often than not she’s discovered that sincere apologies, a followup letter, a comped coffee cake, etc. are equally effective and less expensive options.

5. Teaches Everyone to Think Like an Owner.
In most businesses, front-line staff, faced with any difficult situation, would often make very different decisions than the owners. In our organization, those decisions are far more likely to be similar to what any of the partners would do. As one hourly staff member said, “Being involved in the financials gives us all sense of ownership in the company.

By teaching everyone about finance, how business works, how it impacts the bottom lines, everyone has the critical ability to make sound business decisions. In an Open Book setting, the front-line staff knows the costs of the items they’re selling, they know what the overall margins are; their bonuses may be tied to those numbers. So it’s a lot easier for them to weather the storm when a customer complains about prices. Like the owner, they know that, although it’s legitimate for the customer to feel prices may be high, margins in the food world are generally fairly thin.

To quote a new employee, “Everyone in the business knows the financial stresses, not just the owners. Which means that everyone at every level is better able to take the heat on something as uncomfortable as prices and still give an effective, service-oriented response. They know what the financials look like and that there’s never a huge amount of slack to be lowering prices and still pay the bills.

Want to learn more?  Come to our Fun, Flavorful Finance Seminar to learn about Zingerman’s approach to Open Book Finance from Ari and Ron Maurer (Zingerman’s Vice President of Administration.)