Making the Case for Open Book Management
In Part II of our Guide to Open Book Management (you can read Part I to explore what Open Book is and where it came from here!), we invite you to consider why your business might want to consider Open Book Management (OBM) as a way to run the business. You’ll soon see that there’s a lot to like about it!
Forward: Open Book Management in COVID times
Admittedly, it does feel like a bit of an odd time to be coming to you to champion Open Book Management, when so many businesses – including ours – are struggling to stop hemorrhaging money.
In reality, there’s no better time to be open and honest about the state of the business, and give everyone on the team the information they need to make better decisions on behalf of the business! Not to freak them out, but to acknowledge the challenges, and be upfront about the reality of what is necessary to keep things going. It won’t necessarily feel better to be furloughed or laid off when you’re crystal clear on why – but it won’t be a surprise if it happens, and that can make a parting of the ways very different.
This blog post will live on after the pandemic is over, so it’s written with the perspective of our timeless appreciation for Open Book Management, not why Open Book might be the right thing for your business in these times.
Here are 7 reasons why a business* might want to use Open Book Management (hereafter referred to as OBM) to run their business.
Reason #1: It leads to better decisions.
In a traditional business, front-line staff seldom have access to financial information. They’re making decisions in the moment based on what they believe to be right, or what they’ve seen someone else do, or frankly – how much they like the customer they’re interacting with. Is it any wonder that all too often, the decisions they make are short-sighted or make their manager want to tear their hair out? When you have no idea of the rules of the game you’re playing – in this case, the game of business – you’ll make them up as you go along, thinking you’re doing the right thing!
In an Open Book business, the rules are taught to all staff. If you want them to play by the rules, it behooves you to teach them exactly what those rules are.
In addition, a key component of OBM is not only sharing the key measures of a business or department, it’s expecting the team to know – and positively impact – those key measures. What does that look like in action?
REAL LIFE EXAMPLE: Picture an employee working in a mail-order call center. The phone rings and a customer is on the other end of the line, unhappy with their recent purchase. The employee is authorized to do whatever it takes to make it right for the customer.
[Traditional business] The employee quickly apologizes and refunds the customer’s money. Or, worse yet – minimizes the issue or argues with the customer about whether it’s a valid complaint.
[Open Book business] The employee sincerely apologizes, then starts to get more information. “Would you tell me more about your experience?” “Would you like to try a different ________?” Ultimately, it’s determined that a different product would be better for the customer, and the employee gladly sends that out right away, including a handwritten apology and a little extra treat in the box.
Neither example is wrong! Open Book businesses absolutely give refunds to customers, as appropriate! However – in the second case, the employee knows that the most expensive option is to give a refund. If they’re able to send a different product or gift box, the business keeps the revenue and is only out the cost of the replacement and shipping. If they genuinely apologize, sometimes that’s all the customer wanted – not a refund. Even better, if they handle the complaint effectively, really listening to the heart of the issue, that great service can make a customer even more loyal than if they had never complained.
Open Book goes well beyond just the financials of a business so when it’s interwoven with things like customer service, you teach employees how to prioritize both the customer AND the business in the moment. They learn that it’s less expensive to keep a customer than it is to get a new one. They get that the ideal order of operations in a product complaint scenario is to, from least to most costly: 1) start with a replacement product, 2) offer a discount or gift card for a future purchase (if a replacement isn’t possible), and 3) offer a refund. Even better, they know that if they give that refund, it behooves them to also include a gift card, to encourage the customer to give the business another try.
Reason #2: It breaks down traditional organizational barriers.
A key component of OBM is the weekly meeting – the huddle – in which the scoreboard is reviewed, and issues are discussed. Typically, everyone in a business or department is welcome to attend, and participation is not only encouraged, it’s expected. Many people take ownership of aspects of the huddle, from different hierarchical levels – facilitating the meeting itself, or owning one of the key measures on the scoreboard. After all, who better to report on the amount of food waste in a restaurant than a busser or dishwasher? They see exactly what’s left on plates and scraped into the compost bin – logically it follows that they would have insights into actions that the whole team could take to reduce the amount going in the bin.
REAL LIFE EXAMPLE: This is one of the most famous Open Book stories. In a bustling restaurant, a dishwasher saw a lot of french fries coming back into the kitchen, day after day. Rather than ignoring what was going on with a “not my job” mentality, the dishwasher went to their huddle and suggested a change. What they proposed was that rather than keep wasting all those fries, the customers are served smaller portions initially, then given unlimited refills. Most people will keep picking at the fries on their plate long after they’re hungry – because they’re there, not so much out of enjoyment – so this change was not only a benefit for waste and for keeping food cost down, it also led to a better customer experience! Now the customer can save themselves from eating congealed fries, and if they want more, they’re getting the best fries possible, served gladly.
This is one small example of how Open Book really opens the door to more robust conversation and participation from everyone that works in a business. Does it mean that everyone chooses to be a part of things? Of course not. But fundamentally, it means that decisions are made in the huddle, out in the open, with many different viewpoints and perspectives considered – which can lead to better decisions for the entire business.
Reason #3: It builds commitment.
Building on the last point, that OBM can break down traditional barriers, you can see how it would feel really different to an employee to be asked – and expected – to share your thoughts and ideas of how to make things better! Great ideas aren’t only generated at the highest levels of a business – the people on the front lines often have the best ideas of how to save money, improve the customer experience, and so on. In a traditional business, these folks are seldom solicited for their ideas or asked for their opinions, which seems like a major waste of intellectual power.
People like to feel that they’re a part of something larger than themselves, a part of something special. When you’re listened to, when you’re given the opportunity to positively impact the business – and see the results of that impact – that leads to a really different level of buy-in and commitment.
Reason #4: It creates a more effective distribution of stress.
When we’ve got committed staff and when the organizational barriers are lowered, the entire team is working together to effectively run the business. Long gone are the days of employees showing up for work at a retail store to find the doors padlocked shut and an “Out of Business” sign hung in the window (true story!) In an Open Book business, the numbers that are critical to a successful business are not a mystery or a secret.
REAL LIFE EXAMPLE: An accountant in an Open Book business told a story from her prior work life, of how she was expected to carefully guard all financial information. When someone walked into her office, she had to turn off her monitor, lest anyone see how the business was really doing. The only people she was allowed to share the information with were the upper executives – and she was certainly not solicited for her opinion on what they should do. This put a different kind of stress on her shoulders – being one of a very small number of people who truly knew the current state of the business.
Sharing the key information is only one part of the puzzle – you need to help people understand what to DO with that information, too! And just getting other people stressed out, too, isn’t ideal. The difference is that when a team is faced with a difficult situation, there are many minds helping to solve a problem, it doesn’t rest all on the shoulders of one or two people.
Reason #5: It teaches ownership thinking.
A frequent refrain from many owners is lamenting the choices that their staff make when faced with a difficult situation. In reality, it’s no surprise that the staff don’t make the decision that an owner would – typically, they’re operating with a subset of information, not in on the whole picture, and thinking with a short term mindset.
Imagine how different it would be if the front line staff had the same information that an owner had? Even better, what if they had training in business finances, how business works, and how their actions impact the bottom lines of the business? They’d almost certainly make different decisions – which is one of the benefits of Open Book. Remember the scenario earlier about the call center employee? That’s ownership thinking right there – factoring in both the customer experience AND the financial success of the business.
It’s not to say that employees in an Open Book business don’t still make boneheaded decisions sometimes – of course they do! But one of the other differences is how the leaders handle it when someone makes the wrong choice. There’s no shaming or bemoaning the decision – instead, the leader will share what they might have done differently, so the employee has that information for the next time an issue comes up. Even better, they reassure the employee that it’s always okay to ask for help before making the decision – asking for help is a sign of strength, not a sign of weakness.
SIDEBAR: If you want them to think like owners, you need to give them the opportunity to.
While many owners want their team to make decisions and act like owners, they sometimes have a really hard time giving them the chance to do so. If you’re not ready to fully delegate the decision making authority, start asking, “What do you think we should do?” when an employee comes to you to make a decision that you wish they’d just made themselves. And if they give you an answer that’s off track, be gracious in how you respond. “Hm, that’s an interesting idea, I hadn’t thought of that!” sounds really different than, “What the heck are you thinking?!?” Then, follow that up with what you think the right next steps are – and why. Before too long, the odds are high that the solution they offer will more closely align with what your solution would be.
Reason #6: It develops future leaders.
When Open Book is working well, it’s working on multiple different levels, including subtly positioning people to be ready to step into leadership positions. Not everyone has a business degree (owners included!) and few are given formal finance training when they’re promoted into managerial or leadership positions. By practicing Open Book and lavishly sharing information, the financials are demystified. And if an employee has years of experience making smart decisions on the behalf of the business, and taken ownership and responsibility for the key measures of their department, they’re much better prepared to step into formal roles, where the decisions will carry more weight.
Additionally, Open Book is based on using every opportunity to teach and gladly welcoming questions, particularly in the huddle. If someone working on the front lines doesn’t understand why, for example, labor is tracked as a percentage instead of a dollar amount, it’s better for the question to be asked in the moment with everyone able to hear the answer. It’s then more likely that the next time someone is asked to volunteer to stop working when business is really slow, it’s viewed as a sound business decision, not a personal attack. And even better – maybe that person’s got a lot going on at home, and would welcome the chance to miss a shift.
Reason #7: It generates consistently better results.
At the end of the day, while all of the reasons listed above are true and meaningful – if OBM didn’t also lead to better results, why do it?! Open Book definitely leads to better financial results when everyone is playing the same game, with the same rules, all at the same time. It also creates better cultural results, where people feel like their work and their input matters.
Many, many people who have worked in an Open Book business profess that they couldn’t go back to work in any other kind of business. Now that their eyes are opened to what is possible, they don’t want to put the blinders back on.
Next up in the Open Book Blog Series: Is Open Book Right for My Business?
* But wait, I’m a non-profit! Will Open Book work for me?
Short answer: YES! There are plenty of nonprofits applying the principles of OBM to run their organizations more effectively.
Long answer: YES! While the principles of OBM were designed for businesses seeking to make a profit, any kind of organization that has a budget can apply Open Book. The measures may change, the application would alter somewhat, but the fundamentals very much apply, whether you’re seeking to make money, or carefully steward the resources you have.