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Is Open-Book Management Right for Your Business?

During the height of Silicon Valley’s takeover of the tech industry during the early 1990s, a former senior writer for Inc. Magazine named John Case coined the phrase “open-book management” or OBM. Yet, it was Jack Stack, hailing from SRC Holdings that put the concept in practice and turned it into something that many business owners have used to become more successful.

Open-Book Management LeadershipIf you’re not already familiar with open-book management, the process is summed up fairly simply in Mr. Stack’s book The Great Game of Business and its accompanying website. However, the main points that can be taken away from the book are based on these three principles:

  1. Know and teach the rules: As a leader, you should ensure every employee is provided with insight on how to measure their success and how their position helps the company reach these goals.
  2. Follow the action and keep score: This means that every employee should not only be expected to perform well at their job, but they should be able to use the above information to improve their performance.
  3. Provide a stake in the outcome: When the company succeeds, the employees should also succeed by having a direct stake in the company’s current and future successes.

At Evolution, we hold open-book management in high regard because it aligns so perfectly with one of our own central practices in building a successful business. Serving as the fourth pillar in The Five Pillars of Business Freedom, we’ve discovered that Transparency has a profound effect on how well a business performs and the culture of the business itself. So it was a very easy decision to make it part of our overall investment strategy.

Speaking on the subject during a recent episode of our radio show, The Second Stage, with the owner and President of West Paw Design, Spencer Williams, our guest elaborated on his own experiences with open-book management.

That open-book management was a core part of the transparency that we had to bring to the employees to get us to change the way the organization was being run in the manufacturing space. So the “Great Game of Business” has been really pivotal in our success, not only in helping us correct [issues with an earlier process], but also in helping us build on successes.

The successes Mr. Williams attributes to the management style include the company’s most profitable quarter immediately after its implementation in late 2012, as well as being listed as a 2016 Forbes America’s Best Small Companies honoree.

Before implementing the style, however, Mr. Williams was concerned early on with how he would be perceived among other executives and how the process would ultimately work out in the long run. Nevertheless, his apprehensions were quickly put to rest when he saw the impact it had not only on the employees, but on the business itself.

What we had done for years and years and years was shared our major business decisions with our employees—almost from day one. But we never shared financials…The biggest obstacle I had to fully adopting “The Great Game of Business” was the perception amongst business people that you shouldn’t share financials…but once we got over [this and other minor issues] and realized they weren’t part of an obstacle any longer, we were able to start rolling out financial literacy training to our employees and institute “The Great Game of Business” to great success.

Another one of our pillars, Financials, also addresses this important issue, and intertwines seamlessly with the role of Transparency. Writing about this relationship in greater depth, we encouraged business leaders to look at their organization and ask, just How Financially Capable Are Your Employees?

When you begin looking at how the two intermingle, and how critical the question is, getting answers will undoubtedly lead you to the same types of solutions we arrived at on our own entrepreneurial journey. And behind each of these solutions, a reminder of just how far you’ve come as a small business owner or leader.

Posted by: Brendan Anderson A co-founder and managing partner at Evolution, Brendan has spent the past 20 years as an investor and manager of businesses ranging from manufacturing to financial services. @Brendan_Andersn

Comments (2)

Comments:

  1. Bill Fotsch:

    I appreciate your article on Open-Book Management, the term coined by my partner John Case. I thought your readers might find John’s two books to be of interest:
    1) Open-Book Management: Coming Business Revolution
    2) The Open-book Experience: Lessons From Over 100 Companies…
    John and I co-author a Forbes article every other week. This article provides a good overview: http://www.forbes.com/sites/fotschcase/2016/05/31/engage-your-employees-in-making-money/
    Minneapolis based Carlson Travel is a great example, as can be seen in their 3 minute call center video: https://www.youtube.com/watch?v=-RJAEHPOxPQ

    • Bill, Thank you for sharing these additional resources on open-book management with our business owner community.

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