Leadership

#3: Open Your Books

From The 30 Best Business Practices of All Time, published by PROFITguide.com: Canada's trusted resource for entrepreneurs and innovative executives

Written by PROFIT staff

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It sounds rather rash. Why would you share with your entire workforce key business indicators that most companies keep as closely guarded secrets?

Yet, the case for open-book management (OBM) can be summed up in a few compelling words: it encourages your employees to think like owners. The idea is to entrust your people with the crucial metrics about your firm—and teach them what those numbers mean—so they truly understand the business and how they can shape its performance. Employees shown such respect typically reciprocate by working harder and dreaming up new ways to cut costs and boost sales.

Although corporate giants such as Intel and Allstate practise OBM, John Case, author of The Open-book Experience, says SMEs are best placed to adopt the strategy because their size makes it easier to implement and rally people around shared goals.

Firms that have gone this route routinely share data such as the profit on each client or product line, percentage of orders filled on time or average “days to pay” for accounts receivable. Some even share key business indicators with shortlisted job candidates. But there are limits: hardly anyone would spill the beans about individual employee pay or pending acquisitions.

Charles Chang, president of Sequel Naturals Ltd., a Port Coquitlam, B.C.-based producer of natural health products, says his firm’s experience with OBM shows that it’s essential to tie open books with a profit-sharing plan. He says you need to make it crystal clear to employees how, say, improving gross margins will put more money in their pockets: “We always put it in terms of what’s in their interest.”

Originally appeared on PROFITguide.com
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