Lean Business Specialists - Nestadt Consulting

Open-Book Management

Open-Book Management (OBM) is the simple but powerful concept of opening the books, and especially the cost accounting records ( the financials ) to all employees. It also includes teaching employees to interpret the figures, allowing them to see the connection between their job and the bottom line results of the company, and trusting them to make good decisions with this knowledge.

OBM is about business literacy for all employees, (all employees are taught to read financial reports), about establishing clear line of sight between activities and results, about trust, about true empowerment, and ultimately about large gains in productivity through cutting unnecessary supervision and improvement through intelligent participation. Sound too good to be true? or too big a risk? Perhaps, but not according to employees of OBM companies.

All employees at OBM companies are taught basic cost accounting, and know the money value of time, machines, and materials. OBM is like treating everyone in the company as a manager or partner. Huddles are a central feature. This is a form of team working and team briefing, but goes 360 degrees so management gets back the information.

The open-book approach is attributed to Jack Stack of the Springfield Remanufacturing Company. Stack led a management buy-out following the demise of International Harvester. It had enormous levels of debt, and was threatened with closure on a day-to-day basis. Jack Stack decided that the only way to survive was to share the business position with all employees; for them to understand the twin priorities of profit and cash flow. He did, and the company prospered mightily. Today many smaller companies and a few larger ones have adopted OBM in whole or in part.

Jack Stack refers to OBM as the great game of business . He identifies three essential steps : creating a series of small wins, giving employees a sense of the big picture, and teaching the numbers (including financials). Stack describes what he calls the myths of management : that telling the truth or sharing the position or numbers is dangerous (more dangerous not to share, and we are all committed so why tell outsiders?), nice guys finish last (bosses who act like SOBs don t last), a manager has to come up with the answers (they can t; everyone has to participate), and others. So OBM represents real empowerment, not just talk.

And finally, Stack believes in sharing the gains, in creating a company of owners . Bonus plans, Gainsharing, should be short term goals and equity participation the long-term goal.

Further reading :

Jack Stack with Bo Burlingham, The Great Game of Business, Currency Doubleday, New York, Paperback edition, 1994, ISBN 0-385-47525-X

John P Schuster, Jill Carpenter, M. Patricia Kane, The Power of Open Book Management : Releasing the true potential of people s minds, hearts, and hands, John Wiley, New York, 1996, ISBN, 0-471-13287-X

John Case, Open Book Management : The Coming Business Revolution, Harper Business, New York, 1995, ISBN 0-88730-708-6

John Case, Opening the Books , Harvard Business Review, March-April 1997, pp119-127.

Ricardo Semler, Maverick!, Century Books, London, 1993, ISBN 0-7126-5451-8

Want to discuss whether OBM is appropriate for your business and the likely benefits......... please call Kevin Nestadt on (03) 9827 2887 or mobile 0418 330 948