Tapping into the bright ideas, knowledge and experience of the dozens or hundreds of people in your business is an incredible business advantage.  The payoff:  great solutions with far less effort, and much less pressure on top management to "have all the answers".

It's not enough, however, for employees to want the business to succeed.  They need to know how to help it succeed.  Open-book management is the best way to accomplish this result.

What is open-book management, anyway?

We've seen health clubs where the owner won't share membership and profit data with the general manager!  Yet the GM is accountable for business results.  These are inevitably the businesses that struggle.

Open-book management has three simple elements:

First, everyone in the business sees and learns to understand the company's financial and non-financial numbers. 

"Financial" means things like revenues, costs and profits.  "Non-financial" includes things like membership numbers and customer survey results.

Second, workers understand that regardless of position or department, part of their job is to improve those numbers.

Armed with business information, any team member can spot an improvement opportunity.  One client had constant customer complaints due to receptionist turnover.  When that issue emerged as a major customer satisfaction problem, one of the physical therapists suggested hiring a retiree.  Worked like a charm! 

And third, workers have a direct stake in the success of your business. 

They're no longer neutral.  If your business does well financially, so do they.  If not, they feel the pain financially as well.

This means that as a group employees share in the financial success of the business. The program that determines their payout needs to make sense, be visible and reflect objective results and not management's whims, and be large enough to matter.

What are the benefits of open-book management?

1) When staffers understand the big picture, they're actually able to help you. 

They'll find ways to increase revenue, reduce cost, keep customers, or improve productivity on their own. 

Your team starts watching the little costs, because now they understand that the profit picture is the accumulation of a thousand tiny decisions.  And everyone in the business starts finding ways to make a dollar go farther, or to get more out of an investment.

Real-life example: an hourly cashier at a nutritional retailer noticed that prices for cleaning supplies at Costco were much cheaper than the prices they were paying an office supplies wholesaler.  His job had nothing to do with cleaning - but because he was well-informed, he could spot opportunities.

2) They start to understand trade-offs and limited resources.

For example, we worked with a wellness center where one employee was extremely vocal about the need to run newspaper ads.  However, she didn't realize the cost of ads or the very low response levels.  Once she had better information, she took the initiative to suggest several really creative ways to find new clients that were much more in tune with both the budget and the target market for the center.   Giving her more information about the business actually enabled her to make a difference.

The lack of investment in the latest cool cardio equipment really frustrated a group of trainers at one health club - until they understood the investment the club was making in top-quality resilient flooring and personal video screens at each cardio station. 

Once they knew what was in the works, they started emphasizing those aspects to clients.  (By the way, this is a great example of how you may need to educate clients on what makes your business special - read more here: "Why The Perfect Client Might Not Buy".

3) They're better able to help the business in a crisis.  

For example, if you lose a large corporate wellness coaching account, your employees immediately understand the likely business impact.  They can instantly start helping you work through the wind-down of activities at the lost account, and start thinking about how to replace the lost business. 

Best of all, it takes some of the pressure of you to come up with all the answers under extreme stress.

4) It helps take emotions and personalities out of business decisions. 

In-the-dark staffers almost always suspect dubious motives for business decisions.

 They assume that Joe, your senior exercise physiologist, got promoted because "Gerry's known him forever."  If they realized that Joe routinely got stellar client feedback, they'd know exactly why Joe was promoted.

In a nutshell, open-book management helps employees understand that whatever helps the business helps everyone in the business.

5) It reduces employee turnover.

Employees who feel included in the business are much likelier to stay.  Workers consistently say that appreciation is a key aspect of retention.  Trust in management and an understanding of how their contributions help the business are also important factors.  Open-book management is one of the best ways to show employees that they're valued and trusted. 

Can you convince me that my fears are unjustified?

1) It feels like I'm opening my kimono and dropping my shorts.

We've talked to lots of business leaders who were very reluctant to share information with staffers.  Even very small private businesses often treat financial and operational numbers as top-secret.  Changing that mindset doesn't happen overnight.

Here's food for thought as you ponder this issue:

What's the worst thing that could happen if your employees knew your company's revenues and profits, how much you're paying in rent or for equipment maintenance?  Or, say, your membership statistics or customer survey results?

What's the best thing that could happen if your team knew more about the financial challenges facing your business - say, the increasing cost of electricity?  Or the operational issues - for example, high levels of customer turnover or continuing service problems with your cleaning service?

Keep yourself honest by answering as specifically as possible.  Generalizations like "our competitors would kill us" or "I'd never be able to hire a new employee"! don't count.

Now, publicly-traded companies do have some legal restrictions on disclosure and stock-trading.  Yet even a public company can adopt open-book management with good legal and investor relations advice.

2) What if my competition finds out?

First, what if they did know? 

They probably can make a pretty good guess about your business performance anyway.  And what harm can they really do with the information?  Generally the answer is "not much."  It might be fun gossipy stuff to know, but there's not much they can actually do with it.

Second, making your business stronger is worth it.  If your numbers are great, you'll intimidate the competition.  If your numbers are bad, you've got bigger problems than what other businesses think and do.

Wellness businesses usually prosper when they focus on making their own companies stronger.  Worrying about the competition and what they're doing is usually unproductive -- especially if it means you're not tapping into the full benefit of your entire team's knowledge, experience, and energy. 

Frankly, your team's a far better source of competitive advantage than keeping your numbers secret.

3) Note that the Securities & Exchange Commission mandates public disclosure of vast amounts of financial and operational data from the most successful publicly-traded companies in the world -- Coke, Microsoft, GE, and many more.  If they can share data and compete successfully, so can you.

3) No way am I sharing everyone's salary data.

We don't think you should, either.  Some companies who adopt open-book management do share individual salary data with all employees.  However, we strongly advise against that unless the owners are absolutely committed to that approach.

Like it or not, compensation information carries a lot of emotional baggage.  Pay for individual employees is often the result of historical practice, relationships, negotiating skill, and all kinds of factors that make compensation discussions very difficult. 

Why open up that can of worms when it's unlikely to help the business?

How do we get started?

2) Start sharing summary monthly financial results.

Begin with your management team and ultimately expand it to all employees.

Explain the results, using the "peel the onion" technique.  Instead of a simplistic explanation ("Revenues dropped because of fewer customers"), dig down a couple of layers.

"Revenues dropped because of fewer customers, due to road construction, which reduced walk-in sales by 10% compared to last month and last year.  Our average sale per customer was the same, and the variety of products they bought was the same".

You need to dig down because you want employees to be able to help solve the problem.  They need to know the root cause of what's appearing in your financial results.

3) Develop an easily-understood group bonus program.

Your goal is to put some skin in the game for workers.  The program should expose them to both the financial upside and the downside of the company's performance. 

Even a business that relies heavily on contractors (for example, personal trainers) can develop a program that pays a bonus to contractors when the business does well.  Use a non-disclosure agreement to protect sensitive info (that's good business practice anyway).  And work with your attorney to make sure you don't run afoul of IRS requirements.

Want to know more?  E-mail us for helpful links to point you in the right direction, or give us a call to kick some ideas (or fears!) around - 877-851-0098.