Open-book management (OBM) is a management phrase coined by John Case of Inc. magazine, who began using the term in 1993 (Aggarwal & Simkins, 2001). However, the concept's most visible success was by Jack Stack and his team at SRC Holdings (Davis, 1997; Kidwell & Scherer, 2001).
The basis of open-book management is that the information received by employees should not only help them do their jobs effectively, but help them understand how the company is doing as a whole (Kidwell & Scherer, 2001). According to Case, "a company performs best when its people see themselves as partners in the business rather than as hired hands" (Case,1998 as cited in Pascarella, 1998). The technique is to give employees all relevant financial information about the company so they can make better decisions as workers. This information includes, but is not limited to, revenue, profit, cost of goods, cash flow and expenses.
Stack and Case conceptualize open-book principles in similar ways.
Stack uses three basic principles in his management practice called, The Great Game of Business
His basic rules for open-book management are:
- Know and teach the rules: every employee should be given the measures of business success and taught to understand them
- Follow the Action & Keep Score: Every employee should be expected and enabled to use their knowledge to improve performance
- Provide a Stake in the Outcome: Every employee should have a direct stake in the company's success-and in the risk of failure
Similarly, in 1995, Case made sense of open-book with three main points:
- The company should share finances as well as critical data with all employees
- Employers are challenged to move the numbers in a direction that improves the company
- Employees share in company prosperity
In a company fully employing open-book management employees at all levels are very knowledgeable about how their job fits into the financial plan for the company. However taking a company from "normal" to open is not as easy as just sharing financial statements with employees. The true success of open-book management is when companies allow numbers to come bottom-up (as opposed to traditional top-down management)(Johnson, 1992 as cited in Aggarwal & Simkins, 2001). While employees need to be trained to understand income statements and balance sheets; open-book's true triumphs are when employees understand the numbers to a level that they are able to report predictions to upper-management (Stack, 1992). In order to motivate employees to strive for change, open-book management focuses on a "Critical Number". The number is different for every company but it is a number that represents a prime indicator of profitability or break-even point. Discovering this Critical Number is a key component of creating an open-book company. Once discovered then a "Scoreboard" is developed that brings together all the numbers needed to calculate the critical number. The Scoreboard is open for all to see and meetings take place to discuss how individuals can influence the direction of the "Score" and therefore, ultimately, the performance against the Critical Number. Finally a Stake in the Outcome is provided which can be a bonus plan that is tied to Critical Number performance or it can include Equity sharing or both.
The National Gathering of Games, held annually in St. Louis, Missouri, is a coming together of open-book managements’ minds and practices. The Gathering of Games is the only practitioner led conference on creating a culture of ownership by teaching employees to feel, think and act like owners. At the event, business leaders learn from people who have used open-book management to increase the size, profitability and employee engagement in their companies. The conference consists of sessions, keynote speakers and workshops that are specifically targeted to each phase of open-book management.
Notes and references
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- Aggarwal, R. & Simkins, B. (2001). Open-book management—Optimizing human capital. Business Horizons, 44(5), 5-13.
- Case, J. (1995). Open-book management: The coming business revolution. New York, HarperCollins.
- Davis, T. (1997). Open-book management: Its promises and pitfalls. Organizational Dynamics, 25(3), 7-19.
- Kidwell, R.E. & Scherer, P.M. (2001). Layoffs and their ethical implications under scientific management, quality management and open-book management. Journal of Business Ethics, 29(1/2), 113-124.
- Pascarella, P. (1998). Open the books to unleash your people. American Management Association International, 87(5), 58-60.
- Shaffer, J. (2000). The Leadership Solution. McGraw-Hill 38-40, 98, 159
- Stack, J. (1992). The great game of business. New York, Currency Doubleday.
- Open-source radio interview of a CEO explaining how his company functions under open-book management. Interview