Open-Book Management

Open-book management (OBM) refers to a system in which a company fully shares its financial status with its employees, who then become active partners in a synchronized effort to optimize future financial performance. The origins of OBM can be traced to Springfield ReManufacturing Corp. (SRC). Formerly a failing division of International Harvester, SRC was purchased in 1983 by its plant manager, Jack Stack, and 13 other executives. They paid $9 million for the plant, depositing $100,000 as a down payment and and a world community. Finally, many argue that rights to intellectual property, however important for innovation, often conflict with human rights, with the issue of poor people's access to drugs in developing nations frequently raised. [Page 1542]amassing a debt-to-equity ratio of 89:1. Recognizing that any financial error would cause bankruptcy, Stack decided to keep all employees informed about the company's ongoing financial status. John Case subsequently termed this approach “open-book management.” Now a large and successful holding company, SRC calls its system—mirroring the title of Stack's first book—“The Great Game of Business.”

Key steps in OBM include the following:

• Share with employees financial and operational information that supports optimizing business decisions. This should consist of critical numbers, highlighting the line-of-sight between employees' daily job performance and the firm's operating and financial results. OBM firms develop scoreboards—vehicles for regular communication of key numbers to the workforce.
• Enhance employee literacy in the basics of accounting and business. Simply giving financial statements to employees who don't understand them is a source of confusion and problems. Employees need to learn, for instance, about income statements, balance sheets, and cash flow statements.
• Empower people to make decisions based on what they know. Once the books are open, employees will want a voice. They should be given opportunities to self-manage and should be held responsible and accountable not just for scheduling their work and hitting quality targets but also for making their unit's budget or profit goals.
• Share the financial gains. While financial rewards take many forms in OBM firms, the key is to directly link those rewards to the “critical numbers” and profits.

However, OBM is more than a fixed series of steps. Rather, it is a process, a system, and even a philosophy.

“The Case for OBM” In addition to SRC, OBM success stories include R. R. Donnelley, AES Corp., PSS World Medical, Manco, Inc., Foldcraft, and Whole Foods Market. Other firms, such as Saturn, while not referring to their efforts as OBM, employ the essential elements of the approach.

OBM combines a large number of currently popular concepts from organizational behavior and management, such as strategic planning, participation and involvement, education, empowerment, job enrichment, self-management, feedback, and goal setting. Furthermore, empowerment and aspects such as “playing the game”—short-term initiatives designed around a specific goal, with a low-cost reward if people “win”—should enhance intrinsic motivation, while directly linking performance to rewards should heighten extrinsic motivation. In addition, full implementation of OBM requires culture assessment and reinforcement or change. This set of characteristics should enhance intellectual capital, a critical resource in a knowledge economy, while fostering the sort of organic, flexible organizational structure required in complex, dynamic, uncertain environments.

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