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Transparency in business

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Transparency in businessIn 1992, Jack Stack, President & CEO of Springfield Remanufacturing Company (SRC), published a book entitled The Great Game of Business. Also known as "open book management", his thesis is that if employees know exactly what they contribute, what they cost the company, and how each employee and each job function depend upon one another in order to be successful, they will start thinking and acting like empowered owners and not as traditional employees just doing a job.

A fundamental premise of open book management is that owners, executives and employees are all working from the same scorecard – the income statement, the cash flow statement, and the balance sheet. It is all intended to advance the mission of the organization and grow the business.

The core task of open book management is teaching employees not just the basic and advanced mechanics of how to do their job, but how the company makes money from their labour, their intelligence and their motivation to improve their company’s bottom line and competitive advantage. It includes not only the financial performance but the non-financial, or qualitative, metrics that are important to employees, owners, and customers.

Qualitative performance includes managing the company’s performance relative to environmental issues, labour and employee relations, and corporate citizenship, etc. Transparency within the company ensures that employees have access to the same non-confidential information that the executives have. However, transparency without knowledge does not work. In order to appreciate transparency, one must understand what each metric means and how they are linked to individual job performance.

For example, in a manufacturing process, a waste level of 10 per cent represents real dollar costs which can be measured. Assuming that the industrial waste level standard is 2 per cent – which the employees know by virtue of open book management and the Internet – the employees now have a target upon which to base decisions affecting their work output. This includes not only efficiency processes within the established environment, but a re-evaluation of the processes in order to achieve the performance results without jeopardizing quality, safety or other critical metrics. From the savings, many companies reward the employees by adding a percentage of the savings to their bonus or incentive schemes.

"In many cases, managers wrongfully assume that their employees are incapable or uninterested in learning more of the fundamentals of the business in which they work…"

There are obstacles to business transparency, of course. Principally it is ignorance. In many cases, managers wrongfully assume that their employees are incapable or uninterested in learning more of the fundamentals of the business in which they work, or the environment in which their company competes. For some people this is true. But at SRC, most of the people eagerly embraced the development programme that put them in charge of their job. The result was improved revenue, decreased costs, and increased job security due to advanced competitive advantages.

Other managers are uncomfortable with transparency. They are uncomfortable knowing that some employees may know more about a subject than they do, may make meaningful challenges to their decisions, or they may not understand the material as well – all of which jeopardizes their authority as a supervisor, manager or executive. Furthermore, there is the concept of financial confidentiality in which only a select number of managers have access to the data. This puts them into an uncomfortable situation where they must make crucial decisions without having a broader and informed discussion beforehand about what the data means.

While a lot of financial data is complex and relies on informed accounting estimates and assumptions, the basics are easily understood if one accepts certain premises:

  1. Revenue should always exceed expenses;
  2. The competitive playing field is not level;
  3. Owners and senior executives do not always have the correct solutions and need help from knowledgeable subordinates;
  4. Employees will eagerly buy into their company’s vision, mission and strategy if they are given access to performance data and the skills or knowledge to interpret the data and make appropriate changes.

Ultimately, open book management requires a mindset from executive leadership that a "learning environment" within the organization leads to competitive advantage, a more productive and motivated workforce, and improved qualitative and quantitative performance in multiple categories important to the employees, the customers, the owners and stakeholders who have a vested interest in the success and reputation of the company.

August 2011.

The author is Ken Moore.


Ken Moore, M.S. is the President of Ken Moore Associates, an Organizational Development consulting firm in Schenectady, NY. He is an adjunct professor at the State University of New York at Albany where he teaches undergraduate and graduate courses in strategic management. He has written many articles on the changing nature of modern business and has been published extensively in the US and internationally. Several of his articles have been translated into Turkish and Greek. He may be reached at: kmoore01@nycap.rr.com