Opening Up Books to Employees Boosts Profits
IN the gritty plants of Springfield Remanufacturing Corp., janitors pick up stray screws from trash heaps and factory workers know the cost of every part they touch.Skip to next paragraph
Subscribe Today to the Monitor
Employees here have an eye on the bottom line. "Everybody's bonus is on the line if parts don't move," says Rick Biggs, who assembles rebuilt truck engines in one of the company's divisions.
Springfield Remanufacturing (SRC) pioneered the concept of "open-book management" in the early 1980s. Now, executives of large and small companies around the world are flocking to Springfield, Mo., to learn how SRC transformed itself from a struggling $19 million division of International Harvester with 170 employees to a thriving $100 million company employing more than 800 people. For the past 14 years since it's been independent, SRC has seen increasing profits and at least 15 percent growth.
"There's nothing magical about this," says chief executive officer Jack Stack, an energetic proponent of turning employees into partners. "What we've got to do is teach people how they are evaluated. The tea leaves of business are the financials."
Under the theory of open-book management, Mr. Stack provides every employee with a copy of the company's financial balance sheet. He also expects them to help improve those numbers. In return, quarterly bonuses and an employee stock-ownership plan allow employees to share in whatever wealth they help create.
Open-book management is more than the latest fad in business management, says Corey Rosen, executive director of the National Center for Employee Ownership in Oakland, Calif.
"Usually big trends have their roots in management consulting or universities and are sold to companies," Mr. Rosen says. "Open-book management developed more from the ground up."
"I've seen a lot of management ideas come and go," he says. "But ... this is going to become, if not the norm, at least very common in business in the next decade."
Such a change requires turning the traditional corporate hierarchy on its head. "Most business plans are put together by two people - the CEO and CFO [chief financial officer]," says Denise Bredfeldt, an SRC employee who once rebuilt engines on the factory floor and is now a top manager.
Everyone gets involved
Under open-book management, everyone from janitors and receptionists to line workers and executives gets involved in producing the annual business plan and tracking the numbers.
At SRC, each division meets weekly to compile financial statistics. Every other week, representatives from all 22 divisions gather at the corporate headquarters to share their numbers.
But no matter what, everyone in the company knows how things look and what the prime areas of focus should be.
"I'm trying to get management to get out of the way," says CEO Stack. "Most people that are hired are given a safety program. They are shown the mechanics of the job." But no one ever explains how the business makes money, he says, and that its financial health affects workers' job security.
Getting everyone in a company to understand even the basics of business takes some education, however. "Understanding financial concepts is not a simple matter; it's much more than just looking at a simple balance sheet," says management expert Arthur Pell. In fact, SRC spends more each year training employees about business than providing job-skills training.