A Publication of WTVP

“Secrecy is baloney,” says OBM guru Jack Stack. Open Book Management gives employees the information they need in order to make the best decisions for the business.

Managers are increasing their focus on employee engagement—the commitment and dedication that enables people to go above and beyond, working together to create and to sustain new opportunities.

Open Book Management (OBM) is an innovative management practice for engaging employees. Jack Stack, author of The Great Game of Business and A Stake in the Outcome, is a leader in the practice of OBM. Stack used OBM to take Springfield Remanufacturing Company, bought from the remains of International Harvester with $100,000 equity and $8.9 million debt, and grew it into SRC Holdings Corporation, now with 1,000 employees in 17 business units. OBM seminars featuring Stack’s Great Game of Business have attracted thousands of firms in a variety of industries, including such notables as motorcycle maker Harley-Davidson, Southwest Airlines and Whole Foods Market. Stack will be speaking at Bradley University on March 11, 2011.

Stack tells a story early in his book, The Great Game of Business, that vividly illustrates the value of OBM. When he was a manager of the International Harvester factory, he learned that the company was headed for trouble on the penalty clause in its tractors contract with the Soviet Union. The firm was supposed to have 800 tractors ready by the target date, but at its current production rates, it was going to be 700 tractors short of that target. Stack was advised to keep this to himself and to just focus on his job.

Instead, Stack told the employees about the problem and set a goal of making the 800 tractors needed by the end of the month. Employees worked together to meet the goal. They prioritized tasks and detected key bottlenecks to assembly. For example, when needed parts were received, they would ordinarily wait at the loading dock for long periods instead of being rushed to the assembly line. Employee awareness of the problem and reorganization of their efforts around the goal meant that by the end of the month, 808 tractors were ready; as for Stack, he concluded that “secrecy is baloney.”

Instead of secrecy, OBM gives employees the information they need in order to make the best decisions for the business. With OBM, employees know the firm’s goals, understand how they contribute to these goals, receive feedback on their progress toward goals and are rewarded when the firm reaches these goals. Employees are empowered to make decisions based on this information, and are enabled to take actions that produce the desired financial results.

OBM rejects the “employee mentality” where employees focus on just doing their jobs. Instead, Stack fosters a “culture of ownership” among employees. With extensive communication of up-to-date operational and financial information, employees are empowered to act on that information and share in the rewards of the firm’s success. Stack explains that with OBM’s culture of ownership, employees approach the firm as if they were its owners looking out for the firm’s benefit. They are not just employees hired to focus on the job alone.

Stack uses three basic principles in his OBM management practice, which he calls “The Great Game of Business.” His basic rules for open-book management are:

  1. Know and teach the rules. People need to be taught how the business operates and to understand the financial measures used to assess business performance. Every employee knows the operating variables that are critical to their firm’s success, and how these are measured. Every employee gets a “line of sight” to how they and others contribute to the firm’s success. Employees understand the metrics used to evaluate the business and how those metrics fit with the overall scope of business operations.
  2. Follow the action and keep score. Information is transparent; the indicators of business performance are known, updated regularly and shared with everyone. Through regular feedback, coaching and communications, people keep up with the information, ask tough questions and make the decisions that further the interests of the organization. As John Case writes in his book, Open Book Management, OBM is not simply employee empowerment, but “empowerment with brains.”
  3. Provide a stake in the outcome. Open book management not only lets employees understand how their decisions and actions affect the overall health of the company—it makes sure that they understand how it affects their paychecks. Every employee has a direct stake in the company’s success, so that through incentive and reward systems, employee performance is tied to the organization’s success. When the organization goals are met, employees personally benefit.

Stack quotes a supervisor in The Great Game of Business, who concludes, “The system is so damn logical. It takes the whole element of direct supervision out of managing. You don’t have to pound a guy over the head because he doesn’t want to work. You pound him over the head because he’s missing opportunities that could put money in his pocket. It’s a totally different style of management.”

Further, OBM contributes to “relational coordination,” an essential theory for effective performance in the airline industry (see The Southwest Airlines Way by Dr. Jody Gittell) and in healthcare (see High Performance Healthcare by Dr. Gittell). Relational coordination relies on OBM’s open communication among employees with shared goals, shared knowledge of how each part contributes to these goals, and mutual respect across functional areas. Relational coordination allows for employees to work together to achieve their shared goals, with cooperation across functional areas and departments. The result is highly effective and efficient performance.

In an era in which the rules of business are changing so dramatically, increasing the transparency of the organization to the employees will result in improved coordination and heightened innovation, and therefore lead to increased market growth to yield bottom-line results. The principles and techniques of OBM are successful in numerous organizations—large and small; in local markets and in global markets; and in manufacturing, service and healthcare. Managers seeking to improve their results can ill afford to overlook the opportunities generated by the practice of OBM. iBi