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.

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.

"It was all Greek to me in the beginning," says Mr. Biggs, who has worked for the company nearly 11 years. "It takes a while to understand it all." Now, when Biggs sees the company financial statements, he zeroes in on the cash-flow situation. "That tells you a lot about the health of the company," he says.

Candy Smalley, who works in the same factory, focuses on material usage and production volume. "We know how many parts we need to move per day," she says. "I can't go and make more sales since I'm on the floor. But I understand where I can make a difference."

Biggs is convinced that "knowing what's going on makes a person a better employee." Peer pressure plays an important role as well, he says. "If I can't get the parts I need, I'm going to come over here and say something."

Biggs says he will take an engine apart himself to get the part he needs. "It's best to get it out and turn it into cash rather than having it sit in the shop," he says.

Despite the general enthusiasm on the factory floor, some workers are not convinced SRC's executives are putting everything on the table. "Some of us still think there's a separate set of books somewhere that we don't see," says one assembly worker.

Stack insists that his only goal is to be as honest as possible and enlist the help of all his employees. Yet he is well aware that most company owners and top managers have little interest in revealing their numbers. "It's a cultural thing," he says.

"Business people get overly concerned that their numbers are going to be used against them," adds CFO Don Ross. But Stack says that has never happened to SRC.

Still, "many companies are reluctant to open books to anybody, particularly employees," management expert Mr. Pell says. "Often it's because managers are making more money and owners are taking more out of the business than they like employees to know."

Living in a glass house

Opening the books does raise employees' expectations, Bredfeldt says. "When you open the books, you begin living in a glass house," she says. "You get a lot of questions." Company owners and managers have to be prepared for that, she advises.

The many firms that have come to SRC to learn about open-book management and to implement it themselves are finding that the payoffs require patience and persistence.

At Mid-States Technical Staffing Services in Davenport, Iowa, the boss began opening the books to everyone three years ago.

Brenda Wiese, the company's bookkeeper, says the new approach makes her job easier. "People know what I'm talking about now," she says.

Under the old system, only Ms. Wiese and the company owner knew the company's financials. Now everyone does.

"It definitely takes extra time" to hold meetings and share information, says Mid-States employee Don Miehe. "But then people know how to react to changes." For Mr. Miehe, it's made a significant difference in his personal life as well.

"Knowing that the company is doing well has given me the confidence to buy a house," he says. "We're closing in about two weeks."