Open Those Books

Boost your biz by sharing info

Business Week

In 2005, Randy Haran cut the bill for his company's shop supplies by 91%. Better, Haran wasn't the one who found the savings. His employees did.

Of course Haran, CEO of Texas Air Composites in Cedar Hill, Tex., deserves some of the credit, and not just because he's the boss. He's one of a growing number of entrepreneurs embracing open-book management. That's where CEOs share financial information to encourage employees to boost productivity and cut costs.

In 2003, Haran's $9 million, 100-employee company, which repairs airplane parts, was spending $15 for each roll of heavy-duty tape that mechanics used in the shop. After laying out for sanding disks, rags, and other supplies, the shop tab came to $200,000. Haran's 35 mechanics were shocked when they heard that number. They found perfectly good tape that cost $2.50 a roll, used sanding disks until they wore out, and stopped wasting rags. By 2005 they'd driven the bill down to $12,000. Says Haran: "When people have a stake in a company's profits, they feel and act like owners." In 2005, his hourly workers received bonuses equal to 30% of their base pay in return for their cost-cutting.

… More than 1,000 companies, most of them small businesses, now use open-book management, according to Jack Stack, author of The Great Game of Business, which advocates open-book techniques. Beyond motivating employees, the technique may stem turnover and reduce bureaucracy. "With an open approach, employees make more decisions, so there is less need to hire managers," says Joseph H. Astrachan, a business professor at Kennesaw State University in Georgia.

SPELLING IT OUT
Still, the notion of disclosing financial data gives many business owners pause. What if employees ask for raises or leak information to competitors? But keeping employees in the dark may be a bigger risk. "If employees are going to innovate," says Stack, "they have to understand the big picture."

For an open-book program to work, you'll need to educate your employees about finance. That won't work at companies with high turnover, because workers won't stay long enough to develop an understanding. And don't expect long-held attitudes to change overnight. Some employees will still believe you are getting rich on their hard work, or even that the data you disclose are falsified. Says Astrachan: "The programs only work if you trust employees and you are willing to put time into making the ideas work."