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Open your books for profit

January 1, 2002 -  By

By: Ron Hall

Businessman Dan Foley and other players on his team huddle at 7 a.m. every Tuesday morning. There are usually about 10 people in the huddle. They’re forecasting the financials for the month.

Together they scrutinize their landscape operation’s key numbers. This is how they determine winning and losing. Then, with each person responsible for a particular line item, they develop action plans to get these numbers where they want them to be.

This is just one facet of the game being played at D. Foley Landscape, Walpole, Mass. Foley says that “the game”—better known as open-book management—is greatly benefiting his organization. His experiences with the system have convinced him that it can offer substantial profit- and team-building benefits for other landscape/lawn operations, too.

Educating employees about key financial aspects of the business and then empowering (and rewarding) them to put this knowledge to work is a powerful tool for improving a company’s operating efficiencies and/or cutting costs, says Foley.

“One thing I think is confusing about the open-book management concept is its name,” he adds.

No kidding! Foley himself amends the definition by sometimes referring to the system as “the game.” (He follows many of the suggestions offered by Jack Stack, a popular expert on the subject who collaborated with author Bo Burlingham to write the book, “The Great Game of Business.”) Other times he refers to the process as “sharing the success.”

However you describe it, don’t fear it, he says. “In this process you teach employees to think and act like business owners,” explains Foley, who started his company after graduating with a business degree from Babson College in 1989. “It’s not about digging out your check book and passing it around to your employees. It’s not even necessarily about sharing financial statements with your employees. And it’s not about paying financial bonuses to your employees, although that may a part of it.”

And, most of all, insists Foley, open-book management is not a fad. “It’s been around awhile and it works.” Indeed, the system’s key points—sharing appropriate company financial information and offering incentives to spur production or efficiencies among employees—aren’t new. But it wasn’t until people like author and consultant John Case (“Open Book Management: The Coming Business Revolution”) put the elements into comprehensive business systems that it excited owners of U.S. businesses, particularly small- and medium-sized businesses.

Foley’s company, which focuses on commercial landscape maintenance, has been playing a variation of that game since 1998. He says he’s sorry now that he didn’t get his team onto the field and start playing sooner.

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He says that open-book management has benefited his operation by:

  • improving and stabilizing profits;
  • infusing his company with a spirit of teamwork;
  • getting more people within his company involved in the budgeting process;
  • giving team members more responsibility for making day-to-day decisions that he formerly made; and
  • improving employee recruiting and retention.

John Barringer has also been bringing open-book management into his company, Barringer Landscape Services, Charlotte, N.C., for several years. He describes the process as “evolving” only as fast as his company of about 25 employees is able to generate more and better data to track and positively influence employees’ decision making and performance.

“We do it more and more as we can generate good numbers,” he explains. “If you don’t do accounting on a weekly or monthly basis, and a lot of people just leave that up to their accountants, you don’t know what you’re doing month in and month out.”

In fact, he and some of his managers met a couple of days before this past Christmas to determine whether to work the Saturday following the holiday. “We were trying to close out the year with a little flourish,” says Barringer.

The first step in implementing an open-book business style is also the most basic, he says: “You reveal to your employees that the number one reason we’re in business is to make money. Everybody must understand that. Then we all have to speak the same language and make sure that everybody is on board.”

Wayne Richards, vice president and COO of Cagwin & Dorward, Novato, Calif., says that as his company grew he realized that to become more profitable it would have to find a way to give employees, particularly managers, more responsibility. The company has over 300 employees contributing to five profit centers—landscape maintenance, landscape construction, irrigation, tree care and environmental restoration. But Richards didn’t want to assign more financial responsibility to his managers without first educating them to the significance of some of the company’s critical numbers, specifically those numbers that the managers directly affect.

“We were fearful of turning loose financial information to our employees because we didn’t know what the result would be,” he admits.

Even so, impressed with an open-book management presentation at an ALCA Masters seminar, Richards’ team began developing its own home-grown system. In 1997, Cagwin & Dorward presented the concept to its employees.

“We brought about 40 or 50 of our managers and did on-site training,” recalls Richards. “We had to do some upfront development so that they understood the information.”

The results have been very encouraging, he insists. In addition to allowing employees to share in financial gains arising from increased efficiencies and cost-cutting, it’s allowed management to delegate much day-to-day decision making.

“All the fears we had never came fruition,” says Richards. “We got a lot of people in our company involved in helping us to become more successful.

“By sharing financial information the people making decisions have a much better understanding that little mistakes here and there can have a huge impact on the bottom line. We know that a lot of costs are being controlled by people in the field.”

The types of financial information that companies provide employees varies from company to company, but to work it must be information these employees can directly affect.

Foley and his managers, for instance, track gross profit dollars, which, in the case of D. Foley Landscape, has been a reliable indicator of net profits. In other companies, particularly start ups and those that are rapidly growing, this may not be the case, cautions Foley.

Adds Richards, “our financials are shared with everyone in our organization, but in different forms.” For instance, people in the field get information that they have the greatest impact on, like direct labor, materials, equipment, even uniforms. Department managers and key account managers get more detailed financial statements. With 13 different locations, the company uses e-mail to communicate and relies upon management at each branch to pass along pertinent information.

But what’s in it for the employees who are asked to take on added responsibility?

Generally, employees earn financial bonuses for meeting or exceeding well-defined production or cost-saving goals. Most companies post these goals (Foley calls them “scoreboards”) so that employees can track their progress day-by-day, week-by-week.

5 steps to turn employees into “partners”

1. Educate employees to your company’s operation. Share your vision and basic goals.

2. Build employees’ skills so that they can use the information you provide them to better understand their and your company’s performance.

3. Give them financial information that is relevant to their tasks and challenge them to use this information to improve your operation.

4. Regularly track their and your company’s efforts, and keep score.

5. Give employees reasons (profit sharing, bonuses, career advancement, special recognition, etc.) for making cost-cutting or revenue-producing business decisions.

LM Staff

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