A recent article in The Economist, “Corporate Burlesque,” reminded me of the benefits of open-book management and how social media companies can use it to improve performance. The article discussed the advantages share the company’s financial information with employees to devise scorecards and other tools that show staff how their individual efforts help profitability.
Benefits of open financials
The article highlights several advantages of open-book financials that potentially improve your company’s performance.
- More effective incentive programs: By showing employees your financials and helping them understand the numbers (do not assume every employee can read and interpret a spreadsheet), they can see how the company is performing towards its goals. Assuming you have a bonus or profit sharing plan, employees will better understand how the program works and how their efforts can move the company towards its goals. Moreover, by understanding how your company achieves its goals, they may come up with individual strategies or strategies for the entire team that you may not have thought of but that impact positively the company’s performance.
- Transparency calms jitters: The article discusses one company (King Arthur Flour) that shared with employees a contingency plan that had four stages, with the final one being a reduction in force. The plans showed what had to be done at each stage to get the company back on plan. By sharing this strategy and the numbers as they were evolving with its employees, the company avoided crazy and ill-informed speculation about the company’s future (and more importantly, the employees’ role in the company’s future).
- Fresh thinking: By sharing strategy and financials, employees can come up with new ideas that improve profitability. Your company is not limited to what you and the rest of executive team can think of; instead you are harnessing the intelligence and ingenuity of everyone at your company. The article discussed one example, in which an employee saw the company was sitting on a large amount of cash and suggested a strategy that significantly improved the company’s profits by changing when the company liquidated excess raw materials. The key takeaway on this point: Don’t be so arrogant that you feel good ideas only emanate from a few. Anyone at your company has the capability to innovate.
Other benefits of open management
In addition to the above points touched on in the article, I have personally experienced some other benefits of open management. By open management, I mean not only sharing financials, but also telling your team about everything that is going on in the business. I have been in companies that have controlled very tightly the information flow to subordinates and other times have been able to enjoy very open dialogue with my colleagues and subordinates. In all cases, the open environment has created more successful and effective organizations. There are several reasons for this phenomenon:
- Less politics: Openly sharing information inhibits people from playing politics and forming cliques. One of the key drivers of intra-office politics is that different people have different information, and by acting “politically” they can improve their standing by sharing selected information with others that can benefit them. If everyone has the same information, this dynamic is gone and they can focus on doing their jobs.
- Retention: In my almost twenty years in the game industry, only one person who reported to me has ever quit. I consider this one of my two greatest professional achievements (the other building Merscom and selling to Playdom). I believe the key reason for this success is that I am always honest and open with everyone I work with, even if the greater corporate structure discourages such behavior.
- Greater focus on work: Uncertainty moves people to try to create certainty, which in a corporate environment means if they do not understand fully the situation, their focus will be on getting the necessary information to understand the situation completely. It is better to have your team focused on achieving the company’s goals than finding out what is going on.
- No upward surprises: If your team believes that you are open with everything happening in the organization that impacts them, they are much more likely to reciprocate. Your openness creates a climate of trust that encourages everyone to tell you quickly what is going on in the trenches. Often, this information helps you plan and adjust much more effectively than when it is hidden until too late.
It is ironic how many companies feel they need to control the information flow to compete while the benefits of open-book and more general open management are so great. I think the real reason is that many managers feel more powerful if they control the information flow. If the true goal is optimizing performance, then open management is a powerful strategy.