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Thursday, February 26, 2009

Open book management and bad news

Readers of this blog know I was blindsided by a really bad financial report earlier this week. Thinking we were on track to profitability, I suddenly discovered that the numbers added to red line danger losses.

Obviously, failing to see the circumstances in a proper manner is a failure of leadership and management, for which I and no one else should take responsibility. But despite the bad news, some things still went very well, the most important being that the business could maintain the trust, respect and community of its employees.

The reason: No secrets. Everyone in the organization has received the same financial reports as I receive each week and clearly we don't massage the numbers to make them look right. So when I told everyone the bad news, everyone here could see things in black and white -- and we could set out to research and find solutions.

We are now reviewing our costs, revenue streams, and objectives, and I am starting to get a clearer picture of the problem with the possible relief that this is something of an annual glitch in part caused by the holiday season's disruption to the sales and revenue cycle. Data is reported weekly but our costs and production are monthly. The Christmas season requires a two-week shutdown, but no reduction in overhead or salary costs.

We handle things pushing back our February deadlines and holding firm on our January issues production schedule, essentially creating a six week gap (we make up the time with the two or three months a year where we have an extra 'week' in the month.) If our production cycle had been normal and not delayed by two weeks of Christmas season quiet time, the calculations match much more closely my original informal working projections. (Employees are required to take one week's mandatory vacation this time of year for this reason.)

This does not change the fact that the hard numbers are unacceptable, nor that I should have been aware of these issues well in advance of Monday. However they partly explain why over the years February/March have always challenged my projections and business understandings; and why if we seemed to be on a steady-state through December and January, we suddenly seemed to hit a wall in February.

Lesson learned: Build up better reserves in the fall for this time of year. Our problems this time around are probably greater because of expansions to the payroll and the fact that December/January results were exceptionally poor, draining cash at a time when we need it most. I now believe, with a tighter control on costs and review of our working objectives and practices, we should be fine in the next couple of months.

So, you may say, what does this stuff have to do with construction marketing? The answer is "everything". Your business culture, your internal structures, and how your employees and management relate to each other define how you connect to your current and potential clients.

And open book management is probably one of the best ways you and your employees can share and work together to maintain morale and respect when things aren't so good. If you have to cut -- if you have to make hard decisions -- everyone knows where things are and can help to find solutions.

Open book management, after all, is all about earning and maintaining the trust of your employees. Since successful branding and marketing relates to how your clients trust and respect your authenticity, you can see how the same principals apply in your external marketing.
This does not mean you have to bare your soul for every detail and broadcast bad news carelessly. In his presentation to the SMPS lunch in Washington, for example, Ford Harding described how a project manager without much sales training and experience attended a meeting with a potential client.

The client had been thinking of engaging the company's services, perceiving it had experience in the geographical area where the employee worked. So, when the potential client asked about the employee's experience there, the employee gave a brutally frank and negative assessment of the business and his experience. The client headed for the hills, naturally. Probably everyone would have been better served with a little finesse -- perhaps a question to see what the client really wanted to know; for if the employee had that information, he might have framed his response in a much more positive (but still truthful) manner.

The costs of failing to practice open book management can be seen in industries where businesses have failed to win and maintain employee and client trust. Consider the U.S. automotive industry, for example, where sloppy industrial and management practices resulted in the (just and necessary) birth of strong trade unions with an "us or them" mentality to management. Today, the industry is in crisis. The financial sector is even more disturbing. Here, the books that may have been open also appear to have been falsified through fraudulent self-serving manipulation. Alas, government oversight also failed.

The power and success of open book management can be seen in this video. Yes, the 1-800-GOT-JUNK story has elements of PR and rah-rah manipulation, but it also shows how allowing the employees to share in the business builds community and mutual respect and support (and helps your brand!)

We're stretching, we're growing, and, with some mistakes and glitches along the way, we are learning how to build a truly great business. You can do the same, too.


Anonymous said...

Mark. Well said. Open books and open communications connect your employees to the business and encourage them to become invested emotionally in the company. They in turn, feel that they are part of something and can help in developing new ideas and solutions to the problems that arise.

Construction Marketing Ideas said...

Craig, thanks for your comments. Openness also enhances accountability: Everyone understands their responsibilities and communication is quick and responsive in all conditions.

Anonymous said...

Hi! My name is Keshia, and I actually work for Jack Stack’s company that teaches the practice of Open-Book Management to other organizations, The Great Game of Business. I just wanted to say that I enjoyed your post and thank you for sharing the benefits of OBM and motivation on your blog. I believe that OBM is a philosophy that will become even more valuable with the uncertainty of the economy in the next few months, and it is so important for entrepreneurs to communicate with their employees on such critical issues. Have a great day and thanks for sharing!