An example of Open Book Management at work

This article from the Great Game of Business, Doing More with Less: Seven Lessons From A Recession, describes how Anthony Wilder Design/Build, Inc. in suburban Washington, D.C., has coped with the recession -- including what many might see as painful salary cuts for its employees.

In reading this story, I'm saddened to realize how in the past year I failed in many ways to live by the principals here.

When times were good (I thought) late last year, I allowed myself "extras" without fully appreciating their cost to the business and their implications for cash flow.

When times turned tough, I refused to cut my own salary and fought over cuts in personal discretionary expenses. Then, for reasons which are too complex to report publicly here, I "shot the messenger". (Employees however know the reasons.)

The paradox is that I "thought" I was applying the principals of Open Book Management through the whole story. For example, at our weekly business meetings everyone in the organization saw and could review the financial statements and cash flow.

And when times turned tough, we started working hard to make cuts, slashing unnecessary expense and waste.

Regarding salaries, I suppose you could say we applied the principals fairly. I'm sure my managerial salary is far below the norm for most business owners, and employees were not expected to take salary cuts. And we sought the fairest way to distribute the load as things grew more challenging.

As things reached a critical stage, as well, I prepared for the personal salary cut which would have been far greater than that experienced by other employees. (That has for now been proven not necessary, but we laid off our writer for a couple of months, something I don't think would have been necessary if I had truly embraced the principals in this story.)

But if I look into myself, and do some true soul searching, I can't say that I have "walked the walk" here.

It is good, however, to learn from others who understand and apply the principals correctly.

Crisis, change and opportunity

Mel Lester's description in his blog entry, Success, for a Change, of how a company successfully changed its business model to make safety a high priority is an enlightening reminder that sometimes really good things can happen when you push through and do things differently.

But change is hard. In Lester's story, the change occurred when his company's major client made it clear that safety must be a priority or it would lose business. Few things can motivate executives and employees to 'get it' than to realize they are about to lose their client (or job) if they don't shape up, and quickly.

My own business is seeing some changes now, as I recover from one of my more expensive blunders of recent years. Thinking we had successfully overcome the last major crisis and were on the way to rebuilding a massively successful company, I let go of key cash and business management controls, relying on inadequate financial reporting and measuring resources.

Costs skyrocketed just as the recession began tearing into our sales volume; and (worse), I pushed forward with business expansion plans thinking that "one bad month" would not thwart our success.

Well, the four-letter-word indeed hit the fan, and we suddenly faced an immediate business crisis. The solutions are still under-way, but we learned some important lessons which you may find helpful in your own business.

Little things count. Not because you are nit-picking, but because tackling the little things (quickly and without much time/effort) allows you to see and resolve the big picture. On Monday, for example, I cancelled a bill for a cell phone number I hadn't used in two years. We are especially careful in monitoring the credit card billing statements, checking them online every day, for charges which need explaining.

Decisiveness is vital. I've had to make hard, tough decisions, which impact on individual employees. In one case, I asked someone who joined us after a lengthy selection process to leave within two weeks of joining the company (fortunately, we had not lured the person from a better-paying job, so didn't harm the individual.)

Fairness and respect are essential. One of our employees combines income from hourly pay and contract work, with the understanding (at the outset) that his hours would be variable. Alas, he felt the immediate brunt of the cost controls, but we've worked to feed him additional freelance work (at lower cost than we are paying other suppliers) to help him maintain some degree of income stability.

Openness is crucial. Our previous accounting and reporting system clearly didn't do the job, but we have maintained it because employees, in receiving the reports before and during the crisis, can see the numbers and that the problems (and solutions) are real. Through Open Book Management, employees also are receiving the new, much more detailed and forward-looking reports. This openness has helped us to maintain trust and respect and proven to the employees that superficial cost cutting measures are not enough.

I can't say all of the decisions we've had to make have been easy, and some of the toughest choices are imminent. But I'm now optimistic we'll pull through. You can, too, if you take charge and do what you need to do, while working openly and forthrightly with your employees to solve the problems.

How open can you be with open book management?

One reason cited by opponents of open book management -- where all employees see everything in the company's books and actively participate in the business planning and development process -- is the business risks disclosure of confidential information to competitors or others who shouldn't receive it.

This is a real concern, of course, especially as the number of copies of your corporate financial statements and reports increases with the number of employees with access. Obviously, we expect all employees to sign non disclosure agreements in their employment contracts, but what do you do about loose lips (and do loose lips sink ships)?

The answer to that question is another: Outside of specific circumstances -- for example formal negotiations before a business transaction is signed off -- should you put anything in writing that would cause you problems if it is divulged? In other words, if your 'books' get in the wrong hands, will it make any difference, and if so, why?

The answer is that, if you practice true open book management, the risks of inadvertent or unwelcome disclosure are truly minimal. Perhaps people you don't want to share information with can see your sensitive business data, but will they be able to do anything with the information to cause you real harm? I doubt it. We're assuming you are operating an above-board business with only one set of books, of course!

Best of all, if anyone in your organization is either sloppy or careless or wishes to cause intentional harm by sharing business secrets, you'll find you have many allies among the other employees to expose the matter and if necessary 'out' the wrong-doing employee. Notably, if you encounter this situation, you also find that you can uncover other more serious issues and resolve them promptly and fairly.

We discussed these issues at our construction marketing and sales meeting today, with the question: What is appropriate for an employee to share with outsiders, and what is not? One employee said: "Only disclose what you know if, imagining you are sitting next to your boss at the meeting, he wouldn't mind seeing disclosed."

This is an imperfect solution -- especially when you are a boss like me who encourages employee autonomy -- but it is a worthwhile guideline. With open book management, if you share secrets you are not supposed to share, you will encounter the consequences of the open culture within the business. In other words, if your lips are too loose, the company will learn soon enough, and will be able to address the problem before it gets out of hand.

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.

Business meetings: Control and freedom

Businesses all have distinctive cultures, usually initially set by the founder but ultimately defined by the employees and managers over the years. Businesses which survive (and thrive) through good and difficult times combine some "right place in right time" luck with a healthy dose of adaptability and change.

Businesses differ in the level of hierarchical and management control, from extreme autocratic enterprises to free wheeling and independent cultures. Is one approach to management control better than another? This answer is simplistic, but . . . it depends.

For example, in the early years of the business I sought to be a non-boss type boss; encouraging freedom, independence, self-responsibility, and individuality. But this anything-goes attitude I found almost destroyed the business (and as things started falling apart, I can't say that the company's employees really enjoyed their freedom). However, people don't change their fundamental selves very easily, and I could never see myself routinely ordering the troops to "do as I say". Generally, the only time I raise my voice in anger is with our landlord, who has trouble finding a way to keep the office building's washroom's clean. (We work in a C-class building -- luxury is not essential, but the garbage needs to be emptied and toilet paper replaced.) Here, my employees cheer when I turn on the boss attitude in calls to the landlord (and yes, after I call, the washrooms are cleaned.)

I still needed to learn a management control system that works well for my style of business, and finally found it (with some help from consultant Bill Caswell). The not-so-secret answer: Regular meetings.

Everyone gets together (remote workers by teleconference) for a weekly Monday meeting at 1:30 p.m. The sales team gathers at 3:00 on Thursdays. And twice a year we have major sit-down meetings (we fly in out-of-town employees for these planning sessions). Meetings always start on time and the regular weekly meetings never last more than an hour (we are usually finished in 20 to 30 minutes). Action items define accountabilities and responsibilities, business issues are resolved, and we make decisions. I also can smell out potential problems and conflicts.

The structured and regular meetings provide cohesion and order -- they create discipline without a heavy hand of management authority.

To succeed in construction marketing and business, I think you need regular business meetings. Do you have them and how are they structured? What is your experience?

If you would like to peek into our regular meeting, at least partly, you can visit http://www.justin.tv/publisher1 at 1:30 p.m. Monday.

Prepare For The Worst - Expect The Best

I received the following email yesterday evening. In many parts of the U.S. economy (and around the world) businesses which practice Open Book Management practices -- that is, actively engaging all of their employees in the business operations -- now are facing tough, challenging times. The Great Game of Business, founded by entrepeneur Jack Stack, advocates openness and ultimately employee ownership/equity in businesses. I believe these practices, conducted properly, are both effective and vital.

Open Book Management (OBM) : The Survival Guide
Succeeding in tough time's means staying committed to your Game. No Excuses.

A Letter to the Open-Book Community from Your Friends at Great Game.

Managing through difficult times requires the full engagement of a focused, educated and informed workforce. Success will have everything to do with how well you communicate and encourage your people to stay in The Game. Show the big picture, stay focused on your critical numbers; make sure your people are acting on the right financial drivers; and persistently- let me repeat- persistently keep score and follow the action. This is what rallies an organization to face challenges head on. This is what provides the focus, the alignment and the sense of urgency we all need in an economic turmoil. And most importantly, this is what brings people together.

Open-Book Management has long been embraced by leaders with the courage to share practically everything--the good, the bad and the ugly. While communicating effectively is always important, it takes on a much greater significance during tough times. As Open-Book leaders we must continue to talk candidly with our people about the realities of the business and the marketplace. Keep in mind "what your employees don't know can hurt you." The unknown can create a huge distraction in the organization and if you don't let your people know what's really going on, they will certainly fill in the gaps. An Open-Book approach can drive out negative rumors and help eliminate the emotions and fear that comes with uncertainty. Emotions can cloud our judgment, but communicating with the numbers can put everything back in perspective. It's time to play smart and how you get smarter is by studying the numbers and listening hard for the stories behind them. That's where you will find the opportunities and the smart way forward.

As Open-Book leaders, communicating with your people should be your number one focus. Leaders should never delegate communication...and they should do it face-to-face. We should communicate in a way that creates healthy dialogue by giving our people frequent opportunities to ask questions and openly discuss the realities the company is facing. If you give your people the opportunity to talk it out and discuss and debate the challenges, they will help you find solutions.

When we do communicate the realities of the marketplace, we should be very careful not to blame everything on the economy. This implies the situation is out of our control and sends a message to our people that all we can do is ride it out. When in fact, we must fight it out. Direct your energy towards the opportunities and give your people something positive to focus on and reach for.

Successfully weathering the storm will depend on how well you maximize one of your only true competitive advantages, your people. We should have confidence in our people and trust them to find new ideas and ways to work through these tough times. Leverage the knowledge and expertise of your team. Motivate and engage your people in the business by including them in the problem-solving process and enable them to act and take responsibility for improvement ideas. Try not to be single-minded on cost savings and driving optimization. Encourage innovation and creativity. Find ways to take advantage of every opportunity and build on them to get even better.

And don't forget to keep your people fired up. People rally towards leadership that is positive and optimistic. Leaders need to stay energized and show true resilience. Create small wins; the big ones may be hard to find. Those small incremental improvements will make all the difference. Give your people a chance to win and then celebrate, celebrate, celebrate when they do win.

And finally, sometimes success can simply depend on what outlook or attitude you choose to take. So stay energized, stay positive, and most importantly stay in The Game.

The Great Game of Business

All the Best,
Rich Armstrong
President, The Great Game of Business

Openness and respect

Unilever Australia's Code of Business Principles appeals to me -- of course the challenge is implementing these ideals in practice.

Tomorrow, all the company's employees and some key contractors will see the guts of our financial data -- the company's weekly financial report. This decision to carry the philosophy of openness to the highest level is contrary to the advice of some of my best (and most successful) business friends -- they advocate compartmentalization; only letting your employees know what they need to know to do their jobs; certainly not the whole picture.

I've never been comfortable with that approach to business, but equally, it took some serious blunders for me to realize that just being open, easy-going and fair doesn't always work in the real world. People don't always get it, and many times, see things from very narrow (and selfish) perspectives. The answer to the dilemma is to connect openness with responsibility and respect -- we'll respect our employees, but ask them to behave the same towards themselves and others on the team.

Respect isn't that complex a concept. It is important to show up for work on time and do your work to the best of your abilities. Respect also connotes taking into account the very real needs (human and emotional) of your peers, clients, suppliers, and even complete strangers. This isn't sucking up; nor is it pandering, nor hopefully is it playing organizational games to curry favour. Respect, intriguingly, also recognizes there are times when it is best to not share everything; to keep confidences, to understand that misplaced words and expressions can do far more harm than spouting the 'truth' in a noisy outburst of reaction. (And it certainly doesn't require us to be totally open with everyone about everything -- I am certainly not posting the confidential business information to be shared with our employees on this blog!)

Key Performance Indicators

This image is from The Dashboard Zone, a site offering "Free Dashboards, Examples, Screenshots, Tutorials, KPIs and Downloads"

Late this afternoon, I'll be at Ottawa' airport to greet Bob Kruhm from North Carolina, Chase from St. Catharines and Leslie Greenwood from Sault Ste Marie. They are all arriving on separate flights to land here between 5 and 6 pm. I'll take them to dinner at a restaurant near the airport (with Daniel Smith and my family) before dropping them off at their hotel.

They are here for the bi-annual company review/planning meeting. We have two key meetings a year; in the spring to look at where we are going overall, and in the fall, to define next year's goals and projections. These meetings of course are not inexpensive to co-ordinate. Travel and facilitation fees (Caswell Corporate Coaching Company are our facilitators) will reach close to $5,000 -- a not insignificant sum of money for our still relatively small business.

But I know these meetings are vital for the business, to help draw together the company around goals, enhance relationships, and address problems and opportunities in a timely and systematic manner.

With local employees and contractors, we'll have some 12 people in the room for three hours tomorrow -- followed by a two hour sales meeting/review. I'm going to bare the business soul; sharing its actual financial data. We'll also define our mission statement, and priorities. I will introduce the employees to the Open Book Management concept, and (I hope) we will start the process of defining some Key Performance Indicators -- the key measures we need to observe/follow to ensure business success and viability.

A few years ago, I would have thought this type of meeting to be a waste of time and money; a corporate junket using cliches and 'standard practices" that employees attended as an expense account lark. No need to sell anything; no need to do any real work; just sitting around a room thinking we are something important!

I now realize that without an organized business model and regular meetings, we fail to capture the essence of the business and its potential for success. We need cohesion coupled with individuality; rational rules of process without excessive and stifling structure. And we need the employees to work together creatively and effectively.

Do you have these types of processes for your own business? You probably should, as soon as your company reaches the point where it has a few employees (right now, the company has six employees on the payroll, along with core relationships with three key independent contractors).

Am I an expert on setting and defining the Key Performance Indicators we need to follow? Not yet -- and I want to be careful in implementing these systems, because nothing is more frustrating and wasteful in my opinion than gathering reams of data to measure something that really cannot help our business.

Here are some resources I've found on the web relating to KPI:

Sales and Marketing -- KPI Library

Dashboard Zone -- Marketing KPIs, Sales KPIs

The team and the individual

This image is from the Toastmasters International site. Toastmasters is a worthy organization that helps members develop speaking and leadership skills.

Some stories are too hot to handle because, even if you do your best to disguise identity, people involved might see themselves in the tale and assume, rightfully or wrongly, you are writing about them. The story which leads to this blog entry is just that type of experience; so I cannot even come close to telling it. But its importance is undeniable, because it shows to me how important it is to meld teamwork with individual performance; and having just one element right is a recipe for (near) disaster.
Since I cannot retell the story (which, to reassure my employees, has nothing to do with them), I'll have to resort to language that is a little forced and perhaps artificial.
Here are the elements:

1. The team scored a victory over a lesser rival, but most of its members did not cheer; there were moments when the victory could have easily turned to a loss;


2. One member of the team scored more points than any others in his team, an accomplishment usually worthy of commendation;


3. But in this case, the other players expressed frustration, anger and disappointment, because the player did not work with the others; did not share, did not co-ordinate his activities with his peers; he played for himself rather than his team.


4. They were unhappy because while the team won over the opposing team with less natural talent, if the team had been matched with any other team with the same level of talent, it would have been defeated handily. And everyone saw how the weaker team, for all its limitations, actually won the game by playing it correctly.

The example illustrates some important points:
In any organization, individual talent is indeed important, and in many cases an organization of talented individuals who don't play well as a team can do better than a great team with lesser individual talent;
But talent cannot exist in isolation; prima-donna behavior can quickly tear at the soul of a team, and destroy it; individuals need to work within the team if they are to succeed; and the team needs cohesion for success in the longer term.
Frankly, the story behind this blog entry will be much easier to retell a few years from now, when the risk of relating to someone real has disappeared. More importantly, then I will hopefully have proven the hypotheses that are driving my business right now. I sense these principals will work in practice, but haven't tested them long enough to know for sure they are valid. If they are, I'll be able to write a 'how to succeed' book with confidence and provide my services as a consultant at a high hourly fee. In the meantime, here are the working principals I'm using.
Recruit to your highest standards -- don't accept anyone less.
I've established a hiring protocol that requires a thorough and systematic evaluation of any potential candidate for employment within our organization, and for which we will not lower our standards. Each job of course has different requirements; but each potential employee must go through a self-selection screening process, followed by substantial testing. We cannot succeed as a team unless we have the best possible individuals on it.
Ensure your employees can connect and work well with others on the team.
We won't hire anyone if existing employees are not satisfied; and when they must work directly with each other, the peers have veto-power over the hiring. Equally, if employees fail to meet the standards of their peers, set out in our working performance standards and guidelines, they must leave, if they cannot improve within a reasonable time.
Superior performance should be recognized, but not at the expense of the team.
Not everyone is equal; and some people will assume greater responsibilities and leadership than others; and they may earn higher compensation, or be given greater responsibilities. But if they cannot also bring the team upwards with them, they must leave as well. These are the most challenging situations in business, of course, since it can be expensive to lose a top performer. But if the team is fraying because of the behavior of one successful person, we either need to realign roles to avoid the conflict, have the top producer change his or her ways, or ask the seemingly successful (but truly destructive) person to leave.
Leadership starts at the top -- implementation of these principals requires openness and fairness.
In my business, of course, that is me. When I lose touch of the team's goals and objectives; when I put myself first and forget the needs of others; when I am selfish, arrogant, and put on airs of the owner, I deserve to lose the trust and acceptance of my employees. This is the essence and challenge of Open Book Management; something I expect to learn and implement within the next six months.