Is Your Agency Ready for Open Book Management?
What is Open Book Management?
Lately, I’ve been talking to agency owners who are grappling with an important question: “Should I open my books to employees?” The financial transparency of open-book management (OBM) helps your employees not only do their jobs more effectively, but helps them understand how the company is doing. It is completely rational to believe that if employees knew more about agency finances, then they would probably do a better job of pushing back on clients who request more work without additional budget. They would be more sensitive to tracking time — so, you would know whether jobs are profitable or not. In other words, your employees would be more fiscally responsible.
When deciding whether to open the books, the question you really want answered is this:
“Is open book management the right solution to engage employees in my business?”
If the answer is yes, then what must you think about before opening your books to the entire agency?
Open-Book Management: Is it for You?
Open-book management can be a great way to communicate with your team and make them feel like a part of the agency’s growth and success. But on the flip side, opening the books will put you in a position where you feel vulnerable.
Below is a snapshot of what an agency with OBM looks like.
Sharing access to critical business information:
Discussing the business’s opportunities and threats
Providing an overview of the financial situation
Reviewing metrics and benchmarks that inform decisions
Educating employees so they can understand financial information. While most employees can probably ballpark revenue, they don’t understand the importance of gross income. That’s not a knock on your employees — after all, they’ve had no reason to understand the importance of reading financial statements. If your employees can interpret financial information, they can make informed recommendations.
Empowering employees to act on information. When you give people information, they need to be able to do something with it. Open-book management isn’t about providing FYI updates; it’s about leveraging the diversity of experiences and perspectives within your team to make better business decisions. If you don’t provide an opportunity for people to impact the information you’re sharing, then you are better off keeping the books close.
Providing a stake in the outcome. Linking bonuses to financials and other critical metrics often motivates people. It’s not just the money that motivates — having a clear target that everyone has bought into and agrees on is important. This ensures that everyone is aligned with the same goal.
Giving people data they can trust. This is a simple but important point. If your employees don’t trust the data, then they won’t trust the process of receiving a bonus for their hard work. For instance, you would not want to tie a bonus to utilization if your agency doesn’t do a good job of tracking time.
My Take on Open-Book Management
So, how far should you go with open-book management? The topic is always a point of discussion. Sometimes, it goes as far as people asking for transparency in salaries. While I don't think you need to go that far, it does beg the question: if people are being paid the same amount for the same roles, then what's the harm in sharing that information? In any event, disclosing everyone's wage or salary is a recipe for trouble. The important information to be disclosed in OBM is the agency's numbers—not individual employees’ compensation. Salaries or compensation should be lumped together, so that no one needs to know exactly how much the account managers or the art director earns.
Open-book management is a good way to help employees understand the financial aspects of a business. However, it’s not the only way to keep employees engaged. Employees are generally engaged when they believe in the mission of the organization, are being fairly compensated, have an opportunity for career growth, and are given authority to affect certain business outcomes. I don't believe in sharing sensitive financial information if people can't do anything about it. In contrast, I do believe in people having metrics that they are accountable for in the organization. This is something they can control. This is something they can impact. Then, it’s your job to explain how their individual metric impacts and benefits the rest of the organization.
When it comes to OBM, it’s a hard NO for me—but it’s close. We oftentimes want employees to behave like owners, but in reality, they're not. And unless they have equity in the business, they should not be expected to approach the business the same way you do.