Rich Armstrong, president of the Great Game of Business, moderated a panel of four management team members of two companies that practice open-book management. These remodelers revealed that committing to an open-book practice can really affect the bottom line. Craig Durosko, chairman and founder, and Bob Gallagher, president, say the team at Sun Design Remodeling has weekly meetings to review the company’s monthly projections. Sharing and discussing this information, Gallagher says, has meant a 25% increase in revenue and a 9.7% decrease in overhead expenses.
The panel included Elizabeth Wilder, president and CEO, and Mark VanDeWege, general manager, with Anthony Wilder Design/Build (AWDB). VanDeWege says before the company began sharing information with employees during weekly call-in meetings and monthly in-person breakfast meetings, the company’s design to construction conversion rate was 50% to 60%. Now, the average conversion rate is 85%.
All four panelists agree that every employee is critical to the success of the company, so the more each of them understand the goals of the company, the better they are able to understand their contribution and rewards.
Sharing Financial Information
The Q&A format of the panel provided RMLC attendees a chance to ask a range of questions that addressed their concerns about sharing financial information with employees.
One attendee asked about one of the Great Game practices, which asks company leaders to choose and track a critical number. Wilder said at first, the company tracked its goal of having a 42% gross profit, “but that’s meaningless if we do not have any net profit,” she says. The company changed its critical number to net profit. Gallagher says the company’s critical number changes every year, but it is currently operating profit, which is similar to Wilder’s net profit figure.
Wilder and VanDeWege say it’s not enough to just share the numbers; the management team needs to make sure employees understand the meaning of a profit and loss statement or balance sheet. AWDB brought in consultant Linda Case for a half-day seminar to educate employees about financials.
Getting Employees to Buy In
Many of the questions from attendees involved how to get employees engaged in an open-book management system. Moderator Rich Armstrong mentioned that AWDB has been open-book or “transparent” since 1995, but it’s just in the past few years that the company has moved to having employees that are truly engaged.
Wilder says the engagement started when she decided that she could not be the only one at meetings that was reporting numbers and statistics. “When employees have to report numbers and participate, they become players,” she says. At an earlier session, Armstrong mentioned that the Great Game system requires moving from having employees that are “fans” and know the score of the game to those that are “players” and feel they can change the outcome of the game.
Durosko says that one key practice is to put department managers in charge of budgeting for a specific line item in overhead. VanDeWege says it’s important that no blame is assigned during reporting meetings. Armstrong says that at SRC Holding Corp., the parent company of the Great Game of Business, employees reporting a line item that is 5% lower than what is budgeted must come the meeting with an explanation and a plan on what they will do to improve that number. Wilder says at AWDB meeting, she feels there is less finger pointing because all the employees have one goal.
Mark says explaining a bonus plan in terms that employees can understand will also get them more engaged in the game. For example, explaining that if the company increases revenue by a certain amount, the employee will receive 8 hours in pay as a bonus.
Durosko cites one example of employees working together to solve a problem. When reports revealed slippage in mistakes in cabinet orders, the five designers at Sun Design began reviewing each other’s orders for mistakes. “They know that savings on the correct orders goes straight to the bottom line,” he says.
VanDeWege says during open-book meetings in good times, employees at AWDB were asking questions related to their bonuses. During the recession, employees expressed concern about job security by asking about the company’s backlog.
Many remodeling company owners at the session were concerned that open-book management requires sharing employee and owner salaries. Armstrong and the panel assured these attendees that this is not required. Other remodelers asked about requiring employees to understand the confidentiality of the financial information. VanDeWege says at first he was concerned about employees sharing information with competitors, but after working with the system, it is now less of a concern. “You can know our numbers, but you can’t reproduce the results without our employees,” he says.
Durosko responded to attendees who were worried about sharing numbers with an employee and then having the employee leave the company. He stated that the owners should be more concerned if they don’t share the numbers and the employee stays.
Armstrong says that with open-book management, owners can’t make entrepreneurial decisions as they have done in the past due to “upward accountability.” -Nina Patel, Senior Editor, REMODELING