Engaging Employees With “Open Book” Finance

BUILDING THE OPERATING SYSTEM STEP-BY-STEP
Financial literacy is crucial, but you have to go beyond the financials and build the Open Book operating system. Financial statements are mostly about the past. They’re too general to be actionable, and they don’t package numbers in ways that help employees figure out what to do next. So, the next step is to build the system that provides a direct line of sight between daily actions and financial results.

“There has been no silver bullet in regard to profitability. Rather, it has been the sum of many small improvements.”

Start by identifying your critical number. For SRC in 1983, it was the $8.9 million loan. Everything was aimed at reducing that number. For Atlas Wholesale Food Company in Detroit, MI, net profit percentage is the critical number. CEO John Kohl and his employees identified key activities that link each person’s job directly to this number. They forecast these numbers and track actuals on a weekly basis, having these discussions in group “huddles” and deciding what actions should be taken.

Atlas has eight huddles, each with its own specific critical number. For example, the night shift/warehouse huddle’s critical number is mispicks. The accounting huddle’s critical number is accounts receivable days. And, the purchasing huddle’s critical number is cost of goods sold.  Every employee participates in at least one huddle.

Atlas also develops mini-games—small-scale incentive plans designed to fix a problem or exploit an opportunity. For example, one mini-game focused on reducing dead inventory, resulting in a 15% reduction in just four weeks. Another mini-game focused on reducing mispicks, yielding a 37% reduction in costly picking errors.  A third mini-game focused on energy use, slashing energy costs by 30%.

“There has been no silver bullet in regards to profitability,” says John. “Rather, it has been the sum of many small improvements.” Net profit for the last two years is the highest ever. Sales grew 13% in 2013 and 11% in 2014 in an industry where double-digit internal growth is unheard of.

IS OPEN BOOK FOR YOU?
If you want actively engaged employees who think and act like business owners, and you have the courage to share the financials, then Open Book is the way to go. You can start with financial literacy and mini-games, gain experience, and build the operating system step by step.  Open Book is an essential component of a positive business that produces superior financial performance and a workplace in which people thrive.