Getting to the bottom line

It used to be that worker bees were told what to do, paid a set wage, then sent home. But today the lines between management and labor are dissolving. “Us and them” are becoming “we.” We are the “business people,” as John Case, a senior writer at Inc. Magazine, describes “men and women who take responsibility and who share in the risks and rewards of the enterprise.” We are a company's greatest asset.

Look around you. Do you see the transformation taking place in business? We are empowering, teaming, partnering, reinventing, reengineering, applying total quality and participatory management techniques. Ask yourself—with all these changes and great ideas, what is the common thread? It's information sharing or, more simply, communication, that ties the pieces together.

Your company's future success depends on sharing information and distributing it in many ways, most importantly to your employees. Whether it be hidden financials or the inability to find a report, it's what employees don't know that can hurt a company. The daily efforts your employees make are the biggest factors in your company's success. So nothing should be more important than providing them with the resources and incentive to do the best job possible, right?

Management by Sharing Information—and Rewards. Open Book Management (OBM) is management by sharing information: letting employees know where the firm is heading, letting them know how they are doing, and how it all is affecting the bottom line.

In Open Book Management: The Coming Business Revolution (1995, HarperBusiness), John Case describes this concept as “lightning in a bottle … a process—a journey—rather than an ironclad system for running a business.” OBM can transform human behavior. It gives employees more reason to care and more knowledge to work with.

Actual ownership provides further incentive to act. Management guru Peter Drucker wrote in 1954 that “the worker should be enabled to control, measure, and guide his own performance.” The Employee Stock Ownership Plan (ESOP) concept, developed in the 1950s by lawyer and investment banker Louis Kelso, makes Drucker's idea a reality.

Kelso argued that the capitalist system would be stronger if all workers, not just a few stockholders, could share in owning capital-producing assets. The evidence shows that he was correct. The National Center for Employee Ownership estimates that today there are 10,000 ESOPs and similar plans covering over ten million employees. Best of all, companies that combine employee ownership with workplace participation programs show substantial gains in performance.

What are the Benefits? Do you want employees who watch costs, respond more quickly to clients, bring in more projects and sales? Do you want a company where decisions are made and implemented? Of course you do. But traditional companies faced with declining markets either “eat their losses” or lay off in down times, both of which can destroy the trust and motivation of employees.

By contrast, the incentive of ownership and the sharing of information leads to lower employee turnover and higher motivation, both of which increase productivity and the feeling of responsibility.

Another concern in a solely-owned company might be the transfer of ownership if an owner should retire or die. Will the torch be passed to the inside leadership, or will the company be sold to an outsider? Having an ESOP allows for a gradual transition of leadership.

In short, the concepts of ESOP and OBM make management's job easier because the responsibility of corporate growth is shared. The weight of company challenges is on everyone's shoulders. And as employees think more like owners, owners are free to think more like leaders.

This sense of ownership motivates employees to turn off unneeded lights and copy machines, save paper clips and paper, and consolidate business trips and errand runs. Employees show more interest in their peers and how well they are doing. They are more willing to help colleagues, knowing everyone benefits if they do better, and they all pull in the same direction. The ability to make contributions to the company, whether by suggesting ideas for marketing tactics or improving finances by saving money, gives an employee the satisfaction of knowing she or he can make a difference.

But OBM will not work in centralized, bureaucratic companies because the employees cannot act upon the information. Insecure management will be threatened by these practices. To be successful, a level of trust between employees and management must exist.

Technology Aids the Culture Change. Rapid technological change is driving this business overhaul—change that will occur whether your company is ready or not. As many have discovered, the Internet and the World Wide Web are the future of business communications. The fundamental value of the Internet is that it can increase productivity, improve performance, connect companies to their clients, and develop new business opportunities. This technology can be just as powerful within the company as it is in connecting the company with the external environment.

Corporate webs, or “intranets,” are private networks for internal communication among management and employees. Intranet technology fits well in today's business. It is cheap and integrates easily with the hardware and software found in most offices today. These internal networks use the same user-friendly features that make the Web so popular, and like ESOP and OBM, they promote collaboration and information sharing, which results in increased productivity.

There are volumes of information in corporations today, mostly reams of outdated material in hard copy and electronic form. Paper is hard to store and difficult to retrieve. If your company is like most companies, you have a basement full of filing cabinets taking up precious space. Finding information online in your company may be just as difficult because the documents you seek may be on someone's local hard drive or in one of the many directories on one of the many network servers.

Intranets offer a powerful infrastructure for distributing and sharing information. They embrace existing infrastructure investments, including the investment in desktop computers, servers, mainframes, databases, applications and networks. They allow developers to author once and disperse anywhere.

Organizations of all sizes are facing major communication challenges, and in today's fast-moving, competitive environment, quick and easy access to departmental, corporate and client information is essential. Connecting your company with a computer network will make it easier to share information. When people have access to important, current information, they are empowered to make decisions. And, when employees are empowered to make decisions, productivity soars.

Three's Company. Think of it this way: Ice cream tastes good by itself, but add a little chocolate syrup, nuts, whipped cream and a cherry and the taste is definitely more satisfying. It is the same with employee ownership and open book management: together, they are much more satisfying, more empowering. Together, the mixture is a powerful solution creating “business people” working together, exchanging information and taking the next step in productivity. Add the new communication network technology called Intranets and you have dynamite.

And these are not new, untested ideas. As an example of these concepts in practice, let's look at what Blacksburg, Virginia-based civil and environmental engineering firm Anderson & Associates (A&A) has been doing for almost a decade.

A Case Study in Successful Empowerment. A&A employs people in five offices and concentrates its efforts in four Eastern states. The firm is integrated by a company-wide network that includes field crews and remotely located employees, clients, and business partners. A&A's goal is to become a “virtual company” whose services are unlimited by location or time. To achieve this goal, and to stay in the forefront of its field, the company believes it must build knowledge and nurture knowledgeable workers; eliminate sharp divisions between management, offices, teams and areas of practice; and maintain a flexible structure that is quickly adaptable to change.

As an employee-owned company, A&A is in the “human engineering” business as well as the “project engineering” business. The company is organized as many micro-companies housed under one corporate shell, each headed by a manager who coordinates his or her team's tasks. These organizational leaders simultaneously manage projects, processes, and employees. All employees are encouraged to contribute to the organization, not just in labor hours but with ideas for improvement and growth.

A&A president Ken Anderson believes in setting up a system that helps people help themselves. “If everyone has a stake in the business and is exposed to all its internal aspects, they are more likely to take a bigger interest in the company and we will have a stronger organization because of it.” Putting both ESOP and OBM in place was A&A's strategy for success.

Begun in 1987, the A&A ESOP plan allows employees to share in the growth. With ESOP contributions tax deductible by the company, the plan combines company and employee interests by allowing the company to finance its growth, while building the employee's ownership.

As for OBM, Ken Anderson says that opening the books was “simply a continuation in the process of the information sharing that we have done since our inception.” He compares the withholding of information in a company to a card game. “Imagine we're playing cards and I tell you I have four aces. Maybe you trust me, maybe you don't. If I lay down three aces, but I'm still holding one card, do you still think I have four aces?” OBM takes away the doubt by laying down the fourth ace.

Thus, for employees at A&A, their stake in the company is more that just a paycheck and their scope of knowledge is not limited to their personal task list. “Our management style and philosophies demonstrate that our goals are not artificial. The numbers clearly show what our company has to deal with to stay alive and prosper,” states Anderson. “Everyone can check electronic time sheets and online reports to see which projects are profitable and which employees are charging overtime. Showing employees how their job helps the firm make money is one of the best—and cheapest—ways to motivate them.”

Is A&A conducting business in a radically different way? Not according to Anderson. “All of these things just make sense to my engineering-educated mind,” he says. “Giving employees the facts and letting them draw their own conclusions seems to be perfectly logical.”

Does This Sound a Bit Risky? You may ask: What if my competitors find out our proprietary information? What if clients discover profit margins? What if employees find out the salary I am making or others are making?

Anderson says he often hears comments such as these, especially about the loss of information to competitors. His reply: “So what? What can they do with it? Our clients measure us by our reputation and experience in serving them. That's what counts.”

Another key piece of information that most employers want to hold back is personal compensation. Anderson, who is paid an hourly wage along with all employees, disagrees with this policy. “Some people say salaries are personal information. I look at this as business information.” By opening the books and communicating the situation “everyone knows that no one is getting rich at someone else's expense,” says Anderson, who is proud there has never been a pink slip given out at the company.

“Don't you get a lot of unhappy employees when they discover that their pay rate is lower than their co-workers?” you may ask. If you think that employees are not finding out where they stand in the salary line, you are fooling yourself. By not sharing information, a company forces employees to make assumptions that may be inaccurate. If your company is losing money, hiding financial information will more than likely make your employees believe the company is much worse off than it actually is.

Another aspect that might be considered a downside is constantly justifying and explaining decisions, particularly pertaining to finances. But, isn't this precisely what good management dictates? “By our employees understanding the rationale behind financial decisions, they are understanding more thoroughly the pros and cons of difficult decisions,” says Anderson.

However, sharing the financial numbers will mean very little unless those receiving the information know what it means. As A&A project manager and ESOP Advisory Committee member Mike Russell explains, “Overcoming financial illiteracy among employees at all levels is a challenge. If you do not provide education on what the numbers really mean, they can be easily misunderstood.” A&A is presently putting additional effort into explaining what the numbers mean on the reports that are accessible via the company-wide network.

The Role of the Intranet. Like many companies, A&A is moving forward on the “information highway” rather than waiting to see where the road leads.

Using the Internet was a natural direction for A&A with their goal of becoming a “virtual company.” In June 1995, they were profiled by Civil Engineering magazine as one of two engineering firms known to have a Web site. Since then, the firm has been experimenting in the various Internet technologies. Like many of you, A&A is evaluating the benefits. The company is getting a lot of “hits” at its site—but what is it really doing for their business? In A&A's case, they are discovering that the most valuable applications of the Web may be internal.

The internal computer network is another resource that allows more information sharing. The A&A intranet is growing organically. It began in the marketing department, where it was understood that a significant impact could be made if all employees had easy access to information. Having the right information at the right time can make or break a sale in any company; having all the information allows A&A's marketing staff to sell the engineering services more effectively. A&A is now learning how to expand the marketing web into a company-wide system, knowing this will greatly enhance information sharing and bridge communication gaps.

Employee Satisfaction Grows the Bottom Line. Everyone wants to build a landmark company that will stand the test of time. To do this the company must have a clear vision of the future, an excellent product or service, quality leadership and satisfied employees.

Access to information leads to trust and opens dialogue that may lead to better solutions to business challenges. An individual without information cannot take responsibility … an individual with information can. Sharing company plans and financial results promotes initiative, innovation and commitment. Employees think like owners and managers think like leaders. When employees are valued more than profits, value increases in all areas. This, more than anything else, leads to employee satisfaction—and that is the bottom line.

Karin S. Clark, officially the marketing manager at Anderson & Associates' Blacksburg, Va., office, is unofficially known as the “Web Witch.” She can be reached via the Internet at [email protected] or at the company's Web site, www.andassoc.com.