Everyone Owns a Number

The title of this post comes from a portion of a presentation I attended in Chicago made by Roger Pell, SVP of Inmatrix. Mr. Pell's company distributes a great financial diagnostic program called Optimist. I've used this software and I am offering an unabashed testimonial for its functionality in helping businesses forecast and improve financial performance.

Below is a link with some information on this software for those who are interested in learning more about it.

Optimist Information

I consider Mr. Pell a kindred spirit. Mainly because the tag-line for his company, Inmatrix, is “making business simple.” You need to look no further than a few past posts to see my claim that business success is as simple as having more income than expenses and I believe that too many businesses struggle because they lose focus and forget to pay attention to some simple financial indicators. The story is always there in the numbers, you just have to know what to look for.

One of the suggestions that Mr. Pell made during his presentation was that businesses should create a culture where “everyone owns a number.” He was referring to open book accounting, which basically encourages businesses owners to share portions of their financial information with their personnel. I have always been a strong proponent of this practice and believe that more businesses would increase their productivity if they shared financial information with their front line employees.

Before you respond with comments that question my sanity, I suggest that you read two books. The first is called The Great Game of Business by Jack Stack with Bo Burlingham. Jack Stack helped turn Springfield Remanufacturing Corporation, a nearly bankrupt division of International Harvester, into a very successful operation using an open book management system that encouraged employees to play the “game” and understand the profit centers that dictate success in their organization (A Stake in the Outcome is another great book written by Mr. Stack).

The other suggested reading is Nuts! by Kevin and Jackie Frieberg. This book is the story of Southwest Airlines and shares some of the interesting business philosophies of Herb Kelleher and his management team in developing a corporate culture that is unrivaled in the airline industry. While open book management is not the focus of this book, there are some great excerpts of how they incorporated this practice and the positive results that were generated because employees were given a stake in profitability and access to key data on performance.

Open book management gives employees incentive to perform and achieve goals, it allows for easier delegation and helps discipline an organization to pay attention to key financial data. There are many variations to implementing this process, from limited short term bonus incentives for employees to full disclosure and offering options for employee ownership (Employee Stock Ownership Plans or ESOPs).

I had my first exposure to open book management when I worked at a fast food franchise in NJ back in 1982. I was working on the cash register for minimum wage, which was $3.35/hour at the time. One night, my manager called a pre-shift meeting with the four register operators and told us we were going to have a “register race.” Whoever rang up the most sales between 5:00 and 9:00 PM would make an extra $1.00/hour for that shift; we worked a 6 hour shift, so this would be a whopping $6.00 bonus. I was up for the challenge and I remembered to ask “you want fries with that?” and to upsell the from fountain sodas to milkshakes.

My sales topped out at $800 for the period and I won the race that night. The fact that I still take pride in this silly little accomplishment evidences the power of a adding a little competition to the workplace (I will add here that part of the incentive to succeed was that I also had a silly little crush on my manager, Kathy).

Let's look at the results of that performance in a different light. I found out that night that I had usually generated $650 in sales per evening. So for an additional $6.00 cost, this corporation got an extra $150 in sales. The average food cost at this franchise in 1982 was around 22%. So when considering that all their other operating remained the same, they made an extra $111 that night ($150 - $33 food cost - $6 Rick bonus) by creating this incentive. Actually, they probably made even more, as my coworkers also were likely to have performed a little bit better than normal.

When implementing an open book management system, management still holds the keys to the amount of information that they share with their employees. You may not want to share everything, but at the least, I suggest keeping employees in the loop in regards to productivity benchmarks that you use to measure their performance.

If you don't have measures in place, now would be a good time to start. Accountants love when they hear, “you can't win the game if you don't keep score.” As part of any continuous improvement process, you should have some way to gauge productivity and efficiencies. These are often called “key performance indicators” (KPI) and they can be based on operating, marketing or financial benchmarks. An acronym often used when considering a KPI is SMART. This stands for: Specific, Measurable, Achievable, Relevant, Time bound.

Most KPIs are industry specific, so if you are not sure what measures to use, I suggest that you start reading some industry publications. You can also give our office a call and we can put our NYS SBDC Research Network to task in helping you out! I've added a link to their blog in my sidebar and suggest that you check out some of their great links to resources, as well as their interesting posts.