Strategic Open-Book Management in 2025: A CFO’s Perspective

What short- and long-term incentives truly inspire your employees to actively contribute to the sustained success of your business? Are these incentives solely tied to job tenure and security? What potential alternative approaches and options should you explore to create a more engaged and motivated workforce?

As we venture into 2025, the necessity of adopting innovative management practices is evident, especially those that build trust and transparency within your organization. Research conducted by the National Center for Employee Ownership (NCEO) has consistently found that companies which rigorously employ open-book management disciplines enjoy an annual sales advantage over their peers. Research shows that companies with highly engaged teams grew faster than their counterparts. Such an advantage can change the game, even in the most competitive markets and industries.

Understanding Open-Book Management

Open-book management is celebrated for its power to supercharge team engagement and financial performance. Key ingredients include:

• Sharing key financial information with most employees.
• Providing productivity, plant utilization, and quality data to employees.
• Encouraging employees to use this information in their daily tasks.
• Training employees to understand financial numbers.
• Sharing financial results through a gainsharing program.

Research and Benefits

In a study conducted by NCEO, companies practicing open-book management saw a 1-2% annual increase in sales growth over expectations. Earlier studies have consistently shown a positive connection between employee ownership, participation, and corporate performance. For instance, highly participative companies grew 8-11% faster than expected. In the study, companies that shared information with employees showed increased sales and employment growth compared to their competitors. ¹

Key Principles of Open-Book Management

1. Know and Teach the Rules: Business transparency and education involve sharing the state of the business and educating the team to understand and impact the data. High involvement planning ensures that teams participate in planning processes early and iteratively, owning the plan.
2. Follow the Action and Keep Score: Consistently inform the team about performance results and trends. Establish intentional brief meeting rhythms to keep everyone informed on progress, activities, and changes. Regularly involve the team in projections and updating forecasts to shape and understand the future together.
3. Provide a Stake in the Outcome: Recognize and reward employee contributions to reinforce ownership. Set periodic goals and initiatives to provide opportunities for wins along the way. Help every employee connect their success to the company’s success through equity, stock, profit-sharing, bonuses, or other mechanisms.

The Rationale for Open-Book Management

In most companies, employees are often unaware of how their actions impact the organization’s financial health. This detachment leads to a lack of motivation to contribute ideas that could benefit the company. For example, if a customer support person understands how their performance impacts revenue, they’re more likely to put in their best effort.  ²

Open-book management helps employees understand how the organization’s workings translate to financial results, empowering them to participate meaningfully. Employees fight for something they help create or save. When they grasp how their contributions translate to success, they tend to act more like owners, benefiting the company as a whole, rallying around the company’s growth and success. Plus, many companies will create compensation and incentive programs tied to the financial success created from these efforts.

Turning the Page to Open-Book Management

1. Create a Scorecard: Define the set of data that will be communicated, including simplified profit and loss statement, key metrics and targets for improvement with your team. This will help keep critical numbers top of mind.
2. Assemble a Team: Form a team responsible for rolling out and sustaining open-book management within your organization.
3. Educate the Organization: Implement financial literacy training to help employees understand the meaning and importance of numbers and how their roles impact them.
4. Establish a Meeting Rhythm: Schedule routine meetings to forecast numbers and discuss progress.
5. Focus on Small Wins: Implement small exercises to practice the concepts of open-book management, gaining momentum through achieving smaller goals.
6. Incentivize Employees: Create a system to reward and recognize employees’ efforts, validating their value to the company.
7. High Involvement Planning: Set clear long-term strategic goals tied to financial numbers to motivate and align everyone in the organization.

Understanding the Drawbacks
While successful implementation of open-book management offers many benefits, it’s important to be mindful of potential drawbacks. Implementing open-book management requires substantial time and effort to gather, analyze, and present financial information to employees. This can place a significant burden on management, diverting resources from other critical tasks. Additionally, the complexity of financial data may pose challenges, as not all employees have the necessary skills to fully comprehend it, leading to misunderstandings and misguided decisions.

Sharing sensitive financial information also raises confidentiality concerns, increasing the risk of leaks or breaches. Thus, while open-book management can enhance employee engagement, leaders must assess the current company culture and how impacting the change will be.  Based on this risk assessment, a carefully-considered implementation plan should be developed that may need to be phased over time instead of all at once.  A balanced approach based on a given company’s circumstances is key to success.

It is important to note that this management approach is not right for every environment – especially if owners and executives are not in alignment about the goals they want to achieve and may not be adequately prepared for the inherent transparency the program brings to the company.

Open-book management is about building a healthier, more engaged, and financially informed workplace. It can transform how your company operates by promoting transparency, fostering trust, and empowering employees. As you consider whether open-book management is right for your company remember your goal should be to lead a thriving organization poised for growth and resilience.

If you believe open book management is the right move to propel your company to a new level in 2025, contact me and let’s work together to build a stronger, more engaged organization.

Sources

1.What Is Open-Book Management?

https://www.nceo.org/articles/open-book-management

2.The Business Case for Open Book Management
https://www.forbes.com/sites/fotschcase/2017/07/25/the-business-case-for-open-book-management/