Positive Business: Time to open the books?
May 23, 2014
Originally posted on Our Values
Is radically transparent finance a way to inspire and engage employees?
Opening the books and training employees to read and understand financial statements is a first step in using finance as a way to have employees think and act as business owners, take control of their own fates, and produce extraordinary results. The approach is called Open Book Finance, and it began in a desperate situation at a failing manufacturing company in Springfield, Missouri. Have you heard of it?
In the early 1980s, International Harvester was sliding into bankruptcy and selling off unprofitable units. One of these was the “renew center” in Springfield, MO, that did the grimy job of remanufacturing engines and electrical parts. It’s a commodity business where low cost is king. Renamed the Springfield Remanufacturing Corporation (SRC), the center was bought from Harvester by Jack Stack and a few managers for $9 million. They could only scrape together $100,000 and had to borrow the rest—at an interest rate of 18%.
Given what I just told you, would you have invested your hard-earned money in SRC?
Probably not. But if you had invested $1,000 in 1983, your investment would now be worth almost $2.4 million. To put that in comparison, if you had invested $1,000 in 1983 with Warren Buffett (Berkshire Hathaway), your investment would now be worth $86,600.
How did SRC accomplish this near miracle? Jack hit on the idea that business is like a game, a serious game, but a game in the sense that it has rules, you keep your score, and there are winners and losers. If you could teach everyone to think and act as business owners, including giving them a stake in the financial outcomes, you could inspire and engage employees and accomplish great things.
The idea became known as The Great Game of Business, and Stack’s book by the same title is considered one of the top 100 business books of all time. Stack and the company have been profiled by all the major business media.
Today, over 4,000 companies use some form of the Great Game—also known as Open Book Finance. These include Southwest Airlines, Whole Foods, and the small giants of Zingerman’s Community of Businesses and Menlo Innovations. Three of these companies are participating in our first annual conference on positive business this week at the University of Michigan Ross School of Business, Ann Arbor, MI.
Tomorrow morning, I will be running a workshop on Open Book Finance at our conference. You can read a case I wrote about Open Book Finance, or learn about it by visiting Zingerman’s training business or SRC ‘s training business.
Do you believe opening the books is a good idea?
Would it be consistent with the values of your organization?
Would you want to work in a place that “played the game?”