What is Open-Book Management?

Open-book management is a term that was coined in 1993 by John Case of Inc. Magazine, but it first drew attention when implemented by Jack Stack at Scientific Research Corporation (SRC) in the late '90s. Generally, open-book management posits that employees should stay engaged and informed in the company's financial performance, including revenue, profit margin, operating expenses, and cash flow. It also dictates that, along with a direct stake in the company's performance, employees should have a certain degree of accountability in outcomes. If implemented properly, it typically should encourage creative thinking and teamwork, and build company-wide morale.

Typically, none of this would be possible without employees being fully educated and trained in the measures of business success and what those measures mean in relation to their own jobs. In 1995, Case refined some of open-book management's tenets by saying that not only should management keep employees informed, but also should set concrete goals and numbers for performance. By setting and distributing a critical number that indicates profitability, or at least a break-even point, open-book management gives departments something to reach for.

Employees and departments can then be kept apprised of performance and the critical number at regular meetings. Management usually will establish a scoreboard or thermometer gauge that demonstrates to employees a direct picture of how their departments are performing, and how far off the critical number is. The rewards of this sort of engagement can be departmental bonuses, equity sharing, or other perks.

Open-book management is more than simply a matter of issuing newsletters or calling regular meetings. It can be important that employees have a full and comprehensive understanding of the data they are taking in. Often, it takes time for employees to learn to read and understand balance sheets, profit/loss statements, and other measures of financial performance, but it can pay off when employees and managers draw up and deliver concrete predictions to upper-level management.

With this style of communication and management, employees should be able to help make decisions and make suggestions on how to improve efficiency and productivity to reach their numbers. Sometimes, this is something that requires more adjustment on the part of management than employees themselves, but it can have its distinct advantages and payoffs. Transparency and clearly-set goals can mean highly motivated employees who can see and work toward attainable results. Ideally, open-book management evolves into a bottom-up model rather than the top-down style of management.