Open book management & pay by the Job?

[REVCAM_Bob]

Two separate, but potentially related topics.

Do any of you have experience with open book management in machine shops?

How about paying employees by the job?

[mad mark]

I have no experience with either, but would love to hear feedback from those who have. I'm very interested in the pro's and con's of these two subjects.

mark

[REVCAM_Bob]

You may be interested in a book by Jack Stack called "The Game of Business"
It is about companies that have done this.

It appears incredible what it can do for companies and their employees.

[Runner4404spd]

can someone explain the term Open book management?

[REVCAM_Bob]

Open book management: When a company reveals some portion, or possibly
all of the book keeping information to the employees. The concept is that
throught a cooperative effort and removing walls and mysteries etc. that
the company can work together to achieve a common goal.....

This could and probably would require some kind of profit sharing/bonus system also in order to be truely functional.

Or something like that

[crazythunder]

People who work in a shop always want to know how the company is doing. The reality of that is not always good. If the company has down time or slow times then everyone will know and think their job is in Jeopardy. People need to know when times are good and when times are lean. To fully open the books leaves the people wondering why they are not getting raises when they think they should. The hardest thing is too get people to understand raises are based on more than what they think they should get. Strong time need to be building time as well as the slow times. Though most companies go about this in different ways this should be the natural progression of any company. People see the assets or stock piling of money for a possible purchase of capital equipment and will not understand the reason. They will want this money given to them not seeing the big picture all bosses and owners try to have. The people who are the decision makers should have a clear understanding of P/L. People want to know who they work for is going to be in business tomorrow. This however creates a paradox of understanding from running a business, building a business, and growing a business.

Different people have different roles in the company and you open yourself up to problems since everyone will know what the other makes. You think this is good idea, but being on the receiving end of this I can promise you it is not. I was the shop foreman and was making a lot more than other managerial personnel were. They open up things to the others and well my salary was out there. Others would make little comments about what I was making. Their work started to slip because they felt they deserved what I was making. Now if the company did not give in it could lose these people. Payroll then went up by 19% in just 2 months. This cut back on the companies ability to grow and hurt production and drove prices up and things were effected from there.

The idea behind any business is to give the best possible product at the lowest cost possible. Well employees are mini business and if you can get a business to give you good quality work as a lower price than the next this is how you make money. Now if you went around telling the vendors that are doing work for what others are charging you then you lose the competitive edge and now allow them to raise prices thus raising your prices. Business is business and needs to be kept to the people that understand how and what it takes to run one. Opening things up seems like a good thing and is always done in a good spirit, this however is most time liking opening up Pandora's box.

The argument is always well we will hide certain things, but then you are not really open and this leads to hards feelings. Then it becomes the thought process of you are hiding this and what else is being hid. The you open this up to this person then that person want to know thins and now more time is being wasted answering questions about thing which take time. We all know time is money and having to waste time is wasting money.

Keep all things in front of you and try to weigh what the real costs are and to what extent things will be shared. Research is the best answer and know what you are getting yourself and the company into if you go down this path.

[REVCAM_Bob]

Thank you for your input, it certainly sounds like one should tread lightly in
this area. Very good insight. Thank you!

[Geof]

I was thinking about composing a longish post but when I read what crazythunder posted all I can do is say; "ditto". Tread lightly is a very good policy.

[Mcgyver]

yeah, I agree the open book is BS. they either won't care, won't understand it, (truly being able to read statements is not something very many can do anyway) or if its re-packaged to make it simple they will think ones still being pulled on them. Besides, what's your objective? Sure they're stakeholders and their well being is important to company but the overall reason for having a company is to drive shareholder value - how pumped do you think they;ll be about the whatever per year they make when the see what the shareholders make?

To get back to the objective, it is to make people care about the right stuff, be more productive, efficient etc, right? Well accounting plays a huge role in that, but not financial accounting, management accounting! Management accounting is just what you measure in a business - i.e units per hour, cost per hour, defective rates, customer satisfaction, scrap rates, % on time shipping etc etc etc. The one over riding truth about managing people that i was taught, and everything stems from this......you get what you measure and reward. Its that simple. if you want to direct people and make them more involved in the overall companies objectives, in other words to change their behavior, you've got to alter how they are compensated and how their performance is measured.....that matters to them, incomprehensible fianancials don't and won't. only challenge is, get what you measure and reward is not easy to balance because the design of these systems can be tricky and you don't want to keep the organization in turmoil by mistakes or constant change.

long winded answer, but conclusion same as Geof's, crawl walk run.

[Geof]

I wondered why Mr Mcgyver started his long winded post by saying it was BS so I went to Wikipedia and found this:

Open-Book Management is a management technique originated by Jack Stack and his team at Springfield Remanufacturing and popularized in 1995 by John Case. The method, as the title implies, is to give employees all relevant financial information about the company so they can make better decisions as workers. This information includes, but is not limited to, revenue, profit, cost of goods, cash flow and expenses.

The basic rules for Open-Book Management are as follows:

Give employees training to understand the financial information.
Give employees all relevant financial information.
Give employees responsibility for the numbers under their control.
Give employees a financial stake in how the company performs.


In a company fully employing Open-Book Management employees at all levels are very knowledgeable about how their job fits into the financial plan for the company. However taking a company from "normal" to open is not as easy as just starting training classes on income statements and balance sheets. Employees rarely find it compelling to understand these numbers. In order to overcome this problem Open-Book Management focuses on a "Critical Number". The number is different for every company but it is a number that represents a prime indicator of profitability or cash or both. Discovering this Critical Number is a key component of creating an open-book company. Once discovered then a "Scoreboard" is developed that brings together all the numbers needed to calculate the critical number. The Scoreboard is open for all to see and meetings take place to discuss how individuals can influence the direction of the "Score" and therefore, ultimately, the direction of the Critical Number. Finally a Stake in the Outcome is provided which can be a bonus plan that is tied to Critical Number performance or it can include Equity sharing or both.

He is correct; it is BS.

[erd39030]

Sometime ago I heard an story about a Firestone plant in Puebla, Mexico.

They needed a lot of production, so they gave really big salaries to its operators (from 500 pesos a week, they raised to 2,000) hoping it would be an incentive.

It worked the other way: Once the operators got their 500 pesos by working 2 or 3 days, they just didn't care of working the rest of the week and the absentism throw production down until the plant was closed.

So there's a lot of people who just doesn't care about being ignorant. They like that way.
I think that Open-book management only can work for companies full of well educated, responsibles, intelligent employees... and only the small companies with few employees can reunite such quality workforce.