For Your Company, Operational Metrics, Not the Financials, Drive Success

There’s good news and bad news about open-book management. In the 30 years since one of us–John–coined the term in these pages, hundreds of companies have created OBM success stories. In John’s first book, Open-Book Management, Chris Lee of Training Magazine remarked, “Companies that practice OBM seem to have captured some sort of lighting in a bottle.”

That lightning promises better financial results, repeat and referral business, increased employee engagement, and higher value to investors. But for every company that has enjoyed the benefits of OBM, there are hundreds of companies who have not. Most leaders haven’t even heard of it, or at least haven’t seriously considered applying it to their business. 

So it’s a puzzle. If OBM is lightning in a bottle, why isn’t it being passed around like crazy? We asked a few trusted thought leaders why they thought OBM never took off to the extent it could have. During one discussion with author Daniel Pink, he succinctly observed, “Great concept. Lousy name.”

Let’s start with the name. OBM implies a company should open its books–that is, share the financials. There are two hang-ups here. One is that owners and managers are often reluctant to share the financials. The other runs deeper. Employees rarely understand the financials.

In an earlier article we shed some light on the first concern: the open-book approach doesn’t actually require you to share your full financials with your employees. And some OBM consultants have an easy answer for the second problem: financial literacy training. But plenty of owners who are short on time and dollars won’t take a chance on the investment. Maybe they shouldn’t. After all, it’s unlikely business literacy training will have much return unless employees are regularly and directly involved in the economics of the business. 

Our work applying OBM principles suggests an answer to both problems. When employees are engaged in the economics of the business rather than focusing on the financials, literacy and transparency fall into place. We call it economic engagement.

It starts with getting input from customers, then from employees and management. The goal is to develop consensus on the most critical issues facing the company. That consensus invariably points to a single economic metric for everyone to focus on, like revenue per paid hour, or job margin dollars per month. These performance metrics drive financial results. Because they’re operational, they’re readily understood by the employees who interact with the outcomes every day. No training required.

There’s another insight that we developed during the financial crisis of 2008–and ultimately it points to the need for an evolution of OBM. The vast majority of Bill’s consulting clients had excess capacity due to the downturn. He suggested to each company leader the same solution regardless of industry: engage with customers to see what they value most and act accordingly. After all, a business’s economics are defined by its customers, not by internal financials.

At an engineering firm, conversations with past clients generated referrals and incremental work. They also revealed that the firm’s scanning technology was particularly valued, so the firm began to showcase it in marketing campaigns. Similar conversations at a countertop fabricating company showed that they’d been wrong to assume that price was their customers’ priority. Purchasing decisions depended more on timeliness and customer service than on out-of-pocket costs. This insight allowed the company to increase prices. 

Customer value is arguably the heartbeat of a company’s economic success, as we noted in our recent article. But it’s rarely recognized as such in the open-book conversation. That reflects something worth noting about OBM. Most of its principles remain essential–clarity around goals, transparency on performance, self-funded performance compensation, ongoing forecasting of results. But none of these refer to the financials. Each is driven by the day-to-day economic metrics that eventually impact financial results. That’s why engaging both employees and customers in driving the improved economics of the business is a natural evolution of OBM.