Our guest on the podcast today is Reid Leland, founder and President of LeanWerks, a precision machining job shop in Ogden, Utah. Lean Works operates using open-book management, which means the company shares its financial information with all its employees on a regular basis.
Reid says this transparent management style makes its employees aware of how their performance impacts the company’s success. They feel accountable to not only work hard but more intelligently, in a way that benefits the company the most.
Reid learned about the open-book management approach at his previous company, Setpoint Engineered Systems. It was popularized by entrepreneur Jack Stack, author of the best selling book The Great Game of Business.
Main Points
Employees Must Understand the Company’s Financial Score
All employees at LeanWerks are required to complete a rigorous training program in which they learn how to understand income statements, balance sheets, and cashflow.
The object is to teach employees the ultimate financial score of whether the company is winning or losing. Open-book management is intended to illuminate the strategies and practices that make a company profitable and eliminate waste. For instance, at LeanWerks, shop employees might look at how many parts are being scrapped on a job and then study the balance sheet to understand how much the scrap impacts profitability. After analyzing the data, they might adapt some practices—not because they are told to do so from upper management, but because they understand and believe in what they are doing.
Flat Organization With No Hierarchy
Open-book management is based on the tenet that the intelligence of the group is better than the intelligence of any one individual. It also proposes that if everyone at a company shares information, the company will make better decisions. LeanWerks has weekly huddles in which its people discuss what’s going on at the company, what they need to fix, and what will happen if things don’t change. The company’s 35 employees all have the power to influence its decisions. This is advantageous because people working in various departments can contribute valuable perspectives that an upper management team might overlook.
Reid says he likes that transparency eliminates hierarchy and makes everybody accountable, including him. He is OK with the fact that if he makes mistakes they are out in the open for people to see and call him on.
During the interview, I grilled Reid repeatedly about the obstacles open-book management could create. I asked him if he runs into the problem of having too many cooks in the kitchen who have conflicting ideas about how to direct the business. Surprisingly, he says the company does not waste a lot of time bickering over decisions.
Psychic Ownership
Every month, LeanWerks’ employees have the potential to receive monthly bonuses if the company has turned a profit. This gives them extra incentive to make the company succeed, but Reid says the inclusion of employees in the decision making process is a more significant element in making them feel invested in the company’s success.
Reid says that LeanWerks’ people feel stress when the company is having a hard time and feel good when the company is doing well. He is proud to say that these emotional swings don’t only fall to him and his wife, who also manages the company.
He says that during three financial crises the company faced in 2009, 2015, and 2020, open-book management was instrumental in the company’s survival. All of the company’s people taking ownership and feeling accountable enabled it to endure. They were adept at taking difficult steps when necessary.
In the past, some talented employees left LeanWerks because they didn’t want to participate in open-book management. One talented machinist who quit lamented to Reid that his job at LeanWerks was the one job he had in his life where he would go home and worry. Reid says he is ok with missing out on some talented people who are not a good fit for his company. Talented employees are not enough for him, he wants partners.
Question: Would open-book management work for you? Why?
Podcast: Play in new window | Download
2 Comments
Noah
I have a style somewhat similar here at my shop, although in our case we don’t share wage info, at least yet. Our shop is very small, 4 people including me, but I do think think that this approach has merits. Bonuses get paid if certain goals are hit like these guys do but ours are yearly. I was lucky to not have anyone buck this idea but I can see where certain people would not fit with this system. I think the ones that do well with this, at least in our case, are individuals who are motivated and like to take ownership of there work and ideas.
I would work in this open book scenario in a heartbeat! Peak earning years in my case have tuned in waste sources and unproductive people. I joke that my company discovered an aquafer that flows with cash, which keeps us profitable. Being accountable is welcomed by workers who produce, I believe. We used to get bonuses. Now we float big wheel’s buddies’ salary & benefits with classic nepotism, but I’m not bitter.