Senior managers are under continuing competitive pressure to boost their companies’ performance, so they naturally keep experimenting with new organizational tools and techniques. Yet most management innovations, such as process reengineering and self-managing teams, have only limited effects on a company’s business performance. One problem is that they focus on methods and results but not reasons. They help managers show employees what they must do to improve performance but not why they should care. Then, too, 15 years of new techniques and programs (with no letup in sight) have left a thick residue of cynicism. An initiative that might once have seemed promising to employees is now grist for Dilbert’s cartoon mill.

For the last four years, I have been studying a group of companies—most but not all small or midsize—that take a more direct and effective approach to continuous performance improvement. The approach, which has come to be known as open-book management, rests on the simple but potent idea that companies do better when employees care not just about quality, efficiency, or any other single performance variable but about the same thing that senior managers are supposed to care about: the success of the business. Open-book management isn’t so much a program as it is a coherent system—a system, moreover, that makes as much sense to people on the shop floor as to those in the executive suite. It builds in the why of improved performance from the beginning, so that employees and managers are alike in wanting to discover the how. Companies that have implemented open-book management—not an easy process—can more easily learn and employ new tools and techniques precisely because they have first learned how to get people at every level working toward and caring about the objective of business success.

The news about open-book management, which has heretofore found application mainly in smaller and younger companies, is that larger, established organizations are learning that they, too, can adopt and use the system to enhance their performance.

Radical Thinking

The idea at the heart of open-book management—that employees should actively concern themselves with a company’s business objectives—has a short pedigree. Frederick W. Taylor, the father of scientific management, would have thought it idiotic. So would generations of traditionally minded executives, middle managers, union leaders, and frontline workers. Recently, though, the idea has gained currency. It underlies some innovative compensation systems, such as gain sharing and employee stock-ownership plans (or stock option plans). And it is implicit in so-called empowerment or employee-involvement programs. Yet such plans and programs are at best only half measures. Owning a few shares of stock does not magically enable employees to think and act like owners; they may want the company to succeed but have no idea how to help it do so. And although teams of workers are often empowered to manage their own work areas, nothing in conventional employee-involvement programs gives those teams a reason to care how the business unit as a whole is doing.

If employees are to act with the organization’s business objectives in mind, senior managers must see that three conditions are met. Taken together, these requirements are the building blocks of an open-book system.

First, information previously shared only among those in charge must be seen—and understood—by everyone in the organization. That means all relevant information: not just sales and shipments, for example, but financial goals, budgets, income statements, and forecasts. (Hence the moniker “open book.”) Financial information is a business’s ultimate measuring stick; it explains the reasons for managerial actions and allows employees to gauge the real success of their own actions. How many companies have, say, reengineered a process only to reengineer it again when the hoped-for financial benefits didn’t materialize? If employees aren’t privy to the same data as management, they’ll decide that management doesn’t know what it wants. If they do have the same data, they’ll understand as well as management why the initial reengineering didn’t work.

Second, managers must hold employees responsible and accountable not just for scheduling their work or hitting quality targets but for making their unit’s budget or profit goals. Executives and senior managers—but, in most companies, few lower-level employees—know that a business unit’s performance reflects many elements, including sales, cost of goods, labor productivity, and budget variances. Managers responsible for those numbers learn to identify and watch key drivers, to forecast and reforecast, to analyze the budget for possible trade-offs and fallbacks, and to figure out ways they can get more or better work done in the same amount of time. In open-book companies, all employees learn those skills.

Third, in addition to paying employees for their time, the compensation system must reward them for the success of the business. That usually involves creating a sizable bonus plan, often supplemented by stock ownership. Unlike many variable-compensation systems, open-book bonuses are always tied to some easily understood measure (or measures) of business-unit performance, and progress toward the goal is publicly tracked. The system is thus wholly transparent: people see and understand the numbers that determine success, learn the part they play in making those numbers, and know in advance how they will be rewarded if the unit achieves its goals.

Companies can assemble the building blocks of open-book management in a variety of ways, as we’ll see when we examine the implementation process. However they are arranged, though, open-book precepts change fundamental assumptions about how an organization works. In open-book companies, managers and employees are expected to contribute to the business’s profitability by making (or bettering) their unit’s numbers. Managers may still issue instructions—open-book management doesn’t abolish hierarchies—but those instructions derive their authority from a logic that’s understandable to all. (“We’re going to have to redesign that process again because, look here, you can see that our costs didn’t drop the way we hoped they would.”)

Unlike typical initiatives, which focus on improvements in one narrow area, the new organizational logic can lead to a wide variety of positive changes. An engineering-services company that I studied embarked on open-book management and found that its turf-minded salespeople suddenly began cooperating with one another in pursuit of a better bottom line. A regional bank climbed to market leadership because its tellers were more attuned to the importance of “service with a smile” and to the possibilities of cross-selling. A paint-and-coatings manufacturer saw profits soar after employees, faced with a surge in demand, voluntarily proposed a temporary third shift and figured out how to staff it. Open-book management can incorporate conventional how-to initiatives whenever they make good business sense. A new safety-training program, for instance, is no longer just another management-imposed distraction when it bears an understandable relationship to workers’ compensation costs and hence to the bottom line.

Open-book management, like almost every business innovation, has deep roots in companies that have been practicing it intuitively, without giving it a name. Wal-Mart Stores, for example, has always shared numbers with its associates, rewarded them with stock, and encouraged them to think and act as if they were running the store. The approach has begun to spread, however, because of two recent developments.

Open-book management has deep roots in companies that have been practicing it intuitively.

One is the emergence during the past few years of a role model—a company that explicitly and systematically practices open-book management and thus serves as a benchmark, teacher, and converter of skeptics. (“Hey, this stuff actually works!”) As Motorola played this role for TQM, Missouri-based Springfield ReManufacturing Corporation plays it for open-book management. SRC, indeed, is the Johnny Appleseed of this approach. The tale of its Great Game of Business open-book system has been told often in the press—and in the speeches and the popular book by chief executive Jack Stack.1 Of the 2,500 executives and business owners who have attended seminars on SRC’s system, several hundred gather annually for a conference to compare their subsequent experiences.

Second, many highly successful entrepreneurial companies have organized themselves on open-book principles right from the beginning and apparently have gained substantial competitive advantages as a result. Wabash National Corporation, founded in 1985 and now the nation’s leading truck-trailer manufacturer, asks employees to complete several hours of business training and holds regular meetings on the shop floor to review the company’s financial performance. AES Corporation, a 15-year-old global power producer that was recently listed on the New York Stock Exchange, shares so much financial data with its 2,000 employees that it has declared them all insiders for stock-trading purposes. A particularly powerful example is Physician Sales & Service, a distributor of supplies to doctors’ offices, which has climbed from startup to industry leadership (and more than half a billion dollars in revenues) in only 14 years. Chief executive Patrick C. Kelly believes the company owes much of its success to open-book management. Employees at each of PSS’s 65 branches discuss their unit’s monthly profit-and-loss statement line by line. The company pays bonuses that are tied not only to profitability but to critical financial measures such as asset days, thereby encouraging employees to monitor those numbers. Employees own a sizable portion of PSS’s stock, both as individuals and as members of an employee stock-ownership plan.2

Managers who have noticed these developments and find open-book management appealing have nevertheless been left with a fundamental question. They can imagine implementing such a system in a small company or business unit, where the line of sight between an employee’s job and the organization’s performance is clear and direct. They perhaps can envision creating a new business, like PSS, built on open-book principles from the very beginning. But they have trouble seeing how the philosophy could conceivably be implemented in a large, established corporation. Political and cultural obstacles aside, the line of sight from individual employees’ jobs to the large organization’s financial performance is obscure. The idea of teaching hundreds or even thousands of people to understand and contribute day in and day out to the company’s bottom line can seem hopelessly unrealistic.

And yet several major corporations are now implementing open-book management in sizable divisions or business units. They have indeed encountered significant challenges, mostly stemming from the scale on which they operate, but they have also invented imaginative solutions. In the process, people in these companies have learned to think about business in a new way and have engaged themselves in literally redesigning the way their organizations operate. The experience of the Northeastern Division of R.R. Donnelley & Sons Company is more or less typical and illustrates the problems that managers in other large companies can expect to encounter if they opt for open-book management. The division’s experience also illustrates how problems can be solved and what longer-term payoffs open-book management is likely to bring.

Putting It into Practice

R.R. Donnelley & Sons, with 38,000 employees, is the nation’s largest commercial printer, and the Northeastern Division, based in Lancaster, Pennsylvania, and run by senior vice president John Hallgren, serves some of Donnelley’s biggest customers. The 1,100-employee East Plant churns out millions of copies of TV Guide, Reader’s Digest, and the New York Times Magazine. The 1,000-employee West Plant produces catalogs and telephone directories for customers such as Williams-Sonoma, Bell Atlantic, and Nynex. Donnelley’s experiences during the past 15 years could serve as a case study of the changes and pressures that have rocked most big U.S. companies. Once, for example, it could sign a contract with Western Electric to produce yellow-pages directories for telephone companies all over the country. (“The price pressures weren’t there,” recalls one manager wistfully. “There was a sense of big serving big—and we were the biggest.”) Today Donnelley must deal with many more customers, each more concerned about price than in the past, and must compete head-on with printers that have nearly as much high-quality capacity. The sales process, executives say, often turns into a bidding war.

As competitive pressures ratcheted upward, Donnelley pursued the same kind of workplace initiatives that many other companies did: quality circles, a Do It Right the First Time program, single-minute-exchange-of-dies training, and so forth. Those initiatives fell under the general rubric of what the company called High Employee Involvement, or HEI. In printing, as in many other industries today, continuous performance improvement depends mainly on the extent to which frontline employees pay close attention to and make smart decisions about matters such as setup times, print quality, and spoilage.

Donnelley executives believed that HEI programs would help employees learn to focus on those issues and make better decisions about them. On-site managers, however, were never entirely convinced of HEI’s benefits. John Bernard, who runs the directory module, says, “We were asking employees to become higher performers, to make decisions that supervisors used to make. But we weren’t giving them the tools they needed, like how much does a pound of paper cost, how much does a plate cost?” When Hallgren, Bernard, East Plant manufacturing vice president Geoff Benes, and human resources manager Steve Prosser learned about open-book management by visiting Springfield ReManufacturing Corporation, they were enthusiastic; it seemed to provide both the tools and the motivation that HEI programs lacked. In early 1995, the Northeastern Division formally embarked on a program to implement open-book management. The effort was led by a young manager named Don Robb, recently put in charge of organization development. Robb studied the concept, then hired an outside consulting team to help guide the process.

Getting Buy-In.

With conventional initiatives, a company’s decision to hire consultants is usually the critical step. The consultants hand out the reading materials, teach the classes, and work directly with managers and employees to implement the prescribed changes. With open-book management, consultants typically coach from the sidelines. Because it affects many different parts of a business, open-book management requires the ongoing support and involvement of senior managers. Because it is in many ways a cultural change—it teaches everybody in the organization new ways of thinking and acting—it also requires the ongoing involvement of middle managers and frontline employees. Robb was aware of Donnelley’s many previous initiatives, and he knew that people throughout the organization would be skeptical of anything that resembled another change program. So he moved slowly. He talked with people all over the plant about open-book management and gave them reading materials. He invited a sizable group of managers and supervisors to an SRC seminar and arranged for them to stay an extra day. That day, he asked for and got a personal commitment to open-book management from each of them. On his return, he set up a sponsor team of senior managers to ensure resources and support, and a project team of managers and supervisors to plan the implementation. In August 1995, Donnelley kicked off open-book management with a splashy two-day workshop. After that workshop, some 50 people agreed to serve on teams charged with specific implementation tasks.

For nonmanagement employees, Robb decided against any Olympic-style opening ceremony. Instead, he asked one of the implementation teams to oversee a series of intensive, four-hour focus groups that ultimately involved close to 100 people, or nearly one of every ten hourly workers. Facilitators from human resources and other departments explained open-book management, then posed open-ended questions designed to elicit employees’ hopes, fears, and concerns. Participants got a chance to offer their own opinions as to whether Donnelley should proceed with open-book management. Most said yes.

Communicating and Teaching Key Numbers.

While the groundwork for change is being laid, an open-book company must develop “scoreboards”—vehicles for regular communication of key numbers to the workforce. Business-unit scoreboards include an income statement and a balance sheet, along with any other numbers that are critical to the unit’s long-term health. Departmental scoreboards may focus on key operational measures, such as units shipped or defect rates, but they, too, must include a financial component. Because the goal is to enable people to take action in anticipation of future events, scoreboards usually include forecasts of months to come as well as actuals for past months. The scoreboards themselves may be electronic or they may be big bulletin boards or paper handouts. Sony Display Device San Diego, for example, utilizes a protected World Wide Web site (an intranet) to communicate key performance indicators and full profit-and-loss financials to 200 employees on one of its production lines.

At Donnelley, coming up with a unitwide scoreboard proved relatively easy. The corporation as a whole had recently developed a new income statement and balance sheet combined into an economic-value-added (EVA) bottom line. The scoreboard team—one of Robb’s implementation task forces—took the statement, modified it slightly for ease of understanding, and added columns for a two-month forecast. The scoreboard is distributed every month over the company’s e-mail system. Individual departments, meanwhile, developed scoreboards of their own, tracking numbers such as press efficiencies and revenue generated versus costs.

An open-book scoreboard is based on the shared understanding that a plant’s or business unit’s numbers are compiled from performance and financial data from each department or operating unit. The departmental scoreboards thus help employees understand the connection between their own efforts and the business unit’s results. Amoco Canada Petroleum Company, based in Calgary, Alberta, launched open-book management at about the same time that Donnelley did and is taking steps to teach its 2,300 employees that connection. A pump-maintenance technician, for example, learns that the cost of operating his truck shows up in his facility’s vehicle-cost line, which is aggregated into the operations line on the business unit’s income statement. (See the sidebar “Employees See How Their Decisions Affect Company Income.”) If a facility sets a goal of lowering vehicle costs, progress toward the goal is tracked on the income statement as well as on an operational chart. Employees learn not just that cost savings are important—any manager could convey that message—but why they’re important. They also learn that cost savings can’t be considered in isolation but only in conjunction with production volumes and revenues.

Employees See How Their Decisions Affect Company Income

Open-book companies, of course, have no monopoly on keeping scoreboards.3 But they do face a peculiar challenge in that they expect everyone in the organization to understand the scoreboard’s numbers. Wabash National, the trailer manufacturer, pays a local college professor to teach employees the fundamentals of business, and it offers a wage incentive for attendance. At Donnelley, the team charged with business literacy training rejected formal classes as too boring and inflexible, and instead decided on a two-step process of individual computer-based learning. Computerized instruction dovetailed nicely with an ongoing initiative in the company to teach computer skills—and to provide enough PCs so that every employee would have easy access to one. Also, Donnelley’s press operators were already familiar with computer-based learning: a program simulating the operation of the company’s giant presses is used for training.

First, Donnelley acquired an interactive-computer-software program called the Yo-Yo Company; it walks employees through the creation of a highly simplified manufacturing business, prompting them to fill out income statements and balance sheets as they go. Next, team representatives worked with David Lough, the lead consultant, to develop a customized business-simulation computer game. The game they created, dubbed Celestial Cheese, allows players to manage a fanciful but highly realistic business—a capital-intensive, multi-process, service-oriented company operating in an environment remarkably like the printing industry’s. Each game takes several hours to complete and requires the player to make a wide variety of strategic and financial decisions over an imaginary ten-year period. The goal—no surprise—is to maximize EVA.

Developing and then rolling out this training program consumed a substantial amount of time during Donnelley’s first year of open-book management. Managers and supervisors tested early versions of the software to spot bugs and other problems. The implementation team then identified employees who were computer literate and likely to enjoy playing business-simulation games, and distributed copies to them. This year, the team is rolling the games out to all employees and encouraging them to play at home and during breaks and downtime at the plants. The goal is to give employees a working understanding of the fundamentals of the printing business and hence of the numbers on the plant’s monthly scoreboard.

Developing Accountability.

The hallmark of open-book management isn’t just seeing and understanding financial and other numbers. It’s taking joint responsibility for making them move in the right direction and thus for helping the company meet its objectives. Like any system of responsibility and accountability, open-book management needs a structure, a fact often missed in press accounts of open-book companies. Casual observers of SRC, for instance, seem to conclude that just knowing the numbers magically enables employees to think and act like senior managers.

The hallmark of open-book management is employees’ joint responsibility for moving the numbers in the right direction.

In fact, SRC has a well-developed open-book structure of responsibility and accountability, which Donnelley and several other companies have found they can scale up for their larger organizations. SRC’s annual planning process begins with strategic priorities (set by senior executives and the board) and sales forecasts (set by the sales staff in consultation with management). Then SRC involves employees at every level in translating the sales forecasts for their respective business units into projected income statements, materials requirements, departmental budgets, and so forth. Individual workers might be assigned to research and estimate electricity costs for the projected level of operation, for example. Departments and work units are expected to discuss—and to make sure everyone understands—the numbers that define the units’ role in the plan. During the year, they all meet at least every two weeks to assess their performance against the plan and to forecast the immediate future. They report those results to the corporate staff, who hold similar meetings (often attended by frontline workers and supervisors) to compile, assess, and forecast companywide figures. The process allows each unit as a group to focus on unexplained variances in results. It also encourages people throughout the organization to anticipate and plan for what’s going to happen, rather than simply react to what has already occurred.

Donnelley launched that process of collective monitoring and forecasting in early 1996. (Donnelley calls the meetings huddles, in keeping with the sports-related language that seems to characterize open-book management.) Every month, departments from Donnelley’s preliminary center to its bindery compile results and make projections, drawing on whatever resources they may need from other parts of the company (sales and accounting information, for example). At the monthly plantwide huddle, representatives from each department build a projected income statement for the current month and two months ahead. Don Robb punches the numbers into a laptop computer as they’re called out; the group discusses any significant variances or uncertainties.

The goal of Donnelley’s huddles is twofold. One is to engage more people in developing forecasts, thus improving accuracy. The other is to spread accountability for developing and hitting budget targets. Spreading accountability from single managers to groups of employees may be the biggest challenge of open-book management. It usually begins with department-level meetings, which must develop and monitor numbers that come from the ground up. Then employees begin to experiment with ways of affecting the numbers, which may also encourage them to develop better metrics, so that they can get a handle on the most important drivers. Donnelley is in the early stages of that process. People working in the offset-printing module, for example, meet to plan their upcoming work and to discuss possible cost factors, such as overtime, that may affect their unit’s performance. Alan Roufa, administrative manager for the East Plant, plans to develop a method for employees to track and forecast costs for each piece of equipment in their departments.

Rewarding Employees for Business Success.

Traditional bonus plans are typically designed by compensation consultants, communicated to employees through a handout, and forgotten about until it’s time for the checks to arrive. An open-book bonus, by contrast, is pegged to numbers that employees see regularly, that they understand, and that they can affect. The bonus plan is thus an indispensable part of the management system because it answers the inevitable question What’s in this for me? As I write, Donnelley’s Northeastern Division is in the process of developing an open-book variable-compensation plan. Volunteer teams are identifying key operational drivers for each business unit and are planning a system of quarterly payouts based on targets for those drivers and for a business unit’s overall EVA. The new system is slated to be in place in early 1997.

Open-book bonus systems vary widely. SRC budgets for a bonus of 13% of hourly employees’ compensation and 18% of managers’ compensation, to be paid only if the company hits predetermined income-statement and balance-sheet targets (which vary from year to year). All employees can add another 3% to 15% of pay through 401(k) matching and stock-participation programs. Amoco Canada’s Variable Incentive Plan pays out up to 16% of earnings. In 1996, the division’s Chicago-based U.S. parent first had to achieve certain financial objectives and the division itself had to attain a return of at least 8.5% on the capital it employed; the size of the bonus then depended on a combination of targets for net earnings and for replacement of reserves. Amoco Canada’s business-education team, a group of volunteers much like Donnelley’s, uses posters, handouts, and e-mail updates to communicate the numbers every month to the division’s 2,300 employees.

The “beat the budget” bonus system at Hexacomb Corporation is a particularly clear example of an open-book system and its effects. Each of the company’s seven plants develops a yearly budget in consultation with management. Plant managers discuss budget items at length with employees; scoreboards spread throughout the plants track performance against budget; and plantwide meetings review each month’s financials in detail. The bonus plan is simplicity itself: any profits generated by the seven plants beyond the budgeted amount are split fifty-fifty, half going to the company and half into a bonus pool. Employees can collect the bonus, however, only if their own plant beats its budget.

Jim Siegel, manager of the Hexacomb plant in Trenton, Illinois, describes the system:

Everybody learns how they contribute to the numbers. They learn that if they keep scrap low, if they don’t have any rejects, the materials-costs line is going to be lower. We go through returns and allowances every month so that they understand that number, too. And labor: they know that the more hours they work, the higher labor is.

It affects how people work. If you don’t expand the product right, you put more pounds [of paper honeycomb material, the plant’s product] in the truckload than you need to, and the customer doesn’t pay any more for that. So what did that do? It added a certain amount on the materials line and cost us a certain amount on the operating-income line. We also play what-if games. What if you produced three more truckloads a week on regular time because you run your panel line one foot per minute faster? Assuming you had excellent quality and got the regular yield, the labor line doesn’t change. You see what happens to the percentage. And you see that it doesn’t get the 12% hit from factory overhead. Believe me, it has an effect.

Thanks in part to the new understanding, average productivity at Hexacomb has improved 13% per year for three successive years, and most employees have earned regular, often sizable, bonuses.

Generating—and Maintaining—Excitement.

Every manager has seen change initiatives that were introduced with great fanfare slide into obscurity as old priorities reasserted themselves. One reason that open-book management has not succumbed to this pattern at Donnelley’s Northeastern Division is that it has the full support of senior managers. A second reason is that implementing open-book management is Don Robb’s full-time job—and Robb, an energetic and ambitious young manager, has seen to it that many people throughout the organization are participating in implementation teams or otherwise working on the new management system.

A third reason is that Donnelley has borrowed a powerful technique practiced by other open-book companies: playing games. A game, as these organizations use the term, is simply an initiative focusing on immediate improvement in a given area. Companies call it a game because it has a starting point, a set of rules, a goal, and a reward for winning. Every game focuses on financial results. In effect, a game is open-book management in microcosm. Employees learn that what they do on the job every day affects some number that ultimately affects the financial performance of the business.

Donnelley’s gravure pressroom, for example, played a game from March through May of 1996. The goal was to increase press efficiency—a measure of throughput that incorporates quality—by 3% over 1995’s performance. Hitting the goal would save the company some $26,000 in costs. Jim Burrows, the department’s production supervisor, explains how playing the game changed the way people approached their work:

Let’s say that the schedule allowed eight hours for make-ready on a job. In the past, the press crews felt that as long as they were done in eight hours, they had done a good job. Now they began thinking about ways to do it faster—by bringing out the cylinders ahead of time, for example. People also came to understand the importance of press speed. If they run the press at 25,000 impressions per hour, maybe they can get the job done on schedule. If they figure out how to bump that up to 30,000 impressions per hour, they can cut hours off the job. That creates extra capacity for us, and it allows us to get started on the next job that much sooner.

The game’s scoreboard was an Excel spreadsheet that tracked press efficiency and multiplied time savings by a dollar rate established for each of the department’s six presses. Because the goal was to beat the previous year by 3%, anything less than a 3% improvement in a given period counted as a loss, whereas anything better counted as a gain. All the workers on the press crews knew exactly where they were in relation to the game’s goal at the end of any shift and what they had to accomplish at the start of the next one.

At the end of three months, the department had beaten the goal, and every employee got a bonus of about $75. That modest figure underscores two points about games. One is that it isn’t the payoff that counts—it’s the game itself. The satisfaction comes primarily from figuring out how to win and then winning. The other, however, is that game playing is dependent on the entire context of open-book management, which teaches employees to understand and care about the business as a whole. How many times could a conventional company ask its employees to take on an additional challenge for a mere $75 plus the satisfaction of winning? In open-book companies, by contrast, people understand that games are mostly a fun and interesting way to learn the business—and that the real payoff will come as the whole business unit improves its performance. Since that first game, indeed, the gravure pressroom has played two more, each with a higher target, and has won both times.

Knowing Why Matters

In their book Lean Thinking: Banish Waste and Create Wealth in Your Corporation (Simon & Schuster, 1996), James P. Womack and Daniel T. Jones make an important point about open-book management’s connection to more conventional change initiatives.

Readers familiar with the “open-book management” movement in the United States will recall that financial transparency and immediate feedback on results, in the form of monetary bonuses for employees, are its central elements. Thus there is a broad consistency between our approach [which focuses on methods of eliminating muda, or waste, from the value stream] and theirs. However, a major question emerges for open-book managers as finances are made transparent and employees are rewarded for performance. How can performance be improved? Sweat and longer hours are not the answer but will be employed if no one knows how to work smarter.

That statement is correct: sweat and longer hours are no substitute for the astute use of technology, for training in modern methods of quality assurance, or for the kind of waste-eliminating techniques that Womack and Jones describe. These are the tools and programs that teach companies and their employees how to improve performance. Open-book management provides the why; it teaches the connection between specific performance improvements and the company’s business objectives. A financial incentive—often missing from conventional how-to programs—is a critically important part of this linkage, even though it is rarely more than a small fraction of an employee’s compensation. It says, in effect, “There’s a reason for all this extra effort that you’re putting in, and that reason is the financial success of the business you work for. As the business produces wealth, that wealth will be shared with you.” Such a message goes a long way toward overcoming the cynicism that greets so many change initiatives.

Because open-book management is a system rather than a how-to program, it is not a quick fix. Implementation is a long and cumbersome process, particularly in a large company, and the effect of the new way of thinking on the bottom line may not be apparent for some time. As it happens, Donnelley’s East Plant, which is farthest along in open-book management, has performed exceptionally well over the past year, so it has attracted the attention of other Donnelley units around the country. But senior managers are appropriately cautious about attributing too much of that success to open-book management. Rather, they point to small benefits, such as departmental cost savings, gains in press efficiency, and improved forecasting accuracy. That is wise. The power of open-book management lies not in the short term but in the long term, in its ability to change how people think and act, day in and day out. Business success always depends on a wide variety of factors. But this is a constant: whether a company’s employees care if it does well, know how to help it do better, and have a reason for learning new skills and attempting new tasks. The people who work for open-book companies give their employers a powerful competitive edge in that department.

1. Jack Stack, The Great Game of Business (New York: Currency/Doubleday, 1992).

2. “Physician Sales & Service, Inc.: June 1992 (A),” HBS case no. 395-066.

3. See, for example, Robert S. Kaplan and David P. Norton, The Balanced Scorecard (Boston: Harvard Business School Press, 1996).

A version of this article appeared in the March–April 1997 issue of Harvard Business Review.