Management teams are often driven by external hype to embrace the latest fad rolled out by the management consulting industry as the ultimate solution “that will revolutionise the way you do business”. Unfortunately (or possibly fortunately), managing organisations is not an exact science because outcomes are fashioned by the actions of people, and the behaviour of people is never totally predictable. Ultimately the revolution fails to deliver its promised outcomes and is unceremoniously dumped as another failed project, often after absorbing massive resources for little profitability or efficiency gain.
Open Book Management (or OBM), a phrase coined by consultant John Case in 1993, was a case in point. Launched by a successful ‘how to’ book and promoted by a number of consultants who jumped on the bandwa gon, OBM was embraced as a New Age management philosophy by many organisations. Case’s most successful disciple was Jack Stack, CEO of SRC Holdings, who implemented OBM as the driving philosophy shaping his organisation’s culture and in the process became a proselyte and a missionary for internal transparency and information sharing across all levels.
OBM may be simply explained as the creation of a culture that allows employees at all levels to understand how their particular task fits in wit h the company’s financial plan. In order to build this understanding, the communication of information previously considered as ‘for the eyes of top management only’ is constantly channelled to employees in a form they can readily understand. This prising open of the information black box shapes a corporate culture based on transparency and creates an empowered work force with an ownership attitude.
The Case and Stack methodology is based on three cornerstone concepts. (1) Every employee should be given the measures of business success and taught to understand them. (2) Every employee should be expected and enabled to use their knowledge to improve performance. (3) Every employee should have a direct stake in the company’s success and in the risk of failure.
After its heyday in the mid to late nineties, OBM appeared to have receded into the annals of management history, but it has surprisingly re-emerged, in fact on 13 November when the philosophy was the subject of a regular management column in The Economist written under the Schumpeter nom de plume. Referring to OBM as a process of “creative disrobing” Schumpeter surprisingly asserts that today the most fervent adopters are small private firms. This is a claim that seemingly flies in the face of popular perception in Australia where closely held family businesses are considered to be notoriously secretive, reserving all critical information for the exclusive use of the ruling clan. The reasons given by Schumpeter are twofold and may potentially provide some insight into why the philosophy has re-emerged after a fallow period.
First, it is suggested that transparency calms internal jitters in uncertain times. Fully informed employees are not influenced by rumour and misinformation; the availability of sensitive information effectively brings them into the privileged confines of the corporate board room. Given the current level of uncertainty dominating the external environment it is perfectly understandable that top management would embrace measures with potential for stabilising their internal capability and protecting it against irrational forces that stimulate even further uncertainty.
Schumpeter’s second reason for the rising popularity of OBM is that the possession of information inspires fresh thinking and this has the potential to nurture new ideas, different approaches and ultimately the power of innovation to take advantage of strategic windows. This is a very important insight and it implies that an OBM philosophy can become the catalyst for nurturing a culture that encourages a process of emerging strategic initiatives emanating not only from the apex of the organisation but also from the bottom up.
Management theory has long recognised that the formulation of strategy is not necessarily a formal deliberative process which is the exclusive role of top management. Strategy has the potential to emerge from the trenches as well, from the perceptions and impressions formulated by employees working in operations and in sales and in the multitude of support roles now characterising our complex structures. These front line personnel accumulate critical first-hand intelligence as they perform their tasks and many have the ability to internalise the information and in so doing develop recommendations for realigning existing strategy or for formulating new strategy. What is mandatory for this potential to become reality is a process where the intelligence gathered and the knowledge derived from it can reach the strategic apex of the organisation because unless it does so there is no potential for influencing strategic direction.
In 1995, Robert Simons suggested a model with the required feedback loop that provided the potential for communicating strategic information into the strategic apex of the organisation while simultaneously maintaining the focus on core competencies and control over extant facilities. The Simons model is illustrated in Figure 1. It is based on harnessing two opposing forces, the yin and the yang, the positive inspiration coming from the new ideas emerging from active learning always constrained by recognised boundaries and systems that prescribe mandatory levels of compliance.
The active participation of all levels of the personnel resource in contributing to the emerging strategic process is through what Simons refers to as an interactive control system (ICS). This describes the processes that both stimulate learning and facilitate the emergence of new ideas and strategic initiatives. For the ICS to operate effectively and achieve its objectives it must be embedded in a culture of transparency that allows information transmission upstream and downstream. It would seem that the three cornerstone principles of Open Book Management are an ideal philosophical framework into which the Simons model could be dropped resulting in a capability that can open up strategic windows while remaining focused on areas of core competency. Importantly, the staff, a key organisational resource, is not only encouraged to develop a level of commitment usually reserved for an ownership class; it is also empowered through the information it possess to both maintain extant capabilities and to innovate. These are fundamental requirements for remaining competitive and relevant in dynamic global environments, and it would appear that combining Simons’ Levers of Control with the cornerstone principles of OBM may offer the structure to achieve those objectives.
Simons, R (1995) Levers of control. Boston Massachusetts, Harvard Business School Press
