Business Literacy Creates a Culture of Trust. Why Don't More Manufacturers Teach It to Their Employees?

It makes good sense for employees to feel invested in their workplaces—and understand how their day-to-day decisions about matters including scrap, downtime, quality and efficiency ultimately affect company health and profitability.

So why isn’t business literacy practiced more extensively throughout manufacturing? Typically, employees are not taught how to read a profit and loss statement, or to understand how revenue becomes profit and how costs connect so directly to financial outcomes.

Our discussions with other manufacturers reveal hesitation about teaching business literacy for reasons including:

• I don’t want to reveal too much of the company’s inner financial workings.
• If employees know how much our sales are, they will want more money.
• If we have a slow month or slow quarter, we don’t want our employees being demoralized and looking for other jobs.
• We can’t afford the productivity downtime to take employees off the shop floor to teach them all of this.

In many manufacturing facilities, employees do not receive formal instruction in understanding financial decisions at work. An employee might comprehend how scrap, for example, increases the cost of goods. Or that downtime reduces output. But that knowledge is without proper context and by itself is not business literacy.

For our industry to thrive, this mindset needs to change. We all want employees who are engaged, don’t’ we? Here’s why—and how—we should make those changes.

Why Embrace Business Literacy?

Manufacturers who embrace business literacy help create a culture of trust.

Employees don’t like operating in a vacuum. Most of us have held jobs where we were “kept in the dark” about the financial health of the organization that employed us. That can lead to erroneous assumptions: “This company makes so much money I should get a raise. I work hard for the owner.”

Employees “in the know” understand how their actions affect the bottom line and can take steps for the good of the facility. Companies with highly engaged employees see higher profitability compared with companies with low engagement.

Here are just two of many experiences where employees who understand financial and business literacy have made a difference.

• One of our equipment options was to use immersion tank heaters to keep hydraulic oil warm. An engineer found a new vendor that could deliver the same quality unit to the customer but at savings of $500 for each one. We purchase 30 units per year.
• We buy grinding wheels, used to shape and finish metals, for $25 apiece. An employee realized that many on the shop floor were only using half the wheel before discarding it, necessitating re-purchasing more frequently and creating more waste material. Armed with knowledge of how those decisions impacted productivity, he and the team realized how much waste they were creating and took steps to utilize the wheels longer.

These employees took the initiative to make decisions for the betterment of the company. Sometimes as business owners we get caught in the trap of thinking we need to find “really big” ways to save on costs, when sometimes smaller steps carried out by more people can add up.

Teaching the basic skills, including budget, credit and finance, yields dividends both from a trust and a profitability point of view. Company knowledge creates better employees and better companies.

How Do You Do It?

An owner should be “100% in” when making this commitment. Business literacy requires time, effort and sacrifice, but the result justifies it. Here are some experiences of ours and some recommendations.

First, commit to financial disclosure with your company. Open Book Management is one way. Some manufacturers teach financial and business literacy through The Great Game of Business, where employees learn to read income statements and understand margins.

MIT Sloan research shows that companies that actively seek worker input see 16% higher productivity on average. Business literacy programs enable greater engagement because workers better understand cost drivers and financial outcomes.

We speak from personal experience. We both share financial information with our employees. John’s company, Cherry’s Industrial Equipment, practices Open Book Management and teaches business and financial literacy. Jean’s company, Ace Metal Crafts Co., teaches employees how to read and understand a financial statement. Both conduct regular meetings with employees to support their commitment to financial and business literacy.

All new Cherry’s hires attend a “huddle” before being onboarded. The huddle is the weekly meeting where the financials are shared and discussed. New hires meet with an assigned mentor or “buddy” after meeting with the finance department for an overview.

Training in business literacy is ongoing. Within the first month, the hire is assigned responsibility for following and reporting on a specific line item in the company – such as occupancy, marketing, or warehouse expenses, with expenses and revenues both included. After a period, the employee switches to another line item, and then another. Over time each employee understands all the line items of the company’s budget.

Cherry’s shares all financial information except for payroll. The company’s progress is discussed each week in a huddle. The employees tell the story. If the marketing budget increases by $500, for example, the reporting employee shares the “why” with the team. Within the financial and business literacy, “The Great Game of Business” is required reading.

Ace Metal Crafts Co. also teaches financial and business literacy, with an employee base of 200 people across two companies. This is accomplished by sharing (and teaching) the company’s income statement monthly, line item by line item. The goal is for everyone to know how the company makes or loses money. The income statement is taught in group settings, with company leaders overseeing 10 to 15 employees. It is a very hands-on process—and labor-intensive, because this time commitment means pulling people off the shop floor. The company shows the entire scoreboard—which is the month’s income statement. As in a basketball game, if you don’t have the scoreboard, you don’t know what’s working and what isn’t.

In promoting business literacy, manufacturers teach the “levers” of business: increased revenue, higher gross profits and reduced expenses. If reporting a revenue number, for example, the group will discuss ways to increase revenues, what’s in the pipeline and whether the companies are maintaining their margins.

This level of detail and disclosure leads to thoughtful discussions and greater involvement by all. Employees learn about direct costs, overhead and indirect costs.

Small Steps to Begin

1. Commit to being “all in” on business literacy.
2. Find a company that shares financials with employees and learn from someone who is already doing this. Interview the owner and the employees.
3. Familiarize yourself with transparency by reading books on the subject. There are a number of them—"Great Game of Business” being one.
4. When you take that first step with your company, begin with a small group. Start with some trusted leaders and key go-to people. As you work out the bugs, extend the concept to the larger group.
5. Consider a bonus or rewards program linked directly to the company’s success. This is a strong motivator to help employees feel engaged in the process.
6. Schedule weekly or monthly huddles to go through the numbers and discuss. This is an investment of time that will pay off.
7. Develop a book club, where employees can read and discuss books that related directly to company culture, transparency and financial transparency.

Frontline workers are often closest to production decisions that affect cost, waste and efficiency.  Companies that engage their workforce more deeply through teaching financial and business literary often report stronger employee engagement and higher productivity.

Wouldn’t that be welcome news for your manufacturing facility?