Continuous Improvement -- OBM -- The Ultimate Continuous Improvement Strategy

Feb. 6, 2006
Open-book management gurus say you can't improve on what you don't understand, so open the books!

Editor's note: IndustryWeek asked Rich Armstrong, general manager of The Great Game Of Business Inc., to answer questions on the value of OBM to manufacturers that want to improve performance. OBM is a common practice among the winners and finalists of IndustryWeek's annual Best Plants program (95% of finalists from 2001 to 2005 share financial performance information with all employees). For case studies on OBM and more information on The Great Game Of Business, see the article "By The Numbers," published in the January issue of IW sister publication Material Handling Management or view/download the following .pdf (52kb)

More and more companies are practicing some form of open-book management (OBM). In most cases, this simply means that management publishes the financials, or makes them available to employees on a regular basis.

True OBM practitioners (as with The Great Game of Business) take it far beyond just opening up the books. They teach employees not only how to read and understand the financial and operational numbers of the business, but how to use them as a way to set individual and company performance standards and improvement measures.

It's a unique education and communication process that involves everyone at every level. Instead of managers setting standards for employees, employees set their own. They forecast what they can produce and how much money they can make. It is this information that becomes the basis for the company's continuous improvement.

See Also...

By The Numbers
(From Material Handling Management)

More Information On The Great Game (.pdf 52kb)
People get a chance to act, to take responsibility, rather than just doing their jobs. And it teaches them to make smart decisions that reflect the company's best interests because they can see the impact of their decisions on the overall financial performance.

IW: How does the concept of OBM fit into a continuous improvement strategy?

Anderson: This is a very important distinction that we have a hard time getting across to people who want to understand the success of OBM. So many people tend to focus on the employee bonus program. They think it's all about the bonus program. Companies that practice OBM learn over time that OBM is not that at all. It's a process of continuous education and continuous learning. It's a process of communication, of constantly measuring results, making course corrections, and moving on. OBM provides employees a way to constantly eliminate weaknesses and chase down opportunities for improvement. In short, OBM is the ultimate continuous improvement strategy.

Neither the company nor its employees truly can understand how to drive continuous improvements without first understanding the basic rules of business. We use OBM and The Great Game of Business to teach people business. OBM gives employees the knowledge to understand the financial game. Other continuous improvement programs such as lean manufacturing give employees the knowledge to understand the operations game.

We start with the idea that there are two things that every company must do to stay in business: make money and generate cash. Through the everyday mechanisms of The Game and OBM, employees learn about all of the challenges of doing these. From there, people just figure it out. If you teach them that making money is what business is about and give them the right information and responsibility for their jobs, they'll begin to figure out how to make money. In other words, a productivity gain from lean practices is a gain if and only it provides bottom line results in profit and cash.

IW: How does a plant demonstrate ROI on such a practice to a skeptical executive team?

Armstrong: Talk with other OBM practitioners. It's a tight community, not only because they have similar principles and beliefs in business and people, but also because they know OBM works.

Since OBM is a way of running a company that gets everyone focused on helping the business make money, employees must have a direct stake in the company's success, good or bad. If the business is profitable, they get a cut of the action. If it's not, they don't. That pretty much sums up the return.

The investment is the commitment. It takes give-and-take by both managers and employees. It requires that management has credibility and is trusted. It demands that you be persistent in creating an environment where information is exchanged freely.

IW: What are the basic first steps to getting started with OBM at the plant level?

Armstrong: We tell companies to start wherever they feel most comfortable and then just keep going. Remember, it's about continuous improvement.

Get the information out there: Everyone needs to know what's going on in the business. Tell people how the plant as a whole is doing. You know your critical numbers, but your employees may not.

Empowerment with business knowledge: Give them a voice in how the business is run and the accountability for their input. But first they must understand how the business works.

Teach your people how business works: Everybody has to understand the information they get. Some say it's hard enough to teach workers their jobs, let alone train them to understand financials. Imagine how different a company could be if your people really did understand the financials.

Provide a stake in the outcome: Make sure people share directly in the company's success. Included here [.pdf format (52kB)] is an article on formal implementation that outlines our coaching model.

Tonya Vinas is managing editor of IndustryWeek. She is based in Cleveland.

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