The year 1998 marked the end of a great ten-year run for us in the export management business. Everything changed with the onset of the Asia Currency Crisis of the late 90s, followed soon after by a deep economic recession that swept through Latin America. Within two years, we lost almost 40% of our sales and in 2001, for the first time in our history, we lost money. We knew we had to cut costs, but it was impossible to explain to our staff just how bad the situation was. In my mid-40s, with a wife and two young children, I sensed the company and my career were at a crossroads. It was then that we turned to open-book management.
We adopted a brand of open-book management developed and made popular by SRC Holdings, a company based in Springfield, MO, and its charismatic leader, Jack Stack. Stack and co-author Bo Burlingham published a book in 1992 called The Great Game of Business, which chronicles the story of how Jack and his team created its open-book methodology—dubbed The Great Game of Business—as a means to dig their company out of debt and lay the groundwork for what has become a great American success story. (see www.ggob.com)
Companies that adopt this process—and there are now thousands of Great Game companies worldwide—do more than simply share their financial statements with their staff. They engage their staff in monthly, semi-monthly, or weekly meetings to review their financials and build financial forecasts. The key is to look for variances to plan and to develop remedial plans to address them. The beauty of the forecasting process is that it enables team members to see variances before they happen.
What makes this process work is a bonus plan that rewards all staff for achieving pre-determined goals, typically linked to income statements or balance sheet performance. The bonus plan makes all departments accountable to the whole and gives everyone in the organization a stake in the outcome. Thus, you have the twin pillars of open-book management—transparency and
accountability—that engage and empower staff members to run the business and deliver results.
Our first steps as a Great Game company were fraught with uncertainty. My father, our chairman and my partner at the time, feared people would leave if they saw the company financials awash in red ink. Other senior leaders worried that a companywide bonus plan would eliminate individual incentives for our sales managers, who might leave without the ability to control their own financial destiny.
We did, in fact, lose a couple of sales managers, but our staff overall embraced the new methodology. Among other things, it made it easy for us to explain to staff why we were not filling vacant staff positions and why it was in their interest for us to share resources across departments.
Strengthened by open-book management, and buoyed by improved market conditions, we went on another great run, this one lasting seven years, and it seemed that the sky was the limit. But the global financial crisis that started in late 2007 sent our sales into a tailspin. By the following winter, we we’re facing a crisis of our own. Because our books were open, our staff understood our predicament and were anxious to see how we were planning to cope.
After considering various cost-cutting measures, including jettisoning staff, we decided instead to implement pay cuts across the board—5% for administrative staff, 7.5% for middle managers, 10% for senior managers, 15% for ownership—with the promise we’d restore everyone to full pay once we reached a certain profitability target. The trade-off: we were protecting everyone’s job. While this was not an easy pill to swallow, especially for our top performers, everyone bought into the plan, evidence of the trust we had built since the onset of open-book management. Defying odds, we reached our provisional profit target by the end of November, and on December 1st we restored everyone to full pay. And we were sufficiently profitable that year to fund a bonus payout to everyone—roughly enough to make up for everyone’s lost pay. If ever we needed validation that open-book management worked, we got it then.
We’ve had our share of challenges since, most recently during the onset of the pandemic last year, but open-book management again has helped us weather the storm. We closed our NY headquarters last March (we’re still working remotely today), but we’ve never worried that our people weren’t working hard. We knew the accountability created by our bonus plan would continue to drive people to contribute and perform.
Our front-line functional teams—field sales, customer service, traffic, marketing services, credit, and IT—continue to embrace open-book management. It enables these folks to follow the numbers and connect the work they do to the outcome of the enterprise. Our accounting team loves open-book management, too. With so many eyes on the numbers, it’s much easier for them get the financials right. But there is no one in the organization that benefits more than the guy at the top (in this case, me). I know that whatever direction I am rowing in, everyone is rowing with me.
This year marks our twentieth year practicing open-book management at Dorian Drake. There will be new challenges in the years ahead, but we know as a Great Game company we have the tools, experience, and culture needed to meet them.
East Orleans, MA
August 18, 2021
Thanks for the fascinating look into how the open-book approach has contributed to your success and helped you weather the inevitable storms that come.