In the past several years a philosophy known as open-book management has taken root among small, entrepreneurial companies. It’s a powerful way to run an organization-and it can be used with very little modification in nonprofits as well as in conventional businesses. This article outlines the basics of the approach and suggests how nonprofit managers can put it to work.
To understand the idea, consider a small company or organization–a restaurant, say, or a neighborhood community center. If the owners or managers are good at their job, they understand the big picture. In a business, owners know how much they need to generate in sales before they begin to make money. They know which costs are critical and must be watched most closely. Often they lie awake nights worrying about something that isn’t going right—or dreaming up new strategies and tactics to make the business more successful. Nonprofit managers are hardly immune to this kind of sleepless night. They worry about whether or not a critical grant will come through. They worry when their ability to produce on commitments made to funders and constituents appears to be in doubt. They worry about whether it is right or wrong to take money designed to fund something different from what constituents really need. Often nonprofit managers experience an excruciating sense of isolation in managing these concerns.
The rank-and-file employees—everybody else who works in the organization—often appear to have a different attitude. They show up each day, do their jobs, and go home. Once every week or two they collect a paycheck.
As many entrepreneurs have discovered, a company doesn’t need to be divided into “management” and “labor” like this; in fact, research shows that such divisions limit productivity. Employees who understand a company’s business—its purpose as well as its component parts—and who know they will share in its success (in business through stock ownership or bonuses) begin to think like owners. They go out of their way to keep customers happy. They find ways to cut costs. They go the extra mile.
At first glance, it may seem difficult to translate open-book management to the nonprofit world. Nonprofits aren’t in business to make money. They can’t distribute ownership shares, and most aren’t in a position to pay out big bonuses. But look a little below the surface and the difference isn’t so dramatic. The basic idea of open-book management is simply that people need to see and understand an organization’s key numbers and to hold each other accountable for their joint performance. Break this idea down into its three key components, and you can see how it can apply to nonprofits as well as to businesses.
First, people have to know the organization’s critical numbers. This includes seeing the financials–hence the name “open book”—and getting a chance to ask questions about them. It involves learning how financial concerns affect and are affected by a range of variables, including the day-to-day work of staff. Open-book organizations spend considerable time and resources helping employees to understand how specific actions they take or don’t take can affect the organization’s financial health. To that end, they make a point of reporting financial and other information as frequently and as clearly as possible.
People need to have input. Many open-book companies have a commitment to participation and operate on the basis of self-managing teams. These teams are charged with continually improving their own effectiveness, with financial concerns viewed as one measure of that effectiveness. But, however it may be organized, every open-book organization needs plenty of meetings to review performance and share ideas about how to solve problems. The operating theory: a high level of participation goes along with greater assumption of responsibility by staff members. If you and I are talking about how to solve a problem, we automatically take on joint accountability for doing what needs to be done.
People need a piece of the action. In business, this may mean joint ownership or stock options. For nonprofits it certainly means fairness in setting salaries (see the Nonprofit Quarterly’s article on salaries in the last issue), but it also means much more. Individual staff members need to have a part in establishing the organization’s vision. They must know how their work helps the organization attain its mission, and they need to be well acknowledged for their individual contributions.
Whatever its mission, every nonprofit has a few critical numbers. A nonprofit may measure success by the number of clients it serves, how many projects it initiates or completes, or by some other measure of achievement. Quantitative measures have to be complemented by qualitative measures, of course (“Did we do a good job?” “Have we made our community a better place for our constituents?”). But I’d argue that if an organization can’t quantify at least some part of its mission, it doesn’t know what its mission is. Then, too, every nonprofit must raise or generate enough revenue to keep itself on a sound financial footing, and it must keep its expenses on budget. In this respect it isn’t so different from a business.
So the first step is to determine numerical objectives, both non-financial and financial. An organization called the National Foundation for the Teaching of Entrepreneurship (NFTE), for example, helps inner-city youth learn the ropes of starting a small business. At one point not long ago NFTE had three key objectives. One was a target for number of students enrolled. A second was a target for teachers recruited. A third was financial: so many dollars raised in contributions, and year-end financial reserves equal to three months’ worth of operating expenses.
Note that phrase, “at one point.” Critical objectives may (and probably should) change from year to year. If staff turnover is a problem, an organization may want to pay special attention to metrics showing how well it’s doing at recruitment and retention. If prospective employees are lined up at the door, it can focus on other objectives.
The second step is tracking progress on the objectives. Most organizations conduct some kind of quarterly review with the board, and now and then they call staff meetings to give employees an update. Open-book managers take a different approach: they hold weekly or biweekly meetings, without fail, designed only to review progress on key objectives. In a small organization everyone can attend. In a larger one, departments can send representatives. The objectives should be broken down into monthly or even weekly targets, and every staff member should be able to say how well the organization is doing on those measures.
The third step is more problematic: can open-book management work without bonuses or stock ownership? Of course it can. People in open-book companies don’t work toward their goals just for the money; they work because setting an objective and working toward it, together, is a satisfying endeavor. But when the primary goal of an organization is to make money, as it is in a business, everyone has to share in success or they’ll feel exploited.
Sign up for our free newsletters
Subscribe to NPQ's newsletters to have our top stories delivered directly to your inbox.
By signing up, you agree to our privacy policy and terms of use, and to receive messages from NPQ and our partners.
In a nonprofit the situation is a little different. People need decent salaries, but they aren’t in it for the money. In fact, because financial motivation is secondary for many nonprofit staff, participation in decision-making is even more important to them. And meaningful participation requires access to information. The satisfaction of helping the organization accomplish something that it sets out to do and thereby improving the lives of the people it serves will in large measure be its own reward. That said, it doesn’t hurt for a nonprofit to come up with special thank-yous for employees when a goal is reached: an extra day or two of vacation, movie tickets, a voucher for a good dinner, even a free pizza lunch. Most people appreciate a symbol and celebration of their common achievement, even if the dollar value isn’t high. And some organizations may be able to afford modest bonuses.
But the overall lesson of open-book management isn’t so much about money as it is about how human beings work most productively together. Most of us don’t like to labor away on some small part of an endeavor without ever seeing the big picture. Most of us don’t like never knowing whether the group we work with is really making a difference. (Least of all do we like being told by our bosses, over and over again, that we’re doing “great.”) We like to see and understand the whole situation. It makes our jobs, whatever they may be, a little more satisfying, and it makes coming to work each day a little more rewarding.
I visited a small engineering-services company in Iowa a little while back, and spoke with the president about how the company did its budgeting. He chuckled. Every line item on the budget, he explained, had an “owner”–someone who was responsible for researching that line item, then proposing and justifying a number for the coming year. But these line-item owners weren’t department heads or vice-presidents, they were front-line employees. Managers merely took what the employees prepared, checked the figures for consistency, and incorporated them into unit-level budgets. As the year went on, each line-item owner was responsible for monitoring spending on the line and explaining any variances that turned up.
At first, said the president, employees didn’t think they could do it-after all, many line items in a business depend on a company’s expected sales. “They said, ‘We can’t predict sales. Anything can happen!’ I said, well, just give it a try. After two years they got to where they were predicting sales plus or minus only five percent.” In the process, of course, they not only learned the business, they learned ways to make sure that their line items stayed on track.
A
A neighborhood healthcare agency, with an array of family support services in very poor neighborhoods, was beginning to feel squeezed by funding policies that were oriented toward brief medically focused visits rather than their preferred more holistic in-home services.
Milly Howard, the executive director, asked the nursing unit to consider how to increase the numbers of visits while not robbing the families of the value of the holistic model. In working as a group on the budget and funding requirements, this division made some headway in increasing their “units of service” but they also found that they needed to engage the rest of the organization in a re-examination of the organizational model.
The re-examination included staff from all over the agency, board members, families connected to the program, and other collaborating agencies. They found themselves recommitting to the power of the original model and acknowledged the inadequacy of their current funding structures to support their vision of a holistic community of support.
Over time the staff’s interest in fundraising and otherwise gathering resources for the organization grew; they saw it as a part of each person’s job to “keep an eye out” as the whole organization sought a more diverse and friendly base of support. Discussions about funding, previously the domain of just the executive director and a few board members, were more widespread. Finally, this level of engagement also resulted in more constant “working of the mission” by staff and between staff and board.
Admittedly, this story is not just about opening the books-but also about opening the organization. And, in fact, one act begs the other. As a result of her faith in her colleagues, Milly’s agency has transformed itself from one whose future was vague and questionable to one whose direction and support is clear. The hearts, hands and heads of staff are all fully employed in ensuring its vision.
John Case is author of Open-Book Management (HarperBusiness, 1995) and The Open-Book Experience (Perseus Books, 1998), as well as many articles on open-book management. A writer and consultant, he serves on the board of Third Sector New England.
