SHARE THE NUMBERS WITH ALL EMPLOYEES - NOW!
About 5% of the privately-held business audiences that I address share all of the general financial numbers with all of their employees, based on raise-your-hand surveys. Over 50%, however, do admit to having sales figures unofficially available to most employees. This data suggests that many firms have an opportunity to change many passive-dependent employees into productivity-growing stakeholders, but the conversion process starts with sharing the numbers.
THE DRAWBACKS OF NOT SHARING NUMBERS
- Surveys have confirmed that uninformed employees think that company profits are 4-10x greater than they really are. One family business confided that their union shop had heard the annual sales figure for the firm, but the actual rumor was that "the family had taken that amount in profits out of the company". These naive assumptions fuel thinking such as: "I'm being exploited, why should I work harder to make 'them' richer... if they cared about me, they would give me a raise; they can afford it; why are they so selfish?...Don't raise my taxes, tax the rich and corporations - they can afford it!"
- If numbers are a secret, then how can we give employees meaningful feedback to make the game fun and to stimulate creative initiatives? Every job, department, project and profit center can be measured by dimensions for - quantity throughput, accuracy, timeliness, margin contribution per person, and customer (next department) satisfaction scores. The employees can be taught to log data into a PC spreadsheet to compute trailing averages and graph trend performance; call them "database scorecards". The average trend lines will not sustainably improve without initiatives. Do we want employees leaving the plant lights on as they race home to demonstrate their do-it-yourself initiative. Or, do we want to be like Toyota which has had 40 million money saving suggestions implemented in the last 20 years involving two-thirds of all employees? If we play a game with no way to keep score, it quickly becomes a mind numbing, crank-turning bore.
- To not share numbers is to say "You are not on the team, and you are not to be trusted." Employees, as U.S. citizens, have access to all political information and government financials. Within their households they must manage the finances. But at many firms, they are treated like the six-year-old who asks how much their parents make. If some employees act like six-year olds, maybe it is because managers are the co-dependents who have managed them to be that way.
HISTORICAL REASONS FOR SECRECY
Sometimes we act on unspoken assumptions that seemed to work in the past, but changing times have made them obsolete; what dated assumptions are there for keeping numbers a secret?
With the support of a series of economic accidents, the U.S. had three hundred years of economic expansion up to 1974, unlike the rest of the world. If employees showed-up, shut-up, and turned their crank, things prospered, but not any more. Necessity now calls for experiments to get all employees to be part of the profit growing solution.
Many companies historically exploited both employees and customers to make profits worth hiding. Right through the sixties, we as customers were happy buying standard products of mediocre quality at authorized-dealer, book price. And, many vendors had policies such as - "all sales are final or caveat emptor." Today we expect micro-segmented choices of perfect quality goods at discounted prices which are unconditionally guaranteed forever. The switch is due to too much supply and a saturated slow growth demand. Exploitive capitalism has become servant capitalism.
If we are to serve the customer with perfect-quality, guaranteed goods and services, we need excellent, flexible and committed employees. Again through the sixties, we were able to hire them cheap, work them hard, treat them indifferently, and many stayed; today they leave quickly. To hire new replacements costs, but the turnover also hurts product and service quality which hurts customer retention rates. Today we must grow profits by retaining the better customers at a greater rate than the competition.
Another historical condition was the lack of accurate and timely numbers that could be shared. In those growth times, however, cash accounts kept rising so the first problem was where to invest it or how to get it out of the company with the least taxation. Today computers can produce timely numbers, and tougher times make tight financial control and cashflow forecasting necessary.
Finally, CEOs of small businesses must wear many hats usually including the chief financial officer's. Many management generalists can understand the numbers, but not well enough to be comfortable teaching them to others. Self-esteem problems can also interfere. Few managers enjoy standing up in front of employees and saying: "I'm not sure how to explain this; profits are weak, and I'm the most responsible, but I don't have all of the best ideas for what we must do to improve profits - can you help me"?
- We must get in touch with our unspoken, dated assumptions about financial secrecy, and adopt new ones that will allow us to avoid the drawbacks mentioned earlier and achieve employee initiative like Toyota's.
- We must answer the employees' question of "why should I turn on, what is in it for me?" They should be intrinsically pleased with being included, trusted and having ways to keep score of the game they must play anyway. The extrinsic financial rewards are that good company profitability reinvested is the best insurance for future job security and company/job growth. If the stakeholders can in time achieve premium company profits, then premium compensation for all in the form of variable bonuses are possible and deserved on top of base compensation which is set by supply and demand forces in the labor market.
- The alternatives to sharing the numbers are not good. We risk having inflexible, resentful, passive-dependents dragging down company productivity and adaptability. We could sell the firm or do nothing which is tantamount to harvesting it today. Sharing the numbers and asking for responsibility is the easiest, tough choice.
- What if the firm is losing money? Do we want to share bad news with employees and scare them away? Every successful turnaround story stars someone who states the cold facts and proposes a plan, the success of which depends upon employees stepping forward to be part of the solution. Losses increase the urgency to confront them as a team. Share the numbers, the responsibility, and the future upside; start turning passive-dependents into stakeholders today.
© Merrifield Consulting Group, Inc., May 1991