Teamwork To Profitability

Maybe you have just opened up a business or have been running one for some time or even a department for that matter. If either are the case you are being affected by rising input costs. They range from new taxes, minimum wage increase, health care, supplies (have you priced a simple pen lately?) and potentially the raw product that goes into making your stuff. In some cases these input costs are rising slowly so that you are not seeing an immediate impact.

When inputs go up profits usually go down and that is when you ask yourself “where did my profits go?” I am shipping / selling the same amount as last year but making less money – the un fun (yep I just made that word up) part of business.  

As a good Leader / Manger you are probably looking at your P&L trying to figure it out – the question I have to ask is why do it alone? Unless of course you are a one person operation. Let’s assume for the moment that you are part of a multi team environment.

We ran into a similar problem a couple of year ago – instead of a few of us trying to strong arm this to the ground, trust me we gave it a try, we implemented an Open Book philosophy. While going through some notes I found excerpts from an article that I used as a launching pad – I am sorry that I cannot identify the author, but many thanks to whomever you are!!

Let’s get started - OBM is gaining popularity for running a for-profit business. I am confident that this can be used effectively in a non-profit environment to minimize expenses and to allow more funds to go right to the cause!

Open-Book has been used to describe a management style where financial information or any information that is critical to the organizations success is openly shared with all the team.

Open-Book management is not a quick fix.

OBM requires five things:

1. Leadership

A leader must be willing to let go and to give their Team the real numbers about their firm's financial performance to achieve both credibility and motivation. People must have the opportunity to make a difference in a significant way – we did this by sharing the costs of doing business. The first meeting we did this you could hear a pin drop…..they didn’t have a clue what we were talking about….but I can assure you we the presenters thought we were the smartest folks there!!

Needless to say we quickly found out that we also needed to educate the teams, on to step 2

 2. Education

Education helps establish a understanding of the team’s everyday actions and the larger operating and financial results of the business. We found out that we had to so some training on the basics – so we created a glossary of terms that we went over every week….do you know what COGS means? Or how profit and cash are not the same thing.

 3. Information

Once we educated the teams to make sure that we were on the same page we began the information sharing – it was a daunting task. Even after the training you could see the glazing over….note to self, never have a meeting right after lunch!!

Eventually we started to see the impact overall – the teams are actively engaged in how our business operates. To make it less intense we started a “did you know” series of informational slides – yeah kinda corny but it was a real eye opener to many in our group that we were spending   

 4. Involvement

OBM invites a high level of employee involvement with business affairs. The degree of involvement needs to be proportional to the degree of education and information possessed by those involved. It's like controlling the angle of a dive into a swimming pool based on the depth of the water. The more thorough the education, and the more extensive the information exchange, the greater the involvement can be.

 5. Rewards

I am often heard saying that our company is motivated by pizza and donuts – and there are times that this is the type of rewards that the teams look for, in the short term depending on what the goal is for that period. We do have longer term programs like profit sharing and each department has some kind of gain sharing. That is where we see the impact of those previous four items.

This is a question of long standing. Corporate America has not answered it well. Many "merit" pay programs (rhetoric aside) don't really pay for performance. For most employees, the amount in the paycheck has little to do with their organization's current performance or their individual or team contribution. OBM stresses rewards linked directly to the "critical numbers" and profits. These rewards take a variety of forms:

Why Adopt OBM?

 The advantages of successful OBM are:

·       Solid financial performance of the business.

·       Improved security for the firm and its members.

·       Increased satisfaction with work.

·       Substantial and sustainable personal compensation and wealth building.

OBM is not a panacea. It's tough to run a business, big or small. OBM doesn't make things easier. It makes them better. OBM does not mean that employees will suddenly cease internal bickering, customers will become instantly delighted, quality will make a quantum leap upward, or cash flow will be more even. All these things take hard work. OBM is simply one approach to doing that work. In the end, OBM isn't about money at all. It's about excited people tackling a challenge and adding value to their lives and the world in which they live.

 When is OBM Finished?

 OBM requires continual attention, energy, patience, and the firm's resources. All its elements must be combined to a level of intensity before the synergy and power of OBM take hold in an organization. Partial efforts don't succeed. OBM offers rewards, but only from hard work. OBM is never finished because there are always new twists to running the business. The perpetual dynamism of the marketplace guarantees an OBM firm will remain a learning organization.

Gross Margin - Gross margin, gross profit margin or gross profit rate is the difference between the production costs excluding overhead, payroll, taxation, and interest payments and sales revenue. Gross margin can be defined as the amount of contribution to the business enterprise, after paying for direct-fixed and direct-variable unit costs, required to cover overheads (fixed commitments) and provide a buffer for unknown items.