Some of the best ideas Jude Raspino puts into practice at Metairie, La.-based Stuart Services come from his employees. Late last year his office and service managers suggested they could reduce the cost of goods in the company's HVAC replacement division by bringing in one of their most experienced technicians from the field to permanently oversee and approve purchase orders.
As their theory went, someone who knew the materials necessary for each project could put a stop to inflated and incorrect orders. (Dispatchers had previously validated blank POs that techs took to the warehouse.) Raspino agreed to the move, and after six months gross profit for the division has increased 25% over the same period last year.
Raspino's staff is always looking for new ways to improve the bottom line because he's willing to show them the numbers that go into it. By opening his books and discussing certain elements of his profit and loss statement with them, he says he's created a sense of ownership among his employees that motivates them to help solve problems. “They see all of these line items, and they find practical ways to chip away at them,” he says.
Face the numbers. Before introducing open book management (OBM) to his staff in November 2003, Raspino decided he needed some support to lend it credibility, so he enlisted his service manager, Darren Bell. By creating a “coalition of change,” as Raspino calls it, he says he prevented his employees from thinking it was just another best practice handed down from on high. Bell was previously a field tech, so his endorsement made it feel like the idea was coming from “one of them.”
Once the pair showed the company's technicians and office staff a video from the Great Game of Business about how the process works, they scheduled weekly and monthly meetings to discuss financial numbers and performance indicators. Each meeting starts with a look at Raspino's “holy trinity”: call counts, conversion rate, and average sale. These figures, which are taken from the previous week's business, are compared to goals and then used to put P&L numbers into perspective.
Choosing which numbers to reveal and determining how detailed to get were two of the most important steps in the process. With more than 30 items on his P&L statement, Raspino knew he needed to trim the list to items that would give his staff a good idea of the company's financial status without boring them. “Details are important to whoever's in charge of watching them closely,” he says. “But you'll start to lose people if you go into too much detail at these meetings.”
But even a little detail can get tedious when it comes to accounting, so he decided to make the meetings interactive by splitting up the staff into small groups, giving them calculators, and putting them to work. Each group is responsible for computing a different number based on 12-month averages, comparing it to goal, and sharing it with the rest of the room.
They start with sales and subtract direct costs like labor, materials, and permits to derive gross profit. From there they subtract six P&L line items — advertising, insurance, combined office staff and owner's compensation, office leasing, truck leasing, and “other,” which includes things like utilities and training — to find net profit.
Once everyone sees how the company is performing, they can look back at the holy trinity to see why. If call counts were lower than projected, marketing may be at fault. If average sales are down, it could be an issue at the technician level that Raspino will address with one-on-one training or role playing. Or it could be something else entirely, in which case the group can brainstorm solutions. The important part, he says, is that everyone knows where the inefficiencies lie so they can work to improve them.
Before Raspino took the leap to offer his employees this level of financial disclosure, he worried they might take the insight and use it to start their own businesses. Some have left, but those who've stayed have been that much more committed to helping the company succeed. “It's fun to see how receptive people are when you give them this kind of responsibility,” he says. “They realize they can make a difference.”
Sidebar: Don't Fear Disclosure
Concerned about which financial data to reveal to your employees? So was Raspino before he started OBM. Here are two numbers he says you should probably share and one you definitely shouldn't.
Advertising — It costs money to get the phone to ring. If your staff knows how much you spend on print, radio, and TV ads, they'll have a better understanding of what it takes to drum up business — and have something to examine when call counts are down.
Cash flow — Every company has debts to pay off and capital investments to save for, and your employees need to know how that affects the bottom line. “I like them to see that even though we make a profit, we may not be cash-positive for that month,” Raspino says.
Salaries — It may go without saying that sharing individual earnings will lead to trouble, but Raspino says many OBM first-timers still wonder if they should. Treat this item with care and reveal it as a rollup number only. “Anything more will distract from the focus,” he says.