Open Your Books To Drive Better Results

Give employees the knowledge they need to think and act like the business partners they are.

If you are a fan of Big Ten football, then you likely have seen the Ohio State University Marching Band perform its Script Ohio half-time show. The band’s 225 brass players and percussionists kickoff the performance standing in a single file line. The musicians then march around and through one another, spelling Ohio in script-like lettering. Each performer must know where to stand and how to move for every second of the five-minute performance to avoid colliding with fellow band mates. Any person that does not know exactly what is going on at any given moment, or how they fit into the larger picture, spells ruin for the Script Ohio performance.

So why is this Michigan grad going on about Ohio State? Ask yourself: Do your employees know what they need to do and when they need to do it to achieve your credit union’s ultimate objectives? They should have the knowledge; and with the right tools, they’ll know how to use it to spell success for the credit union and ultimately themselves.

The Philosophy & Practice Of Open-Book Management

John Case of Inc. magazine is credited with coining the term open-book management in 1993. Seven years later, Jack Stack used the term and some of its concepts to describe the success behind his employee-owned Springfield Remanufacturing Company (SRC). Inc. magazine has since dubbed Stack the father of open-book management, a concept that stresses the role employees play in making decisions and driving the financials, thereby making them responsible for the success of the company.

Through two books that Stack co-authored The Great Game of Business and A Stake in the Outcome open-book management concepts have increased in popularity. One company that has taken the management practice to heart is Zingerman’s Delicatessen. Originally a small deli on the south side of Ann Arbor, MI, today the company has grown to be a $40 million family of eight thriving businesses. Zingerman’s community of businesses, or ZCoB, includes, among other things, a bakery, coffee house, and mail order company. They have spent the past 10 years perfecting their implementation of open-book management, and to see it in action during a two-day seminar was enlightening both as an owner and manager of Callahan & Associates, which is an ESOP, and as a consultant in the credit union industry.

In the words of Zingerman’s personnel, open-book management is:

a radical approach to running a business. Open-Book is about empowering every single employee in your business with the tools, education, and data they need to act (and take responsibility) like owners.

Open-Book Management is not a spectator sport. It’s not just about showing people all the numbers.

Transparency is great but this is about actually taking charge, not just taking time to look at some financial spreadsheets that management was nice enough to share with you. Open-Book is about everyone participating in running the businessit’s about people understanding how the whole organization works and their role in it. It’s about accountability, collaboration, and taking initiative. It’s about looking forward and working together to win. (emphasis added)

I am certain credit unions understand these concepts and recognize their value. But to witness an organization living open-book management every day is another thing all together. So I decided to do just that.

In May, I spent two days with the folks from Zingerman’s. (Yes, I went to the University of Michigan, where among other things I learned to be broad-minded enough to use the example of Script Ohio in a positive light.) The ZCoB has three bottom lines: Great Food; Great Service; Great Finance. Each business and department has identified the key metrics employees can use to gauge whether they are winning the game of business by delivering on all three of those bottom lines.

Although the first two might be intuitive for front-line employees to track, it’s that third one great finance the seminar focused on. To ensure employees are thinking about the company’s financial results every day, Zingerman’s prominently displays every department’s score for each metric on a dry erase board that hangs in every department. Departments then update their scores during weekly huddles.

In a huddle, employees review the 10-20 business-driving metrics that indicate whether they are on track, ahead of plan or falling behind. Some are qualitative, such as the feedback from customer surveys or coffee tastings; most are quantitative, such as the amount of food waste or sales by key product. Each metric has a line owner who is responsible for reporting, forecasting, and delivering on their assigned business driver. Critically, the line owners are not managers; they are servers and baristas, cooks and loading dock workers.

The 80/20 rule is a guiding principle in the huddle: 80% of the conversation is about managing the future, only 20% is spent reporting on what happened. This keeps employees focused on the score at the end of the game, not where they are at halftime. This is a difficult rule to follow. Employees are comfortable discussing what happened, what they know as fact. It’s harder to forecast the future and talk about outcomes that are not yet ordained.

Maggie Bayless, managing partner of ZCoB’s training business ZingTrain, admits that not every employee will be able to answer any question about Zingerman’s financials. However, most employees can talk knowledgably about the key metrics for their departments. And those that can’t don’t last long in the company.

[Employees] understand what they can do, day to day, to impact those numbers, Bayless writes in the seminar training guide. Everyone in our organization is responsible for the financial success of the organization in the same way that everyone is responsible for the level of customer service.

To accept such responsibility, employees need not only the right information but also the right skills to act on that information. Therefore, in addition to training employees on customer service, a standard business practice, Zingerman’s offers finance classes to all employees to teach them about the business.

How Does Open-Book Management Relate To Credit Unions?

Zingerman’s business practices have tangible take-aways for non-profit, member-owned credit unions.

Credit union employees must know why they do their jobs a certain way or why the credit union has a particular policy. And they must understand how their daily actions contribute to the overall financial health of the institution. Being employees of member-owned institutions, they also have a responsibility to be thinking like owners themselves in all of their actions.

Unfortunately, many employees think they know how they fit into the fabric of the branch but often see only a fraction of the big picture. Or, they understand the overall goals (10% loan growth) but are unable to translate that lofty goal into tangible targets they can influence. Even high-performing employees who understand their job description and the inner workings of several departments can lack the deeper knowledge of how their actions influence the overall financial health of the credit union.

Employees are trained in actions, but ultimately it is the results that count. And many credit unions fail to clearly draw the connection between employee actions and credit union numbers. When employees have an intimate familiarity with the financials and can connect their actions to financial performance, and vice versa, then the credit union will achieve better results.

An Example: Refunding Fees

The instinct of the front-line representative is to retract fees and send the member away happy. This might or might not be the best option, but how does the employee know when to refund it and when to leave it? For example, what should a front-line employee do when a member complains about a check cashing fee? Under certain circumstances like if the member has set up a direct deposit, has taken out and is current on a loan, and uses online banking refunding the fee is a proper and reasonable action. Under other circumstances like if the member holds only a $5 savings account so he or she can use the credit union as a discounted check cashing service the member is taking advantage of the credit union. In this case, refunding the fee takes away money needed to employ the teller and keep that branch location open. Refunding the fee is not in the best interests of the institution, its employees, or its members.

Looking at the fee through an open-book management perspective, employees will take actions that build the overall value of the credit union on behalf of its stakeholders. Squishy knowledge doesn’t cut it. If a credit union wants employees to act like business partners, then it must make them feel like they are business partners. And understanding how actions affect financial performance is one way to do that.

A Pop Quiz Employees Will Like

Numerica Credit Union ($1.3B, Spokane, WA) is always on the lookout for places it can tighten its budget, and it uses open-book management techniques to achieve that goal.

When the economic downturn hit and the credit union had to write-off corporate and other NCUA assessments, Numerica launched We All Can Make A Difference (WACMAD). The staff group solicited employee ideas regarding how the credit union could reduce expenses and save money. One practical suggestion: Use the flip side of out-of-date marketing materials for scratch paper.

Numerica found that even though it runs a lean organization its first quarter 2013 efficiency ratio of 67.14% beat that of other credit unions with $1+ billion in assets, 72.05%, as well as credit unions in Washington, 72.92%, and all credit unions nationally, 79.61% it can find additional savings in hard-to-spot places.

When we started looking under rocks and couch cushions, we found some things weren’t as efficient as they could have been, says Cindy Leaver, chief financial officer of Numerica.

But for WACMAD to work, employees must first understand where the credit union spends and earns its income. And that’s where Numerica’s incentive program comes into play. It is a self-funding program based on the credit union’s financials. The more successful the credit union is at meeting its goals producing loans, opening low-cost deposits, reducing operating expenses, increasing non-interest income, etc. the more money is available for bonuses.

Everybody pays attention to how much they’re going to get paid, Leaver says. We use the incentive program as an education tool so employees understand how to move the metrics. A lot of our staff members take it very seriously and really look at their monthly reports to figure out what they can do to move the credit union forward.

Leaver divides the financials into different metrics; provides a category by category summary that outlines whether the credit union is on target, behind target, or ahead of target; and explains why the credit union is where it is. If Numerica is close to hitting a new hurdle, Leaver offers ways staff can achieve the goal.

I might talk about non-interest income and say Opening checking accounts is a way to not only grow low-cost deposits but also drive non-interest income, Leaver says. I explain to people how the activities they participate in every day move those hurdles.

To keep employees further engaged, Leaver emails a monthly financial quiz to employees. Employees who respond with correct answers get their name in a drawing for a $5.00 Starbucks gift card.

I probably get 40 to 50 entries every month, Leaver says. There are some people that are in it every single month, but there are a lot of people who go in and out depending on how busy they are.

Back To The Future

Callahan & Associates still has a way to go in being a truly open-book management firm, but we’re finding our way back to a path our founders paved. In the early days of Callahan, co-founders Ed Callahan, Chip Filson, and Bucky Sebastian, along with a few other early employees, took sole responsibility for selling Callahan’s flagship product, Callahan’sCredit Union Directory. They made a game of selling it, employing gamification techniques even back in the mid-80s. When a call came in, whoever picked up the phone and took the order received credit for the sale, no matter where the sale originated. The employees took pride in seeing who could sell the most copies as well as provide outstanding customer service, and people dove for the phones. Many times the first respondent was saying Callahan & Associates, this is _____, before the first ring stopped.

In this office’s culture, employees understood what incoming calls might mean: A sale. They understood what answering the phone meant for Callahan: A stronger bottom line. They also understood what answering the phone could lead to for them: A bigger payday. Once the company established that knowledge, customer service became superb.

I hope to see credit unions across the country open up their finances for all employees and members to see how the credit union wins at the game of business and what that means for all the stakeholders involved.

June 3, 2014

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