Open-Book Approach Contributes to Profits More than Doubling

Employees at Mazzella Wire Rope & Sling Co. thought that Anthony Mazzella , president and CEO, and his brother came into their Cleveland business in the middle of the night with a wheelbarrow and hauled their money away.

So when they made their first quarterly bonus payout to employees, the brothers set a wheelbarrow by the overhead door, painted one white stripe to resemble a tire treadmark and posted a “We Did It!” sign to mark the occasion.

That was three years ago, and Mazzella (Vistage — Cleveland, Ohio) is more than pleased with the results since the company’s profits have more than doubled.

He has three suggestions for CEOs considering open-book management:

  • Dedicate a lot of time upfront and design the system as much as possible before implementing anything;
  • Don’t implement piece-by-piece;
  • Prepare to make adjustments continually along the way.What works today might stop working tomorrow. Mazzella’s company targets bonus goals to work on their current weakness, then plans to move on next year to a new weakness.Mazzella learned about The Great Game when his secretary gave him a copy of the book to read, which inspired him and his brother to attend Stack’s two-day seminar.”On our ride back from Springfield to St. Louis to catch our plane, we designed our system. Fortunately, my brother had just moved back from one of our branches and was able to devote two and a half months to developing the plan.”To that point, the company was privately and closely held. “We didn’t even share our financials with our managers, let alone everybody else.”

    The brothers kicked off the new age by holding a class on financial literacy, part of which was explaining the difference between gross margin and net profit. They asked for guesses about what percentage of profit based on sales the company had made.

    “The typical answer was anywhere from 10% to 25%. We shared our previous four years’ performance with everybody and surprised them, because it was down around 1% to 2% annually.”

    Reshaping the company “most definitely” has had an impact on performance. The first two years were the most profitable the company has had in its 40-year history.

    Now, all 80 employees learn the numbers. Every department sends a representative to hour-long weekly Huddles. Mazzella attends most but they go on regardless. The news isn’t always positive. There have been “bonus-less” quarters.

    But at the beginning of the year, every employee knows what his or her targets are and what the company’s targets are. They also find out the maximum bonus they could earn, based on their base pay and the quarterly milestones being set.

    Building Trust

    As the wheelbarrow story illustrates, employees at first were skeptical about all this sudden sharing of information. They thought two sets of books were being kept on the company. They thought the Mazzellas would rig the business activity so that targets would be intentionally missed each quarter. This skepticism by a number of employees existed even though there was pretty high trust between management and front-line employees, Implementing The Great Game of Business would have been much harder if this trust level didn’t exist.

    “Expect skepticism,” says Mazzella, “and try to convert your biggest skeptics. They become your champions of the cause.”

    When the employees understood that the owners themselves were at risk, deeper trust developed.

    “The owners have agreed that either everybody gets a bonus — including the owners — or nobody gets one,” says Mazzella.

    The Mazzellas also didn’t freeze employees’ salaries. Traditional/routine raises have been de-emphasized, though there have been increases in the past two out of the three years they have been playing The Game.

    An unexpected outgrowth is that employees themselves are more interested in who they keep and who they don’t keep at the company. “They’ll get angry if we hire someone they don’t think we should have; before, they could have cared less. We get tough questions.

    “The owners are also more accountable. This is an aspect of The Game that has taken getting more used to.”

    Room for Improvement

    “There are a lot of things that we aren’t satisfied with, much of it related to training. We have to do a better job of keeping it in front of people, and the idea is to repeat, repeat, repeat.”

    Plans are under way to do more financial literacy training, and to do it on a routine basis a little at a time, in The Huddles and in newsletters.

    The Mazzellas say they also want to transfer more responsibility for cost, productivity and utilization as close to the front line as possible in the company.

    First It Works, Then It Doesn’t

    “Every year you have to draw on your weakness, find it and deal with it. As the world is rapidly changing, what wasn’t a problem before tends to become one.

    “Our very first year, we made all our profit gains in reducing costs. The second year we did it by increasing some gross margins, but unfortunately our costs got out of hand. While we hit our target, we let something slip.”

    One way the Mazzellas have kept up is by attending the annual “Gathering of the Games” — Stack’s conference for business people practicing open-book management — with a couple of key employees.

    Ideas they brought back this year: creating smaller games by department and opening the discussion about whether there’s a way to share ownership of the company.

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