How about REALLY Open Book Management?

For the past decade or so, a trend that has gone viral in the cooperative grocery sector is “Open Book Management,” a phrase coined by writer John Case of Inc Magazine in the late 1980s to describe a process invented by entrepreneur Jack Stack.

Of course neither Case nor Stack are cooperators.  Stack is credited with using his concept to transform a manufacturing firm in Springfield, Missouri from one whose shares were worth ten cents apiece to one with a share price of nearly $350.   This is a tribute to the power of information when it comes to profit maximization for investors, including employee-owners.  But is it good enough for a consumer cooperative – or, perhaps more importantly, how does it square with the Cooperative Values and Principles?

Open Book Management is not enough for consumer co-ops.  At least that’s my hypothesis.  I hereby propose that consumer co-ops go beyond Open Book Management (OBM) and embrace Really Open Book Management.  Call it ROBM – which, in the spirit of Robinhood, can be pronounced to rhyme with “mob ‘em.”

According to the web site of the National Center for Employee Ownership, Open Book Management has five essential attributes:

  • Sharing the income statement and balance sheet with most employees;
  • Sharing other data with employees (such as productivity and plant utilization/quality data);
  • Encouraging employees to use the information in their daily work;
  • Training employees to understand financial numbers; and
  • Sharing the financial results through a gainsharing program.

Really Open Book Management – ROBM – would involve extending these principles to the member-owners of consumer cooperatives.

Why do this?  Because the sixth of the seven Cooperative Principles is “Education, Training and Information.”  Too often, Principle Six is either ignored or treated like a mandate for co-ops to hold classes that are, while often really great, tangential to what the cooperative offering them actually does.  What the Rochdale Pioneers had in mind was the kind of education that empowered members to be knowledgeable about what their co-op really does and how it functions within its business sector as it competes with investor-owned companies.

Here is what Brett Fairbairn of the University of Saskatchewan, a great cooperative thinker, has to say on the subject in his seminal essay Three Strategic Concepts for the Guidance of Cooperatives:

It is all too easy for members to begin to take their co-operatives for granted, to lose sight of where they would be if the co-operative no longer existed. The longer a cooperative exists, the easier it is for members to forget why it was created. Transparency, as both an organizing principle and a communications approach, is fundamental to reproducing co-operative membership and loyalty from generation to generation (and even within a generation). What transparency requires is that members understand not only their co-operative, but also the industry or sector of which it is a part, so that they can see clearly what their co-operative does for them. This is the root of member loyalty.

Transparency can be a bit of a buzz-word in cooperative discourse, but Fairbairn is not one to emit platitudes without sufficient explanation.  Here’s what he means by transparency:

members are well-informed—frequently and through multiple channels—about business, service, and financial results
members understand the industry or sector of which their co-op is part; they can see “through” their coop to markets, forces, social and economic trends beyond
members see the different clusters or “pillars” of activity within their co-op, the incentives or crosssubsidizations that are built in, and accept the appropriateness of these
members understand the different interests or stakeholders in their co-op

Don’t those bullet points bear a striking resemblance to the ones the National Center for Employee Ownership use to describe the fundamentals of Open Book Management?

To put it another way, members of consumer co-ops in the grocery sector often find themselves wondering things like:  Why does the co-op sometimes seem as if it is more expensive than its investor-owned competition?  And when it truly is more expensive, why is this so?  How are the prices of the items on the shelves determined?  Why are popular employees sometimes fired?  Why can’t my co-op stock all of my favorite items, no matter how esoteric?  Why is this year’s patronage refund so mediocre, or absent altogether?

Open Book Management for Members – what I call here Really Open Book Management – would provide answers to these questions for those members who are interested.  It would also provide answers to questions members should be asking, if only they knew more about the grocery business, like:  How will food co-ops continue to thrive now that the investor-owned chains are aggressively moving into product lines and geographical areas that were once the exclusive domain of co-ops?  How can food co-ops reduce the ludicrous percentage of their revenue that are gobbled up by interchange fees paid to credit card processors?  (Hint:  Those “free” airline miles or store coupons your credit card provides are the proverbial not-really-free lunch.)  Why are some co-op insiders predicting that within five years there will be 30 percent fewer food co-ops in the U.S. because of mergers and outright business failures?  What do hidden and overt subsidies have to do with the fact that healthy local food is always more expensive than the unhealthy stuff that must be transported from distant places?  What are the trade-offs, in practical terms, among sustainability, employee compensation, patronage refunds, and affordable retail prices?

You may say I’m a dreamer – but I’m not the only one.  In 2012 I visited a food co-op a time zone or two away from me in New England and, while I was there, I decided to sign up as a member of the Co-op.  Immediately upon doing so, I was invited to the co-op’s weekly Open Book Management gathering.  Naturally, I accepted the invitation.

At this gathering, each of the co-op’s department heads was present, along with the general manager, CFO and other management types.  They went over the preceding week’s results, department by department, comparing them to the results that were budgeted and the results that were forecast immediately before the week began.  It was a frank discussion; most departments had failed to hit targeted sales figures.  What astonished me was learning that this weekly meeting was open to any member of the co-op who cared to attend.

This particular co-op happens to be located in the same city as the headquarters of a particularly high-flying supermarket chain that would love to grind the entire cooperative grocery sector into the dust.  So I asked the co-op’s GM whether he was afraid of the big bad chain exploiting this openness to gain a competitive edge.  He laughed, asking me if I truly believed the big bad chain did not already know everything it needed to know about his co-op and its operations.

Moral of the story?  The competitive considerations that lead so many co-ops to withhold operational details from members, given that membership is open to all, are overblown and typically wielded as excuses by managers who do not want to submit to the rigors of plenary member scrutiny.  I do not discount the possibility that in some circumstances Really Open Book Management would put competitively sensitive information into the hands of a co-op’s investor-owned competition.  My hypothesis?  It’s worth the gamble, given the kinds of gain in member trust and empowerment one could achieve by using Really Open Book Management.

Trade secrets are not what will allow cooperative grocers to prevail in the face of aggressive competition from the supermarket chains.  If co-ops are to survive and thrive in the retail food sector, it will be because the cooperatives cultivate something the chains can never have:  the complete trust of their customers, in light of the empowerment implicit in member-ownership.  The Rochdale Pioneers understood that cooperators can never out-scheme the schemers.  So let’s change the terms of the game by giving Really Open Book Management a try.