By a four-to-one margin, the chief executive officers of the nation’s 400 largest builders say that the greatest managerial challenge facing their companies lies in the proper selection, training, and motivation of employees.

We couldn’t agree more.  As Inc. Magazine editor John Case points out, the battle to boost performance is ultimately fought (and won) in the human dimension of business – largely in the wanting, the caring, the initiative-taking of employees.

But this human dimension requires a different management approach.  By teaching people the real numbers of the business, giving them the authority – and the responsibility – to act on that knowledge, and then giving them a real stake in the financial outcome, Open-Book Management fundamentally changes the relationship between a building company and its employees.

How is the homebuilding industry approaching OBM?  When we asked these same executives how applicable Open-Book Management was to their own company’s management practices, you could almost hear the doors being closed.

Open-Book Management was just one of the issues explored by Reference PointÔ, our annual survey of management practices conducted among the chief executive officers of companies listed in Professional Builder’s Survey of Housing’s Giants.  This year’s survey was cosponsored by American Metro/Study Corporation.
 

We started by asking these executives how well a series of eight statements, each dealing with a different aspect of open-book practices, described their own companies (we offered no further explanation).  The responses to each statement were weighted and compiled into an Open-Book Management index, with 24 points being the “most open” score a company could receive.

The overall average index was 10.3, and there was almost no variation in this average among builders in any of the sub-groups we studied (Figure 1).  These companies have a long way to go before they would consider themselves to be open-book.

The responses to individual statements were even more telling;  two-thirds of these executives said employee stock ownership was not a relevant issue for their company;  three-fourths said performance compensation comprised less than 20% of total compensation;  and, almost nine in ten said they expected a higher level of job performance from senior managers than they did from other positions in the company.

The most interesting – and revealing – statistic was the frequency with which these executives said they formally discussed the details of their company’s financial performance with their employees (Figure 2):  Almost one-third answered, in essence, never, if possible;  less than one in five discuss the issue frequently enough to make any difference in the financial outcome.

Finally, almost 60% of these executives admitted they did a better job with the “what” and “how-to” issues than they did with the “why” and “want-to” issues.

Here’s the problem – and part of the solution:  The industry is plagued with excess capacity;  virtually every homebuilding company is under pressure to improve operating and financial performance.  Every contemporary management solution has focused on the what and the how-to of business;  only Open-Book Management focuses on the why – the underlying business logic – and the want-to.

Homebuilding companies need to be made up of people that think and act like businesspeople – people who know the numbers, who are mutually accountable for their own parts in the company’s performance, who share in the rewards – instead of employees, who must be told what to do, how to do it, and when to do it.

After all, who is it that has to make the difference?  Who has P&L responsibility in your company?

Implementing open-book practices is a tall order, but as with almost everything else, it’s the big challenges produce the biggest (and the best) opportunities.
 

Fletcher Groves is a Vice President with Service and Administrative Institute.  He can be reached at (904) 273-9840.  Randy Warner is Director of Florida Markets for American Metro/Study Corporation.  He can be reached at (813) 273-6200.