Apr 06 2018
The Power of Engagement Through Open-Book Management
Based on three principles: transparency, trust and fair treatment, open-book management engages with employees and gets them to think and act like owners, creating a culture of employee ownership in credit unions. This research is the first of three reports from Filene’s Center for Organizational Entrepreneurship exploring the value and relevance of open-book management for credit unions.
Like other organizations, credit unions must focus on maintaining acceptable short-term financial performance while at the same time creating and sharing value with key stakeholders—most notably in this case members and employees. Executing this balance is a central challenge for any business, and effective organizations achieve it by engaging employees in decision making, providing them with the information they need to make better decisions, and giving them a stake in the value they help to create.
This is of course easier said than done, and all organizations vary widely in their ability and willingness to use these levers to drive business results. Some of the challenges are cultural—effective empowerment often requires a shift in organizational trust and transparency—while still others are operational as new information, incentives, and processes must be put in place to support more effective decision making. While addressing these challenges at the cultural and operational levels simultaneously is a key leadership task in any organization, credit unions are in a strong position to manage in this way for long-term sustainability given their unique cooperative structures, missions, and values.
What Is This Research About?
Credit unions face the same constant tensions as other businesses: How do we achieve acceptable short-term returns while investing in long-term sustainability? How do we achieve both financial discipline and customer focus? The academic literature is clear that employee “ownership” is key to resolving these tensions.
In this research, we explore how to use three principles—transparency, trust, and fair treatment—to get employees to think and act like owners. In a brief review of the academic literature, we summarize how employee ownership improves performance and show the variety of forms “ownership” takes in organizations, not all of which center on equity stakes and many of which are highly relevant for credit unions. We introduce a widely implemented framework—open-book management—which is based on these principles and can be used by credit union leaders to create cultures of employee ownership in their own organizations.
What Are the Credit Union Implications?
Credit unions have traditionally far outperformed their larger bank rivals on service quality and customer satisfaction. Maintaining this competitive advantage is, in turn, likely to rest at least in part on their relative ability to better employ practices like employee empowerment, broader involvement in organizational decision making, more widespread sharing of rewards, and other practices that are associated with open-book management. What are some of the insights for credit union leaders seeking to create broader cultures of employee ownership in their own organizations?
- Cultures of employee ownership need not involve literal employee ownership via equity stakes. They can be fostered with reward sharing based on incentives tied to simple, key performance metrics important for credit unions.
- Incentives are a necessary but far from sufficient condition to realize the benefits of employee ownership. Credit union leadership teams also need to pay particular attention to structuring their organizations to foster transparency, trust, and fair treatment. Performance gains from ownership will only accrue to organizations that succeed in implementing these three principles.
- The principles of transparency, trust, and fair treatment can be fostered, respectively, through three key implementation pillars of open-book management: developing and agreeing on a clear definition of “winning,” active employee involvement in driving results, and incentives that allow everyone to share in the rewards.
- Because of their relatively smaller size, unique ownership structures, missions, and values, credit unions are in a strong position to realize performance gains from implementing frameworks like open-book management.
Filene Fill-In Ep. 36: A Conversation on Open-Book Management with Harvard Professor Dennis Campbell
Filene thanks its generous supporters for helping to make this research possible.