Open book management (OBM) is a management philosophy that involves sharing financial information with employees and involving them in the decision-making process. The idea behind OBM is to empower employees by giving them a clear understanding of the financial health of the business and to encourage them to contribute ideas to help the company grow.
In the restaurant industry, open book management can be particularly effective. Restaurants have high turnover rates and often struggle to maintain a stable workforce. By implementing OBM, restaurant owners can engage their employees and foster a sense of ownership in the business.
One of the key benefits of OBM is that it helps employees understand the financial implications of their actions. When employees are aware of the costs associated with running the restaurant, they are more likely to be mindful of waste, theft, and other factors that can negatively impact the bottom line. OBM can also help identify areas of the business that are not profitable, allowing restaurant owners to make necessary adjustments.
One example comes from Mei Mei, a Chinese-American restaurant in Boston. In the podcast Copper & Heat, co-founder Chef Irene Li shared her success of implementing OBM by empowering her staff to look for cost savings:
We set up a challenge for the team and asked them to try to save us some money on cost of goods sold (COGS). And so we split them up into teams that were basically the different departments and we said here are the strategies: you can call our vendors to try to negotiating pricing, you can change the pricing or the layout of the menu, you can implement a waste log. Really anything that will impact our COGS, we are empowering you to do over the next three months. And we said any money you can save us compared to how our COGS has been in the past, we will just give to you. And so over three months, they saved us $10,000, which was almost 4% so they took us from 28% COGS to 24% COGS and now our COGS is at 21%. So the business was able to pay $10,000 to the staff and we maintained the improvements they’d made, so we’ve been benefiting from that ever since.
Another benefit of OBM is that it encourages employees to contribute ideas to help the business grow. When employees are empowered to make suggestions and take ownership of their work, they are more likely to be invested in the success of the business. This can lead to increased innovation and creativity, which can help restaurants stay competitive in a crowded market.
Implementing OBM in a restaurant requires a few key steps. First, restaurant managers should create a clear and simple financial statement that can be easily understood by employees. This statement should include metrics such as revenue, expenses, and profit margins. Some that have implemented OBM, like Mei Mei, will share a monthly/quarterly P&L statement with their employees.
Next, the owner should hold regular meetings with employees to review the financial statement and discuss the performance of the business. These meetings should be an opportunity for employees to ask questions, provide feedback, and share their own ideas for the restaurant.
It’s also important to create a culture of transparency and open communication. This means encouraging employees to speak up if they notice something that could be improved or if they have an idea for a new menu item or promotional campaign. By creating a culture of openness, restaurant owners can foster a sense of teamwork and collaboration among employees.
A great example comes from Mason Ayer, CEO of Kerby Lane Café, a Restaurant365 client in Austin:
With OBM, what we’ve done is we open our books and there is nothing but salary data that is hidden and we teach anybody who wants it financial literacy, starting at the very basic all the way up through understanding earnings before interest, taxes, depreciation and amortization (EBITDA). They might be bussing tables, but they understand how through their actions and the actions of team members around them drive and impact the P&L and how that flows to EBITDA. The impact it’s had on our performance is absolutely phenomenal. In 2017 they were able to maintain their profitability even though sales were down by 4% from 2016. I attribute that to the fact that we have a workforce of 600 to 700 team members who are paying attention to all of the little things and the fact that they are paying attention has allowed us to maintain profitability which I am really, really thrilled about.
Finally, it’s important to incentivize employees to take ownership of the business. This can be done through profit-sharing or other financial rewards, as with Mei Mei above. When employees feel that they have a stake in the success of the business, they are more likely to be motivated to contribute to its growth.
In conclusion, open book management can be a powerful tool for restaurants looking to engage their employees and improve their financial performance. By sharing financial information, encouraging employee feedback and innovation, and creating a culture of transparency, restaurant owners can create a sense of ownership and teamwork that can lead to long-term success.