News Column

Manufacturer Opens Books to Employees to Encourage Growth

Oct. 25, 2012

Mara Lee, The Hartford Courant

company books

A little spring manufacturer, on the surface not much different from hundreds of others, lost almost 10 percent of its business last year when a medical-device parts job they had for 20 years disappeared.

"We had already forecasted that $600,000 in business," said Norm Rodriques, co-owner of Springfield Spring.

How the little spring company responded shows why it's not like all the others.

Rodriques set a goal of replacing that revenue with new accounts over 15 months, and set up a spreadsheet that lists every contract landed and its dollar amount. He and co-owner Tina Malley named it The Cook Report, after the company that suddenly pulled out. But they not only acknowledged the setback in the title, the spreadsheet's information was open to far more than sales staff and managers. Anyone in the company can call it up in the internal system.

The spreadsheet is one example of just how few secrets there are at Springfield Spring. Every month, Rodriques and his partner hold an hour-long meeting at each of the company's two factories. They share a detailed score card of sales, shipments, backlog, returns, discounts, costs of goods sold, gross profit, operating expenses and pre-tax profits -- and whether those categories are up or down year over year -- with all 47 workers, from operations manager to four-slide press operators to shipping clerks.

It's part of a philosophy called Open-Book Management. It's been around 29 years, but rarely put into practice, even in employee-owned companies, which Springfield Spring is not.

Rodriques says: "It strips out the [bull]. There's nothing to hide."

Sara Vazquez, who works on the floor of the Bristol plant, said she loves it. "There's nothing we don't know here," she said. "They treat us like an owner."

Operations Manager Ryan Naideau, who was promoted up from a job on the floor, calls Rodriques, who's 55, the Energizer Bunny. "You can't shut him down," he said.

He's far from diplomatic. When he gets started on big box stores and large multinational corporations, and how they drive manufacturing outside the United States -- well, let's just say he has strong opinions, and an earthy vocabulary. And he's no more cautious in talking about his own company. "We make springs," he said. "They're about as boring as waiting for paint to dry."

Rodriques started the policy out of selfishness, he said.

He and Malley had borrowed $3.5 million to buy out two other partners who were retiring in 2000. At the time, the company had $3.9 million in annual revenues. When the 2001 recession hit, sales dropped to $3.6 million, then $3.3 million.

"I was tired of lying awake at night, sometimes throwing up, not sure if I was going to make payroll," Rodriques recalled.

Technically, the company was in default, as the sales were too low to meet the bank's requirements for debt-service ratios. He was borrowing on future customer payments, a very expensive, desperation move.

"I was in jeopardy of losing my home," Rodriques said. (It's common for small business owners to guarantee loans with their own property.)

One day, he was reading a book on employee-driven companies, and read about the first company that tried Open-Book Management. A young manager named Jack Stack, who with other managers borrowed heavily to buy a troubled manufacturing division, gave employees an ownership stake, and told his employees the details of the company's productivity and sales trends so they would actually feel like they were owners, not just employees who hold a stake through a stock ownership plan.

Fix This, Or Close

"I realized I was financially illiterate," Rodriques says now. Back then, he concentrated on sales and waited until the end of the year for the accountants to tell him what profit margins were.

So Rodriques, who had studied to be a physical education teacher at Southern Connecticut State University, bought some accounting books and had his accountants quiz him. His bankers told him he was crazy to open the company's books to his employees. He said he told them, "I know, but I'm doing it anyway."

"I knew I needed to increase sales. I knew I needed everybody to help. I knew I needed to break down silos, where every department worked like a politburo. Everybody needed to know if we didn't fix this, we're all out of a job."

That's not hyperbole -- the number of U.S. spring factories has shrunk by 3.1 percent on average each of the past five years, falling to about 1,375.

Spring producers have no pricing power. The United States is a net importer, and those imports -- 30 percent from China -- threaten the viability of domestic factories and are driving down wages and profitability, according to a report from IBIS World, an independent industrial research firm.

Bristol has long been known for spring manufacturing. Springfield Spring expanded to Bristol decades ago from its East Longmeadow, Mass., headquarters because of the talent base.

Two of the city's largest employers are Associated Spring, part of the Barnes Group, headquartered in Bristol, and Rowling Spring.

While U.S. spring manufacturers as a whole increased their sales by just under 8 percent from 2010 to 2011, Springfield Spring grew by 14 percent. Last year's $7.2 million in revenue finally returned the company to 2007 sales levels. They're projecting $7.8 million to $8 million in sales for 2012.

Rodriques attributes his success to two factors: the climate created by Open-Book Management, and large corporations' efforts to buy from minority-run businesses. His father was Cape Verdian, and his mother was Puerto Rican, and almost half of the company's sales are from customers who have minority-set-aside contracts.

There's evidence to back up his feeling that Open-Book Management transformed Springfield Spring. An academic study of 50 companies that follow the philosophy examined the years before and after they changed to open-book management. The study found the revenues of open-book companies grew 1.66 percent a year faster than traditionally managed firms that are their competitors.

Anne Claire Broughton, who has written about Open-Book Management and employee engagement for the University of North Carolina's business school, said the better performance comes because productivity improves when people understand how their work contributes to the bottom line.

"When they meet the metrics, they benefit, and because everybody is engaged and thinking, and they're very transparent, if there's a curveball in the industry, they can change," she said.

Still, there are examples of Open-Book Management companies losing money in troubled industries. "It's not a panacea, it's not the golden bullet," she said.

Rodriques said part of Springfield Spring's culture is providing a superior customer service experience -- phone calls answered within two rings, trouble-shooting on weekends and after hours if parts aren't up to snuff. He said when customers visit the factories, they say, "God, they're all like him. The son-of-a-bitch is infectious."

Not For Everyone

How Rodriques has implemented the Open-Book Management philosophy has changed over the years. At first, the bonus pool was paid quarterly, and the more salary you earned, the bigger your bonus was. Now, the bonus pool is more than twice as large, and it's distributed according to evaluations and how that person's work helped the company exceed goals.

"I want each person in each division to know their contribution to profit," he said.

Not everyone has welcomed the torrent of information.

"You live in your own little world," Rodriques said. "When you see the big picture, it can be very enlightening, or very scary."

The hardest change was when he started examining data by division and told all the workers what he learned. This is the second year he's been doing that. He saw that the Massachusetts factory, though it accounts for 40 percent of sales, was only contributing 8 percent of profits. "That can't be right," he said the plant manager said. The manager quit, he said. Now it's up to 30 percent.

Some of it was an unfavorable product mix, but the bigger problem was labor costs -- the factory manager was overusing temps, and some longtime employees were unproductive, Rodriques said. "I had to get rid of some people," he said.

Even as the philosophy drove some workers away, it's also drawing new employees who are wholehearted about the idea that everyone should have an owner's mind set.

Bill Brown, who sets up four-slide presses, worked for 28 years at another spring manufacturing company in Bristol. This job was a lateral move in pay, he said, but he's pleased he made the leap.

"I came for an interview, and I really liked what I saw. It's satisfying to have a company as open as they are here," Brown said. "I believe we have growth problems, and those are the best ones to have."



Source: (c)2012 The Hartford Courant (Hartford, Conn.) Distributed by MCT Information Services


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