Brad Hams uses the following example in his book Ownership Thinking: How to End Entitlement and Create a Culture of Accountability, Purpose, and Profit: when asked the question: “Your company had $12 million in sales last year. What do you think the profit was?”, one employee put up his hand and guessed 50%. In fact, 5 to 10 percent is closer to the norm in most businesses. Brad shares that he has never come across a company with a 50% profit but that it is a fairly common answer among employees in companies where financial information has not been shared. He has even heard some employees suggest 100% profit – many people associate revenues with profits.
In the absence of information, people make stuff up and there are a couple of reasons why you should care about this. The first reason is that when employees assume their company is making wheelbarrows of money, they become wasteful. One example we ran across was a construction company with a high rate of equipment being left on job sites. Employees were thinking that the company was making so much money that leaving behind a $500 piece of equipment was no big deal and not worth their time and effort in retrieving.
The second reason is that when employees think that the owner of the company is making so much money they start to question “Where’s my piece of that huge profit?” and that can create a morale problem.
The big irony here is that the primary fear many business owners have about sharing financial information with employees is that if the employees know what the company makes, they will want more. Of course, what those owners don’t know is that their employees already want more because they think the company is making way more than they actually are.
Until next time,
Perry Phillips, President
Ownership Thinking Canada Inc.
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