An Experiment: Transparency Increases Financial Performance (As Well As Morale)
As Ethan Bernstein pointed out in HBR’s “The Transparency Trap,” organizations need privacy as well as transparency to thrive. Successful organizations, he found, put boundaries around individual teams to avoid unnecessary micromanagement, used feedback and evaluation to avoid politicking and wasted time on managing impressions, gave liberal decision and improvement rights to allow for productive tinkering and created periods of experimentation to avoid adverse interruptions.
How much transparency, then, is enough to harness the benefits of an open culture without opening a company to avoidable risks?
A year ago, in September 2015, we set out to discover this answer by putting Bernstein’s rules to the test. We distributed a survey to 55 employees at our SaaS company, Simplus, asking them to rate their happiness with the organizational culture on a scale of 1–10. Then, for the next four months of our five-month experiment, we focused on developing a positive culture using Bernstein’s recommended transparency rules. In our first three months, the culture score increased from 8 to 8.4. This may seem like a modest incremental improvement. During the five months of our experiment, however, we experienced significant revenue growth.
In October 2015, revenue increased 45.6%. In November, it increased 59.04%. December saw a decrease of 9.71%, but January and February 2016 saw new growth of 25.63% and 14.93%, respectively. With no other changes beyond an increased focus on transparency, our company’s revenue over the 5 months of our experiment increased 301%, and has continued double digit monthly growth in the time period since. While there is not a scientific correlation that connects our transparency efforts to this financial performance, we believe our revenue was strongly influenced by our transparency work.
How does a company achieve the optimal level of transparency that improves organizational culture and supports hyper revenue growth? In addition to Bernstein’s boundaries, we implemented several additional rules:
1. Transparency Starts at the Top
The company’s vision must be instilled and lived by the CEO, supported by the management, and embraced by employees. At the onset of our study we tested employees’ knowledge of the Simplus vision by sitting down with them one-on-one and asking where they thought the company would be in five years. As CEO, I felt I had communicated my vision clearly to every employee. But when we tested employees’ knowledge of the vision, most did not have a clear understanding. Some thought the company was on a trajectory to be sold quickly; others thought it was a family business that would never be sold. Still others mentioned rumors there was already an offer on the table. In a similar fashion we received a wide range of answers when asking about the mission of the company as well.
The two factors that support the backbone of communicating a clear vision are repetition and clarity. By having a clear plan, practicing face-to-face contact, being consistent, and using different forms of communication, we were able to increase employees’ clarity about the vision and mission.
2. Err on the side of privacy when dealing with work/life balance.
Privacy is becoming more elusive, as technology blurs the boundaries between public and private lives. As Berstein states, it’s “critical for leaders to mitigate transparency with zones of privacy, enabling just the right amount of deviance to foster innovation and productivity.” In our case, we wanted employees to feel free to innovate, but also wanted them to feel free to live their lives away from work.
For this reason, we avoided transparency innovations that reached into the private lives of employees. For example, we felt that the transparency initiatives of companies like Buffer and Aetna, who equip their employees with FitBits as part of their incentivized wellness programs that monitor sleeping patterns, etc., would not be well received by our team. Our initiatives focused exclusively on transparency at work.
While each company must choose the transparency options that are most appropriate for its culture, our decision to err on the side of privacy, to give employees a sense of control over their private lives, worked well.
3. Make sales and revenue data transparent, but keep salaries and profits close to the vest.
Because of the challenges companies experience when making pay public, we decided to reveal only the financial information employees could influence. That meant making revenue goals, milestones, and operations open to all employees.
At the onset of the study, we invited all employees to attend the 30-minute executive meetings on Tuesday at 4:30 p.m. These meetings are optional, but we found that nearly everyone in the company chose to attend. Through this process, sales results are communicated openly, earnings goals are transparent, and teams pose problems that other teams, in some cases, were able to help resolve. The open format allowed employees to feel comfortable with speaking their minds and engaging in healthy debate.
In summary, we concluded from our experiment that if transparency initiatives encourage collaborative action as a team to solve problems better and faster, a company is in the sweet spot. But when transparency results in impression management, inauthenticity, lack of collaboration or groupthink, the initiative has gone too far.
It is possible that other issues such as market timing may have also influenced our high financial results during the time we conducted our test. But from our own experience we believe transparency will improve the bottom line, and in some cases can contribute to substantial revenue growth while also creating a measureable increase in employee morale.
In every case, however, we believe that finding the transparency sweet spot is essential to building an organization that is both strong in its organizational culture and financially sound. In our opinion, a strengthened focus on vision, respecting privacy, and making business operations transparent can contribute to stronger results or even outstanding new financial horizons for organizations of every nature and size.
Ryan Westwood is a serial entrepreneur, best-selling author, national columnist and Chairman and CEO of Simplus, Inc. At age 33, he has built and sold 2 Inc. 500 organizations.
Additional reporting for this article provided by Amy Osmond Cook, PhD, author, columnist and CEO of Osmond Marketing. Cook holds a doctorate degree in communications and organizational rhetoric from the University of Utah.