The Transparency Transformation: Evolving Your Business From Opaque to Open
Last year, KSM Transport Advisors (KSMTA) published a monthly article highlighting the key traits of highly profitable trucking companies. The main themes were based on many decades of observations and discussions with over 200 carriers. This series hit the mark with carriers and discussed many often-overlooked business characteristics that could steer carriers toward important company discussions, positive change, and greater profitability.
Based on the very positive feedback and requests to provide more actionable steps to implement and embody these traits, this year’s monthly series will offer a detailed roadmap for carriers to use as a guide. We will also share in-depth profiles of the companies that were used as role models for the 12 Traits series.
Circling Back to the Trait of Transparency
Our first focal point of the year goes back to the trait that kicked off our 12 Traits series: transparency. It may not be the most important of all the traits, but it generated some passionate responses, mostly expressed as fear of becoming transparent. More specifically, a worry that employees may decide to “jump ship” if they see the true economic realities of trucking from the income statement level. This is all relative to the current state of the industry. For example, in upcycles, the fear would be of key employees asking for a raise.
In reality this fear of creating internal turmoil is completely unfounded. One of the most important by-products of becoming more transparent (open book management) is that it will give employees greater insight into the company’s margins and lead to a more realistic view of the company’s spend. It will also become increasingly easier to identify high-potential talent. These people gravitate to more detailed information – they are hungry and curious.
Driving Clarity: A Strategic Roadmap
Evolving from low to high transparency in a business is a strategic journey that requires deliberate steps and engagement at all levels. Here’s a progressive roadmap for businesses aiming to enhance transparency, starting with understanding the current state of knowledge among employees:
- Initial Employee Understanding Survey: Begin by conducting a comprehensive survey to assess employees’ current understanding of the company’s financial realities and the broader industry. This survey should cover their knowledge of basic financial terms, awareness of the company’s financial position, and perception of industry economics. It’s ok to start with just one question – ask the employee (including drivers), “Out of every dollar of revenue, how much is left in the form of net profit in our business (best estimate)?” You’ll be amazed at the responses.
- Basic Communication Channels (Low Transparency): Establish foundational communication channels like a monthly CEO email or a departmental newsletter. These should focus on key operational updates to create a baseline of shared knowledge. Many carriers are already doing something along these lines, but does it include some high-level financial information such as revenue, cost visibility, and expected capital outlays? For inspiration, read some of the annual letters from Warren Buffett to Berkshire Hathway shareholders. These letters always have a humble tone but are educational and extremely transparent. Remember, being transparent also means celebrating wins and exposing losses.
- Basic Financial Disclosure: Share fundamental financial data with senior management, such as a simplified profit and loss statement or a summary of quarterly earnings. The limited visibility that many executives have with respect to financial information is shocking. This is mandatory. If leaders are being entrusted to make strategic and tactical decisions, they must have access to the true financial state of the business.
- Departmental Performance Metrics: Implement department-specific performance metrics. For instance, sales teams might receive detailed reports on sales trends, while production units are briefed on efficiency metrics.
- Introduction to Open-Book Management: Begin extending financial disclosure to more employees accompanied by training sessions on reading and understanding basic financial statements. In order to assist in this journey, we highly recommend purchasing a copy of The Great Game of Business for every employee and using it as the main topic for your next company-wide meeting. This book highlights the value of open book management and discusses the necessary steps for implementation.
- High Transparency Actions
- Expanded Financial Reporting: Increase the depth of financial reports shared with stakeholders, including more detailed quarterly financial statements. This includes profit and loss.
- Comprehensive Budgeting Process: Involve department heads in the annual budgeting process through collaborative planning sessions.
- Full Stakeholder Engagement: Engage with a broader range of stakeholders, including junior employees, in forums or town hall meetings to discuss strategic decisions and company performance.
- Advanced Open-Book Management: Fully implement open-book management, granting all employees access to detailed financial statements and providing comprehensive training.
- Real-Time Technology Utilization: Introduce advanced ERP systems or dashboards for real-time operational and financial data access at all levels.
- Transparent Leadership and Continuous Improvement: Foster a culture where leaders consistently demonstrate transparency and the business regularly reviews and refines its transparency practices.
To achieve true and lasting transparency, it’s helpful to utilize the guidelines mentioned above. This journey may not be the same for every company and it’s important to remember that carriers can tailor their approach to best fit their business model. Embracing transparency not only improves internal operations but also elevates the company’s credibility and trustworthiness among all stakeholders.
To learn more or discuss any of the ideas shared above, please contact a KSMTA advisor or complete this form.
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