Chapter 4. The open book solutions profit-sharing programme at Paris Creperie, Boston

This chapter begins with a discussion of how profit sharing can benefit both employers and employees. It then goes on to examine how a restaurant in the Boston area used state workforce training fund to implement a profit sharing programme known as Open Book Solutions. Following a description of the initiative, the impacts, strengths, and challenges are discussed. The chapter concludes with a review of design principles and policy prescriptions essential for successful replication and wider adoption.

KEY FINDINGS

While much of the attention has been on state and federal policy changes to improve job quality, there has been increasing emphasis on alternative methods of improving jobs through employer-driven “high road” business practices, including “shared ownership”.
Research suggests that workers at companies that offer profit sharing or employee ownership perform better, are less likely to seek new jobs, and are more likely to monitor their co-workers’ behaviour. Workers in shared ownership situations reported a greater willingness to work hard, offer more ideas for business improvement, and enjoy better wages and working conditions.
This case study analyses the implementation of a profit sharing programme in the restaurant industry, with the training for the programme financed by state government workforce training funds. The programme resulted in increased net operating profit for the restaurant, improved employee retention rates, and higher wages for employees.
Underlying organisational factors, such as the restaurant’s organisational culture and leadership, were key to results achieved.
Public actors should consider increasing support profit sharing in the service sector as a means to improve economic opportunity for lower-paid workers.

Background

Open Book Solutions is a type of profit sharing programme that is designed to benefit employers and employees by training all employees in business and financial management, empowering them to make decisions to enhance the business, and sharing the financial gains with employees. In addition, the training develops communication, business, and financial skills of employees to bolster transferable work skills. The case study describes and analyses the Open Book Solutions programme developed by Delta Foodservice Group LLC and implemented at the Paris Creperie restaurant in a suburb of Boston, Massachusetts. The chapter opens with a brief summary of the research on shared ownership and profit sharing, including an overview of Open Book Solutions. Following a description of the initiative, the impacts, strengths, and challenges are discussed. The chapter concludes with a review of design principles and policy prescriptions essential for successful replication and wider adoption.

Over the last decade, sector initiatives and career pathways strategies have dominated workforce policy in the United States. These strategies are premised on the theory that in order to close the skills gap and provide more opportunities for low-wage workers, employees should be trained for high demand and higher wage middle skill jobs with opportunities for advancement. When successful, these initiatives benefit both workers and employers, who benefit from the resulting increased productivity and lower employee turnover. Federal and state policies, along with philanthropic initiatives, have rallied behind these workforce strategies as a primary mechanism to increase economic advancement.

Due to stagnating wages and rising inequality, the last few years have seen increasing emphasis on job quality; i.e. improving job conditions in order to increase wages and opportunities for workers. In particular, there has been intense advocacy and attention to worker wages, prompted in part by the national “Fight for 15” campaign to raise the minimum wage. In January 2014, the Commonwealth of Massachusetts minimum wage was raised to USD 9 per hour from USD 8 per hour. The result of intense campaigning on the part of advocates, the increases will continue for three years, bringing the state’s minimum wage to USD 11 per hour in January 2017. Separately, employee profit sharing plans received wide attention in 2014 with the media attention garnered by the regional grocery store chain Market Basket, which is a supermarket chain that serves southeast Texas and Louisiana.

Shared ownership and profit sharing

While much of the attention has been on state and federal policy changes, there has been increasing emphasis on alternative methods of improving jobs through employer-driven “high road” business practices, including “shared ownership”. Forms of shared ownership generally tie worker pay to the performance of their workplace, whether at the level of the team or company (Freeman, Kruse, and Blasi, 2010). Shared ownership includes employee ownership (ESOP), co-operatives, individual stock ownership, stock options, and profit sharing.

When profit sharing is a component of employer compensation plans, employees are paid part of profits depending on the firm’s performance. Such arrangements can be formal, fully discretionary, or a combination, and at times be part of a deferred retirement programme. Shared capitalism refers to some form of employee shared decision making – either legally (via stock ownership) and/or as part of workplace practices.

Employee ownership has roots in America’s earliest economic history, as the American founders believed that broad based ownership would give many citizens a stake in preserving the political and economic system (Blasi, Freeman, and Kruse, 2013). Today, many of America’s largest companies, including Google, IBM, Publix Supermarkets, Southwest Airlines and Proctor and Gamble, employ different forms of employee ownership or profit sharing.

To better understand its prevalence and impact, Blasi et al. (2010) added questions about shared ownership policies to the national General Social Survey in 2000, 2002 and 2010. The survey results demonstrated both the wide scope and the tangible benefits of shared ownership and profit sharing for employers and workers alike. In fact, the survey revealed that 47% of workers have access to some form of shared ownership and the ability to build a capital stake in their employer, and 40% receive some share of the profits (many receive both).

For employees, profit sharing and employee ownership offer the opportunity to earn higher incomes and accumulate capital for long-term priorities such as retirement. Where employees benefit from profit-sharing, the median annual amount received is USD 2 000. For employees with annual incomes of less than USD 50 000, the amount is reduced to USD 1 200. The survey also revealed that service employees – where low wage jobs are concentrated – are the least likely to have access to shared ownership or profit sharing programmes. Only 5% of service workers, compared to 26% of sales workers and 23% of management workers, have access to such programmes. While critics of profit-sharing programmes argue that the model puts workers’ wages at risk during business downturns, the survey found instead that gains “tend to come on top of, not in place of, fair fixed wages.” (Blasi et al., 2013: 182).

For employers the benefits are similarly clear: workers at companies that offer profit sharing or employee ownership perform better, are less likely to seek new jobs, and are more likely to monitor their co-workers’ behaviour. Workers in shared ownership situations reported a greater willingness to work hard, offer more ideas for business improvement, and enjoy better wages and working conditions (Blasi et al., 2013).

Shared ownership complements other employer policies and practices. Firms with shared ownership plans are more likely to have other worker-friendly human resource policies and practices. Combinations of shared ownership pay and other policies, such as employee involvement in decision making and wages at or above the market rate, produce the largest benefits for workers and firms. Based on the analysis by Blasi et al. (2010), “firms can expect reductions in turnover, increased loyalty to the firm, increased willingness to work hard, and related behaviours to improve if shared ownership arrangements were extended to groups underrepresented in current plans.”

Open Book Management

The Open Book Solutions programme at Paris Creperie designed by Delta Foodservice Group LLC was premised on the Open Book Management philosophy, which was initially described by John Case (1995) based on the development and implementation by Jack Stack and his team at SRC Holdings, a remanufacturer for original equipment.

The premise of Open Book Management is that financial information (including revenue, profit, cost of goods sold and expenses) providing to employees should not only help them develop skills to do their jobs effectively, but also help them understand how the company is doing as a whole. It is a management philosophy founded on the idea that all employees down to the frontline will perform better if they know how the company is doing financially, are empowered to make changes, and have a stake in its success.

After SRC Holdings was purchased by its managers in 1983, Stack decided to share financial data (i.e., “open the books”) and began distributing the income statements, along with the various operational and budget numbers that influenced the income. He taught company managers and supervisors how to read the financials, who in turn provided the training to hourly employees. Thus, everyone became aware of which departments and processes gained or lost money for the company and how their precise roles contributed to (or detracted from) income. Concurrently, Stack introduced bonuses dependent on improving the finances. As a result, the entire staff was motivated to work in concert to hit goals, as they would all benefit from the successes attained.

In order to motivate employees to achieve meaningful changes, Open Book Management focuses on a “Critical Number” that represents a core indicator of profitability. Companies develop a “Scoreboard” that displays all the numbers needed to calculate the critical number. The Scoreboard is a large, tangible visual and is open for all employees to view. Regular meetings take place to discuss how individuals can influence the direction of the “Score” and therefore, ultimately, are able to impact performance against the Critical Number.

In summary, the three primary principles of Open Book Management (Case, 1995; Stack, 1992) are:

Know and teach the financial rules: every employee should be given access to the critical measures of business and financial success and taught to understand them.
Follow the action and keep score: every employee should be expected and enabled to use their financial knowledge to improve performance.
Provide a stake in the outcome: every employee should have a direct stake in the company’s success and in the risk of failure; in other words, be able to profit from the company’s financial performance

By 1992, annual revenues at Springfield ReManufacturing Corp. had increased from USD 16 million to USD 83 million. By 2013, the stock had risen from 10 cents a share to USD 348, and the original hourly workers owned, on average, stock worth more than USD 400 000 (Stevenson, 2014).

Profit sharing in general, and Open Book Management in particular, is most prevalent in manufacturing firms. Nonetheless, some food service establishments have implemented it, most notably Zingerman’s Deli. The deli, founded in 1982 in Ann Arbor, Michigan, has grown into eleven interrelated foodservice businesses known as Zingerman’s Community of Businesses (Feloni, 2014). Open Book Management has been operating at Zingerman’s for 20 years. Leadership believes that the more information a frontline worker has, the better decisions will be made, allowing management to harness the intellectual and creative abilities of employees. The organisation also rejects a traditional business hierarchy in favour of collective decision-making, which they term the Zingerman’s Consensus Model.

Labour market conditions in the US food service industry

The restaurant industry is one of the largest and fastest growing sectors of the U.S. economy. One in every 12 private sector jobs in the United States is estimated to be a job in the restaurant industry. In 2010, 52% of these workers were women, 11% were African-American, 6% were Asian and 22% were Hispanic or Latino (The Aspen Institute Workforce Strategies Initiative, 2012). In terms of education, 20% have less than a high school education, 38% are high school graduates, 27% have some college or an associate’s degree and only 15% have a bachelor’s degree or higher.

Even though over 58% of workers in the industry are 25 and over, the restaurant industry has one of the highest proportion of workers earning at or below the minimum wage: 39% of the industry’s workforce. Workers in food preparation and serving-related occupations earned a median wage of USD 9.02 per hour (including tips) in 2010, which falls below the poverty wage for a family of four for a full-time worker (The Aspen Institute Workforce Strategies Initiative, 2012). Servers are almost three times more likely than other workers to fall under the federal poverty line.

Approximately 40% of employees in food service work part-time, which is more than twice the proportion for all other industries. Restaurant workers often have unpredictable schedules and work a different number of hours from week to week, which makes weekly earnings unpredictable and arranging for childcare nearly impossible.

Not only do restaurant jobs tend to be low-paying, but they also provide limited opportunities for skill development, promotion, and advancement. Advancement and promotion opportunities within restaurants are often limited because many businesses are relatively small. In larger restaurant chains, some workers may qualify and advance to formal management training. However, post-secondary education is increasingly a requirement for management positions in the restaurant industry.

Discrimination by race and gender is rampant within the restaurant industry, illustrated by stark wage disparities. One study (Pitts, 2012) examined the wages of 4 300 workers across eight cities and found that, on average, white workers earned four dollars per hour more than their black co-workers. Another study found that women tend to be concentrated in lower paying jobs in the restaurant industry compared to men. In addition, the study revealed that many female and minority workers reported discriminatory hiring, promotion and disciplinary practices (Jayaraman, 2013).

Similar to national trends, the restaurant industry in Massachusetts contributes many jobs to the economy, but at low wages (Executive Office of Labor and Workforce Development, 2015a). Following retail trade, leisure and hospitality is the second largest private employment sector, adding 65 500 jobs since 2001. Over 80% of this growth was in the accommodations and food services industries. Since 2010, this industry group has consistently added between 6 000 and 9 000 jobs annually. Accommodations and food services having the lowest average wage across 22 industries in Massachusetts, at only USD 408 compared USD 1 234 across industries.

Description of initiative

Paris Creperie

Paris Creperie, located in the Boston suburb of Brookline, Massachusetts, specialises in authentic Parisian-style crepes in a European style cafe. The café has offerings in coffee, specialty Nutella drinks, and smoothies. In addition, Paris Creperie operates an online store as well as a catering business serving corporate and event clients. The café is located in Coolidge Corner, a neighbourhood with some of the highest median incomes in the Boston area (USD 79 289 in 2014) near several universities. Although Paris Creperie is independently owned, its neighbours include large chains such as Starbucks, Panera Bread, and Dunkin Donuts.

Paris Creperie has 11 full-time and 11 part-time employees and is a non-union business. Employees receive hourly wages and a share of tips left by customers, which are pooled and divided evenly among non-management staff at the end of each shift. While new employees are hired at rate of USD 10 per hour (the 2016 state minimum wage), the average hourly wage of USD 14 is well above typical wages for restaurant counter staff (the median hourly wage for counter service staff in the Boston area was USD 9.29 in 2014, with experienced workers earning a median hourly wage of USD 10.29). Contrary to common industry practices, employees typically receive their schedules three weeks in advance. Employees have access to free food while on shift, and are eligible for sick and vacation time after three years of employment.

Most employees both prepare food and drinks and interact with customers at the counter. Paris Creperie employees have a higher level of education relative to the industry: More than half of Paris Creperie employees are college students, and of the other half, nine are college graduates. Most employees are in their early to mid-20s, and about two-thirds are women (similar to the clientele served). Approximately 20% of employees are people of colour.

Management and employees reported a strong and positive team based culture at Paris Creperie prior to implementation of Open Book Solutions. Management places a strong emphasis on creating a respectful and co-operative work environment, and both managers and staff reported that the work culture at Paris Creperie was somewhat rare in the restaurant industry. They also appreciated the leadership style of the General Manager, who one employee described as “the best manager” she had ever had.

The foray into profit sharing came following a year in which the business had lost money on an unsuccessful food truck venture. Management recognised that in order to remain competitive, Paris Creperie needed to grow revenues, decrease staff turnover, (which was at 82%), and reduce high operational costs. Food costs, in particular, were averaging over 30% of operating expenses due to waste and spoilage. For example, the café produced 30 295 smoothies in the previous year, and employees discarded 10% of smoothie overages.

The General Manager also valued the strong work culture and wanted to create an environment where the hard work of his staff could be financially rewarded. He believed the Paris Creperie had the key elements to being successful (“good location, good crew, and smart people”). After reviewing various options, including attending the “Great Game of Business” conference with the Delta Foodservice Group LLC consulting team in the fall of 2014, he determined that Open Book Solutions would be the best course of action to solve existing business challenges. As he explained, “It doesn’t make sense to be the only person making decisions – the highest minds will come up with better ways of doing things.”

Delta Foodservice Group LLC is a consulting firm with deep expertise in business and financial management in the food services industry, which includes restaurants and bars, catering, and food trucks. They are the only local training provider of Open Book Solutions. Following decades of experience advising and training food service providers, they decided to offer Open Book Solutions in order to address the dual challenge of low profit margins and increasingly low wages in the industry. While Delta Foodservice Group LLC is not classified as a social enterprise or B-Corporation, the partners place a high value on fairness and providing opportunities for employees to develop competencies. As Joe Grafton of Delta Foodservice Group LLC, explained, “I want to send ripples out throughout the industry and make industry more profitable, raise the quality of life and pay for workers, and develop “mission – driven entrepreneurship.”

By empowering employees through Open Book Solutions, Paris Creperie projected productivity (revenue per full time employee) would increase. They wanted to unleash growth opportunities in business areas such as catering. By identifying ways for Paris Creperie to become more competitive and profitable through analysis of the staff and support from management, employees were expected to pursue opportunities to grow revenues. Because the incremental revenue does not significantly change overhead costs, which accounted for 30% of the expenses in the business, a higher net profit percentage was projected.

Policy framework: Workforce Training Fund Grant

To finance the initiative, Paris Creperie accessed funds from the Massachusetts’ Workforce Training Fund Program, which is administered by the Commonwealth Corporation, a quasi-public statewide agency. The fund intends to close the skills gap by providing companies with the resources they need to develop the skills of their incumbent workforce (Executive Office of Labor and Workforce Development, 2014).

The Workforce Training Fund is a state-based programme paid for by Massachusetts employers to fund training to upgrade the skills of incumbent workers. The Program helps address business productivity and competitiveness by providing resources to Massachusetts businesses to fund training for current and newly hired employees. The Workforce Training Fund’s major focus is small to medium-sized businesses that need the assistance of the fund in order to make an investment in improving employee skills. The training fund states the following priorities for investment:

Projects that will result in job retention, job growth, or increased wages;
Projects where training would make a difference in the company’s productivity, competitiveness, and ability to do business in Massachusetts;
Projects where the applicant has made a commitment to provide significant private investment in training for the duration of the grant, and after the grant has expired.

The fund provides greater weight to applications that address selection criteria associated with job creation/job preservation, increases in skills of low-skill, low-wage workers, and/or the applicants’ plans to locate jobs and employ residents of Massachusetts, and applications focused on employee skills attainment and achievement of transferable and measurable skills.

The programme requires that grants awarded must be matched dollar-for-dollar by the applicant and its partners, if any. The match can be cash or in-kind contributions. In-kind matching funds may include wages paid to trainees while in training.

Since January 2007, USD 86.8 million has been awarded through the Workforce Training Fund in General Program Training Grants to 1 126 projects involving more than 1 187 businesses. As a result of this funding, 105 584 workers have been or will be trained across a broad range of industries.

Implementation of Open Book Solutions in Paris Creperie

The Paris Creperie implemented Open Book Solutions for all employees beginning in January 2015. Open Book Solutions, led by Delta Foodservice Group LLC, involved training employees on the principles of financial and business management by teaching them how to interpret the company’s financial reports, and develop problem-solving skills to address challenges. After attending the Open Book Management conference in St. Louis, the General Manager returned onsite and has held a series of meetings to provide an overview and answer questions about Open Book Solutions training.

The team also held an all-staff debrief following the event, with an emphasis on discussion and gathering input from employees which was incorporated into the training delivery plan. While it is common in the restaurant industry for some level of mistrust of management/owners, at Paris Creperie, pre-programme interviews conducted by Delta Foodservice Group LLC showed that there was considerable trust and a fair amount of buy in and alignment across the board with the entire team.

In addition to the training provided for all staff, Open Book Solutions Leadership training supported efforts by developing leadership skills to 1) encourage entrepreneurship, 2) coach for success, 3) reward performance, and 4) lead an empowered, collaborative team. The Open Book Solutions Leadership module was designed to help supervisors reinforce new skills and performance, increasing engagement and decreasing turnover. The Open Book Solutions Train-the-Trainer was then developed to ensure programme sustainability following initial implementation. A more detailed description of the training modules can be found in Appendix A.

The training modules were designed to build off of and reinforce one another, and were delivered with follow-up assignments to increase learning and application to the job. In addition to financial skills and industry best practices, entrepreneurship skills were also emphasised, in order to empower workers to take action to reduce costs and to pursue new business opportunities, with the ultimate goal of increasing productivity and competitiveness.

During the implementation, there was a spectrum of engagement, most generally positive. Informants reported that some employees were more engaged then others, with some employees expressing some scepticism about the initiative. In general, it was a very collaborative work process.

Paris Creperie management reported that the state fund investment legitimised the programme for employees. At the time of this writing, Paris Creperie does not have plans to access additional grant funding through the Workforce Training Fund. The planned focus for Year 2 is building on building the capacity of existing staff to use the curriculum. While some plateauing is likely in terms of decreasing overhead and cost of goods sold, management believes that the better opportunity moving forward is growing revenue. Future revenue growth is expected to be more profitable because of the cost reductions in place.

In the second year of implementation all employees will be assigned to committees focused on different aspects of the business (see Appendix II) to contribute to different areas of management. The committees are: 1) Teachers and Trainers; 2) Finance; 3) Marketing and Communications, and 4) Operations and Culinary. This structure will allow employees to focus on their areas of interest – some employees, for example, have been motivated by environmental concerns to look into improving the restaurants recycling contract. The goal is to help employees take a more active role in running the business, giving them an opportunity to learn more while providing relief for the management staff. While it will take time to train people on new tasks, overall it will help the company accomplish more in the long term.

Impact of the initiative

At the end of the first year of Open Book Solutions, both managers and staff at the Paris Creperie deemed the project a success. Overcoming some initial scepticism, Paris Creperie increased profitability by decreasing costs of goods, increased employee compensation, enhanced skills, and reduced staff turnover. Paris Creperie compares profitability across 13 equally-sized four-week periods. Unlike monthly comparisons, which from year to year may include different numbers of weekend vs. weekdays, these periods allow the restaurant to compare sales more accurately from one year to the next. The impact of Open Book Solutions on profitability was substantial. Primarily by reducing the cost of goods sold, the café has tripled net operating profits, from 4% to 12% per year, as shown in Figure 4.1.

An early win: Reducing the cost of goods

For Paris Creperie, the key to introducing Open Book Solutions was to identify what Delta Foodservice Group LLC consultants describe as an “early win” – a simple project that would introduce the concepts of the programme and encourage employee engagement. Early in 2014, a goal of a three percentage point reduction in the Cost of Goods (that is, the cost of food and supplies as a percentage of sales) was introduced. Delta Foodservice Group LLC Consultants consider 30% to be the maximum cost of goods sold for a menu like Paris Creperie, and every reduction in that percentage represents increased profitability without having to increase menu prices. The staff created a challenge for themselves – reduce the cost of goods by three percentage points compared to the prior year’s period, and any savings realised would be immediately distributed in the form of an end-of-month bonus.

For their challenge to reduce cost of goods, the staff created a game board in the employee break room, where savings were represented by the progress of paper farm animals down a road. Creating a playful feedback system encouraged co-operation and provided continual information about the progress of the project. Employees were asked to write cost-saving ideas on a whiteboard, and the general manager made implementing new ideas a priority. The general manager knew that his quick reaction was crucial to validating the ideas presented and encouraging full engagement. If a suggestion was not feasible or effective, he would explain why.

At the beginning of the period, the cost of goods stood at 31%. Some of the most expensive items to produce included smoothies and the strawberries that Paris Creperie used as a garnish and as a key ingredient in many of their dessert items. Prior to the reduction challenge, employees prepared smoothies by “eyeballing” the ingredients, often resulting in too much smoothie being prepared. That extra smoothie was discarded or regarded as a perk for counter employees. As the challenge got underway, workers approached smoothie-making in a more conscientious way. Once recipes with clear amounts (and therefore, predictable costs) were established, employees challenged one another with “friendly ribbing” to stick to the required amounts.

Another winning idea came from an employee who regularly had the task of removing the leaves from a large batch strawberries and slicing them for use during mealtimes. She noticed that most employees would line up a bunch of strawberries and cut away the top third – a quick, but ultimately wasteful, prep method. This employee prepped the strawberries differently: using the tip of her knife to scoop away the leaves, more of the fruit intact was left intact. This simple shift resulted in a 30% higher yield on the strawberries purchased by Paris Creperie. When the Delta Foodservice Group LLC trainer asked employees to estimate the annual savings from this change, most guessed a few hundred dollars. In reality the potential savings were estimated at USD 2 800 per year, based on the prior year’s expenditures.

This disconnect between what employees believed to be the profitability of the restaurant and the actual financial reality of the business was a recurrent theme in the interviews with consultants and staff. Delta Foodservice Group LLC reported that employees typically overestimate both profits and management salary. Through the regular trainings and information provided to employees, many gained a better understanding of the practical realities of running a business.

At the end of the period, Paris Creperie employees had succeeded in reducing the cost of goods to 26.5%. This exceeded the initial goal, and since that first period the savings have continued. After the first successful period, employees continued to suggest and implement cost-savings. The chef worked with management to rework the menu, developing standardised recipes for what had previously been an ad hoc process. Employees researched new frothing pitchers for steaming milk for lattes and cappuccinos, discovering that frothing pitchers with pre-portioned markings allowed the restaurant to significantly save on milk costs.

The changes implemented were for the most part small, but added up to significant savings. Asking employees to switch from taking bottles of water to bringing their own cups from home, substituting reusable dishware for disposable wherever possible, and revamping recipes all contributed to the falling cost of goods. Employees also worked on reducing supply costs by rebidding items supplied by vendors, realising substantial savings on some key items. The catering business also improved greatly. While the previous year had shown a drop off in business, catering grew by 30% and became the most profitable part of the business.

Shared profits

At the end year one, Paris Creperie had a total of USD 67 000 in a pool to distribute to employees. Bonuses were distributed based on hours worked – everyone received something, with full-time, year round employees receiving up to USD 6 000. The bonuses were, for most employees, a very significant amount of money. When interviewed, one employee said that it was more money than she had ever had at any one time, and her bonus was used to build savings, pay off student loans, pay rent and take a vacation.

As a result of Open Book Solutions and resulting bonuses, Paris Creperie achieved the goal of reducing employee turnover from 82% to 60%. Throughout the year, while some employees left for school or because they were moving long distance, no employee left to work for another restaurant (a rarity in the restaurant industry).

Employee skills development

In terms of skill development through Open Book Solutions, employees reported that they learned how to develop and track a personal budget, improving their personal financial literacy; increased their business financial skills (including the ability to understand and interpret financial data and statements such as Profit and Loss, Balance and Income, and Cash Flow); learned how to measure progress (including selecting indicators, developing scorecards, and basic forecasting); improved their problem-solving skills (the ability to analyse financial data, and to identify challenges and opportunities); and developed their entrepreneurship skills (the skill to develop and implement new growth opportunities and to decrease inefficiencies (i.e. costs).

Overall, employees expressed different motivations for participation in the Open Book Solutions programme. Some employees were attracted to the environmental benefit of creating less waste. Employees researched recycling programmes and met with vendors to improve the café’s recycling rates. Employees appreciated the opportunity to learn and planned to continue to use education in future jobs.

The leadership training provided the opportunity for supervisors to grow in their ability to delegate and manage teams. In addition, the new committee structure helped employees deepen skills in areas such as social media, marketing campaigns, financials, bookkeeping, vendor negotiation, and training.

Strengths

The project built on the existing work culture of Paris Creperie while introducing new tools to promote employee engagement and increase profits. The transparency of the approach reinforced employee engagement, as staff came to both understand the costs associated with restaurant operations and see direct results from their efforts. These strengths reflect existing research on profit sharing, which have demonstrated that profit sharing programmes which foster engagement are more effective than those that simply award bonuses. Finally, the programme was very cost effective – with some start-up costs covered by the state grant, the largest cost to Paris Creperie was staff time for training. The findings suggest that even small businesses can replicate the successes of Paris Creperie, provided incumbent worker training funds are available.

The overall goal of the Open Book Solutions project was to increase profitability for the restaurant. Paris Creperie demonstrated a willingness to invest in employees through training and sharing profits. The Commonwealth Corporation Workforce Training Fund Program grant was essential because it allowed Paris Creperie to finance the training programme with minimal start-up costs. The organisational changes made throughout the year – swapping reusable cups for disposable, renegotiating the recycling contract – did not require significant investments, and paid for themselves quickly.

Challenges

As the first year of Open Book Solutions drew to a close, Delta Foodservice Group LLC consultants and Paris Creperie management made several changes to address ongoing challenges. Since many of Paris Creperie employees are part-time, scheduling training sessions proved difficult. Additionally, the success of reducing costs means that there are fewer remaining areas for innovation in cost savings; additional profit will need to come from focusing on sales growth.

In order to train the entire staff, Paris Creperie and Delta Foodservice Group LLC scheduled trainings to coincide with shift changes on the restaurant’s busiest days – the times when it was most likely that all employees would be either starting or ending a shift. Although some employees agreed that it was “not fun” in the words of one employee, to end a busy day with an hour of classroom training, the fact that they were paid for the time helped ease the burden. With the introduction of video trainings and self-assessment tools in the future, new hires will be able to complete training modules at times that work best for their schedules.

While many of the early cost-saving innovations were implemented quickly by managers, some changes took several steps to realise. Employees reported that implementing so much change at once was challenging. It can be hard to make some decisions, and to let go of using certain products or vendors that had been in place over time. It was also challenging and time consuming to break every recipe down in an excel spreadsheet to track costs.

Many of the challenges presented in the first year of Open Book Solutions are expected to be addressed through changes to that are already underway. For example, the formation of ongoing work groups (“committees”) is now introduced earlier in the process to better insure their effectiveness in sustaining the Open Book Solutions. Both Delta Foodservice Group LLC and Paris Creperie management noted that they were surprised that the programme worked so well, encountered relatively few challenges, and exceeded expectations in terms of outcomes.

Considerations for expansion and transferability

Business and organisational conditions necessary

Several factors were stated as necessary in order to successfully implement an Open Book Solutions profit sharing programme:

Financial readiness. Company must be financially stable in order to undertake a profit-sharing programme like Open Book Solutions. Without this security, a business would not be able to afford the investment, nor would it be likely to pay off.
Organisational readiness. The business needs to have good morale and employee satisfaction, along with the ability of the team to work together effectively. There needs to be a positive and empowering culture in place. Poor performance and underlying team dysfunction can impede implementation.
Leadership readiness. Owners and management need to buy into the philosophy, and be willing to cede control over decision making and share profits. Delta Foodservice Group LLC partners report that the primary barrier is a leader’s fear of relinquishing control. Secrecy around the financials, such as dishonesty on tax returns, is common in the industry. Managers are often afraid to show staff how much they are earning (they think management is making much more). Managers often want to exert a high level of control over decision-making, and need training on employee empowerment, although stable personality traits may override attempts at training.
Having the “right” staff on board. The lessons from Paris Creperie suggest that businesses implementing Open Book solutions should prioritise the following competencies when hiring:
- Concern for co-workers and the business, and willingness to go the extra mile, such as staying later as needed.
- Willingness to communicate, eagerness to help others, and ability to work as a team.
- Desire for a job more mentally engaging mentally, which enables employees to learn new skills and develop knowledge to improve the business.

Implications for the Workforce Training Fund Program

The grant from the Massachusetts’ Workforce Training Fund Program was essential to finance the initiative at Paris Creperie. The café reported that they would not have been able to do the training without this grant. Overall, Delta Foodservice Group LLC and Paris Creperie reported satisfaction with the state Workforce Training Fund, while employees also reported that the fund legitimised the training, as it was seen as “sanctioned” by the state.

However, improvements could be made to increase accessibility and impact of the Workforce Training Fund Program, especially for small businesses in the food services industry. In FY13, 173 grants were made to employers totalling over USD 12 million to train 11 397 workers (up from USD 8.9 million in FY12) (Executive Office of Labor and Workforce Development, 2014). As shown in Figure 4.2, the vast majority of this investment was in the manufacturing industry (61%), with food services receiving only 4% of the total investment.

Small businesses pay into the Workforce Training Fund Program, but do not benefit to the same extent as larger firms. Businesses with fewer than 50 employees comprise 95% of all businesses state-wide and employ 38% of the state’s workforce. Workforce Training Fund Program data shows, however, that those businesses are awarded on average 34% of general program grant awards (English for New Bostonians, 2013).

It is challenging for small businesses to secure the match for the training programme. The grant requires a one-to-one match, with majority of the match being in-kind, in the form of worker wages paid during training time. Because most workers are low-wage, in most cases, it is difficult to make the match equivalent to the expense of the training programmes. Exacerbating this challenge is the fact that not all employees can attend training at one time, as the restaurant must operate while training is being conducted. While redundant sessions covering the same material must be offered so all staff can participate, this increases the cost of programme delivery, and thus increases the requisite match. In order for the Workforce Training Fund Program to reach more low-wage workers, the Commonwealth consideration should be given to this “catch-22” and whether the matching requirement should be reduced or eliminated for small and micro-businesses.

While the results of this intervention with Paris Creperie have been promising to date, in an interview, the Vice President of the Commonwealth Corporation expressed that it was too soon to conclude its ultimate success and transferability to other businesses and sectors, as well as how such an intervention would impact lower-skilled employees. Additionally, as there is only one vendor in the state for Open Book Solutions specifically, the Commonwealth Corporation would be hesitant at this point to set new policies around this specific methodology. Meanwhile, they the Commonwealth Corporation is are placing more emphasis on lean manufacturing, given its more established track record, which is similar to Open Book Solutions from the standpoint of management allowing for more worker decision making.

Provided a track record of success is shown, the Commonwealth could promote the Workforce Training Fund Program particularly for profit sharing programmes, through its website and social media efforts. It could also support capacity building training to expose more employers to profit sharing programmes like Open Book Solutions. In this way, more businesses could learn about profit sharing goals, best practices, case studies, and steps for implementation.

Promoting profit sharing through other types of incentives

Other types of incentives could also be used to promote profiting sharing, and could particularly target businesses with workers in traditionally low paid occupations. Such incentives could include tax breaks, tax incentives, and preference in the awarding of government contracts. State or federal governments could offer a tax credit to companies that share profits with their employees, with higher credits provided for small businesses and firms that share profits widely among employees.

The U.S. recently re-authorised its primary federal workforce policy, The Workforce Innovation and Opportunity Act (WIOA). Compared to its previous iteration, WIOA provides more incentives for improving the quality of jobs, placing more emphasis on higher wages and advancement opportunities. For example, it allows the establishment of job quality criteria in order for employers to receive work-based training placements (CLASP, 2015). Thus employers could tap into WIOA funds for on-the-job profit sharing training programmes. In addition, states and local workforce boards are permitted to establish job quality standards as part of the performance expectations for workforce training service providers. As such, workforce boards could establish higher wage standards for job placements, thus indirectly promoting employers who share profits with employees.

Supporting intermediary training organisations

Intermediary training organisations who offer shared ownership and profit-sharing should be eligible for a special tax status, similar to Benefit Corporations (B-Corps). The certification and documentation process should be streamlined to encourage uptake by training providers.

Private philanthropy could leverage Program Related Investment (PRI) to support training intermediaries who offer profit sharing programmes. PRIs allow foundations to make investments in order to recoup their investments in addition to a reasonable rate of return. While PRIs have traditionally been used for affordable housing development, they have also been used to stimulate private sector innovation in fields such as nutrition and biotechnology (Ashoka, 2013). Philanthropy could use PRIs to provide seed money or otherwise support the capacity of training intermediaries offering profit sharing for employers of lower-paid employees, with an expectation of a return on their investment. In order for this to be successful, there should be a long period allowable for loan payback.

Conclusion

Shared ownership is a significant part of the US economic model, with almost half of workers benefit from some form of profit sharing. Shared capitalism is also prominent in the UK and growing in other advanced countries. Overall, the research on shared capitalism reveals that it improves the performance of firms: it is associated with greater participation in decision-making; higher pay, benefits, and wealth; greater job security, employee well-being, satisfaction with influence at the workplace, trust in the firm, and assessment of management; and better labour-management relations practices. Every year, nearly half the winners in Fortune’s list of “100 Best Companies to Work For” offer some type of shared ownership, including profit-sharing and stock ownership for employees (Blasi, Freeman, and Kruse, 2015).

While nearly half of American workers have access to some form of shared ownership or profit sharing, it is rarely coupled with the transparency of the Open Book Solutions. Blasi, Freeman, and Kruse (2010) demonstrated that high levels of employee engagement are a key factor in the success of employee profit sharing programmes:

“Shared capitalism is most effective when combined with employee involvement and decision-making and with other advanced personnel and labour policies… The combination of shared capitalism and high performance workplace policies had the strongest impact on innovation culture and willingness to innovate.”

At Paris Creperie, the immediate emphasis on encouraging (through bonuses) and implementing employee suggestions ensured early success with Open Book Solutions.

As of the time of this publication, the implementation of Open Book Solutions at Paris Creperie has resulted in substantial growth in net operating profits – from 4% to 12%. In the restaurant industry, where profit margins typically hover around 5%, this growth is substantial. While overall, restaurants have seen growth in profits since the end of the recession, this has generally been to a lesser extent than the results reported by Paris Creperie (Biery, 2014).

As reported earlier, Blasi et al. (2013) find that the where employees have profit-sharing, the median annual amount distributed is USD 2 000 annually. At Paris Creperie, by contrast, full time employees received more than USD 6 000 as their annual share of gains realised under Open Book Solutions. While that figure may change in future years, the programme at Paris Creperie, has already achieved relatively higher gains at this early stage. In the restaurant industry, where profit margins are slim and dependent on workers’ willingness to monitor food usage and sales with minimal supervision, these improvements can have a tangible impact on the bottom line.

The investment from the state for incumbent worker training was essential to the success of the initiative. Making training funds available and accessible to small businesses is a critical component for the scalability of profit sharing. In addition, several key organisational factors were essential for a successful implementation, including financial stability of the organisation, good team satisfaction and trust in management, and a willingness for leadership to cede control of decision making and profits to employees.

While the results are promising, more research is needed to determine the effectiveness and scalability of profit sharing in the food service industry more broadly. The employees at Paris Creperie have a higher level of skills than the restaurant industry on average, as most employees are college students or graduates. The transferability to lower skilled and non-native English speakers merits further investigation. Open Book Solutions programmes implemented in workplaces where employees have lower skills and personal challenges may need additional support around English language skills, financial literacy, and connections to social support services.

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