Excerpts

THE IDEA REVOLUTION What will future generations say about the way we practice management today? What will they consider our most conspicuous failure? We believe they will accuse us of having squandered one of the most significant resources available to us: employee ideas. Every day, all over the world, millions of working people see problems and opportunities that their managers do not. With little chance to do anything about them, they are forced to watch helplessly as their organizations waste money, disappoint and lose customers, and miss opportunity after opportunity that to them are all too apparent. The result is performance far lower than it should be and employees who do not respect or trust management and who are not fully engaged with their work.2 At the same time, their managers are under constant pressure to do more with less. But with so much of their time consumed by "firefighting" and trying to meet short-term demands, they have little or no time to think about how to build their organizations' capabilities. They are chronically short of the resources they need to keep performance at current levels, much less improve it. They wonder how to motivate their employees, who don't seem as involved in their work as they should be. In short, a great many managers today find their work stressful and unfulfilling. Because there seems to be no alternative, both managers and employees become jaded, and they accept the situation as the way things have to be. But a quiet revolution is under way--an idea revolution--led by managers and supervisors who, in a small but growing number of companies, have learned how to listen systematically to their employees. With each implemented idea, performance improves in some way. Some time or money is saved, someone's job becomes a little easier, the customer experience is enhanced, or the organization is improved in some other way. With large numbers of ideas coming in, performance improves dramatically. And as employees see their ideas used, they know they are having an impact on their organization and become engaged in their work. Why do we call this movement a revolution? We do so because it liberates people and transforms the way that organizations are run. It changes the nature of the relationship between managers and their employees. As Ray Winter, then president of BIC Corporation, observed about the effect of his company's idea system on the corporate culture: This system has taught my managers real respect for their employees. My managers have learned that their employees can make them look awfully good, if they only let them. 3 This comment could easily be taken to mean that it does not take much--other than receptiveness on the part of management--to get large numbers of ideas from employees. But, just as it did the other companies we have studied, it took BIC years of experimentation and learning to discover how to tap this potential. There is a lot to learn, much of which goes against the initial assumptions most managers make about why people give ideas and which ideas are important. WHAT'S IN AN IDEA? Ideas are the engine of progress. They improve people's lives by creating better ways to do things. They build and grow successful organizations and keep them healthy and prosperous. Without the ability to get new ideas, an organization stagnates and declines and eventually will be eliminated by competitors who do have fresh ideas. An idea begins when a person becomes aware of a problem or opportunity, however small. Every day, regular employees--the people who do the office work, make the products, and serve the customers--see plenty of problems and opportunities and come up with good ideas about how to address them: When accounting for oil purchases, a staffer in a regional distribution center of Deutsche Post, the German post office, noticed that the company was paying too much for the engine oil for its trucks. Drivers were buying oil at roadside service stations, paying the equivalent of $8.50 per liter. After some research, he found that Deutsche Post could buy the oil in bulk for a quarter of the price and proposed that it do so. At the time of this writing, the idea was being implemented at distribution centers across Germany. With tens of thousands of diesel trucks and vans on the road, it will no doubt save millions of euros every year.4 At Good Shepherd Services, a not-for-profit health care organization with a nursing home in northern Wisconsin, a group of employees learned in a training session that dementia patients often see areas of black flooring as holes and avoid them. Instead of using alarm bracelets or restraints to keep such patients from wandering into unsafe areas, the group suggested simply to paint the floor black in front of the doorways to these areas. The idea worked, and it not only reduced patient stress but saved staff considerable time because they no longer had to respond to alarms. At LaSalle Bank, one of the largest banks in the United States, whenever someone requested a new laser printer, they were given the standard model specified by the purchasing department. One day, an employee unpacking his new printer noticed that it included an expensive internal disk drive, which no one would ever use. With all the printers the bank purchased each year, his idea to eliminate this feature saved a considerable sum of money. At a Massachusetts Department of Correction facility, a guard proposed a change in the way pictures were taken of new inmates. Instead of using film, why not use digital cameras and store the images in a database? Across the department's sixteen correctional facilities, this idea saved $56,000 the first year in film alone.5 An office worker in a Florida branch of a national temporary-placement firm realized that there was a problem with her company's screening practices. At the time, it was paying an outside vendor to test applicants for literacy, numeracy, and computer skills. Those who passed were then given a drug test and criminal background check, which some 70 percent failed. Why not do the drug testing and criminal background check first, she asked? When the idea was implemented nationwide, the savings were huge. At Winnebago Industries, the recreational vehicle maker, an assembly worker pointed out that the 10 percent of customers who ordered the deluxe sound system option were getting additional speakers they never used. No one had told the crews on the main assembly line that installed the built-in speakers for the regular sound systems to skip the vehicles that would be having the deluxe speakers installed later. The regular speakers embedded in the walls were never connected. They were seen but not heard. Although the savings from this idea were significant, the main benefit was that customers stopped bringing vehicles back to the dealers and asking them to fix speakers that were not working. None of these ideas required particular insight or much creativity, or required much in the way of time or resources to implement. (In the case of Deutsche Post, oil suppliers were so eager for the business, they were willing to install the bulk tanks for free.) To the people who came up with them, they were simply common sense. Every employee idea, no matter how small, improves an organization in some way. It is when managers are able to get large numbers of such ideas that the full power of the idea revolution is unleashed.6 HOW IDEAS DRIVE A CULTURE OF HIGH PERFORMANCE There is a clear link between an organization's ability to tap ideas and its overall performance. Consider the following examples: Boardroom Inc., a Connecticut publisher, averaged 104 ideas per employee in 2002. Its sales per employee were more than seven times greater than the average publisher. Richer Sounds has been listed a number of times in the Guinness Book of World Records as having the highest sales per square foot of any retailer in the world. It also has one of the best idea systems in the United Kingdom, which brings in some twenty ideas per employee per year. Milliken, a global fabric and specialty chemicals company, averaged 110 ideas per employee in 2002. In a number of its textile product lines, it competes with companies in developing nations whose prevailing wages are less than one-twentieth of those in Europe and the United States, where most Milliken operations are located. To be successful, the company has to outmanage these competitors. Over the last two decades, Milliken has actually been able to increase its advantage over them, a feat that Roger Milliken, chairman and CEO, attributes in large part to the company's idea system. Milliken is one of only two companies in the world that has won both the Malcolm Baldrige National Quality Award (MBNQA) and the European Quality Award. The other is the French-Italian company ST Microelectronics, which has one of the better idea systems in Europe.7 DUBAL, a major aluminum company in the United Arab Emirates, has none of the natural advantages typically associated with aluminum producers. It must produce its own electricity, desalinate seawater from the Persian Gulf to get the large amount of fresh water it needs, and import its primary raw materials from Australia. Yet DUBAL, whose people average more than nine ideas each per year, is one of the lowest-cost producers of aluminum in the world. According to CEO John Boardman, much of the company's excellent performance can be credited to its idea system. Dana Corporation, a global company with over sixty thousand people, expects every employee to submit two ideas each month, and in some facilities it exceeds twice this number, with a worldwide implementation rate of 80 percent. Two of the company's U.S. divisions have won the MBNQA. In our experience, when people first encounter examples of companies like these--work environments that are clearly so different from where they work--they are full of questions. How do the employees in these organizations come up with so many ideas? Are the ideas any good? Who has time to deal with all of them? Don't you have to create a huge bureaucracy just to deal with ideas? How are employees motivated to give in so many ideas? Are they offered rewards? These are all good questions, and we will answer them in this book. But before we do, it is important to understand just how radical the concept of going after large numbers of employee ideas is. It brings about so much change, in fact, that for most managers it is revolutionary.8 Ever since Frederick Taylor first advocated that management's job was to think and the worker's job to do, this has been the default perspective. In most organizations around the world, the division between thinking and doing is "hard-wired" into policies, structures, and operating practices, although it is rarely explicit or even recognized for what it is. While this approach may have been the right one a hundred years ago, today it has become severely limiting. This is why the simple concept of going after employee ideas--when done properly--fundamentally transforms the way organizations are run, allows them to achieve levels of performance well beyond what they were previously capable of, and liberates the people working in them. The mechanics alone of handling large quantities of ideas forces considerable change. Managers whose employees are submitting one or two ideas every week cannot hope to evaluate, test, and implement them all unless they push decision-making authority for most of them back down closer to the employees and their supervisors. This empowerment starts a virtuous cycle. As employees see their ideas being used, they begin to feel valued as part of the team and become more involved. As managers see this change in attitude and the impact that ideas have on performance, their respect for employees grows. Employees are trusted with more information, training, and authority. This in turn leads to even more and better ideas--and the cycle continues, ultimately creating a positive, high-performance culture. 9 THE NEED FOR MANAGERIAL HUMILITY It is easy for managers and supervisors to come to believe that they know better than the people who work for them. After all, they are usually better educated, have merited positions of greater responsibility, and earn significantly more money. They wear the "suits." Managers who get large numbers of ideas from their employees have the opposite view. In our experience, they are much less arrogant. They recognize their heavy dependence on input from their subordinates. Every day, they are reminded of how valuable front-line ideas can be. In a famous essay, Friedrich Hayek, founder of the Austrian School of Economics, articulated why employees often see problems and opportunities that their managers do not.1 In writing about decision making in organizations, Hayek divided knowledge into two types: aggregate knowledge and knowledge of the particular circumstances of time and place. Managers usually deal with the first kind of knowledge--things like "Sales are off 10 percent" or "Costs went up 5 percent." The higher a person is in an organization, the more aggregated his or her information tends to be. While aggregate knowledge is important for understanding general relationships and formulating broad strategies, it is not very useful for coming up with specific performance-improving ideas. These come primarily from the second kind of knowledge that Hayek discussed--the detailed knowledge of particular events, day-to-day problems and opportunities, and how things are actually done. This is exactly what employees tend to possess and why they can often come up with better ways to meet organizational goals than their managers can.10 We came across a particularly telling instance of this fact when we helped set up an idea system for one of the world's largest cranberry growers, a company with more than forty-five thousand acres of bogs under cultivation. At a time when cranberry prices were plummeting, management was desperate for ideas that could save money, other than ones involving more layoffs. The value of being on the spot showed in one of the very first ideas that came in. Cranberry production, like rice production, is water-intensive, and pumping large volumes of water is extremely costly. The idea, which came from a field worker, was simple: "When it rains, turn off the sprinkler systems." WHY ORGANIZATIONS NEVER RUN OUT OF IMPROVEMENT OPPORTUNITIES Two questions managers often ask when they learn how well some companies are doing at getting employee ideas are "Don't employees ever run out of ideas?" and "Can an organization get so good that there is nothing left to improve?" If these were real concerns, one company that would have had to deal with them is Toyota. In 1992, Yuzo Yasuda published a book about the company's idea system, entitled 40 Years, 20 Million Ideas. It told how Toyota got more than a million ideas per year from its employees and had been doing so for more than a decade. Around this time, a U.S. Army lieutenant general asked one of us how this could be. To him, it made no sense. Either Toyota was in very bad shape, he asserted--so bad that it needed a million ideas per year to fix its problems--or the whole thing was some kind of charade. Whichever was the case, Toyota's idea system didn't seem to be something other companies would want to emulate. It was a thoughtful comment from someone with considerable leadership experience. But it also exposed a degree of ignorance.11 Let us look at the two possible explanations the general proposed. First, Toyota is hardly a screwed-up organization. In fact, it is one of the most successful automakers, and one of the most admired companies, in the world. And as for the idea system being some kind of charade, it is instead absolutely central to Toyota's management philosophy. Toyota has long been a relentless improver. As Yasuda's book pointed out, ever since 1951, a top executive--including several future CEOs and chairmen, and even members of the founding Toyoda family--has headed the company's idea system. What is more, many members of its board of directors have been personally involved in idea system activities. Few companies have ever matched this level of top management commitment to listening to employee suggestions. A significant percentage of the company's overall improvement comes from its idea system. As for the quantity of ideas being a sign of a company with an inordinate number of problems, perhaps the general would be correct if the world never changed. Sooner or later, Toyota might get everything right and employees would run out of ideas. But everything changes, and changes constantly: technologies, competitors, customers, suppliers, employees, the economy, the overall business environment--everything. To stay competitive, a company has to respond. And since an organization is a living, interconnected, and integrated system, an action taken in one place influences things elsewhere. In other words, change creates the need for further change. New problems and opportunities are born all the time. There will never be a shortage of them, and the faster an organization can spot and 12 OVERVIEW OF THE BOOK'S MAIN POINTS This book is organized into eight chapters. Chapters 2 and 3 deal with two fundamental principles of managing ideas that are highly counterintuitive--the importance of going after small ideas rather than big ones, and the problems with the most common reward schemes and how to avoid them. Chapters 4 and 5 describe how to make ideas part of everyone's job, and how to set up and run an effective process for handling ideas. Chapters 6 and 7 show how to take a good idea system and make it great, by focusing employee ideas on the areas where they are most needed and by helping employees come up with more and better ideas. Chapter 8, the final chapter, shows how good idea systems have a profound impact on an organization's culture. At the end of each chapter (except this one and chapter 8), we provide "Guerrilla Tactics"--actions to promote ideas that any manager can take on his or her own authority and that require little or no resources. The remainder of this chapter provides a brief overview of the main points in the book. The Importance of Small Ideas In 2001, we were asked to help a German automobile manufacturer beef up its idea system. "It is so hard in our business today," its managers told us. "We figure out a way to cut significant costs out of our operation, and before we are finished, we have to start looking for the next big cost-cutting idea. We never seem to be able to relax or get any breathing space. Every one of us works long hours and is exhausted all the time."13 These managers couldn't seem to create much advantage that was sustainable--most major improvement initiatives undertaken were quickly countered by other automakers, and any advantage gained from them soon evaporated. The root cause of the problem, we soon realized, was that these managers thought that big ideas were the only way to get ahead. Business leaders are always looking for the next breakthrough idea--the "home run" that will put them well ahead of the competition with one swing. Because of this, the systems and policies they put in place are aimed at big ideas. Few managers realize how severely limiting this is. In chapter 2, we explain why it is much smarter to go after the small ideas. For one thing, as that German auto manufacturer had already discovered, the bigger an idea the more likely it is that competitors will discover and counter it. If it affects the company's products or services, it is directly visible--in fact, it may well be advertised. If the idea involves a major process change behind the scenes, it is often copied even more rapidly. Significant internal initiatives usually require outside suppliers, contractors, or consultants--people whose jobs are to sell their products, services, and expertise. And companies are proud of their latest innovations. They like to impress their customers with them. These same customers might well share the exciting new development with their other suppliers. No matter how hard the managers in that German company worked to get big cost-cutting ideas, they were unlikely to develop much sustainable competitive advantage from them. While the big ideas were necessary to keep up with the competition, they were not sufficient to get ahead and stay there.14 Small ideas, on the other hand, are much less likely to migrate to competitors. They are often site- and situation-specific, and therefore of little use outside the company anyway. For example, when the Vidette Times, a regional newspaper in Indiana, ran out of newsprint late one night owing to a strike at its Canadian supplier, the press operator was ready with a backup plan--not a great one, but one the company could limp along with. Although his presses used rolls that were forty-five inches in diameter, earlier that day he had borrowed some forty-seven-inch rolls from a sister operation, just in case. His plan was that if the new shipment of forty-five-inch rolls didn't arrive in time, he and his coworker would manually unroll the larger rolls until they fit on the Vidette Times' printing press. They were not looking forward to this, as it would involve stripping thousands of feet of paper off rolls that weighed more than three tons. When the shipment of forty-five-inch rolls didn't turn up, the two men brought a forty-seven-inch roll across to the press on their forklift truck, to see exactly how much they would have to unwind in order to squeeze it on. To their astonishment, they found that it just fit as it was. The press manufacturer's specification had been too conservative. Their discovery had significant implications. Being able to use larger rolls of paper saved the company thousands of dollars per year, because it meant fewer roll changes, and hundreds of fewer "trial copies" needed to get the ink flowing again after each roll change. It also shaved about a half-hour per night off the press run.15 The point is this: When this idea came up, the Vidette Times was in the middle of a circulation war. Had it come up with an innovative new column or marketing approach, its archrival would have been aware of it immediately. But how would it learn about the forty-seven-inch roll idea? And even if it had, it wouldn't have mattered, since the competitor didn't have the same model of printing press. Because most small ideas remain proprietary in this way, they accumulate into a tremendous competitive advantage that is sustainable, the kind of advantage managers should be striving for. Ironically, what would have really relieved the pressure on the managers at that German automaker was the very thing they had all but issued direct orders to ignore. Small ideas also enable an organization to pay exceptional attention to detail. In many important aspects of business--such as customer service, responsiveness, quality, and managing costs--excellence means getting the details right. It is simply impossible to improve performance beyond a certain level without small ideas. And a superior ability to handle details, in turn, raises the level of complexity an organization can deal with effectively. This can allow an organization to do things its competitors literally cannot do. Perhaps the ultimate irony is that managing small ideas is the most effective way to get big ones, a phenomenon we shall also describe in chapter 2, along with several other surprising benefits of small ideas. If small ideas are the goal, the challenge becomes one of designing a cost-effective process to evaluate and implement them. That is the subject we turn to next. The Problems with Rewards 16 Whenever managers start to think about how to promote ideas, the question of rewards almost always pops up. In the late 1990s, the British government released a white paper entitled "Modernizing Government," in which Prime Minister Tony Blair and his cabinet laid out a comprehensive and long-term plan for reforming the way the government worked. One of its key initiatives was to make the Civil Service more innovative, by giving employees an "incentive to change behavior": We will foster innovation and continuous improvement of services in the public sector by rewarding staff who suggest ideas that lead to savings or better services. Government Departments and agencies will introduce schemes which reward staff with a sliding scale percentage of any savings or improvements made as a result of their suggestions.2 On the surface, offering rewards for ideas commensurate with their value seems a smart thing to do. The more generous the rewards, the more ideas will come in. So the thinking goes. The British government is far from alone in this regard. It is an easy conceptual trap to fall into. A great many managers have unwittingly sabotaged their efforts to promote employee ideas by making exactly the same mistake. The problem is not in sharing the benefits of ideas with employees--this can be done very effectively--but in doing so with rewards for individual ideas based on their value. Consider this: Not one of the companies we mentioned earlier that has been successful at getting large numbers of ideas from its employees offers rewards in this way. As we shall explain in chapter 3, not only do such rewards substantially increase the cost, time, and effort needed to evaluate and implement ideas, but they create a host of unanticipated problems that end up acting as disincentives for people to offer ideas. It is ironic that so many managers have such faith in a motivational tool that actually works against them.17 The first set of problems has to do with calculating the value of an idea. It can be very time-consuming to quantify the effect of even the simplest idea. Take, for example, the first idea mentioned in this chapter--the one at Deutsche Post to buy oil in bulk for one-fourth of the cost. Deutsche Post gives employees 10 percent of the annual value of their ideas. In this case, calculating the reward seems simple enough. But someone has to spend the time figuring out how much oil Deutsche Post uses, because the company does not track it centrally. Furthermore, not only does Deutsche Post have some eighty-three distribution centers, but it may take years to implement the idea at all of them. Some of the centers are even resisting the idea, because they have to go through the hassle of installing the tanks and getting special environmental licenses and inspections. These costs, too, have to be factored into the reward. And, of course, the price of oil fluctuates, and even varies by region within Germany. What price should the company pick to make the calculations? From the point of view of estimating cost savings, most ideas are more complicated than this one. Having to determine the worth of every single idea means a tremendous amount of non-value-adding work. And since it is impossible to calculate the value of most ideas accurately anyway, whatever numbers are produced are often perceived as underestimates by the very people the rewards are intended to thank and motivate. In the 1980s, United Airlines abolished its suggestion system--one of the oldest in the United States at the time--because of the large number of disputes that arose in this way.18 In his classic essay "On the Folly of Rewarding A, While Hoping for B," Steven Kerr articulates another set of problems with rewards. Often, rewards that are intended to promote desirable behaviors are actually encouraging undesirable behaviors. And when it comes to rewards based on the value of ideas, the list of detrimental side effects is long. For example, rewards are usually given only to the originator of the idea. Doing anything else would be incredibly complicated. But this undermines the teamwork necessary to bring off most ideas. The contributions of the people involved in evaluating, testing, and implementing them are largely ignored, and they often resent it. Why should they put in extra work to develop an idea, when someone else will collect the reward for it? The most common complaint we hear from idea system managers in companies that use rewards is that it is hard to get anyone to evaluate and implement ideas. And when they can persuade someone to look at an idea, the easiest course of action for that person to take is to find a reason to reject it. A poorly designed reward scheme can also interfere with the free flow of ideas in more nefarious ways. It can give rise to unethical behavior, as managers look for ways to save money on rewards they owe, and workers look to "game" the system for higher payouts. When potentially large sums of money are at stake, managers and employees can be tempted into outright fraud and corruption. As the saying goes, "If money can be made by doing something wrong, someone will." For organizations that use such reward schemes, unethical behavior can turn into a real problem. But as we shall also explain in chapter 3, perhaps the most surprising aspect of rewards, and the good news for managers concerned about the issues they raise, is that they really are not needed. People give in ideas because they want to see them used. Either they see a way to make their jobs easier or less frustrating, or they find an opportunity to improve the organization in some way. Employees also have a natural pride in their work; they like to feel valued and to know they are having an impact. As the experience of many companies shows--including several whose idea systems could be considered among the best in the world--employees willingly give in large numbers of ideas without the prospect of monetary rewards. The most important rewards they get are seeing their ideas used and being recognized for them.19 This does not mean that organizations should avoid rewarding their people with substantial money for their ideas. Rewards can be given, provided they are properly structured. A number of companies with high-performing idea systems--including several we have already mentioned, such as Boardroom, Wain-wright, and Dana--give substantial rewards for ideas. On average, employees in these companies get far more money from their ideas than they would earn under traditional schemes. Making Ideas a Central Part of Work In 1997, we took a busload of college students on a study trip to Canada. One of the visits was to a large subsidiary of a well-known U.S. company. After a tour of the facility, the company assembled a panel of its senior managers for a question-and-answer session. At one point, the discussion turned to the suggestion system. When a student asked how many ideas the company was getting from its roughly two thousand employees, the conversation took an interesting turn. "Last year, I think it was three," the general manager replied. "Was that three per employee or three in total?" the question came back. "Oh, three total." And then, quite unabashedly, the manager turned to his management team and remarked, "Come to think of it, I still have some ideas on my desk from the late 1980s that I probably should do something about."20 On paper, this company had a process for seeking and acting on employee ideas. But with the lack of management interest and follow-through, it might as well not have bothered. It was getting an average of one idea per employee every six hundred years. The general manager's comment is jarring because it reveals a complete lack of concern for something that should have been extremely important to him. Had he worked at a company that valued ideas, his casual remark would have been as outrageous as h Excerpted from Ideas Are Free: How the Idea Revolution Is Liberating People and Transforming Organizations by Dean M. Schroeder, Alan G. Robinson All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.