From the time of Alexander the Great to the invention of the steam engine in the 18th century, there was almost no increase in people’s productivity.
The speed a soldier in Alexander the Great’s army could travel was limited by the speed of the horse he rode or the beasts pulling his wagon; and weapons they used were all hand forged. The same was true for Napoleon’s troops 2,000 years later. But with the invention of the steam engine, things began to change. Since that time, the nominal annual rate of productivity improvement in developed economies has been between 0.5% and 2%. This is approximately the same natural improvement rate that is found in most traditionally run organizations.
But what if you could improve faster, at a rate that outpaced your competitors? And what if you could maintain this rate year-after-year? The result would be a considerable competitive advantage.
We have studied a number of companies that have been able to increase their productivity by as much as 13% to 15% annually. These are companies like Scania (the truck maker) outside of Stockholm whose engine plant consistently racks up 14% to 15% improvement in employee productivity every year; and the Autoliv (the market leader in automotive airbags) facilities in Utah that post similar improvement rates. We have also seen higher, but more difficult to quantify, improvement rates in non-manufacturing settings. Such rapid ongoing improvement does not happen by accident, nor does it come from a series of ad hoc management-driven initiatives. It is the result of organizations designed and led to be driven by employee ideas.
How are these idea-driven organizations different from traditional organizations? The differences may appear subtle, but they represent a very different way to structure and run an organization. Rather than being top-directed and top-driven, they are top-directed but driven by ideas from below.
First, such companies focus on the ideas of front-line employees. We have consistently found that 80% of an organization’s improvement potential is found in the creativity and ideas of its front-line people. This fact may seem surprising until you consider that these people are the ones who work directly with customers, make the products and deliver the services, and they see many problems and opportunities that their managers don’t.
Idea-driven organizations use high-performance idea systems that are designed to efficiently process and implement 20, 30 or even 50 or more (mostly small and easy to implement) ideas per employee per year. These are systems that make ideas a regular part of everyone’s job and hold everyone accountable for their idea performance. Most ideas are discussed, decided upon and implemented on the front lines without direct management involvement.
Second, high-level goals are shared with front-line employees in terms that are actionable. While most leaders share their company’s goals with employees, high-level strategic goals such as “Increase market share to 8%” or “Lower operating costs to 40% of net revenue” have limited meaning at the front-line level. To be truly useful, high-level goals must be disaggregated and articulated in ways that help front-line employees focus their ideas on what matters most.
Third, front-line employees are provided with the resources they need to develop and implement their ideas. This means time, a modest budget, targeted training, and the help of support functions (i.e. IT, maintenance, purchasing, etc.).
Fourth, barriers to ideas have been eliminated. After years of operating in a top-down manner, most organizations are rife with bureaucratic rules that hinder the flow of ideas. These can include cumbersome purchasing policies or requiring the approval of too many people at high levels for relatively minor and local improvements. Such barriers can quickly slow the flow of ideas.
Fifth, and perhaps most challenging, idea-driven leaders are humble. Consider the constant reminders of their superiority that managers are bombarded with on a daily basis. They wear the suits, they have the private offices, and they are more highly educated and paid significantly more than their subordinates. They are in charge and others defer to them. With all of these signals continually reminding them that they are superior to their employees, it is easy for managers to believe they don’t need to listen to front-line employees. Humility is essential for leaders to recognize that in many areas their front-line employees know more than they do; and to create and support systems that make certain that these ideas are heard and acted upon.
There is an irony in the need to change from traditional organizations. In order to fully exploit the productivity improvement potential ushered in by James Watt’s steam engine, a new organizational form and way of thinking was needed — one that could achieve the economics of scale and standardization inherent in industrial-age technologies. Now, in order to exploit today’s more nimble and responsive technologies, we must again adapt our organizational forms and thinking, this time to idea-driven approaches that tap the creative potential of our front-line people.
Dr. Dean Schroeder’s latest book, “The Idea-Driven Organization: Unlocking the Power in Bottom-Up Ideas,” co-authored with Dr. Alan Robinson, was released this spring (Berrett-Koehler, 2014).