Not long ago I was talking with the CEO of a medium-sized company who had just completed a major revamping of his organization. He had worked with a number of consultants to install several new technologies and pieces of equipment, and to radically change core processes in order to streamline the way work was done. A large loan was needed to fund the initiative, and while the CEO was proud of the accomplishment, he was also a bit reticent.
“It took us 18 months of hard work to complete the project. Now, if I could only get my people to utilize the potential of the new system. Our current productivity and customer responsiveness is actually a little worse than when we started.” I asked him why he thought this was the case. “Well,” he replied, “we have made very few changes over the last nine years and people are just in the habit of doing things the way they always have.”
The CEO made a number of mistakes in how he chose to improve his company’s productivity, but the biggest one was perhaps in looking at improvement as a sprint that was driven from the top. A lot of lip service has been paid to the need for continuous improvement, but it needs to be more than empty rhetoric. Improvement must be a part of everyone’s job every day.
From the time of Alexander the Great to the invention of the steam engine by James Watt in the 18th century, productivity did not increase much – nor did the quality of people’s lives. The speed a soldier in Alexander’s army could travel was limited by the speed of the horse he rode or the beasts pulling his wagon. This changed little in the next 2000 years. Since the 18th century, however, the average rate of improvement in productivity has been between one and two percent. This is also the average natural rate of productivity improvement in most organizations.
But what if you could improve at a faster rate – a rate faster than your competitors? And what if you could maintain this faster improvement rate year after year? The result would be a sustainable advantage over your competitors.
I have encountered a number of firms that have regularly, year after year, improved their productivity at rates of 13 to 15%. These are companies like Scania (the truck maker) outside of Stockholm whose engine plant consistently racks up 14 to 15% improvements every year. A cluster of Autoliv (the market leader in airbags) facilities in Utah are posting similar annual improvement rates. As a result, these companies are highly profitable and gaining market share. They are also rewarding places to work.
Companies that consistently improve at rapid rates do not rely on improvement to be ad hoc initiatives driven by management. They have systems and procedures that integrate continuous improvement into the work lives of everyone of their employees – such as high-performance idea systems. These organizations are structured and organized to be driven by bottom-up ideas.
Why do they focus on bottom-up ideas? Through our research on organizational improvement over the last several decades we have consistently found that in organizations with the fastest improvement rates, 80% of those improvements are driven by the ideas of people on the front lines.
Competition is often analogized a race, rather than putting on your track shoes and sprinting away, lace up your trekking boots and prepared for a lifelong journey. Besides, if your organization becomes fit from its continuous improvement journey, it will also be able to sprint to get through the occasional bear economy or outpace the wolves of new competitors.