Family Business Center of Pioneer Valley

Family Business Center of Pioneer Valley

What's the secret of turning an obstacle into a $100 million a year product? Creativity!

by Shel Horowitz

UMass professor Alan Robinson told the Family Business Center how a Japanese railroad company had to figure out what to do with the millions of gallons of water they encountered, digging a railway tunnel under a mountain. Turns out the stuff was run-off from the mountain's snowcap, naturally filtered for hundreds of years and containing a high mineral content. Instead of paying big bucks to move the water out of the tunnel path, the company now sells Ohshi Misu water on every one of its railway platforms-and sales hit $100 million in 1996.

Who came up with the idea? Not a corporate hotshot but a lowly maintenance worker.

And this is not unusual. Companies all over the world are finding brilliant ideas amongst their employees, often their low-level employees. All they have to do is create a climate where those employees are encouraged to share their ideas-and reap enormous cost savings, productivity increases, and worker morale boosts.

Robinson, in his October 8 address, at the Log Cabin-with a backdrop of a magnificent mountain view of peak fall foliage-gave dozens of examples of companies that solved problems, created new profit centers, increased their efficiency, slashed costs. They didn't do it with highly-paid outside consultants, for the most part; they harnessed the creativity of the people most familiar with the situation: their own staff.

One point Robinson made over and over again: encourage even the smallest steps forward. Most big changes are not the result of some revolutionary breakthrough, but rather the cumulative improvement caused by large numbers of tiny modifications. The Japanese, who pioneered this technique as a widespread management tool, call it "Kaizen."

One example Robinson was personally involved in was defusing a labor crisis at the Chessie System railroad headquarters in Baltimore. The eight elevators were designed to handle only about 20% of the 9000 passengers they were carrying, and employees were waiting up to 45 minutes from their arrival before they could get upstairs to their offices. Coupled with insensitive and arrogant human resource policies that docked pay for late employees, mutiny was in the air.

Robinson's team of students spent some months working on the problem, and ultimately reduced the wait time to a completely reasonable 21 seconds. Most of the reductions came from individual steps that saved 7 seconds or so per elevator stop: tuning the door opening and closing times, for example. (There were also a couple of major breakthroughs, such as suggesting staggered shifts. One major boost came from a chance observation that mailroom employees were tying up two of the eight elevators during peak time.)

Not every company has to be told. American Airlines, for example, pays large cash bonuses to employees who save the company money. One flight attendant earned a $10,000 reward for cutting the number of coffee pot lids per flight in half. Each lid saved he company a cent and a half, for a total of $62,900 per year.

While U.S. companies such as American Airlines and 3M provide financial rewards for employees who come up with great ideas, Robinson said the results are even more dramatic without financial incentives. In Japan, most companies offer little or no financial incentive-but a great deal of recognition (write-ups in internal newsletters, awards dinners, and so forth). The focus is on creating a culture of continuous improvement-and they actively solicit employee participation, even to the point of rewarding managers for the number of suggestions their departments submit.

Because of this constant emphasis, the companies that have instituted such programs reap amazing achievements.

In Japan, with 1,686,537 eligible employees, over 31 million suggestions were received. That works out to 18.5 per worker-over 100 times as many as the 810,861 (0.16 per worker) turned in by 5,198,665 U.S. employees! 10.7% of the U.S. workers participated, compared with 74.3% in Japan. A key to the higher participation in Japan is higher adoption rate. 89.7% of the Japanese ideas were implemented, compared with only 38% in the U.S.

Even more telling is the impact on the bottom line. In the U.S., the average reward was $458; in Japan, a paltry $3.88 (and that in a country with a far higher cost of living). Clearly, these employees are not motivated by financial gain. The cost savings per idea was higher in the U.S.: $5,586, on the average, compared with only $176 in Japan. But there were so many more ideas in Japan that the net savings per 100 employees was $324,971, nearly 10 times greater than the $33,466 savings in the U.S.

These numbers are not about cultural differences between Japan and the U.S., but about a different philosophy of management. Robinson cited examples of a Japanese company that actively discouraged an innovation that ultimately changed the way cheese is made all over the world, and mentioned many American companies that have successfully implemented Japanese-style Kaizen systems and experienced similar dramatic results through "continuous improvement in baby steps." One example: Johnson Controls experiences 100% participation, with negligible dollar rewards.

To replicate these kinds of creativity gains, Robinson recommends:

  • Look for improvements even if they don't show direct cost savings
  • Reward bad ideas as well as brilliant ones: they may help you avoid expensive mistakes if they come to the fore and are defused
  • Recognize and act on serendipity, on the unanticipated
  • Take ideas and transform them to other situations; every suggestion is an opportunity
  • Encourage intra-company communication, including among normally unconnected departments
  • Seek out the areas of each employee's expertise-especially the things that only they (or they and a few others) know
  • Make no preconceptions

And finally,

  • Document the suggestions and set up implementation processes!

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