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University of Massachusetts Amherst

Family Business Center

How to Turn Ideas Into Profits

by Shel Horowitz

How'd you like to jack up your company's productivity, slash expenses, vastly improve employee morale…and not only make your company a whole lot more profitable, but get a significant leg up against your competitors?

What if you could accomplish all this by instituting one simple idea that has a capital cost of zero?

Too good to be true? Sounds that way, to be sure. But such industry success stories as Toyota, Lucent Technologies, Winnebago, and guerrilla magazine publisher Boardroom (best known for its Bottom Line series) are among those who've embraced this idea.

So what's the big idea? It's the idea that 80% of your best ideas will come from front-line employees. These ideas can drastically improve both small and large businesses - IF there's a systemic way to collect, evaluate, and implement them.

UMass professor Alan G. Robinson came to the Family Business center's April gathering to show the power of this strategy, and to explain exactly how to put an idea capture program in place.

Many companies have tried to put idea capture programs into place, but Robinson says a lot of them go about it all wrong. Two things are different in Robinson's version: small ideas are valued at least as much as big ones, and the incentive for submitting ideas is not based on monetary rewards, but on a culture of respect.

Here are a couple of examples of the power of small ideas:

"A lot of people buy fridges that don't fit in their house. They ding it up, bang up the doors, it gets marked down. This was costing Sears millions of dollars. One guy would measure the critical dimensions and staple the string to the receipt. 'Walk through all your doorways. If it doesn't go through, call me right away.' This was adopted by word-of-mouth at a few other stores. What if we replicated it at 2000 stores nationwide?"

But Sears, only looking for "big" ideas, failed to capture and implement this one.

A more positive example: Monrovia, the largest grower in the country, covered the potting lines with tarps on the suggestion of a line worker whose hands hurt working in the rain. "Several months later, they realized the yield had gone from 61% to 92% because the wet dirt was not as good a growing medium. It saved them many millions per year. It didn't show up as a big aha moment. It's like a giant hairball with little strands, little problems that create little opportunities but any one could be a symptom" of a larger problem.

Small ideas are also much harder to spot from the outside, so they stay proprietary. Your competitors have no clue how you've cut costs or increased satisfaction. Yet Robinson was told by the CEO of Lexmark, "we're not interested in the small ideas - we want the home runs."

What this short-sighted comment ignores is that small ideas, implemented on a large scale, can have huge impact, Robinson offers three questions to determine the true scope of small ideas: Can this idea be used elsewhere? What other ideas does this one suggest? Are there any patterns in the ideas (that identify larger problems or opportunities)?

A secretary at a Japanese company started programming her fax (in the pre-email days) to transmit at night, when rates were about a third cheaper. While this change only saved about $320 a year for this secretary, replicated thousands of times, it saved over $70,000 per year.

Even bad ideas point out opportunities. When a janitorial employee suggested turning off the cooling fans on projectors after a presentation, management recognized that implementing this idea would burn a hole in the equipment budget - but the company saw the opportunity to train the custodians in audiovisual operation. Now they can help set up and take down the equipment, increasing productivity.

And what about the idea collection process? Why shouldn't you offer cash rewards?

"Most companies pick the most dysfunctional reward scheme possible. They have a committee to evaluate and put a number on the idea, and give you a percentage. If you do that, you get into fraud and unethical behavior. The more you offer per idea, the fewer ideas you get.

"You have to have a significant bureaucracy and waste a lot of time calculating what the each idea is worth. If you're the poor guy whose job it is to figure out how much money was saved with energy-efficient light bulbs… And the employee will disagree with your number. It averages four hours of a manager's time to calculate the worth - and once you finish, it's useless information. It reflects a lack of trust and teamwork."

So what should you do instead? Make idea capture part of the culture. Boardroom demands 26 new ideas from each employee every quarter. Miss the quota once and you lose a bonus worth several thousand dollars. Miss it twice and you're asked to leave. people who are short of ideas in a particular week borrow them from others, and then pay them back. Everyone averages 26 ideas. And Boardroom's sales are seven times the industry average.

Toyota, the world's largest family business, gets 15 ideas per employee per year. Its "market value is greater than the Big Three [domestic automakers] combined. It has nearly enough cash to buy all three. It has been improving faster and more consistently&emdash;improving labor productivity at 8-12% per year for 15 years. They have not laid off a single employee, worldwide. If you were ever a supplier, you never went out of business. They make their suppliers do this too, and their supplier base is significantly stronger."

If you do use monetary incentives, don't assign them just to the individual; add them to a communal pool. But ultimately, make it the responsibility of every manager to collect ideas. At one company, managers who fail to get at least five ideas per employee are ineligible for promotion for three years.

Robinson's latest book, Ideas Are Free (Berrett-Koehler, 2003), goes into far more detail.

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