Companies & Industries

Why CEOs Need to Harness People Power


Chief executive officers of even the best-run companies can tap a hidden resource for dramatic performance improvement

Do you have an idea to improve the way things are done in your company? Well, guess what—you're not alone. Ask your co-workers if they, too, have ideas. You will quickly discover that even in the best-run companies there are thousands of ideas that can improve the way things are done. In fact, in most large companies there are so many that it is difficult to manage and keep track of them. My research and work with clients across many industries over the last decade show that a company has, on average, around one idea per employee to improve the way it operates. The real challenge is in effectively capturing these ideas and acting upon them. Before you begin to wonder why these ideas don't go anywhere, most company managers are not dumb. The reason these ideas for improving company performance have not been implemented is because of what I call "barriers"—organizational and human constraints that prevent them from being implemented. In the late 1990s and early 2000s, my client Mellon Bank was considered one of the top banks in the U.S. by both the investment community and its banking peers. The bank was respected; its practices were emulated. Mellon hired the brightest of talent. It operated in more than 50 countries and had more than 25,000 employees. This had been a remarkable transformation from a decade earlier when the bank had been troubled by the real estate crisis. Finally, though, the bank was performing at the top of the industry, producing profits of $1.2 billion. It was difficult to imagine that any further profits could be generated from within. How do you make the best even better? Asking for Ideas

In 2000, the visionary Mellon Chief Executive Officer Marty McGuinn decided to ask his employees if things could be done to improve the way the company did business. He committed not only to asking for ideas, but to removing barriers. Within three weeks of the start of his project, the creative staff at Mellon had come up with some 20,000 ideas for change. Although some of them were a little risky for a conservative leader of the banking industry, the bank ended up implementing close to 3,000 ideas. The CEO announced an annual increase in profits related to the ideas of $309 million. That was a full 25 percent profit increase for arguably the best bank in the country at that time. This is not unusual. In our experience, employees in even the best companies can generate thousands of ideas for improving the way the company does business. A company can save 10 percent to 20 percent of its cost base by asking employees what it should do—and removing barriers. Depending on the industry and the company, this usually translates to a profit increase of 20 percent to 30 percent. The opportunity isn't just in the thousands of small ideas that add up to something significant. Some of the ideas are large and strategic. These ideas have typically surfaced within a company before, and they are left unresolved because of the existence of barriers. These large, strategic ideas seldom involve exiting whole businesses, but they often involve closing departments, dropping products and market segments, or changing a regional structure. They may involve centralizing activities that are being carried out remotely. One common theme is figuring out a less complex way of serving smaller customers while still fulfilling the customers' needs. Another is to reduce customization or to charge appropriately for it. Internal customization is a problem for a surprisingly large number of companies. Depending on the company, 50 percent to 75 percent of the opportunity can come from large ideas. Identifying the Barriers

What are these barriers to change that exist even in well-run, hugely profitable companies? Often the true impact of an idea is hard to calculate, so the company does not recognize how valuable the idea is. Other ideas may seem impossible to implement because of politics or because consensus cannot be built. Some ideas may involve work and collaboration from a department that receives no benefit from the change, often the IT department, so because of departmental barriers they don't get implemented. And finally, some ideas may just not have received enough senior management attention. All of these barriers are legitimate and exist in every company. The challenge (and the subject of a future article!) is how to get around them. Aside from a relatively few large ideas, every midsize company can also generate thousands of small ones. These ideas should not be ignored for two reasons. First, these are the types of ideas that often improve workforce morale. Second, they can add up to 50 percent of a company's opportunity. A common theme is often insourcing. When companies want to save money in everyday operations, they often do so by deciding not to employ more people and outsourcing extra work in areas such as the legal department or IT. This is particularly true of project work. But as one project finishes, another starts, leading to full-time outsourcing. Bringing project work back in-house can save thousands of dollars. Though you do not know what next year's project will be, you do know there will be one. Most companies have thousands of actions they can take to improve performance and these actions are known by the employees. It is relatively simple to figure out what they are and it involves unleashing People Power—asking the employees in a systematic way to describe them. But there is one real danger in releasing this energy and a CEO needs to be prepared for it. The ideas will surface but unless the CEO is prepared to act and implement a significant portion of them, the employees will feel disillusioned and disheartened and the CEO's credibility will be shot.

Neil Smith is the CEO of Promontory Growth and Innovation, a New York consulting firm that helps clients increase revenues and reduce costs in innovative ways.

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