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Arun Hariharan

Innovation

Fostering Ideas and Innovation

Take a process-based approach to knowledge management

Published: Monday, September 21, 2015 - 00:00

The ideas developed by your employees, partners, and distributors can be an important source of knowledge that, in many cases, proves quite relevant to your business.

However, I must admit that I had no clue as to how enormously important promoting a culture of ideas and innovation could be as a source of direct business results—until we did a live “experiment” with a large group of companies. I call it an experiment because when we started off, we honestly didn’t know what to expect.

In a five-year period in this group, nearly 25,000 ideas were generated. After a process of evaluation and selection, about 15 percent of the ideas ended up getting implemented. Many ideas were from employees suggesting small (and occasionally large) improvements in their own work process or in customer service. Several were cost-saving ideas. Some were revenue-generating ideas as they related to new products or market expansion. About 30 percent of the implemented ideas had a direct financial benefit in the form of either increased revenue or cost savings. In this 5-year period, ideas contributed $550 million in revenue and another $120 million in cost savings for the group as a whole.

The contribution of ideas was too significant as a percent of the group’s total revenue and profits for anybody to ignore. Mind you, the financial numbers above are the results of a mere 30 percent of the implemented ideas, those that had a direct effect on revenue or cost on financial statements. A larger percentage of ideas was related to process improvements or enhanced customer service. Clearly, these would also result in financial benefits in the medium term through customer retention due to better service, or long-term cost benefits through more efficient processes, although these are not reported in the numbers. So how could we afford to ignore our people and their ideas?

The absolute number of ideas and financial results will obviously differ from company to company depending on geography, industry, size, and other factors, but there is no denying the power and potential of ideas. If you are curious to know how these businesses generated so many ideas and how they sustain the inflow of ideas, read on to learn more about our experience.

A shaky start

Let me begin with a confession. When we started off, some of us were skeptical (i.e., “We’ve seen suggestion schemes before and they never work.”). The rest of us were a little more indulgent (i.e., “There’s no harm in trying it out.”). Obviously, very few people expected any serious business results from this, and not in our wildest dreams did we expect the kind of results that we’re now talking about. In fact, the whole “ideas thing” would have died a natural death in its infancy if it were not for one business leader who genuinely believed in the power of people’s ideas. “We have 18,000 employees and thousands of partners and distributors,” he said. “Is it so difficult for each person to come up with one idea once in a year? At least a small idea related to his or her own work or business—especially if we share the rewards?” Nobody could argue with that! So perhaps that’s the first lesson—for significant and sustained business results from ideas, the first requirement is that you have at least one senior true believer—a champion.

Next, very few people believed that this new “scheme” would last more than a few months—a year at best. Even after seeing the results begin to come in, many people thought it was only a question of time before the ideas dried up. Here again, our experience has been the opposite. Far from “drying up,” in the fifth year the number of ideas generated as well as implemented was higher than in any previous year.

Process for ideas and innovation

I don’t believe there is anything radically new in our approach. Nevertheless, because it provided the businesses with some significant results, I thought it might be of interest.

Like many other companies, we began by launching a simple employee suggestion scheme, which we called “IdeaExpress.” An initial launch communication from the CEO was sent to all employees, followed by fairly regular repeat communications. A “suggestion box” in the form of a common email ID or portal where people could send their ideas was created. We used a standard simple format for employees to submit their ideas, as seen in figure 1. Each business created an “evaluation committee”—typically a group of senior executives from a variety of functional backgrounds—to evaluate and select ideas for implementation.


Figure 1: Idea submission format

One of the things that we did to keep ideas relevant and increase the probability of ideas getting implemented was to announce certain themes from time to time. The themes were based on current business priorities, and people were encouraged to come up with ideas related to these themes.

We introduced rewards and recognition at the employee, team, and company levels to encourage everyone to give and implement innovative ideas that would benefit the business. Some businesses offered a share of the actual revenue or cost-savings achieved through the idea. These rewards were given in a visible manner to the winning employees in the presence of their colleagues. We’ve been giving these rewards every six months for nearly five years—I believe this has helped us to convince employees that the company is genuinely interested in their ideas.

In our experience, one of the biggest factors responsible for the positive results from this initiative and its continuity is the fact that it’s mandatory for every business in the group to measure and report the number of ideas collected, selected, and implemented, along with the business results. See figures 2 and 3 for a sample summary and detailed report formats. Clearly, what gets measured gets managed better and gives better results.

We got a large number of small ideas and a small number of large ideas through the IdeaExpress suggestion scheme. The numbers proved that the sum total of results from the small ideas were so huge that it would have been foolish to ignore them or to focus exclusively on large or “breakthrough” ideas.

 
Figure 2: Sample summary report of ideas generated and implemented


Figure 3: Sample detailed list of implemented ideas

Innovation process for large business ideas

That said, one of our businesses simultaneously introduced, at another level, a process for large business ideas. At the start of one year, the CEO created a cross-functional Innovation Council consisting of eight senior executives. They roped in an external consultant—an innovation expert who specialized in coaching on innovative thinking. The consultant conducted a coaching session for 40 selected employees, along with the CEO and the Innovation Council members. In my personal opinion, more than teaching any specific techniques, the most useful aspect of this coaching was merely to make us unlearn our traditional way of thinking—often limited and clouded by years of specialization in a narrow functional area—and to make our minds less cynical and more open and willing to look at new ideas and possibilities.

For the first year, the CEO decided that he would like to first use this process of innovation for new product and business ideas, so that they could quickly test through tangible results, in other words, evaluate whether or not the innovation process worked. “After all, what measure is more tangible and easily understood than revenue?” he reasoned.

Following the coaching session, the group of 40 was broken up into eight teams of five people each. Each team was given a month to come up with at least a couple of new product or business ideas, with a complete business plan on how and in which markets they planned to sell, the projected revenue, costs, and profits. The teams spent much of this month on the road, visiting existing and potential markets, talking to customers and distributors, and observing what competitors were doing. After several brainstorming sessions among themselves, they generated 20 business ideas.

Like an entrepreneur presenting a business idea to a venture capitalist, the teams presented their ideas to the CEO and the Innovation Council. 11 of the 20 ideas were selected for implementation. The teams that came up with the ideas were also made responsible for implementation. The company would invest in or “incubate” these business ideas. The teams were promised a share in the profits. A year later, eight of the 11 implemented new business ideas were successful and had made a reasonable profit, with significant growth expected in the coming year.

Although this company happened to use the innovation process for business or revenue ideas in the first year, in subsequent years, they successfully used the process for breakthrough innovations in new processes, customer service, operations, and other areas.

The IdeaExpress and the Innovation Council approaches resulted in a variety of business benefits, ranging from new products and capturing new markets or customer segments to improvements in service, processes, productivity, and cost savings. Some of our most successful new products are the result of our people’s ideas gathered through our innovation process. During the financial crisis of 2008, IdeaExpress was one of the biggest contributors to saving costs and protecting the businesses’ profitability—because our people came up with a large number of cost-saving and waste-eliminating ideas. In fact, there is hardly any functional area or other aspect of the businesses that did not benefit from capturing and implementing people’s ideas. We would have lost most of these ideas if we didn’t have IdeaExpress as a platform for people to share their ideas.

Continuous process for innovation

Our experience in this group of companies busted a myth or two about innovation. Some of us thought that innovation was the job of only a few people (you may know some companies that have a department with pony-tailed innovators who dream up new ideas). Although we’re not undermining the importance of this approach, we learned that ideas that were good for the business could come from anyone. What is needed is a process that encourages everybody who could be a potential source of ideas to continuously share their ideas, a process that ensures that you do not lose any idea that could be good for your business, a process to evaluate, select and implement them, and a way of measuring the results. As we saw, the company in this example has one process at a mass level for the IdeaExpress suggestion scheme, and a slightly different process for bigger ideas. You may use a similar approach, or have your own process. Our experience clearly showed us that innovation is a process more than anything else. In any case, the innovation process has no conflict with somebody occasionally dreaming up a completely “out of this world” breakthrough idea even outside the process—the process will not prevent them from doing so.

Will ideas dry up?

Another myth that got busted is that ideas would dry up after a time. Some of us expected employees to run out of ideas after the first six months, or at the most a year. As one CEO put it after the first year of IdeaExpress, “Whatever ideas could come, have come—so let’s shut down the scheme.”

To my mind, this is like saying, “Whatever business was to be done has been done—so let’s shut down the company!”

In reality, however, the number of ideas actually increased year after year. In our fifth year, we got more ideas than in any previous year. I realized that we weren’t the only company to experience this. I had an opportunity to visit a cigarette manufacturer that won an award for its employee suggestion scheme. They told me that the scheme was in its seventeenth year! Again, what seems to separate these companies from others where ideas dry up after a time is that they have a process to sustain and motivate continuous idea-generation and implementation—in areas that are relevant to the business and customers. In addition, they continuously communicate with their people to inform them about current business priorities, and specifically solicit ideas in areas that are important to the business at that point in time. 

Culture can encourage or kill innovation

Initially, we found that the evaluation committee in charge of evaluating employees’ ideas rejected almost every idea saying, “So what’s new?” or “What’s so innovative about this?” or “But they’re supposed to be doing this anyway!” Many of us probably feel this way about every idea except our own! The committee members had to be coached that we were not necessarily looking for “first time in the world” innovations every time. The right questions to ask were “Will this benefit the business and customers?” and “Is it already being done in our company?” Logically, every idea where the answers to these two questions are “Yes” and “No,” respectively, must be implemented—of course after evaluating feasibility and cost.

We also went through another learning experience. Many of our senior colleagues had worked for years in organizations where there was no culture of encouraging employees to come up with ideas. In those cultures, employees were there to just obey orders. Thinking and new ideas was the job of management. Ironically, some of the best and most practical ideas (naturally) came from people on the ground, and not from those in the ivory towers. A few months after we launched the suggestion scheme, some employees came to us and complained, “That was my idea. It has been implemented, but the company never acknowledged that it was my idea.” We realized what was happening. Quite a few ideas were being taken out of the suggestion box, selected, and implemented—but some seniors were reluctant to give credit to the person whose idea it was (especially if that person was a junior from their own team). We got over this culture problem by making it mandatory for every CEO and senior functional leaders to implement a certain minimum number of ideas from their people.

We learned that an important responsibility of senior management is to create a culture where people feel motivated to continuously think and come up with new ideas. The only way to do this is to communicate and prove to your employees that you are genuinely interested in their ideas. We found it useful to have a mandatory process of acknowledging every idea received. We realized that even in cases where it was not feasible to implement an idea, it is important to explain the reasons to the employee who gave us the idea. This way, the employee remains motivated to come back with new ideas, even though their last idea could not be implemented. 

Effect on people and morale

Apart from the business benefits from implementing people’s ideas, we experienced a very positive effect on employee morale. I have personally had employees come up and tell me after we introduced IdeaExpress, “I have been here for years, but it’s only now that the company has started listening to me and my ideas. I was always paid a salary for my work, but now I feel that the company values me.”

Conclusion

My book, The Strategic Knowledge Management Handbook (ASQ, 2015) has an entire chapter on the role of ideas and innovation in knowledge management (KM). After all, ideas are knowledge, too!

The whole point of this article is that ideas can be a rich source of business results, and an important component of your strategic KM program. Our experience is that, just like knowledge-sharing and replication, ideas and innovation also cannot be left to chance or choice. You can and must have a process for them.

  

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About The Author

Arun Hariharan’s picture

Arun Hariharan

Arun Hariharan, author of Continuous Permanent Improvement (ASQ 2014), and The Strategic Knowledge Management Handbook (ASQ 2015) is a strategic quality, knowledge management (KM), and performance management practitioner with nearly three decades of experience in these fields. He has worked with several large companies and helped them achieve substantial and sustained results through quality and customer focus. He is the founder and CEO of The CPi Coach, a company that provides partnership, consulting, and training in business excellence and related areas. Former roles held by Hariharan include president of quality and knowledge management at Reliance Capital Ltd, and senior vice-president of quality and knowledge management at Bharti Airtel Ltd, India. He is a frequent speaker at quality and KM events around the world. He is also the author of more than 50 published papers on quality and KM.