The Power of Multiplication
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12 August 2013 - 23:14, by , in Performance Management, No comments

In February 2000, Southwest Airlines’ CEO Herb Kelleher sent a cost improvement request to the home of each of the company’s 30,000 employees. In the letter, he told them “Our profitability is in jeopardy” due to the rising cost of jet fuel. In a personal plea, Herb asked each employee to help out by saving $5.00 per day. That would, he explained, more than offset the uncontrollable rise in fuel prices. A mere $5.00 per day multiplied by 30,000 employees and 365 days per year would result in more than $50 million in cost improvement. Six weeks after the letter was mailed, the company had saved over $2 million!

Is your organization confronted with rising costs or shrinking profits? Do you need action plans to eliminate waste or optimize value? All too often, managers incorrectly assume:

  • It is my responsibility to come up with the idea to improve cost.
  • I need a big idea to match our big need.
  • Cost reduction needs to be kept a secret to be a success.

Openly communicating the need for cost improvement and asking for everyone’s participation can produce big results. Here are three examples:

  • Navistar uses Activity Based Management (ABM) and Six Sigma Black Belt trainers to get all employees involved in their process improvement program. Individuals begin as a Green Belt. More experienced Master Black Belts train and mentor Green Belts how to use ABM to improve and measure process improvements. After participating in several successful cost improvement projects, employees become Black Belts or Masters. Navistar employees have implemented hundreds of improvement projects at an average savings of $200,000. General Electric and Honeywell (formerly Allied Signal) have similar Black Belt programs where employees train other employees how to reduce costs.
  • Sometimes you have to give to get. The May/June 2000 issue of Life@Workmagazine explains how Pastor Andy Stanley of North Point Community Church in suburban Atlanta created a spirit of stewardship and involvement in his congregation. The church gave envelopes containing a $5, $10 or $20 bill to 6,000 people during a Sunday morning service. The money came with three stipulations:
    • Everyone had to invest the money, adding to it if they chose, in God’s work outside the
walls of the church;
    • They could not keep the funds, but they could pool it with others if they desired; and,
    • They were not to give the money to the first street person they encountered. Be creative.
  • Pastor Stanley got thousands of letters back from church members explaining what they were able to accomplish with the small amounts of cash. Stanley estimated that the $37,000 “seed” capital multiplied into more than $300,000 given for various needs.

In Pryor Convictions: 31 Insights into ABM, I explain the power of ABM multiplication that several ICMS clients are using. For example, if you implement ABM in 1 department, focus on 1 activity for improvement, define 1 action plan worth $1,000 per month that is implemented for 1 month you will save $1,000. Not bad, but if you increase each 1 to a 2, you will multiply your savings to $32,000. And if you make it 4, you can save over $1 million dollars!

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Tom Pryor
TomPryor@ICMS.net
(817) 475-2945

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