HBR.org

Three Things Your Company Can Learn from a Bottle of Water

Nimble companies work with their front-line employees to create repeatable routines that foster continuous learning, improvement and adaptation.

By James Allen

Published on August 07, 2012
min read


The following post originally appeared on the Harvard Business Review Blog Network. Consider these three stories: • At Enterprise Rent-A-Car you get a free bottle of chilled water when you pick up your car. That delights Enterprise's customers, and customer loyalty has contributed to the company's 11% annual organic growth over the past two decades. That's more than triple the rate of the market. • IKEA originally designed its "Bang" mug to cost just 50 cents. Then it redesigned it—twice—so that almost three times as many mugs fit on a single pallet. That lowered logistical costs by more than half and enabled IKEA to reduce its prices, despite inflation. Today, the company's basic mug (now called "Färgrik") costs 39 cents. • The U.S.-based conglomerate Danaher acquires a dozen companies in a typical year. Before closing any deal, Danaher's top executives visit the target company's plants to check the cost-saving potential of Danaher's proprietary lean tools. Through its acquire-and-improve model, Danaher has generated more than 20% total shareholder return per year for more than two decades, making it the best-performing conglomerate in Bain & Company's databases. These three stories sound simple, almost trivial, but they provide a revealing glimpse of what sets these companies apart from their competitors and places them among those few that have achieved sustainable, profitable growth over a decade or more. The reason few companies implement such simple improvements isn't a lack of good ideas, but because complexity traps and kills good ideas. This is particularly dangerous for today's service industries. As a manufacturing company grows, it benefits from economies of scale and can focus teams of people on extracting the maximum productivity from its plant operations. But service companies are different. Their growth typically results in more complexity—not productivity benefits—and complexity inevitably kills growth. To avoid this trap, the best service companies have routines that allow their people to benefit from the same sort of 'experience curves' as manufacturing workers. And these companies know that service workers are like assembly line workers in one important respect: they often have the best insights into inefficiencies or obstacles in their work, and are therefore the right people to develop those routines. By contrast, the fastest way to kill a company is to allow a corporate army to bombard it with lengthy rulebooks and guidelines. However well intended, such efforts are far removed from the real issues employees face every day. Worse, it can take takes months or even years to change those rules—far too long in a world where reacting faster than the competition is the key to survival. Bain Book Repeatability Learn more about how executives use Repeatable Models® to build enduring businesses. In fact, the research for our book Repeatability shows that more than 80% of companies are too slow to adapt to the changing demands of their markets. But the relative handful that do learn rapidly hold interesting lessons for all of us. These companies work with their front-line employees to create repeatable routines that foster continuous learning, improvement and adaptation. As we studied these repeatable routines in a few dozen companies (including Enterprise, IKEA and Danaher), we identified three lessons: 1. Set simple targets, and assign clear owners Repeatable routines work only when clear measurements are in place and people are held accountable for improving them. Enterprise has a single measure for customer satisfaction, known as ESQi. Each branch manager's bonus is strongly tied to the branch's ESQi; if your branch's score is below target, you can't be promoted. If the manager whose branch is handing out bottled water has better scores, you can be sure other branches will quickly follow suit. Or IKEA: each designer gets a price target, typically 30% to 50% below the competition, and must figure out a design that meets both the specifications and IKEA's profit targets at the set price. 2. Codify the tools that work The companies we studied did have some corporate tools and guidelines in place, but there was one big difference: line managers were 100% free to use or ignore these guidelines as long as they hit their targets. And ideas that did not reduce complexity were swiftly killed. "We don't suffer from initiative overload," said one former IKEA manager. "If it doesn't serve the core mission, it is dead on arrival at the front line." That perspective upends the role of corporate: the front line is the boss, and headquarters facilitates. Danaher has codified dozens of tools for lean manufacturing (and many other business practices) over the past 20 years, but operating unit executives decide which parts of the toolkit will be most helpful in reaching their agreed-upon 1- and 5-year targets. 3. Create platforms for best-practice sharing Finally, the most adaptive organizations foster internal learning, particularly from the best people. Enterprise regularly holds informal branch manager meetings, and managers attend wearing badges that displaying their branch's ESQi. As a result, people flock around the best performing managers, not the slickest. Here, too, the traditional role of corporate as distributor of information and training is upended, and replaced with an active coaching system at the front line. Now think about your own organization and ask yourself these three questions: Would people in your organization have the freedom to give away a bottle of water—or do something similar—to delight customers? Would you be able to measure the impact of an improvement such as free water on customer loyalty and growth? Would this best practice spread around by itself, with suddenly everybody in your company handing out free bottles of water? If your answer is "no" to any of these three questions, maybe it's time for you to discover the transformational power of routines. James Allen is a partner in Bain & Company’s London office and coleader of the firm’s Global Strategy practice. He is coauthor, with Chris Zook, of the book: Repeatability: Build Enduring Businesses for a World of Constant Change (HBR Press, March 2012).

The following post originally appeared on the Harvard Business Review Blog Network.

Consider these three stories:

• At Enterprise Rent-A-Car you get a free bottle of chilled water when you pick up your car. That delights Enterprise's customers, and customer loyalty has contributed to the company's 11% annual organic growth over the past two decades. That's more than triple the rate of the market.

• IKEA originally designed its "Bang" mug to cost just 50 cents. Then it redesigned it—twice—so that almost three times as many mugs fit on a single pallet. That lowered logistical costs by more than half and enabled IKEA to reduce its prices, despite inflation. Today, the company's basic mug (now called "Färgrik") costs 39 cents.

• The U.S.-based conglomerate Danaher acquires a dozen companies in a typical year. Before closing any deal, Danaher's top executives visit the target company's plants to check the cost-saving potential of Danaher's proprietary lean tools. Through its acquire-and-improve model, Danaher has generated more than 20% total shareholder return per year for more than two decades, making it the best-performing conglomerate in Bain & Company's databases.

These three stories sound simple, almost trivial, but they provide a revealing glimpse of what sets these companies apart from their competitors and places them among those few that have achieved sustainable, profitable growth over a decade or more.

The reason few companies implement such simple improvements isn't a lack of good ideas, but because complexity traps and kills good ideas. This is particularly dangerous for today's service industries. As a manufacturing company grows, it benefits from economies of scale and can focus teams of people on extracting the maximum productivity from its plant operations. But service companies are different. Their growth typically results in more complexity—not productivity benefits—and complexity inevitably kills growth.

To avoid this trap, the best service companies have routines that allow their people to benefit from the same sort of 'experience curves' as manufacturing workers. And these companies know that service workers are like assembly line workers in one important respect: they often have the best insights into inefficiencies or obstacles in their work, and are therefore the right people to develop those routines.

By contrast, the fastest way to kill a company is to allow a corporate army to bombard it with lengthy rulebooks and guidelines. However well intended, such efforts are far removed from the real issues employees face every day. Worse, it can take takes months or even years to change those rules—far too long in a world where reacting faster than the competition is the key to survival.

Bain Book

Repeatability

Learn more about how executives use Repeatable Models® to build enduring businesses.

In fact, the research for our book Repeatability shows that more than 80% of companies are too slow to adapt to the changing demands of their markets. But the relative handful that do learn rapidly hold interesting lessons for all of us. These companies work with their front-line employees to create repeatable routines that foster continuous learning, improvement and adaptation. As we studied these repeatable routines in a few dozen companies (including Enterprise, IKEA and Danaher), we identified three lessons:

1. Set simple targets, and assign clear owners

Repeatable routines work only when clear measurements are in place and people are held accountable for improving them. Enterprise has a single measure for customer satisfaction, known as ESQi. Each branch manager's bonus is strongly tied to the branch's ESQi; if your branch's score is below target, you can't be promoted. If the manager whose branch is handing out bottled water has better scores, you can be sure other branches will quickly follow suit. Or IKEA: each designer gets a price target, typically 30% to 50% below the competition, and must figure out a design that meets both the specifications and IKEA's profit targets at the set price.

2. Codify the tools that work

The companies we studied did have some corporate tools and guidelines in place, but there was one big difference: line managers were 100% free to use or ignore these guidelines as long as they hit their targets. And ideas that did not reduce complexity were swiftly killed. "We don't suffer from initiative overload," said one former IKEA manager. "If it doesn't serve the core mission, it is dead on arrival at the front line."

That perspective upends the role of corporate: the front line is the boss, and headquarters facilitates. Danaher has codified dozens of tools for lean manufacturing (and many other business practices) over the past 20 years, but operating unit executives decide which parts of the toolkit will be most helpful in reaching their agreed-upon 1- and 5-year targets.

3. Create platforms for best-practice sharing

Finally, the most adaptive organizations foster internal learning, particularly from the best people. Enterprise regularly holds informal branch manager meetings, and managers attend wearing badges that displaying their branch's ESQi. As a result, people flock around the best performing managers, not the slickest. Here, too, the traditional role of corporate as distributor of information and training is upended, and replaced with an active coaching system at the front line.

Now think about your own organization and ask yourself these three questions:

Would people in your organization have the freedom to give away a bottle of water—or do something similar—to delight customers?
Would you be able to measure the impact of an improvement such as free water on customer loyalty and growth?
Would this best practice spread around by itself, with suddenly everybody in your company handing out free bottles of water?

If your answer is "no" to any of these three questions, maybe it's time for you to discover the transformational power of routines.

James Allen is a partner in Bain & Company’s London office and coleader of the firm’s Global Strategy practice. He is coauthor, with Chris Zook, of the book: Repeatability: Build Enduring Businesses for a World of Constant Change (HBR Press, March 2012).