When I ask business leaders if their employees know what the company’s strategic plan is and how they contribute to it, most of them say “yes.” When I ask them, “Can each of your staff tell me how doing just 1% better contributes to the profitability of the company?” the answer is usually “No.”
Ask yourself that question. Better yet, ask your employees. If you want to align and engage your employees to the plan of the business, you need to figure this out. It will also guide your company on where you should focus your leadership efforts.
Improve Organizational Performance with the Power of 1%
The ‘Power of 1%’ is an organizational alignment tool where small changes (eg. 1% or 1 measurable unit) in your business can lead to big impacts, as long as you choose the right two or three areas of the business to focus on. It also provides simple KPI’s for your business to align on and ensure you meet your organization’s goals.
To illustrate this point with a case study, one of my earlier leadership experiences was to lead a powder coating business where I was trying to make everything better all at once. Make the line go faster, use less powder, do more sales calls, and a number of other improvements — all simultaneously. My employees thought that I was being a typical, demanding boss. I recognized their compliant nods when I spoke, but I could sense that company was neither working towards the same plans, nor engaged in thinking about how we could be better. My attempts to motivate them only made me tired and frustrated.
Understand the Financial Impact of 1
Using a data-driven approach, I wondered “if we could reduce the thickness of the powder that we were using by one millimeter and not sacrifice quality, what would that mean to the business financially?” I figured out how much powder we were using each year and the average price per pound we paid for the material. I then verified with my team and my supplier whether we could use one millimeter less of powder thickness without compromising the quality of our work.
The answer blew me away. We would save $300,000.
I did the same exercise for saving one percent of labor costs, collecting our receivables one day earlier, doing one more sales call per day and a host of other scenarios. Using this approach, it was immediately obvious reducing our powder usage and increasing our sales efforts were the two areas where we could make the most financial impact quickly.
Communicate Simply and Create Organizational Alignment
In order to explain the logic behind why the business would start focusing on improving these areas, I held a town hall to explain the logic. I walked them through the simplistic math of how just one millimeter less of powder was worth $300,000 in savings. When they realized this, I didn’t need to be out on the floor telling staff to use less material. They understood why and how it related to the financial results of the business, and it helped to create employee and business goal alignment across the business.
Look Everywhere to Maximize Operational Efficiency
Businesses can and should follow this same exercise to find operational efficiencies, regardless of the industry you work in. These could be reducing inventory levels, decreasing transport times, reducing reworks, driving down overtime, increasing employee retention, etc. Depending on the scale of your organization, a simple 1% reduction in any of these areas could significantly boost organizational performance.
To summarize, before trying to make everything better all at once, list out 8 to 10 parts of your business you could improve. Apply the “Power of 1%” and then choose two or three areas of focus. Make sure you clearly communicate to your team how the improvement you are going after is related to the financial performance of the business, and you’ll reap the benefits of organizational alignment.
Are you interested in learning more about KPIs? We have an upcoming webinar on Thursday August 19, 2021 from 12-1pm EST. Click here to register for the “How To Create World-Class KPIs and Dashboards” webinar led by Andrew Rush.
