Heidi Hattendorf, director of Innovation Development, Motorola Solutions takes a deep dive into how you can create an innovation framework at your company that will positively impact your business results and culture. How operational innovation can transform your company. This second release delivered another 20% productivity improvement, as well as a 20-point increase in customer satisfaction. Business process innovation is a major success factor for the next-generation enterprise and often necessary to benefit from opportunities in a digital world. One way to accomplish this is to turn the special-case process into the norm. Progressive operates only in the United States. A major hospital, for instance, recognized that to increase the number of patients admitted for (well-reimbursed) cardiac bypass graft operations, it needed to respond more quickly to physicians who wanted to refer a patient. The Harvard Business Review article "Deep Change: How Operational Innovation Can Transform Your Company" contains the following example of operational innovation at Progressive Insurance. Or is it open to change. Inventing a new way of operating that achieves the target need not be simply a matter of crossing your fingers and hoping for inspiration. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. Operational innovation has been central to some of the greatest success stories in recent business history, including Wal-Mart, Toyota, and Dell. But the stories are also repeated because there are, frankly, not many of them. In that release, a new project-management tool was also introduced to control the process. Fortunately, all of these barriers can be overcome. This offer has attracted customers in droves. In the second release, a new information system was installed that facilitated data collection and the production of documentation and also offered enhanced reporting capabilities. Rather, the representative guarantees to call the claimant back within two hours with specifics about when an adjuster will see the vehicle. One reason, contends the author, is that business culture undervalues operations--they're not as sexy as deals or acquisitions. In the late 1990s, IBM invented a new product-development process that caused a 75% reduction in the time to develop new products, a 45% reduction in development expenses, and a 26% increase in customer satisfaction with these new products. But operational innovation entails a departure from familiar norms and requires major changes in how departments conduct their work and relate to one another. Or consider how American Standard, the diversified manufacturer, decided where to focus its innovation efforts in the early 1990s. Others are centered on specific bodies of improvement techniques, such as Six Sigma quality or lean enterprise programs.  |  No wonder operational innovation has a hard time gaining traction in an organization. No, Progressive’s business was and is overwhelmingly concentrated in consumer auto insurance. HHS Progressive is also deploying in select markets what it calls a concierge approach to claims handling. Progressive, for instance, realized that the key to its profitable growth is customer retention because acquiring new customers through commission-based agents is very expensive. In 2002, Shell Lubricants reconsidered who needed to participate in its order fulfillment process. After the crisis passed, the company made its emergency mode standard. Most auto insurers have combined ratios that fluctuate around 102%—that is, they run a 2% loss on their underwriting activities and recover the loss with investment income. Because operational innovation is by nature disruptive, it should be concentrated in those activities with the greatest impact on an enterprise’s strategic goals. Real innovations in order fulfillment or supply chain management are also likely to involve these technologies, but they may be dismissed because, people think, “we’re already doing ERP.”. In theory, that is a powerful argument, but in the real world, operational innovations have legs. Overcapacity is rampant, and competition—particularly global competition—is fierce. Their operational innovations dislodged some of the mightiest corporations in the history of capitalism, including Sears, General Motors, and IBM. Then the catalysts relentlessly campaign for the cause—confronting the executive with the inadequacies of existing operations and arranging for meetings with peers from other companies that have successfully implemented operational innovations. The rest is history. Preview. For instance, in the 1980s, Taco Bell transformed its restaurant operations by thinking about them in manufacturing rather than in fast-food terms. Example: A packaged-goods maker had relied on sales forecasts for production scheduling. Here, a claimant simply brings the car to a Progressive claims facility at a convenient time and leaves it there, picking up a loaner at the same time. And what enabled Progressive to have better prices and service was operational innovation, the invention and deployment of new ways of doing work. This article offers practical advice on how to develop operational innovations, such as looking for role models outside your industry to emulate and identifying—and then defying—constraining assumptions about how work should be done. Wal-Mart is now the largest organization in the world, and it owns one of the world’s strongest brands. At its heart, every operational innovation defies an assumption about how work should be done. Once the top executive is convinced that operational innovation is worth pursuing, the organization needs to focus its efforts. Companies often achieve extraordinary levels of performance under extraordinary conditions. Companies that follow traditional implementation methodologies inevitably take too long. By replacing a group of seven people who each handled different parts of the order with one person who does it all, Shell cut cycle time by 75%, reduced operating expenses by 45%, and boosted customer satisfaction by 105%. The author also discusses the best way to implement operational innovations. In reality, innovation is merely doing things differently and more effectively than you have in the past. It makes it easy to scan through your lists and keep track of progress. Operational innovation means coming up with entirely new ways of filling orders, developing products, providing customer service, or doing any other activity that an enterprise performs. Thus, it will never get off the ground without executive leadership. The company’s growth has not only been dramatic—it is now the country’s third largest auto insurer—it has also been profitable. The effects of operational innovation ripple outward to all aspects of the enterprise, from measurement and reward systems and job designs to organizational structure and managerial roles. At American Standard, the goal was to triple its inventory turns; at Progressive, to initiate claims within nine hours. At one major PC maker, an effort to do so was suppressed by both the head of manufacturing (who was concerned that it would lead to outsourcing) and the head of marketing (who was afraid of alienating the retail channel), and top leadership was too preoccupied with other matters to intervene. It requires a skill set and a mind-set different from those needed in most other executive activities. Breakthrough innovations in operations—not just steady improvement—can destroy competitors and shake up industries. When Progressive realized that an applicant’s credit rating was a good proxy for responsible driving behavior, it changed its application process. A program was instituted to transform manufacturing from a conventional push-based system to one pulled by actual demand using a system known as Demand Flow Manufacturing. Because a large amount of cash was tied up in inventories, the CEO mandated that the company would have to drive down its working capital and dramatically increase inventory turns. They’ve ascended to the highest levels of the enterprise without ever getting their hands dirty. Here are guidelines for reinventing your own work processes: Benchmarking within your own industry probably won’t lead to breakthrough innovations. Was it positioned in a high-growth industry? And, to ensure that your processes are truly innovative instead of just improved, set performance targets unreachable by standard operating procedures. There is so much to be done, and so much that must be integrated with everything else, that years can pass before the innovation is implemented and its benefits start to flow. It is truly deep change, affecting the very essence of a com- pany: how its work is done. Each project typically has a narrow scope, a group of experts dedicated to it, and a sponsor whose enthusiasm is tolerated by his or her peers only as long as it is kept within bounds. The chain outsourced production of key ingredients so it could focus on “assembly,” not “fabrication,” in its restaurants. In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. Cross-docking negates the assumption that goods need to be stored in a warehouse, build-to-order that goods should be produced based on forecasts and destined for inventory. When demand for a new product wildly exceeded predictions, it created an ad hoc process to give real-time demand information to manufacturing, which made production planning and distribution more efficient. Breaking a large-scale implementation into a series of limited releases creates momentum, dispels skepticism and anxiety, and delivers a powerful rejoinder to carping critics. Some competitors who attempt to imitate the innovation won’t understand it, and others won’t be able to implement it. In an economy that has overdosed on hype and in which customers rule as never before, operational innovation offers a meaningful and sustainable way to get ahead--and stay ahead--of the pack. The article describes seven steps that will help you implement an “inside out” approach to innovation at your company. Operational innovation is a step change: It moves a company to an entirely new level. Benchmarking within your own industry is unlikely to uncover breakthrough concepts. By offering lower prices and better service than its rivals, it simply took their customers away. View Homework Help - Deep change from MGMT MGT 665 at Ace Institute of Management. Indeed, where is the real strategic advantage in operational innovation at all? Innovation may seem like more of a luxury than a necessity. Executives who understand how operational innovation happens—and who also understand the cultural and organizational barriers that prevent it from happening more often—can add to their strategic arsenal one of the most powerful competitive weapons in existence. So, in order to minimize losses and tackle competition from the ever-growing business rivals, operation is the key to it all. How do operational innovation efforts begin if no one is responsible for them and no formal channels for creating programs exist? Download Citation | Deep Change: How Operational Innovation Can Transform Your Company | Breakthrough innovations--not just steady improvements--in operations can … Absent such specific targets, innovation efforts are likely to drift or degenerate into incremental improvement projects. The information they usually get does little to focus their attention on the mechanics of operations. Companies that bake operational innovation into their culture, as Progressive did, make competitors continually scramble to keep up. The author also discusses the best way to implement operational innovations. Furthermore, because every proposed major change in operating procedures is invariably greeted with a chorus of “it will never work,” a lengthy implementation period gives opponents an extended opportunity to campaign against it. Harvard Business Publishing is an affiliate of Harvard Business School. National Center for Biotechnology Information, Unable to load your collection due to an error, Unable to load your delegates due to an error. Normal planning and budgeting focus on investments in new equipment, products, and services and take account of process improvement. Copyright © 2020 Harvard Business School Publishing. 2002 Nov;80(11):115-23, 134. Designing operations entails making choices in seven areas. These stories are well known for two reasons. To undertake more would probably consume too many resources and create too much organizational disruption. The fact that the great majority of deals are unsuccessful does not deter executives from pursuing them. 2004 Feb;22(1):19-45. doi: 10.1016/S0733-8627(03)00115-9. Operational innovation may appear unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. It didn’t unveil a slew of new products. Managers looking to innovate should consider changing one or more of these dimensions to create a new operational design that delivers better performance. Deep Change: How Operational Innovation Can Transform Your Company (R0404E) Michael Hammer Why? First, the stories are worth telling: Operational innovations fuel extraordinary results. Zero in on the assumption that interferes with achieving your strategic goal and then get rid of it. Deep Change: How Operational Innovation Can Transform Your Company (HBR OnPoint Enhanced Edition) by Michael Hammer , (No reviews yet) Write a Review When they move into their first general management role, they rely on others—plant managers, engineers, customer service leaders—to mind the details of the actual work. Some companies, even when confronted by a competitor’s innovations, will not rush to emulate them. The new approach lowered Taco Bell’s costs and increased customer satisfaction by ensuring consistency and by allowing restaurant personnel to focus on customers rather than production. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. It is truly deep change, affecting the very essence of a company: how its work is done. Deep change: How operational innovation can transform your company. For instance, because they are disruptive by nature, projects should be concentrated in those activities with the greatest impact on enterprise strategic goals. How many executives receive data about order fulfillment cycle time, 0r the accuracy of customer service responses, or the cost of each procurement transaction, or the percentage of parts that are reused in new products? Experiment with changing one or more of these elements in your own operations: What results are to be produced, who should perform the necessary activities, where should they be performed, in what sequence, and how thoroughly each activity must be performed. It is all too common for enterprises today to have dozens—even hundreds—of operational improvement programs under way at any point in time. As one manager said, “In our company, operations is not glamorous. Would you like email updates of new search results? Neither did it grow through acquisitions or clever marketing schemes. Functional line managers are too focused on meeting deadlines to have time for or interest in inventing new ways of doing things. Operational innovation is truly deep change, affecting the very essence of a company: how its work is done. At a major semiconductor maker, for instance, a group of middle managers who were frustrated with the complexity and poor performance of their order fulfillment process decided to make a case for change to executive management. For instance, many companies implementing ERP or SCM systems merely use them to enhance existing processes. These catalysts take it upon themselves to find a leader who can grasp what they have in mind and then spearhead the innovation effort. Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. Nor did it grow at the expense of its margins, even when it set low prices. Read the above article and provide a summary on the below: Human Resource, technology and process improvement. When demand for a new product wildly exceeded forecasts, an ad hoc process was created that gave the manufacturing division real-time information about customer demand, which in turn allowed them to do production planning and product distribution much more efficiently. So why don’t more companies embrace it? This item appears on. Improvement projects can also get in the way of innovation efforts by appearing to address similar issues. In fact, even those who aren’t aggressively opposed to the innovation will find a protracted transition unsettling and disquieting. Cross-docking and companion innovations led to lower inventory levels and lower operating costs, which Wal-Mart translated into lower prices. Customers were delighted, and overall costs dropped dramatically. It recently revised its very successful Immediate Response claims process so that the representative no longer attempts to assign an adjuster as soon as the claimant calls. Harv Bus Rev. In The Innovator’s Dilemma, Clayton Christensen observed that conventional market-analysis tools lead organizations astray when applied to disruptive technologies. Even areas of the business that have already been rethought can benefit from subsequent rethinking as new technologies and new customer needs make the old innovations passé. To set the stage for operational innovation in your company, first convince managers that it will work—show them successes at other companies or pockets of innovation in your own business. Please enable it to take advantage of the complete set of features! Operational innovation is a step change: It moves a company to an entirely new level. This approach has many benefits. Clipboard, Search History, and several other advanced features are temporarily unavailable. In 2002, Shell Lubricants reinvented its order fulfillment process by replacing a group of people who handled different parts of an order with one individual who does it all. Operational innovation is truly deep change, affecting the very essence of a company: how its work is done. Progressive then takes responsibility for getting the car fixed. Operational innovation is by nature disruptive, so it should be concentrated in those activities with the greatest impact on an enterprise’s strategic goals. Many top managers are ignorant about operations and uninterested in learning more. Other companies have made similar performance gains through operational innovations. If so, you may be missing a much more reliable way to outperform your competition—operational innovation. Such advances don’t have to be as rare as they are. Deals are.” Making acquisitions, planning mergers, and buying and selling divisions will get the company’s name and the CEO’s picture in business magazines. In reality, they will be neither. Compared with most of the other ways that managers try to stimulate growth—technology investments, acquisitions, major marketing campaigns, and the like—operational innovation is relatively reliable and low cost. So Progressive decided to win the game by changing the rules. Did it go global? This alternative method builds on an idea that is popular in software product development, an idea variously known as iterative, evolutionary, or spiral development. SAGE Business Cases. Mere operational improvement is not enough to win the game. Toyota has confidently opened its factories to visitors from other automakers and yet continues to expand its productivity lead. Adjusters no longer work out of offices from nine to five but out of mobile claims vans. Knowledge gained from these tests is then fed back into a fast-cycle iteration of the next version.1. ... 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