While operational innovation need not be confined to just one area, most companies find it prudent to limit their innovation programs to no more than two or three major efforts at a time. The proof is Progressive’s combined ratio (expenses plus claims payouts, divided by premiums), the measure of financial performance in the insurance industry. Deep change: How operational innovation can transform your company. Wal-Mart pioneered a great many innovations in how it purchased and distributed goods. This is the state of our business culture. Here are guidelines for reinventing your own work processes: Benchmarking within your own industry probably won’t lead to breakthrough innovations. No single innovation conveys a lasting advantage, however. One way to accomplish this is to turn the special-case process into the norm. This was the goal from the outset; Shell simply reached it in manageable steps. Even those who do follow will be at a disadvantage until they catch up. Excellence in execution can win a close game, but it can’t break a game wide open and turn it into a rout. Even today, not all auto insurers offer immediate claims response. More accurate pricing translates into increased underwriting profit. Innovation may seem like more of a luxury than a necessity. Companies that bake operational innovation into their culture make competitors continually scramble to catch up with the changing rules. The trick is to turn your do-or-die mode into everyday practice. Companies would also be wise not to try to implement an innovation all at once. When struggling with stagnant growth—as many of us are today—do you look to acquisitions, aggressive marketing, or new technologies to rev up your revenues? So, in order to minimize losses and tackle competition from the ever-growing business rivals, operation is the key to it all. It also involves determining under which circumstances (whether) each of the activities should or should not be performed, what information should be available to the performers, and how thoroughly or intensively each activity needs to be performed. The secret of Progressive’s success is maddeningly simple: It outoperated its competitors. Concentrate on reinventing work processes that will have the greatest strategic impact. For most of its history, Progressive focused on high-risk drivers, a market that it served profitably through extremely precise pricing. 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. And it requires a level of integration and alignment that many enterprises are not prepared to handle. But the stories are also repeated because there are, frankly, not many of them. An apparel manufacturer had to regroup when the technology underlying its plans for a new approach to production scheduling did not live up to expectations; a consumer goods maker had to scale back an innovation in logistics when its implementation became more difficult than expected. They created a two-page diagram illustrating the endless series of steps every order went through, the redundant moves of the product between factories and depots, the accumulations of inventory, and the enormous delays. Indeed, in a company consumed with improvement projects, the distinction between improvement and innovation may be lost. In addition, many executives who rose through the ranks of finance or sales aren't familiar with operations--and they aren't interested in learning more. One reason, contends the author, is that business culture undervalues operations--they're not as sexy as deals or acquisitions. 4. Would you like email updates of new search results? The answers hinge on some unpleasant characteristics of contemporary corporate leadership. 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. For instance, in the 1980s, Taco Bell transformed its restaurant operations by thinking about them in manufacturing rather than in fast-food terms. 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. Get the latest public health information from CDC: https://www.coronavirus.gov, Get the latest research information from NIH: https://www.nih.gov/coronavirus, Find NCBI SARS-CoV-2 literature, sequence, and clinical content: https://www.ncbi.nlm.nih.gov/sars-cov-2/. This alternative method builds on an idea that is popular in software product development, an idea variously known as iterative, evolutionary, or spiral development. Each of these three companies fundamentally rethought how to do work in its industry. Operational innovation is rare. This approach has many benefits. Progressive then takes responsibility for getting the car fixed. 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. Wal-Mart is now the largest organization in the world, and it owns one of the world’s strongest brands. 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. At American Standard, the goal was to triple its inventory turns; at Progressive, to initiate claims within nine hours. Just look at Dell, Toyota, and Wal-Mart. Only a daunting target—clearly unattainable through existing modes of operation—will stimulate radical thinking and willingness to overturn tradition. Companies that follow traditional implementation methodologies inevitably take too long. Adjusters no longer work out of offices from nine to five but out of mobile claims vans. Mere operational improvement is not enough to win the game. Denial of competitor superiority and a disinclination to truck with operations are powerful forces of nature, and so is organizational inertia. So Progressive decided to win the game by changing the rules. Instead of taking between seven and ten days for an adjuster to see the vehicle, Progressive’s target is now just nine hours. But fewer than 10% of large 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. The cost of storing a damaged vehicle or renting a replacement car for one day—around $28—is roughly equal to the expected underwriting profit on a six-month policy. The question is particularly significant because operational innovation is needed now more than ever. Their operational innovations dislodged some of the mightiest corporations in the history of capitalism, including Sears, General Motors, and IBM. And what enabled Progressive to have better prices and service was operational innovation, the invention and deployment of new ways of doing work. By my estimate, no more than 10% of large enterprises have made a serious and successful effort at it. Foster an innovation environment; Does your business want to do the business the way it has always done. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. This two-hour window gives the company the opportunity to assign the right kind of adjuster given the specifics of the case, so that a junior adjuster is not confronted with a complex accident beyond his level of expertise. Harvard Business Review, 82 (7/8), 182-183. Discover trustworthy and timely resources in American government, politics, history, public policy, and current affairs. 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. I have spoken with thousands of managers from hundreds of companies about operational innovation. View Homework Help - Deep change from MGMT MGT 665 at Ace Institute of Management. Compared with most of the other ways that managers try to stimulate growthâtechnology investments, acquisitions, major marketing campaigns, and the likeâoperational innovation is relatively reliable and low cost. DOI: 10.1109/EMR.2004.25106 Corpus ID: 40777024. And the shortened cycle time reduced Progressive’s costs dramatically. It requires specifying what results are to be produced and deciding who should perform the necessary activities, where they should be performed, and when. A hospital, for instance, was able to respond to physician referrals more quickly when it challenged the assumption that beds had to be assigned before patients could be accepted. 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. Once there, the organization can focus its efforts on a generation of additional changes—refinements of the innovation—that will keep it ahead of the pack until the inevitable time comes for a new wave of innovation. COVID-19 is an emerging, rapidly evolving situation. When members of the company’s executive committee saw it, they were incredulous: “We do this?”. They consider it to be a low-priority activity that doesn’t deserve attention. Now it assigns the bed after accepting the patient—while that person is en route. Seven ways mobile technology can transform your business Brought to you by. Overcapacity is rampant, and competition—particularly global competition—is fierce. Avoiding business transformation pitfalls An effective business transformation means your organization can survive and thrive as you pursue new innovation-driven opportunities. Overcapacity is rampant, and competitionâparticularly global competit⦠Deep change - how operational innovation can transform your company @article{Hammer2004DeepC, title={Deep change - how operational innovation can transform your company}, author={M. Hammer}, journal={IEEE Engineering Management Review}, year={2004}, volume={32}, pages={42-42} } Companies that bake operational innovation into their culture, as Progressive did, make competitors continually scramble to keep up. Managers looking to innovate should consider changing one or more of these dimensions to create a new operational design that delivers better performance. Megson, L., & Hammer, M. (2004). Those terms refer to achieving high performance via existing modes of operation: ensuring that work is done as it ought to be to reduce errors, costs, and delays but without fundamentally changing how that work gets accomplished. Yet senior managers rarely perceive operational innovation as an important endeavor, nor do they enthusiastically embrace it when others present it to them. Clipboard, Search History, and several other advanced features are temporarily unavailable. Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. | Innovation isnât as complex as it may seemâyou just have to be open to change. 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. And that shouldn’t be. The results included a dramatic drop in inventory, an improvement in customer service, and a major reduction in the total cost of product deployment. Some are technologically based, such as the implementation of enterprise resource planning (ERP), customer relationship management (CRM), or supply chain management (SCM) software systems. In that release, a new project-management tool was also introduced to control the process. 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 author also discusses the best way to implement operational innovations. 84â93, viewed 11 October 2010. The first involved the creation of a new role—a case-implementation leader, who was responsible for collecting all the information to establish coverage. USA.gov. [See Hammer (2004), âDeep Change: How Operational Innovation can Transform your Company,â HBR, (April), 84-95]. After the crisis passed, the company made its emergency mode standard. Many auto insurers, by contrast, view claims as a nuisance at best because it entails paying claimants. First, the stories are worth telling: Operational innovations fuel extraordinary results. 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%. If people are already juggling a great many improvement projects, they may conclude that they can’t handle an innovation effort as well. 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. How operational innovation can transform your company. Companies must be prepared to roll with the punches and learn as they go. Finally, because no one holds the title Vice President of Operational Innovation, it doesn't have a natural home in the organization, so it's easily overlooked. The reason for the delay in response was the assumption that the hospital first had to assign a prospective patient a bed, a supposition that generated hours of delay and often led physicians to send their patients somewhere else. Was it positioned in a high-growth industry? Deep Change: How Operational Innovation Can Transform Your Company - Operational innovations fuel extraordinary results -- They can destroy competitors and shake up entire industries. Zero in on the assumption that interferes with achieving a strategic goal, and then figure out how to get rid of it. It’s a rare company whose budget or planning process explicitly looks for process breakthroughs. 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