What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? But the stories are also repeated because there are, frankly, not many of them. 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. Under this system, the claimant is spared the hassle of dealing with body shops, the Progressive adjuster works in a climate-controlled environment that allows more careful inspection, and the body shop doesn’t have to get between Progressive and its customers. ... contends the author, is that business culture undervalues operations--they're not as sexy as deals or acquisitions. 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 operational innovation entails a depar- ture from familiar norms and requires major changes in how departments conduct their work and relate to one another. 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. 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. Here are guidelines for reinventing your own work processes: Benchmarking within your own industry probably won’t lead to breakthrough innovations. Yet senior managers rarely perceive operational innovation as an important endeavor, nor do they enthusiastically embrace it when others present it to them. Executives who understand how operational innovation happens--and who understand the barriers that prevent it from happening--can add to their strategic arsenal one of the most powerful competitive weapons in existence. Thus, it will never get off the ground without executive leadership. National Center for Biotechnology Information, Unable to load your collection due to an error, Unable to load your delegates due to an error. This item appears on. By 2002, that figure had grown to $9.5 billion. Here's an example of what they look like: Your reading intentions are also stored in your profile for future reference. Auto insurance is a mature, 100-year-old industry that grows with GDP. In that release, a new project-management tool was also introduced to control the process. Just look at Dell, Toyota, and Wal-Mart. Virtually all product and service offerings have become commodities, almost no one has any pricing power, and none of this is likely to change in the near future. Deep Change: How Operational Innovation Can Transform Your Company (HBR OnPoint Enhanced Edition) by Michael Hammer , (No reviews yet) Write a Review The campaign will be helped immensely if catalysts can tout existing pockets of operational innovation within their own organization. But in the early 1990s, the insurer believed that much larger companies were about to enter this niche and emulate its approach to pricing; the company’s managers realized it couldn’t compete against larger players on a level playing field. How did it score that hat trick? Other companies have made similar performance gains through operational innovations. Breakthrough innovations—not just steady improvements—in operations can destroy competitors and shake up entire industries. But since operations aren’t sexy, most companies overlook them. https://hbr.org/2004/04/deep-change-how-operational-innovation-can-transform-your-company Breakthrough innovations--not just steady improvements--in operations can destroy competitors and shake up entire industries. A journalist at a prominent business magazine, assigned to do a story on operations, confessed that he thought it boring. When members of the company’s executive committee saw it, they were incredulous: “We do this?”. The fact that the great majority of deals are unsuccessful does not deter executives from pursuing them. 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. 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. In reality, they will be neither. Why? Companies would also be wise not to try to implement an innovation all at once. So Progressive decided to win the game by changing the rules. Such advances don’t have to be as rare as they are. Many top managers are ignorant about operations and uninterested in learning more. Example: Taco Bell transformed its restaurant operations by thinking about them in manufacturing—not fast-food—terms. Improvement projects can also get in the way of innovation efforts by appearing to address similar issues. 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%. As a result, Shell has cut the cycle time of turning an order into cash by 75%, reduced operating expenses by 45%, and boosted customer satisfaction 105%—all by introducing a new way of handling orders. How operational innovation can transform your company. One of the best known of these is cross-docking, in which goods trucked to a distribution center from suppliers are immediately transferred to trucks bound for stores—without ever being placed into storage. Denial of competitor superiority and a disinclination to truck with operations are powerful forces of nature, and so is organizational inertia. Business process innovation is a major success factor for the next-generation enterprise and often necessary to benefit from opportunities in a digital world. So why aren't more companies taking advantage of their power? The innovation paid off and led to a successful IPO a few years later. Inventing a new way of operating that achieves the target need not be simply a matter of crossing your fingers and hoping for inspiration. This is the state of our business culture. Operational innovation is truly deep change, affecting the very essence of a company: how its work is done. Discover trustworthy and timely resources in American government, politics, history, public policy, and current affairs. After the crisis had passed, the company decided to adopt this emergency mode of operation as its standard one. Why? Some companies, even when confronted by a competitor’s innovations, will not rush to emulate them. 84â93, viewed 11 October 2010. 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. 2004 Feb;22(1):19-45. doi: 10.1016/S0733-8627(03)00115-9. One begins with one’s best estimate of the innovation, builds a first version of it, and then tries it out with customers or users. The effects ripple outward to all aspects of the enterprise. 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. What’s more, important innovations are not limited to individual departments but involve end-to-end processes that cross departmental boundaries. Executives who understand how operational innovation happens—and who understand the barriers that prevent it from happening—can add to their strategic arsenal one of the most powerful competitive weapons in existence. 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. The rest is history. And the shortened cycle time reduced Progressive’s costs dramatically. Progressive is also deploying in select markets what it calls a concierge approach to claims handling. The information they usually get does little to focus their attention on the mechanics of operations. Please enable it to take advantage of the complete set of features! 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. As one manager said, “In our company, operations is not glamorous. The question is particularly significant because operational innovation is needed now more than ever. Hardly. Deals are easily explained to and understood by boards, shareholders, and the media. 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/. Operational innovation is truly deep change, affecting the very essence of a company: how its work is done. CQ Press. Neither did it grow through acquisitions or clever marketing schemes. SAGE Reference. Customers were delighted, and overall costs dropped dramatically. Operational innovation has been central to some of the greatest success stories in recent business history, including Wal-Mart, Toyota, and Dell. Similar observations can be made about Dell and Toyota, organizations whose operational innovations have become proper nouns: the Dell Business Model and the Toyota Production System. NIH This offer has attracted customers in droves. 4. How do operational innovation efforts begin if no one is responsible for them and no formal channels for creating programs exist? That’s why Progressive concentrated on streamlining claims; making it a more pleasant experience for customers would directly affect overall performance. Even those who do follow will be at a disadvantage until they catch up. In a similar way, conventional implementation methodologies often lead to failure when applied to disruptive modes of operation. The improvements continued when the next release brought people from the various departments together into cross-functional teams. Redesigning procurement or transforming product development will not, even though it might be much more important to the company’s performance. Instead, find operating techniques that have been successful in other industries and apply them to your business. But techniques used in other industries with seemingly very different characteristics may turn out to be unexpectedly applicable. Clipboard, Search History, and several other advanced features are temporarily unavailable. Overcapacity is rampant, and competitionâparticularly global competitâ¦ But it continued to rely on old information systems to support the process. Example: A packaged-goods maker had relied on sales forecasts for production scheduling. As more time passes and more money is spent without the innovation or its payoffs seeing the light of day, organizational support leaks away. Excellence in execution can win a close game, but it can’t break a game wide open and turn it into a rout. This easy-to-implement change quickly delivered a degree of performance improvement. I have spoken with thousands of managers from hundreds of companies about operational innovation. Operation and Service Management How Operational Innovation Can Transform Your Company by Michael Hammer Submitted It’s not hard to calculate the savings this translates into for a company that handles more than 10,000 claims each day. 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. 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. This second release delivered another 20% productivity improvement, as well as a 20-point increase in customer satisfaction. In an economy that has overdosed on hype and in which customers rule as they never have before, operational innovation offers a meaningful and sustainable way to get ahead—and stay ahead—of the pack. It makes it easy to scan through your lists and keep track of progress. Fortunately, all of these barriers can be overcome. The approach cut Taco Bell’s costs and increased customer satisfaction by ensuring a consistently high-quality product. And it requires a level of integration and alignment that many enterprises are not prepared to handle. And, to ensure that your processes are truly innovative instead of just improved, set performance targets unreachable by standard operating procedures. The restaurant chain reduced the amount of on-site food preparation by outsourcing to its suppliers, centralizing the production of key components, and concentrating on assembly rather than fabrication in the restaurants. 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