|  Customers were delighted, and overall costs dropped dramatically. 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. Zero in on the assumption that interferes with achieving your strategic goal and then get rid of it. That took only a few months and delivered substantial reductions in cycle time, as well as a 15% productivity gain. Or consider how American Standard, the diversified manufacturer, decided where to focus its innovation efforts in the early 1990s. 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. Progressive Insurance completely reinvented claims processing—slashing the waiting time for vehicle repair estimates from ten days to nine hours and catapulting sales from $1.3 billion in 1991 to $9.5 billion in 2002. Beginning in 1994, Eastern Electric, a UK power utility, created a process that reduced the time needed to initiate electrical service by 90% and its cost by 66%. No one holds the title Vice President of Operational Innovation; it is organizationally homeless. 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. Following these suggestions should accelerate your efforts. 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. Companies need to adopt a new approach to implementing operational innovations. And the key to customer retention is making sure customers have rewarding interactions with the company. After selecting the area for innovation, the company must set stretch performance goals. Breakthrough innovations - not just steady improvements - in operations can destroy competitors and shake up entire industries. 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. Operational innovation has been central to some of the greatest success stories in recent business history, including Wal-Mart, Toyota, and Dell. Add to My Bookmarks Export citation. Such advances don’t have to be as rare as they are. 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. 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. Normal planning and budgeting focus on investments in new equipment, products, and services and take account of process improvement. In addition to Immediate Response, Progressive has also introduced a system that allows customers to call an 800 number or visit its Web site and, by providing a small amount of information, compare Progressive’s rates with those of three competitors. Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer DIRECT QUOTE: "In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. Such advances don’t have to be as rare as they are. These catalysts take it upon themselves to find a leader who can grasp what they have in mind and then spearhead the innovation effort. The first involved the creation of a new role—a case-implementation leader, who was responsible for collecting all the information to establish coverage. The secret of Progressive’s success is maddeningly simple: It outoperated its competitors. Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. The solution? At its heart, operations is a branch of engineering. Discover the real world of business for best practices and professional success. Companies that bake operational innovation into their culture make competitors continually scramble to catch up with the changing rules. Concentrate on reinventing work processes that will have the greatest strategic impact. Save High impact: the effect of mobiles on business is huge Credit: Alamy 3 January 2017 • 9:00am. Indeed, in a company consumed with improvement projects, the distinction between improvement and innovation may be lost. That’s why companies should strive to make operational innovation not an extraordinary project but a way of life. How would you grade the company's performance a scale of 1-5, When MetLife, for instance, was implementing a new process for installing coverage of a new customer, it did so in two releases. 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.  |  Deep Change How Operational Innovation Can Transform Your Company And the shortened cycle time reduced Progressive’s costs dramatically. Designing operations entails making choices in seven areas. It had just survived a hostile takeover bid by going through a leveraged buyout, and leaders realized that servicing the debt would consume virtually all the company’s available cash and starve product development efforts. How operational innovation can transform your company. 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. At American Standard, the goal was to triple its inventory turns; at Progressive, to initiate claims within nine hours. Between 1972 and 1992, Wal-Mart went from $44 million in sales to $44 billion, powering past Sears and Kmart with faster growth, higher profits, and lower prices. At its heart, every operational innovation defies an assumption about how work should be done. Breakthrough innovations in operations—not just steady improvement—can destroy competitors and shake up industries. Operational innovation is rare. @inproceedings{Hammer2004COL, title={C O L L E C T I O N 2 Deep Change: How Operational Innovation Can Transform Your Company How Process Enterprises Really Work Ignore Operations at Your Peril}, author={Michael Hammer and Steven A. Stanton}, year={2004} } This item appears on. Send the patient to the hospital immediately, and assign the bed while the patient is in transit. Innovation isn’t as complex as it may seem—you just have to be open to change. What’s more, they can even develop a reputation with customers for relentlessly improving performance, a brand promise of extraordinary value. Cross-docking and companion innovations led to lower inventory levels and lower operating costs, which Wal-Mart translated into lower prices. The only way to get and stay ahead of competitors is by executing in a totally different way—that is, through operational innovation. For instance, because they are disruptive by nature, projects should be concentrated in those activities with the greatest impact on enterprise strategic goals. 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. Fortunately, all of these barriers can be overcome. The article describes seven steps that will help you implement an “inside out” approach to innovation at your company. How did it score that hat trick? In a similar way, conventional implementation methodologies often lead to failure when applied to disruptive modes of operation. They’ve ascended to the highest levels of the enterprise without ever getting their hands dirty. The effects ripple outward to all aspects of the enterprise. Deep Change: How Operational Innovation Can Transform Your Company (R0404E) Michael Hammer 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. ... contends the author, is that business culture undervalues operations--they're not as sexy as deals or acquisitions. 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. Each of these three companies fundamentally rethought how to do work in its industry. Denial of competitor superiority and a disinclination to truck with operations are powerful forces of nature, and so is organizational inertia. Seven ways mobile technology can transform your business Brought to you by. 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. It reinvented claims processing to lower its costs and boost customer satisfaction and retention. Instead of taking between 7 and 10 days to process an insurance claim, the company's new target was 9 hours. Zero in on the assumption that interferes with achieving a strategic goal, and then figure out how to get rid of it. Or is it open to change. 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. Most senior managers focus on strategic planning, budgeting, capital allocation, financial management, mergers and acquisitions, personnel issues, regulatory concerns, and other macro issues, very different from the design work at the heart of operational innovation. This is the state of our business culture. How to identify your enemies before they destroy you. Why? 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. Instead, find operating techniques that have been successful in other industries and apply them to your business. https://hbr.org/2004/04/deep-change-how-operational-innovation-can-transform-your-company 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. It requires specifying what results are to be produced and deciding who should perform the necessary activities, where they should be performed, and when. What’s more, important innovations are not limited to individual departments but involve end-to-end processes that cross departmental boundaries. National Center for Biotechnology Information, Unable to load your collection due to an error, Unable to load your delegates due to an error. In 2002, Shell Lubricants reconsidered who needed to participate in its order fulfillment process. The adjuster not only examines the vehicle but also prepares an on-site estimate of the damage and, if possible, writes a check on the spot. The core, value-creating work of enterprises has become low status. Why not? In reality, innovation is merely doing things differently and more effectively than you have in the past. Indeed, where is the real strategic advantage in operational innovation at all? Deep change - how operational innovation can transform your company Abstract: This publication contains reprint articles for which IEEE does not hold copyright. 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. 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. Was it positioned in a high-growth industry? 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? Business process innovation is a major success factor for the next-generation enterprise and often necessary to benefit from opportunities in a digital world. Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. Operational innovation is a step change: It moves a company to an entirely new level. 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