Operational Innovation - Level The Playing Field, or Change The Rules?
By Walt Tomenga and Terry Myers

Here’s a concept that we have been sharing with companies that is finally gaining traction in the national media – operational innovation. In the April 2004 Harvard Business Review, Michael Hammer authored an article, “Deep Change How Operational Innovation Can transform Your Company.”

Operational Innovation is a business process that will produce extraordinary results faster and with fewer resources. It’s not simply operational improvement, or operational excellence! That’s because operational improvement and operational excellence are not imaginative and don’t usually include the quantum leaps necessary to ensure competitive advantage and sustainable profits.

Rather Operational Innovation challenges organizations to break the barriers of tradition, to discard “we’ve always done it this way,” and to come up with unconventional ways to achieve superior service and cost control. It’s an attitude and a management process that encourages organizations to discover entirely new (and often radical) ways of doing work and delivering service. It is the foundation on which the company can obtain amazing results.

Hammer cites organizations that have successfully out operated their competitors:

• Progressive Insurance – seven fold growth in ten years in the mature auto insurance indus-try.
• Wal-Mart – in the twenty years ending 1992 grew from $44 million to $44 billion by fo-cusing on purchasing, distribution and cross docking.
• Dell Computers – achieved industry leader-ship by eliminating the middlemen and goes direct to customers.
• Shell Lubricants reinvented its order fulfill-ment process by replacing a group of people who handled different parts of an order with one person who does it all.

Opportunities for innovation abound. But, we have found, and Hammer affirms, that operational innovation is rare. In fact, he estimates that no more than 10% of large enterprises are making serious operational innovation efforts. Experience shows that one of the most significant reasons is that many executives often overlook operations as a means for creating a competitive advantage. It’s out of sight and out of mind.

Or, many are stuck in the maze of improvement techniques – Six Sigma, Total Quality, Lean, Enterprise Resource Planning, and Customer Relationship Management to name a few. All are useful tools and we offer services in these areas – but they are only “good first steps” that are not likely to deliver extraordinary results, customer service, and cost control.

Operational innovation challenges managers to think outside the box. Which begs the question, “Will your organization be better off by doing what others are doing, or by changing the rules?”

Here are examples of how we have coached mid-market companies to change the rules:

• Automotive supplier fabricated matched-sets of assembly parts and eliminated past-dues and quality problems saving millions of dollars.
• Consumer retail supplier improved line changeover time from 120 minutes to six minutes allowing it to postpone millions in new capital equipment spending.
• Do-it-Yourself retail supplier reduced manufacturing cycle times from three weeks to four hours – all day, every day – and coordinates assembly line activities with in-bound and out-bound logistics.
• Industrial supplier forecasts customer requirements resulting in improved service, less inventory, and lower costs. They said it couldn’t be done.

The results of operational innovation influence all aspects of an enterprise – measurements, reward systems, job designs, organizational structures, and managerial roles. In Hammer’s words, “deep change” – affecting the very essence of the organization and how its work is done.

Operational innovation is sustainable. Innovation stimulates innovation, and can position your company for even more performance gains.

To get started an organization must:

• Look for role models outside their industry – Benchmarking within one’s industry is unlikely to uncover breakthrough concepts.
• Identify and defy a constraining assumption – Every operational innovation defies an assumption about how work should be done.
• Make the special case into the norm – Organizations often achieve extraordinary levels of performance under extraordinary conditions. Make extraordinarily performance the norm.
• Rethink critical dimensions of work – Redesigning operations entails making choices.

Implementing operational innovation requires a new approach – one that begins with a best estimate of the innovation, building the first version, trying it out with customers or users, assessing the knowledge gained from these test, and rapidly feeding the next iteration until the ultimate goal is achieved.

Most importantly operational innovation must have senior management’s unwavering support, commitment and active involvement to have any chance of success.

It is all too common for enterprises to have many improvement programs under way – as noted above – thus diluting peoples’ energy and capac-ity for real change. They frequently include abstract goals and disconnected results.

Operational innovation is different. It’s both focused and disruptive! It requires systematic and systemic change. Performance goals are clear and aggressive. The best people concentrate on activities with the greatest opportunity to impact strategic goals. Avoid the all-at-once approach. Break down the pieces to create momentum, dispel skepticism, relieve anxiety, and deliver a powerful rejoinder to carping critics.

Even the budget and planning process changes – from focusing on equipment, products, services to explicitly investing in process breakthroughs.

We share Hammer’s view that, “Mere operational improvement is not enough to win… Operational innovation may be unfamiliar and appear unglamorous, but it is the only lasting basis for superior performance.”

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Presented by Three Dimensional, LLC.
For more information contact Walt Tomenga or Terry Myers at 515-240-1510 or info@3-dllc.com