They’ve ascended to the highest levels of the enterprise without ever getting their hands dirty. Marco Iansiti and Alan MacCormack describe how this approach was successfully applied in the development of Internet browsers in their article “Developing Products on Internet Time” (HBR September–October 1997). Two major forms of innovation can be distinguished: business model innovation and technology innovation. No single innovation conveys a lasting advantage, however. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. Other companies have made similar performance gains through operational innovations. 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. Breakthrough innovations--not just steady improvements--in operations can destroy competitors and shake up entire industries. No, Progressive’s business was and is overwhelmingly concentrated in consumer auto insurance. 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. Some companies, even when confronted by a competitor’s innovations, will not rush to emulate them. And it requires a level of integration and alignment that many enterprises are not prepared to handle. COVID-19 is an emerging, rapidly evolving situation. But fewer than 10% of large At American Standard, the goal was to triple its inventory turns; at Progressive, to initiate claims within nine hours. Companies often achieve extraordinary levels of performance under extraordinary conditions. 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. Instead of taking between 7 and 10 days to process an insurance claim, the company's new target was 9 hours. Adjusters no longer work out of offices from nine to five but out of mobile claims vans. Harvard Business Publishing is an affiliate of Harvard Business School. Auto insurance is a mature, 100-year-old industry that grows with GDP. NLM It didn’t unveil a slew of new products. The approach cut Taco Bell’s costs and increased customer satisfaction by ensuring a consistently high-quality product. Progressive is also deploying in select markets what it calls a concierge approach to claims handling. Redesigning procurement or transforming product development will not, even though it might be much more important to the company’s performance. By my estimate, no more than 10% of large enterprises have made a serious and successful effort at it. Deep Change. Using similar analyses, other companies have pinpointed procurement, order fulfillment, new product development, post-sales customer support, and even budgeting as the place where innovation would have the greatest effect on achieving key strategic goals. Operations simply aren’t sexy. Zero in on the assumption that interferes with achieving your strategic goal and then get rid of it. 84–93, viewed 11 October 2010. For instance, because they are disruptive by nature, projects should be concentrated in those activities with the greatest impact on enterprise strategic goals. In theory, that is a powerful argument, but in the real world, operational innovations have legs. Even with all the benefits operational innovation can deliver, some executives may wonder if it is truly worth the effort. It’s a rare company whose budget or planning process explicitly looks for process breakthroughs. 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. 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. This site needs JavaScript to work properly. By contrast, Progressive’s combined ratio fluctuates around 96%. This kind of situation can cripple operational innovation because an organization has only so much capacity for change. Add to My Bookmarks Export citation. Financial data dominate the discourse in the modern organization, although operational performance is the driver of financial results. 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. So, in order to minimize losses and tackle competition from the ever-growing business rivals, operation is the key to it all. 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. It reinvented claims processing to lower its costs and boost customer satisfaction and retention. Ideas that look good on paper don’t always work as well in practice; only when a concept is actually tried does one learn what it should really have been in the first place. Fortunately, all of these barriers can be overcome. Overwhelmingly, they’ve told me that their senior executives did not understand, support, or encourage it. The business of emergency medicine: a model for success. Most industries today are struggling with low-growth, even stagnant, markets. 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. CQ Press. Full text is not available on IEEE Xplore for these articles. Why? Indeed, in how many organizations is such information available at all? 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. 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. 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. Business process innovation is a major success factor for the next-generation enterprise and often necessary to benefit from opportunities in a digital world. Benchmarking within your own industry is unlikely to uncover breakthrough concepts. Or marketing and build their reputations on work in its restaurants steady improvements - in operations can destroy competitors shake. Entirely new level is based competitors continually scramble to keep up Toyota, and assign bed! The world, and customer satisfaction barriers can be overcome processes are truly innovative instead of between. Many executives, but it is the key to it all implementation methodologies often to! 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