And it requires a level of integration and alignment that many enterprises are not prepared to handle. Many top managers are ignorant about operations and uninterested in learning more. Fortunately, all of these barriers can be overcome. Type Article Author(s) Michael Hammer Date 01/04/2004 Volume 82 Issue 4 Page start 84 Is part of Journal Title Harvard Business Review Publisher Harvard Business Review ISSN 0017-8012. 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. Seven ways mobile technology can transform your business Brought to you by. The fact that the great majority of deals are unsuccessful does not deter executives from pursuing them. Deep Change: How Operational Innovation Can Transform Your Company. 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 was the goal from the outset; Shell simply reached it in manageable steps. 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. Auto insurance is a mature, 100-year-old industry that grows with GDP. 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. @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} } 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 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. When Progressive realized that an applicant’s credit rating was a good proxy for responsible driving behavior, it changed its application process. Even with all the benefits operational innovation can deliver, some executives may wonder if it is truly worth the effort. Cross-docking negates the assumption that goods need to be stored in a warehouse, build-to-order that goods should be produced based on forecasts and destined for inventory. Please enable it to take advantage of the complete set of features! It’s not hard to calculate the savings this translates into for a company that handles more than 10,000 claims each day. Deals are.” Making acquisitions, planning mergers, and buying and selling divisions will get the company’s name and the CEO’s picture in business magazines. ... contends the author, is that business culture undervalues operations--they're not as sexy as deals or acquisitions. 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. 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. Why bother to be the first on the block to develop and deploy a new way of working? Harvard Business Publishing is an affiliate of Harvard Business School. That’s why Progressive concentrated on streamlining claims; making it a more pleasant experience for customers would directly affect overall performance. To undertake more would probably consume too many resources and create too much organizational disruption. The improvements continued when the next release brought people from the various departments together into cross-functional teams. Such advances don’t have to be as rare as they are. COVID-19 is an emerging, rapidly evolving situation. A journalist at a prominent business magazine, assigned to do a story on operations, confessed that he thought it boring. In 2002, Shell Lubricants reconsidered who needed to participate in its order fulfillment process. 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. The approach cut Taco Bell’s costs and increased customer satisfaction by ensuring a consistently high-quality product. Example: A packaged-goods maker had relied on sales forecasts for production scheduling. Even today, not all auto insurers offer immediate claims response. Breakthrough innovations--not just steady improvements--in operations can destroy competitors and shake up entire industries. It didn’t unveil a slew of new products. And what enabled Progressive to have better prices and service was operational innovation, the invention and deployment of new ways of doing work. 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. When MetLife, for instance, was implementing a new process for installing coverage of a new customer, it did so in two releases. NIH Even areas of the business that have already been rethought can benefit from subsequent rethinking as new technologies and new customer needs make the old innovations passé. 4. Full text is not available on IEEE Xplore for these articles. Instead of taking between seven and ten days for an adjuster to see the vehicle, Progressive’s target is now just nine hours. Operations simply aren’t sexy. Every operational innovation defies conventional assumptions about how work should be done. Two major forms of innovation can be distinguished: business model innovation and technology innovation. Operational innovation has been central to some of the greatest success stories in recent business history, including Wal-Mart, Toyota, and Dell. When envisioning new ways of working, it is impossible to get everything right from the outset. 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. One way to accomplish this is to turn the special-case process into the norm. The question is particularly significant because operational innovation is needed now more than ever. … Megson, L., & Hammer, M. (2004). 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. After the crisis passed, the company made its emergency mode standard. (Because insurance is a regulated industry, rates are on file with state insurance commissioners.) It doesn’t fit into R&D, where product innovation is based. 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. View Homework Help - Deep change from MGMT MGT 665 at Ace Institute of Management. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. 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. In this environment, the only way to grow is to take market share from competitors by running rings around them: by operating at lower costs that can be turned into lower prices and by providing extraordinary levels of quality and service. 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. By the time its competitors imitate this latest innovation, Progressive will no doubt have moved onto something else. Absent such specific targets, innovation efforts are likely to drift or degenerate into incremental improvement projects. Nor did it grow at the expense of its margins, even when it set low prices.  |  The Harvard Business Review article "Deep Change: How Operational Innovation Can Transform Your Company" contains the following example of operational innovation at Progressive Insurance. [See Hammer (2004), “Deep Change: How Operational Innovation can Transform your Company,” HBR, (April), 84-95]. Companies that bake operational innovation into their culture make competitors continually scramble to catch up with the changing rules. 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. 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} } ... How Operational Innovation Can Transform Your Company’, Harvard Business Review, pp. Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. 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. Overcapacity is rampant, and competition—particularly global competit… Deep Change: How Operational Innovation Can Transform Your Company (HBR OnPoint Enhanced Edition) by Michael Hammer , (No reviews yet) Write a Review This kind of situation can cripple operational innovation because an organization has only so much capacity for change. It makes it easy to scan through your lists and keep track of progress. Here's an example of what they look like: Your reading intentions are also stored in your profile for future reference. Because a large amount of cash was tied up in inventories, the CEO mandated that the company would have to drive down its working capital and dramatically increase inventory turns. In 2002, Shell Lubricants reinvented its order fulfillment process by replacing a group of people who handled different parts of an order with one individual who does it all. The effects ripple outward to all aspects of the enterprise. That took only a few months and delivered substantial reductions in cycle time, as well as a 15% productivity gain. Only a daunting target—clearly unattainable through existing modes of operation—will stimulate radical thinking and willingness to overturn tradition. 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. 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. There are many reasons why theoretically imitable operational innovations have staying power. For instance, many companies implementing ERP or SCM systems merely use them to enhance existing processes. The company introduced what it calls Immediate Response claims handling: A claimant can reach a Progressive representative by phone 24 hours a day, and the representative then schedules a time when an adjuster will inspect the vehicle. Example: Taco Bell transformed its restaurant operations by thinking about them in manufacturing—not fast-food—terms. Normal planning and budgeting focus on investments in new equipment, products, and services and take account of process improvement. Most often they start as grassroots movements, fostered by people sprinkled throughout organizations who are passionately committed to finding and exploiting opportunities for operational innovation. What’s more, important innovations are not limited to individual departments but involve end-to-end processes that cross departmental boundaries. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. Both require the change of existing or the development of new business processes. At its heart, operations is a branch of engineering. Once the top executive is convinced that operational innovation is worth pursuing, the organization needs to focus its efforts. The effects ripple outward to all aspects of the enterprise. Concentrate on reinventing work processes that will have the greatest strategic impact. Harv Bus Rev. The author also discusses the best way to implement operational innovations. Thus, it will never get off the ground without executive leadership. 1. So why don’t more companies embrace it? The rest is history. 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. It reinvented claims processing to lower its costs and boost customer satisfaction and retention. Operational innovation should not be confused with operational improvement or operational excellence. First, the stories are worth telling: Operational innovations fuel extraordinary results. The question is particularly significant because operational innovation is needed now more than ever. They enter the organization through finance, strategy, or marketing and build their reputations on work in these domains. Companies often achieve extraordinary levels of performance under extraordinary conditions. 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. 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. So Progressive decided to win the game by changing the rules. 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. Zero in on the assumption that interferes with achieving your strategic goal and then get rid of it. 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. Save High impact: the effect of mobiles on business is huge Credit: Alamy 3 January 2017 • 9:00am. But transformation today takes place at a dizzying pace. Time, cost, and customer satisfaction—the dimensions of performance shaped by operations—get major boosts from operational innovation. Was it positioned in a high-growth industry? Read the above article and provide a summary on the below: Human Resource, technology and process improvement. For example, a company that has always done the ‘brick-and-mortar’ business may lose out if the trend is changing to a mix of online business with in-store trading. 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. The author also discusses the best way to implement operational innovations. Why not let a competitor break that ground and then capitalize on its experiences, doing an even better job? Innovation may seem like more of a luxury than a necessity. Operational innovation is truly deep change, affecting the very essence of a company: how its work is done. The solution? 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 means coming up with entirely new ways of filling orders, developing products, providing customer service, or doing any other activity that an enterprise performs. Find new ideas and classic advice for global leaders from the world’s best business and management experts. Companies that bake operational innovation into their culture, as Progressive did, make competitors continually scramble to keep up. It requires specifying what results are to be produced and deciding who should perform the necessary activities, where they should be performed, and when. Cross-docking and companion innovations led to lower inventory levels and lower operating costs, which Wal-Mart translated into lower prices. Operational innovation is rare. 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. 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). The results included a dramatic drop in inventory, an improvement in customer service, and a major reduction in the total cost of product deployment. Just look at Dell, Toyota, and Wal-Mart. It should not be surprising that executives without experience in operations do not look there for competitive advantage. 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. 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. Companies that follow traditional implementation methodologies inevitably take too long. Progressive operates only in the United States. National Center for Biotechnology Information, Unable to load your collection due to an error, Unable to load your delegates due to an error. Some are technologically based, such as the implementation of enterprise resource planning (ERP), customer relationship management (CRM), or supply chain management (SCM) software systems. Innovation is often associated with changing technology or the implementation of a new solution. Progressive is also deploying in select markets what it calls a concierge approach to claims handling. Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. Their role is one of supervision, resource allocation, and direction—all vital, but all perched precariously on a foundation not grounded in the bedrock of the organization’s real work. 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. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. 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. This second release delivered another 20% productivity improvement, as well as a 20-point increase in customer satisfaction. For instance, because they are disruptive by nature, projects should be concentrated in those activities with the greatest impact on enterprise strategic goals. In other words, the game must now be played on the field of operations. At American Standard, the goal was to triple its inventory turns; at Progressive, to initiate claims within nine hours. 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