Operational Innovation

Operational Innovation

What is operational innovation? Actually there is nothing technical about it and it does not take a genius or as they say, rocket scientist to do it. It only takes creativity and courage to go against norm. Operational innovation is not the same as operational excellence or operational improvement, although these maybe achieved through innovations. Operational innovation is the invention and deployment of new ways of doing things while excellence and improvement refer to achieving high performance via the existing modes of operation. Companies who have adopted this principle have become a leader in its own field. Take Wal-Mart for example, it went from $44 million in sales to $44 billion, powering past Sears and Kmart with faster growth, higher profits and lower price. This became possible because of operational innovations. Wal-Mart has pioneered several inventions in purchasing and distributing goods where cross docking is one of them. This method eliminated the need for storage thereby lowering inventory cost, thus it allows them to reduce the selling prices of goods and with lower price tags, more people could afford and tends to buy more.

Why operational innovation? Innovative operations can result in direct performance improvements such as faster cycle time and lower costs which leads to superior market performance- greater customer satisfaction and more highly differentiated products. A plethora of benefits are obtained through this principle such as:

Strategic Benefits- 1.)Higher customer retention 2)Greater market share 3)Ability to execute strategies 4)Ability to enter new markets
Marketplace Benefits -1) Lower prices 2) Greater customer satisfaction 3) Different offerings 4)Stronger customer relationships 5)Greater agility
Operational Benefits – 1)Lower direct costs 2)Better use of assets 3)Faster cycle time 4)Increased accuracy 5)Greater customization or precision 6)More added value 7)Simplified process

Companies like Eastern Electric, a UK power utility have made performance gains through operational innovations. They have created a process that reduced the time needed to initiate electrical service by 90% and its cost by 66%. Another organization is Shell Lubricants, it reinvented its order fulfillment process by replacing a group of people who handled different parts of an order with one person who does it all. 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. Time, cost and customer satisfaction- the dimensions of performance shaped by operations- get major boost from operational innovations.

When do we need/use operational innovations? Most industries today are struggling with low growth, even stagnant markets. Over capacity is rampant, and competition is fierce. 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. 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. In other words the game must now be played on the field of operation. The only way to get and stay ahead of competitors is by executing in a totally different way- that is through operational innovation.

Who owns operational innovations? It is so sad that most senior executives in so many organizations are ignorant or unsupportive of operational innovation- as one manager said “ in our company, operations is not glamorous. Deals are.” Nobody owns it. No one holds the title Vice President of Operational Innovations; it is organizationally homeless. But nonetheless the top management should support and encourage it in the entire organization. Innovations are not limited to individual departments but involve end-to-end processes that cross departmental boundaries.

How to make operational innovations work? Usually it starts as grassroots movement, fostered by people throughout organizations who are passionately committed to finding and exploiting opportunities for operational innovation. They find a leader who can grasp what they have in mind and then spearhead the innovation effort. The leader must have both the imagination and the charisma needed to drive major operational change. Because operational innovation is disruptive by nature, it should be concentrated in those activities with the greatest impact on an enterprise’s strategic goals. While it need not be confined to just one area, most companies find it prudent to limit their innovation programs to no more than two to three major efforts at a time. After selecting the area for innovation, the company must set performance goals. Without such specific targets, innovation efforts are likely to drift or degenerate into incremental improvement projects.

The following suggestion accelerates the efforts to operational innovation: 1) Benchmarking- but not in the same field. Go outside your industry and you’ll get fresh new ideas. 2) Indentify and defy a constraining assumption- It maybe cliché to say Think outside the box, but it makes innovative thinking flow. 3) Make special case into the norm- Companies often achieve extraordinary results under extraordinary conditions, but fails to do so in normal situations. Turn these special case processes into norm. 4) Rethink critical dimensions of work-choose one or more of the aspects of the operation (what results, who performs, when and where to perform, whether which circumstance, what information, how intensely)
Implementation must be taken with an open mind as what is good on paper don’t always work as well on practice. Companies must be prepared to roll with the punches and learn as they go. It would also be wise to implement in stages.
Operational innovation is the only lasting basis for superior performance. In an economy that has overdosed on hype and in which customer rule, operational innovation offers a meaningful and sustainable way to get ahead-and stay ahead- of the pack.

excerpt from:

Deep Change

How operational innovation

can transform your company