Deep Change: How Operational Innovation Can Transform Your Company

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?

If so, you may be missing a much more reliable way to outperform your competition—operational innovation.

Creating new ways, not just better ways, of working has been central to some of business’s greatest success stories: think Wal-Mart’s cross-docking distribution system, or Dell’s build-to-order model. But since operations aren’t sexy, most companies overlook them.

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. Concentrate on reinventing work processes that will have the greatest strategic impact. And, to ensure that your processes are truly innovative instead of just improved, set performance targets unreachable by standard operating procedures.

Operational innovations fuel extraordinary results. 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. Companies that bake operational innovation into their culture, as Progressive did, make competitors continually scramble to keep up.

The Idea in Practice

Time, cost, and customer satisfaction all get major boosts from operational innovations. Here are guidelines for reinventing your own work processes:

Look for Role Models Outside Your Industry

Benchmarking within your own industry probably won’t lead to breakthrough innovations. Instead, find operating techniques that have been successful in other industries and apply them to your business. Example: 

Taco Bell transformed its restaurant operations by thinking about them in manufacturing—not fast-food—terms. The chain outsourced production of key ingredients so it could focus on “assembly,” not “fabrication,” in its restaurants. The approach cut Taco Bell’s costs and increased customer satisfaction by ensuring a consistently high-quality product.

Identify and Defy a Constraining Assumption

Every operational innovation defies conventional 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. A hospital, for instance, was able to respond to physician referrals more quickly when it challenged the assumption that beds had to be assigned before patients could be accepted. Now it assigns the bed after accepting the patient—while that person is en route.

Make the Special Case the Norm

Companies often achieve extraordinary levels of performance under extraordinary conditions. The trick is to turn your do-or-die mode into everyday practice. Example: 

A packaged-goods maker had relied on sales forecasts for production scheduling. 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. After the crisis passed, the company made its emergency mode standard. Customers were delighted, and overall costs dropped dramatically.

Rethink Critical Dimensions of Work

Experiment with changing one or more of these elements in your own operations:

What results are to be produced, who should perform the necessary activities, where should they be performed, in what sequence, and how thoroughly each activity must be performed.

In 2002, Shell Lubricants reconsidered who needed to participate in its order fulfillment process. By replacing a group of seven people who each handled different parts of the order with one person who does it all, Shell cut cycle time by 75%, reduced operating expenses by 45%, and boosted customer satisfaction by 105%.