Since the industrial revolution, companies have worked tirelessly to cut costs through operational excellence. While this effort is essential for staying competitive in today’s global marketplace, it often only results in steady, marginal improvements. To really leave the competition in its dust, a company needs more than this. It needs to harness the powers of a (somewhat) secret weapon: Operational Innovation.
Operational innovation is much different than operational excellence, and much more powerful. Operational excellence deals with achieving high performance through existing processes and procedures by reducing errors, eliminating wasteful steps, etc. The key difference is that making these marginal improvements does not fundamentally change how work is carried out, resulting in unimpressive progress. To truly achieve an operational breakthrough that launches an enterprise ahead of its peers, it must fundamentally re-imagine how to perform procedures and tasks.
In relatively recent history, some of most successful companies have implemented this strategy and seen staggering results. For instance, between 1972 and 1992 Walmart went from $44 million in sales to $44 billion, blowing their competition out of the water. A major key to their success were innovations they implemented in their supply chain and one of their most impactful innovations was just-in-time cross-docking – almost common place these days – where goods were trucked in from their distribution centers and then immediately transferred to trucks headed to stores. This lead to lower inventory and lower operating costs, leading to lower consumer prices.
One big question here is that if operational innovation is such a powerful tool why do so few companies leverage it to drive change? In short, fundamental operational change is really, really hard. Operational innovation requires changes in how a company completes its work at a core level, and this drastically effects all aspects of how the organization functions. Everything from the enterprise structure to management strategies and incentive pay will require strategic adjustments that are completely new. To affect change at this level requires coordination from the highest levels of an organization and a clear, step-by-step approach.
Operational Innovation: A Step-by-Step Approach
1. Dream Big
Only a clearly unattainable operational target will generate brainstorming at the level needed to overturn tradition. These big ideas must force people to challenge the conventional wisdom that’s already built into the organization. Thinking too small or too broad will likely result in projects transitioning to incremental improvement projects.
2. Benchmark Outside Your Industry
Searching for new ideas and strategies within your own industry will likely not turn up any new ideas. Borrowing strategies from seemingly different industries can lead to significant operational epiphanies that have gone overlooked by your competitors.
3. Defy a Constraining Assumption
At its core, operational innovation requires assumptions on how work is completed to be challenged and overhauled. When evaluating operational innovation opportunities, focus on the assumptions that prevent the desired change from occurring, and figure out how to eliminate them. Brainstorming ways to remove these roadblocks will shift the thought framework and help generate ideas radically different than the status quo.
4. Make a Special Case the Norm
Throughout the history of a company it will undoubtedly develop radically new solutions to age old problems in a time of extraordinary circumstances. It’s amazing how an organization can move the needle when it’s up against the wall. Then on the flip side, the same company will struggle to create similar solutions during relatively stable times. This makes it prudent to harness the thought processes associated with solving problems during the extraordinary times and during periods of relative tranquility. Revisit these “war room” events and evaluate what the key drivers were that led to the final solutions.
5. Rethink Critical Dimensions of Work
The final and most significant step is harnessing the knowledge gained in steps one through four and radically rethinking how the critical dimensions of work are completed. This requires deep thought over the key dimensions of work. With every operational innovation effort, a company must reimagine when, where, and who performs a series of processes and what these processes deliver. Furthermore, the enterprise must determine if the work should be completed at all, and how thoroughly it tracks and controls the work. Understanding these dimensions and learning to completely reimagine how they interact is the most critical step to developing an operational innovation strategic focus.
Following these steps is only the beginning; they’re simply a foundational framework to help identify those fundamental changes that can move an organization’s operations into a class of its own. As I alluded to before, the next critical step is getting the implementation right. With every great change, there will always be opposition; there will always be internal and external stakeholders that dig in and say it will never work and the company is better off playing it safe. And there will be bumps along the road, because a perfect plan is impossible. In these times leverage the strength of the framework herein and learn as you go.
Hammer, M. (Apr 2004). Deep Change, Harvard Business Review
To Make Operational Innovations, You Must Change Your Way of Thinking. Knowledge@Wharton (2006, September 20). Retrieved from http://knowledge.wharton.upenn.edu/article/to-make-operational-innovations-you-must-change-your-way-of-thinking/
Hammer, M. (May 2004). Four Ways to Innovate in Operations. http://hbswk.hbs.edu/archive/4115.html
Pontius, N. (Feb 2017). Operational Innovation: Barriers, Benefits and a Roadmap for Success. https://www.business.com/articles/nicole-pontius-innovation-operations-roadmap/