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Deep Change How Operational Innovation Can Transform Your Company

Michael Hammer Harvard Business Review Presented by Himanshu Goyal 78 Rachit Agarwal 101 Jaideep Jain 119

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Introduction The Payoffs Organizational Barriers Making It Work Getting Implementation Right Is It Sustainable?

3 .Introduction  Progressive Insurance (an automobile insurer)  In 1991 -> $1. 100-year-old industry that grows with GDP  It’s business: consumer auto insurance  It operates only in the United States  It did little advertising.3 billion  In 2002 -> $9.5 billion  It’s a mature. and some of its campaigns were notably unsuccessful.

Introduction (cont. the invention and deployment of new ways of doing work.  Combined ratio=(expenses + claims payout)/premium   Most auto insurers have combined ratios around 102% Progressive insurance’s combined ratios around 96%  The country’s third largest auto insurer  Success reasons -> Offering lower prices & Better service What enabled Progressive to have better prices and service was operational innovation. 4  .)  It didn’t unveil a slew of new products.

higher profits.Introduction (cont.)  Operational innovation should not be confused with operational improvement or operational excellence.   Operational improvement or operational excellence Operational innovation  Success stories in recent business history :  Wal-Mart   Between 1972 and 1992. powering past Sears and Kmart with faster growth. $44 million in sales to $ 44 billion. and lower prices Cross-docking 5 .

Introduction (cont.)   Toyota : Toyota Production System Dell : Dell Business Model  These stories are well known for two reasons:   Operational innovations fuel extraordinary results Operational innovation is rare  Executive who understand how operational innovation happens  It can add to their strategic arsenal one of the most powerful competitive weapons in existence 6 .

A Powerful Weapon 7 .

The Payoffs  Progressive focused on high-risk drivers. a market that it served profitably through extremely precise pricing.    Immediate Response claims handling Benefit   Claimants get faster service with less hassle The shortened cycle time reduced Progressive’s costs dramatically 8 . It reinvented claims processing to lower its costs and boost customer satisfaction and retention.

)  However.  Example    Eastern Electric power utility IBM Shell Lubricants 9 . no single innovation conveys a lasting advantage.   Introduced a system: 800 number or Web site The better ways of assessing an applicant’s risk profile to calculate the right rate to quote.The Payoffs (cont.

The effects of operational innovation ripple outward to all aspects of the enterprise. affecting the very essence of a company: how its work is done.    measurement、reward systems、job designs、organization structure、managerial roles 10 .Organizational Barriers  The only way to get and stay ahead of competitors is by executing in a totally different way. Operational innovation is truly deep change.operational innovation.

)  Yet senior managers rarely perceive operational innovation as an important endeavor. operations is not glamorous. 11 .Organizational Barriers (cont. Some unpleasant characteristics of contemporary corporate leadership:   Business culture undervalues operations   Example: one manager said. ”In our company. Deals are” Operations simply aren’t sexy.

Example: a major semiconductor maker (order fulfillment process)  Nobody owns it   No one holds the title Vice President of Operational Innovation. and it requires a skill set and a mind-set different from those needed in most other executive activities.)  Operations are out of sight (and out of mind-set)   At its heart. Technologically based: ERP & SCM & Six Sigma 12 .Organizational Barriers (cont. operations is a branch of engineering.

Making It Work   To find a leader who can grasp what they have in mind and then spearhead the innovation effort.   American Standard: the goal was to triple its inventory turns Progressive Insurance: to initiate claims within nine hours 13 . Example  Progressive Insurance  Customer retention (rewarding interactions) Demand Flow Manufacturing (DFM)  American Standard   After selecting the area for innovation. the company must set stretch performance goals.

)  Following these suggestions should accelerate your efforts:  Look for role models outside your industry   Taco Bell (outsourcing) Harvard Pilgrim Health Care (market segmentation)  Identify and defy a constraining assumption   Cross-docking Build-to-order (BTO) 14 .Making It Work (cont.

Example: a consumer packaged-goods maker (ad hoc process)  Rethink critical dimensions of work   Designing operations entails making choices in seven areas.)  Make the special case into the norm   One way to accomplish this is to turn the special-case process into the norm.Making It Work (cont. Reimagining Processes 15 .

Reimagining Processes 16 .

Conventional implementation methodologies often lead to failure when applied to disruptive modes of operation.  Failure reasons :   Take too long (it will never work) It assumes that the initial specifications for an operational innovation will be accurate and complete. 17 .Getting Implementation Right  The Innovator’s Dilemma. Clayton Christensen   Conventional market-analysis tools lead organizations astray when applied to disruptive technologies.

 Companies would also be wise not to try to implement an innovation all at once.    It’s popular in software product development Iterative or evolutionary or spiral development Knowledge gained from these tests is then fed back into a fast-cycle iteration of the next version. 18 .Getting Implementation Right (cont.)  Companies need to adopt a new approach to implementing operational innovation.

Step2: it release brought people from the various departments together into cross-functional teams.a case-implementation leader Step2: a new information system was installed  Shell Lubricants   Step1: it release brought all the departments involved in the process under a single manager. 19 .)  Example  MetLife   Step1: create a new role .Getting Implementation Right (cont.

20 .of the pack.Is It Sustainable?  Example   Dell (build-to-order) Toyota It moves a company to an entirely new level Immediate Response claims process Concierge approach  Operational innovation is a step change   Progressive has created a culture    Operational innovation offers a meaningful and sustainable way to get ahead .and stay ahead .

Thank you 21 .