Using Operational Innovation to Beat Competion

In today’s business environment, it is difficult to out build, out market, or out price your competition over the long term.  One reason is that all firms are bedeviled by the same situational factors including:  market maturity, overcapacity, tight credit,  globalization and rapid technology diffusion.

One area that can still help firms leapfrog competition is operational innovation (OI).  OI is the secret sauce that enables a company to out-operate its peers over the long term.  OI takes many forms but it is essentially a creative retooling of a firm’s operating model.  For example, how companies buy & use inputs, deliver & service products and enable & motivate operational staff.  On a going basis, a strong operating model minimizes costs, improves service levels and enhances customer satisfaction. Organizations with OI as a core competency have typically generated superior financial returns, created industry barriers to entry, and built leading market share positions.  (One caveat:  business success often has many fathers so it would be irresponsible to attribute all gains solely to operational improvements.)

OI is not limited to certain markets or types of firms.  It is found in both high growth, dynamic markets like IT and Life Sciences as well as mature, traditional industries like Manufacturing and Financial Services.  In my experience and research, OI occurs in 2 fundamental ways  i) through the launch of a disruptive and compelling new business model (think Dell, Nucor, Cisco) or ii) through continuous and impactful operational improvements that over time dramatically enhances capabilities and cuts costs (think Progressive Insurance, Walmart).   For more perspective on what some organizations have achieved with OI, check out this Harvard Business Review article on how OI is driving business results.

Given its proven, transformational track record, why don’t more firms prioritize OI?  For one thing, there are powerful strategic and cultural barriers.  Often, the operations group does not get the same prestige or resources as other departments like finance, sales & marketing and R&D.  In addition, many senior executives adopt a passive attitude around operations like “if it ain’t (really) broken, don’t fix it,” especially if client retention is a key metric.  As well, revamping an operating model requires considerable multi-functional collaboration, change management expertise and perseverance, all scarce qualities when coping with day-to-day business exigencies.  Finally, game-changing OI is especially difficult when there are major internal constraints like union resistance, management bias (CEOs in many companies rarely have strong operational backgrounds) and cultural challenges.

Despite the issues, every company can take some important steps to catalyze OI thinking.  For example,

  1. Learn from others – Following and exploiting emerging technologies (e.g., Cloud Computing) and best practices from outside your industry is one of the best approaches to capturing potential innovations   
  2. It’s the system stupid – All too often, timid and siloed executives default to improving specific elements of the operating model (e.g., manufacturing) versus taking a holistic, breakthrough-focused approach  
  3. Create a fertile environment – OI germinates with the right internal conditions.  For example, successful innovators like 3M and Google cultivate a risk taking, innovation-centric culture, which includes a top-down mandate, sufficient resources and formalized incentives
  4. Target the Medium Term – Many OI initiatives fail because the time horizon is unrealistic for total quality planning and execution.  Specifically, short term deployment goals rarely feature enough time for proper study and implementation.  Furthermore, long term goals often flounder due to a lack of business momentum, management changeover or insufficient resources.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.


1 comment so far

  1. […] and ii) the operating model to deliver that value.  As compared to incremental product and operational innovation, BMI is a more encompassing and complex form of innovation.  It impacts the core […]

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