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Slide 1
Slide 1
Michael Hammer Harvard Business Review May 2004 Presented by Chen Tai Yun
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Outline
Introduction The Payoffs Organizational Barriers Making It Work Getting Implementation Right Is It Sustainable?
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Introduction
Progressive Insurance (an automobile insurer) In 1991 -> $1.3 billion In 2002 -> $9.5 billion Its a mature, 100-year-old industry that grows with GDP Its business: consumer auto insurance It operates only in the United States It did little advertising, and some of its campaigns were notably unsuccessful.
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Introduction (cont.)
Most auto insurers have combined ratios around 102% Progressive insurances combined ratios around 96%
Success reasons -> Offering lower prices & Better service What enabled Progressive to have better prices and service was operational innovation, the invention and deployment of new ways of doing work.
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Introduction (cont.)
Operational innovation should not be confused with operational improvement or operational excellence.
Between 1972 and 1992, $44 million in sales to $ 44 billion, powering past Sears and Kmart with faster growth, higher profits, and lower prices Cross-docking
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Introduction (cont.)
It can add to their strategic arsenal one of the most powerful competitive weapons in existence
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A Powerful Weapon
The Payoffs
Progressive focused on high-risk drivers, a market that it served profitably through extremely precise pricing. It reinvented claims processing to lower its costs and boost customer satisfaction and retention.
Claimants get faster service with less hassle The shortened cycle time reduced Progressives costs dramatically
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Introduced a system: 800 number or Web site The better ways of assessing an applicants risk profile to calculate the right rate to quote.
Example
Organizational Barriers
The only way to get and stay ahead of competitors is by executing in a totally different way- operational innovation. Operational innovation is truly deep change, affecting the very essence of a company: how its work is done. The effects of operational innovation ripple outward to all aspects of the enterprise.
Yet senior managers rarely perceive operational innovation as an important endeavor. Some unpleasant characteristics of contemporary corporate leadership:
Example: one manager said, In our company, operations is not glamorous, Deals are Operations simply arent sexy.
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At its heart, operations is a branch of engineering, and it requires a skill set and a mind-set different from those needed in most other executive activities. Example: a major semiconductor maker (order fulfillment process)
Nobody owns it
No one holds the title Vice President of Operational Innovation. Technologically based: ERP & SCM & Six Sigma
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Making It Work
To find a leader who can grasp what they have in mind and then spearhead the innovation effort. Example
Progressive Insurance
American Standard
After selecting the area for innovation, the company must set stretch performance goals.
American Standard: the goal was to triple its inventory turns Progressive Insurance: to initiate claims within nine hours
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One way to accomplish this is to turn the special-case process into the norm. Example: a consumer packaged-goods maker (ad hoc process)
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Reimagining Processes
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Conventional market-analysis tools lead organizations astray when applied to disruptive technologies. 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.
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Its 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.
Companies would also be wise not to try to implement an innovation all at once.
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Example
MetLife
Step1: create a new role - 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. Step2: it release brought people from the various departments together into cross-functional teams.
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Is It Sustainable?
Example
Operational innovation offers a meaningful and sustainable way to get ahead - and stay ahead - of the pack.
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