Disruption and Operational innovation
Disruption is a combination of operational innovation and pricing customers are willing to pay for, in other words, new entrants come armed with non-conventional models that challenge the existing core beliefs of what customers need and how they want to be served. It leads to a change in the organizational structure and processes for an organization’s day-to-day operations. It’s about breaking away from business as usual and looking at the world with fresh eyes to find ideas that will improve both customer experience and revenue generation.
Furthermore, it is a compelling way of thinking about innovation-driven growth. The point of disruption is to displace traditional competitors. Once the concept has displaced traditional competitors with lower prices that are brought about through innovations in operations, the disruptors slowly start to expand their offerings into high-margin portfolios of the initial dominant competitors to increase market share causing further displacement to incumbents.
Operational innovation and disruption are processes of introducing new business models. In order for disruptors to displace incumbents, the strategy needs to be aligned with the mission exactly as the organization needs to be aligned with the strategy. The most important part though is having next-level operational efficiencies. If you have an innovative idea that you think can increase efficiency and in turn lower pricing, you can bring this idea to life and implement it through strategy, we’ll discuss this further in the dimensions of disruption. To stay ahead of competitors and displace incumbents, we need to execute differently in a way that is, through operational innovation.
Dimensions of disruption
The key factors and dimensions of disruption are time, cost, and performance. Can you add value to the customer while increasing efficiency and lowering pricing?
Operational Innovation – Strategic alignment – Operational Strategy – Thinking disruptively – Opportunity – Momentum
Operational innovation
Let’s have a look at how operational innovation fuels disruption. You may have heard of the Progressive Insurance case. This company made 2 small changes to the traditional operational model of auto insurance. They introduced something called immediate claims handling where insurance inspectors no longer work from the office. They are strategically employed by the location of their residence, thus allowing the insurance company to get to the client efficiently, affordably, and in a shorter period of time. So now instead of taking days and even weeks for insurance companies to inspect the vehicle and handle the claim, their target is now just 9 hours and sometimes inspectors even approve the claim on the spot.
This shortened life cycle allowed for the insurance company to rid of storage space and rental cars. Which is approximately the expected underwriting cost of a six-month policy. These 2 small changes within insurance operational models led the company to become the 3rd biggest auto insurer in the United States of America.
Due to the company’s massive savings as stated above, the company was easily able to displace competitors by introducing much lower rates. These small changes in operations are not ingenious, they are in fact, quite logical. This is operational innovation, not to be confused with operational excellence, operational excellence may be enough to stay in the game, but it is not enough to win.
The insurance industry, as well as many others (specifically in the service sector), will be disrupted 100 times over the next 50 years. All we need to do is challenge the norms, challenge our knowledge to forget about the media, and be innovative. It really doesn’t take much to be innovative. We will discuss further below why many companies fail to innovate. But first, let’s have a look at aligning strategy to support operational innovation.
Strategic Alignment
As Bezos says, “Ideas are easy, but the execution is everything.” Jeff Bezos, CEO of Amazon, is a true visionary. While many people have ideas for the next best product or service, it takes a skilled entrepreneur to execute them and bring them to life. To be successful at executing an idea you need the right skill set and know-how. But even with these things, if you don’t have the passion and drive to see your idea through until the end, then it will never succeed. Those beautiful ideas can be executed through the beautiful subjects of strategic and value chain management. We won’t dive too deep into these subjects but rather into the fundamentals.
Strategic management starts with Corporate strategy, which is where the collection of a portfolio of companies’ resources can be allocated correctly to create and sustain competitive advantage, imagine changing the operations of a whole portfolio of companies at its core, thus disrupting multiple portfolios. Business Strategy is how each of those companies can be competitive within their respective industries and lastly, we have a functional strategy, which is where operational strategy comes to play.
We have seen too many times companies implementing successful marketing strategies, but the company cannot actually fulfill the number of orders it needs to handle, thus leading to more sales but causing supply chain problems and in turn, lost sales and unhappy customers. The best way to avoid this is through operational innovation which is what we will have a look at next.
As a company or entrepreneur, think about this;
Does your strategy support your corporate mission?
Does your organization structure support your strategy?
Does your operational strategy support your organizational structure?
Can you use your team to not only complement each other but work together to increase efficiency?
Align the common issues of the supply chain and change them at its core. Do you have an idea or way of creating efficiency within your industry? Do you have access to the resources and capabilities needed to implement the idea? Any company can achieve a goal of growth through vertical, and horizontal integration, mergers, and acquisitions but at times these are not effective if operational innovation is not at the heart of how the company operates. The important questions are: How does your operational strategy need to change to achieve that? How can you use the tech performance frontier to implement innovation in operations?
Operational Innovation Strategy
Business strategy – Order winners/qualifiers – Objectives – distinctive competence
In short operational strategy is the set of decisions a company makes to allow it to shape the long-term capabilities of the organization. Disruption is incomplete without having the staying power to displace incumbents. This is why operational strategy is so critical. It is through a business strategy that your internal and external analysis will allow you to distinguish your company’s competitive advantage. Once you have completely understood the corporate and business strategy, you will need to set the competitive priorities of your operations in such a way that your order qualifiers and order winners are streamlined. This needs to be done in a way that lowers costs and adds value to the customer.
What are the decisions which shape the long-term capabilities of the organization and allow the firm to exploit innovations within operations?
Order qualifier – What attributes are present for the customer to consider your product/service?
Order Winner – What attributes are present that differentiate your company from the competition and in turn win the customer?
Distinctive competence – What can your company do better than the competition? What does your company do better than companies in other markets?
Competitive priorities – The effectiveness of your competitiveness and distinctive competence depends on the structure of the organization and the infrastructure used to deliver value. These are your operating decisions.
Ultimately what you want to do is match order winners with distinctive competence. Once you have identified possible order winners and distinctive competence, you can design your operations in a way that best delivers this value.
A solution to operational strategy: Strong and agile operating model
In the present-day business climate, successful companies need to be nimble and agile. The ability to quickly pivot and change course is a must for any company that wants to stay competitive. Companies with a strong operating model are typically better positioned for success compared to those without one, as it allows them to stay flexible and respond quickly to market changes.
An agile operating model is typically characterized by three key components:
1) responsiveness – the ability of the organization to quickly adapt its strategies and strategies as market conditions change;
2) focus – limiting what an organization does, so they can do it well; and
3) adaptability – how well an organization can adjust its strategies responding to disruptions in the environment.
The three keys to an agile operating model are 1. It has clear goals; 2. It embraces change and 3. It relies on high-speed delivery and continuous improvement. An agile operating model is a business strategy that relies on high-speed delivery and continuous improvement. When companies use this model, they will find that they can respond quickly to changing customer demand, trends in the market, and competitive threats. A lean enterprise relies on high-speed delivery and continuous improvement, which means it is constantly looking for ways to improve the process of product development, manufacturing, and marketing to provide a better customer experience.
How to think operational innovation
Given operational innovation can be described as the process of identifying and then utilizing new ideas to find solutions to the challenges faced by an organization. The 3 main components of an operational innovation mindset;
– Creative problem-solving;
– The ability to identify and develop new ideas;
– Thinking outside the box.
Creative problem-solving is a skill that is essential for the future. It is a natural ability that can be developed through education and practice. Creative problem-solving is the process of finding a solution to a problem that doesn’t have an obvious answer. There are three basic abilities that have been found to be central to creative thinking: divergent thinking, convergent thinking, and metacognition. Divergent thinking is the process by which people can come up with many solutions to a given problem at the same. This is in direct opposition to convergent thinking, which is the process of finding the best solution. Metacognition is the ability of a person to think about their own thinking and actions. A metacognition problem-solver will ask themselves questions such as “What is my goal?” or “What are my options?”
To truly think disruptively, we need to as individuals operate at the highest levels of education. The absolute highest level of education is when we take what we have learned from experience and education and apply it in everyday thinking. Once this method of thinking becomes habitual (This is when your subconscious mind responds directly to the surrounding environment) you will constantly subconsciously analyze the world around you and figure out better ways of doing things. Over a certain period of time, you will be able to analyze any business and dissect it to its absolute core within a matter of seconds.
Conclusion
Operational innovation is important for a business because it can help it to increase profit margins and provide the products and services that its customers want simultaneously. With operational innovation, companies can become more efficient and also more responsive to changes in their respective markets. Does it all sound too good to be true though? Why isn’t disruption happening everywhere? Well, as we become set in our ways of getting things done, we resist change. So, the big question now is: How do we change this? The answer to this question is to communicate differently within your organization first and change the culture in a way that makes employees believe that innovation is possible. It’s about more than a company simply being agile. Innovation at its core is about doing things in new ways. When looking at innovation from this perspective, and showing contributors that innovation is nothing more than doing things in new ways, it’s a less daunting thought and gives executives confidence in bringing ideas to the table. Once this culture has been established, innovation can become habitual. This way of thinking has the potential to take the company and the individuals themselves to another level which then makes an external transformation with customers a lot easier.
Roxleigh Thornhill – Fisher & Katekani Mabasa
Let us review your operations and help you make a change toward operational innovation! Visit Enfranchised
If you would like to master disruption we highly recommend The Harvard Business Schools Course on disruptive strategy as well as the University of Illinois Gies Business Colleges specialization on strategic management and value chain management.
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