An article “Deep Change: How Operational Innovation Can Transform Your Company” in the Harvard Business Review, by Michael Hammer speaks about operational innovations that take on the simple changes in everyday operations results to lower prices and better services than competitors. It basically talks about how operation innovation transformed the progressive insurance, an automobile insurance company. In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1. 3 billion in sales and by 2002, that figure had grown to $9.5 billion.
Progressive Insurance has seen an extraordinary growth and not with any acquisitions or clever marketing schemes, but through substantial innovations in their everyday operations. Progressive didn’t went global, didn’t unveil new product not did it grow at the expense of its margins though Progressive insurance employ to achieve sevenfold growth in just over a decade because of the innovation in their operations. The secret of Progressive’s success is maddeningly simple: It out operated its competitors.
By offering lower prices and better service than its rivals, it simply took their customers away. And what enabled Progressive to have better prices and service was operational innovation, the invention and deployment of new ways of doing work. Operational innovation should not be confused with operational improvement or operational excellence. Those terms refer to achieving high performance via existing modes of operation: ensuring that work is done as it ought to be to reduce errors, costs, and delays but without fundamentally changing how those work gets accomplished.
Operational innovation means coming up with entirely new ways of filling orders, developing products, providing customer service, or doing any other activity that an enterprise performs. Progressive did innovation on their operation by simply introducing Immediate Response Claim Handling. Suppose if a client had an accident s/he can call Progressive representatives. A claimant can reach a progressive representative by phone 24 hours a day. Then representative schedule a time when and adjuster will inspect the vehicle.
The claims adjuster works out of a mobile van, enabling a nine-hour turnaround rather than the industry-standard seven to ten days. The adjuster prepares an estimate on the spot and will, in most cases, write you a check immediately. These innovations at Progressive were provoked by a strong connection to the customer, the willingness to listen to customers' frustrations, and the common sense to act on them by changing the core of their business operations.
This innovation in the operation has many benefits for Progressive. Claimants get faster service with less hassle, which means they’re less likely to abandon progressive because of an unsatisfactory claims experience. And the shortened cycle time reduced progressive’s costs dramatically. More important, however, the hassle-free claims process kept customers happy and loyal towards Progressive. The article also talks about the operation innovation of other companies like Toyota, Dell and Wal-Mart.
Wal-Mart did innovation on the operation by practicing cross-docking, which moves goods from an inbound delivery truck to an outbound one going to a store, eliminating the need for expensive warehouse space. With every new story, the substantial decrease in cycle time, development expenses, and operating expenses was found; similarly, customer satisfaction was boosted. The innovation in the operation like Dell’s direct model for computer sales and the Toyota Production System also help them to achieve the success.
This helps to prove that operation innovation can transform the company. The article states that even with all the benefits operational innovation can deliver, some executives wonder if it is truly worth the efforts and also question on its sustainability. The article also states that operational innovation is a step change: it moves a company to an entirely new level. Once there, the organization can focus its efforts on a generation of additional changes, refinements of the innovation, which will keep it ahead of the pack until the inevitable time comes for a new wave of innovation.
