Hammer, in HBR

August 8, 2004

eep Change: How Operational Innovation Can Transform Your Company
Michael Hammer

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Breakthrough innovations—not just steady improvements—in operations can destroy competitors and shake up entire industries. Just look at Dell, Toyota, and Wal-Mart. But fewer than 10% of large companies have made serious attempts to achieve operational innovation. Why?

One reason, contends the author, is that business culture undervalues operations—they’re not as sexy as deals or acquisitions. In addition, many executives who rose through the ranks of finance or sales aren’t familiar with operations—and they aren’t interested in learning more. Finally, because no one holds the title Vice President of Operational Innovation, it doesn’t have a natural home in the organization, so it’s easily overlooked.

Fortunately, all of these barriers can be overcome. This article offers practical advice on how to develop operational innovations, such as looking for role models outside your industry to emulate and identifying—and then defying—constraining assumptions about how work should be done. The author also discusses the best way to implement operational innovations. For instance, because they are disruptive by nature, projects should be concentrated in those activities with the greatest impact on enterprise strategic goals.

Operational innovation may feel unglamorous or unfamiliar to many executives, but it is the only lasting basis for superior performance. Executives who understand how operational innovation happens—and who understand the barriers that prevent it from happening—can add to their strategic arsenal one of the most powerful competitive weapons in existence. In an economy that has overdosed on hype and in which customers rule as never before, operational innovation offers a meaningful and sustainable way to get ahead—and stay ahead—of the pack.

Rethink critical dimensions of work. Designing operations entails making choices in seven areas. It requires specifying what results are to be produced and deciding who should perform the necessary activities, where they should be performed, and when. It also involves determining under which circumstances (whether) each of the activities should or should not be performed, what information should be available to the performers, and how thoroughly or intensively each activity needs to be performed. Managers looking to innovate should consider changing one or more of these dimensions to create a new operational design that delivers better performance. (The exhibit “Reimagining Processes” shows examples of companies that have rethought these various dimensions of work.)


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