Operational excellence and operational innovation are two very distinct ways in which organizations are looking to 'change' their operational platform. As described very clearly in the April 2004 issue of the Harvard Business review, operational innovation should not be confused with operational improvement or operational excellence.
Operational excellence or improvement refers to achieving high performance via existing modes of operation: ensuring that work is done as it should be to reduce errors, costs, and delays but without fundamentally changing how that work gets accomplished. Operational excellence often focuses on automating existing 'efficient' processes.
Operational innovation means coming up with entirely new ways of executing operational activities, e.g. completing customer orders, developing products, providing customer service, or doing any other activity that an enterprise performs. Operational innovation has been key to some of the greatest success stories in business history, including Wal-Mart, Toyota, Zara and Dell. Most of these organizations have radically changed their supply chain organizations, e.g. cross-docking and companion innovations led to lower inventory levels and lower operating costs, which translated into lower prices.
It’s therefore not strange that many Australian, Asian and Global organizations are looking to recruit operational innovation specialists to transition their people, organization and strategy from operational excellence to operational innovation.
Based on experience, I have seen that the following key characteristics between operational excellence and operational innovation:
|Operational Excellence||Operational Innovation|
|Delivering the operational strategy||Delivering the organisational strategy through operational solutions|
|Project manager/ director to lead the operational excellence projects||Experienced, cross-skilled hands-on Enterprise Transformation specialist to deliver iterative improvements|
|A waterfall/ traditional project methodology to deliver improvements||Agile-based methodology (e.g. Agile Innovation Delivery) to deliver frequent, targeted value-add innovative solutions through continuous iteration improvements|
|A stage-gate process with regular updates to the stakeholders and sponsors||Close sponsor and stakeholder collaboration and engagement to provide frequent informal and formal updates|
|Operational Excellence solutions have a clear start and end-date||Operational Innovative solutions are developed iteratively, resulting in continuous improvements without a clear end-date (transfers to continuous improvements)|
|Use of functional (and technical) experts to deliver pre-defined solutions||Use of cross-functional and collaborative teams to define, develop and execute the solutions|
|Focus on standardisation and increasing automation of existing processes and systems||Focus on meeting organisational priorities and delivering maximum value-add of the process harmonisation, technology and people behaviours|
|Deliver operational metrics as part of the operational excellence solution delivery||Start with progress metrics before operational innovative solution development|
|Focus on reduced people-interaction as part of the solution development and delivery||Focus on behavioural change as part of the innovative solution development and delivery|
In the picture below, it shows the mis-alignment between projects that follow the operational excellence vs. the operational innovation approach.
How do organizations, which currently execute operational excellence, transfer adopting operational innovation?
- Recruit an Operational Innovation specialist or cross-functional Enterprise Transformation expert, instead of a Project Manager,
- Introduce collaborative ideation sessions with organizational priority analysis to focus on maximum value-add solutions,
- Create cross-functional, collaborative solution teams instead of business and technical functional specialists,
- Transition from a traditional As-Is & To-Be design, develop, implementation and testing approach towards a Minimal Viable Solutions development approach with continuous testing and improvement potential assessment,
- Introduce sponsor & stakeholder solution involvement instead of sponsor & stakeholder solution update sessions,
- Develop progress and performance metrics before solution development.
By introducing these crucial steps, it allows you to introduce operational innovation into your operational excellence strategy and transition towards maximum impact on delivering your organizational goals!