Topic 3 Driving Operational Innovation
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ACPS 2010, Module 6, Services Innovation Topic 3 Driving Operational Innovation Lean Six Sigma and its limitations in driving business model innovation
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Topic 3 Driving Operational Innovation
- 1. Module 6 - Services innovation Driving Operational Innovation
Editor's Notes
- In response to economic shifts and global connectedness, the Globally Integrated Enterprise a fundamental change in how the corporation works. Contemporary corporations are locating operations and functions anywhere in the world based on the right cost, the right skills and the right business environment. Integration is taking place horizontally and globally with benefits to companies of every size, age and reach. Massive economic shifts – last year the GDP of major emerging economies (India, China, Latin America and Russia – outpaced worlddwide growth by significant margins. India’s growth, 8.7%, was double the rest of the world’s, 3.7%; China’s nearly triple at 10.5%. In China, the lower-middle class (household income of US$3000-$6000) is expected to grow to 41% of all households by 2008. Multinationals seeking revenue growth, profit growth, or market share, will need new approaches to win in price-sensitive mass markets while maintaining leadership in higher-margin premium market segments. They will also need to venture out of major cities and into “emerging” cities that collectively accounted in 2005 for 43% of GDP and 39% of total urban population.
- Lean Six Sigma is a set of operational approaches that enables continual improvement and innovation toward growth, not just cost-cutting, throughout an extended enterprise As the Lean Six Sigma approach is implemented, organizations acquire an inherent inclination to innovation. Operational discipline enables collaborative innovation. If you’re going to open your organization to customers and partners, you need to be in decent shape.
- It takes a tightly packaged, disciplined approach to operational innovation to identify and remove root causes of customer dissatisfaction. The “voice of the customer” is key to prioritizing process decisions at every level and function of the value chain. When customer needs are quantified, attainment of goals can be monitored and measured at key process points. By quantifying process results it’s possible to establish leading indicators that can predict outcomes before it’s too late to take corrective action. Examples: “You are finding it too hard to start the lawnmower? How many yanks would be acceptable? We will commit to delivering a product that meets that standard.”
- Sporadic programs will not make an enduring impact. Operational innovation through Lean Six Sigma is characterized by speed, urgency, rigor, structure and senior management support.
- Operational innovation gives companies an inside track for product and services innovation. Disciplined attention to the customer’s voice reveals what customers “want to have” as well as what they “need.” Today’s wants become tomorrow’s needs – and competitive differentiators for companies that successfully identify and deliver them.
- Establishing a common language about operational processes makes it possible for senior executives and employees at any level to have substantive discussions with each other. Also, employees in disparate functions are able to have meaningful conversations about their activities. Some companies are requesting suppliers to adopt Lean Six Sigma in order to make operational boundaries seamless.
- Globalization created a crisis for steel companies and POSCO faced the challenge with operational innovation. Engineers were trained to work with customers and identify needs in new markets. In less than four years this regional producer became the third largest steelmaker worldwide. It expanded globally with 14 joint ventures and US$780 million in China. With increasing emphasis on social responsibility, it’s interesting to see how POSCO drove innovation in that arena as well. Using the Lean Six Sigma approach introduced many environmental management programs and processes, including an iron-making approach that eliminates processes that create pollutants. The Lean Six Sigma way of working became pervasive across all areas of the business -- product engineering, corporate strategy and budgeting, manufacturing and logistics.
- UK retail energy marketplace deregulated in 2001 and ScottishPower needed to overhaul customer service and sales operations to regain its leadership position. Trend reversal needed Lean Six Sigma is not just for manufacturing… it’s big in financial services and hot right now among energy and utility companies Fact –based evidence from Lean Six Sigma approach revealed marketplace “leak:” customers who were moving would call to cancel service. Reps were efficient at the cancellation, but never inquired about need for future service. Process/tool was developed to make it easy to sign up customer at new home and to sign up new residents at vacated address.
- An on-site Lean Sigma Kaizen workshop brought experts together in a concentrated face-to-face workshop. In a week's time, the team eliminated a vast number of processes, and this improvement is continuing. In addition, the team developed solutions to problems in the billing and end-of-lease processes that customers had identified.
- The Global CEO Study 2006 explored areas of innovation seen as necessary for competitive advantage and growth in immediate future. Results were based on interviews with 765 CEOs, large through one-on-one interviews. Financial data for 220 respondents was peer-benchmarked against publicly available data on peer groups based on industry revenue and size. Efficiency and effectiveness are two sides of one coin required to sustain operational innovation. Overly lean operations can lead to erosion in customer satisfaction. Overly customer-centric operations can lead to erosion of margins. Lean Six Sigma, as you’ll see later in this presentation, balances both sets of requirements through an efficiency methodology (Lean) and an effectiveness one (Six Sigma).
- Clients seek operational innovation when they want growth in combination with cost reduction. When driven by senior management, specific improvement goals can be achieved in 4-6 months, making it possible to open new opportunities with customers. Exclusive emphasis on quarterly numbers diminishes the likelihood of success. Consistency in operations means employees don’t spend all their time running down problems. And that means more time for innovation.
- Six Sigma and Lean Manufacturing proved to be the science behind product development and manufacturing. But with the new services economy, these techniques may be used in the back stage or production stage of services, but the customer experience is the new focal point of services. Keep in mind that customer experience science is in its infancy. We can only learn at the moment from best practices. We have a long way to go with developing the science behind successful and profitable services.