Innovation can take many forms, including product innovation, technological innovation, and innovations in business models and strategy. Business process reengineering authority Michael Hammer has argued that another form of innovation—operational innovation—may seem less glamorous than others, but is a uniquely powerful means of strengthening a company’s performance and competitive position. His definition of the term is straightforward: Operational innovation is the invention and deployment of new ways of doing work.
Given his close association with business process reengineering, Hammer is careful to distinguish operational innovation from operational improvement and operational excellence. The latter involve achieving high performance through existing modes of operation: reducing errors, costs, and delays, without fundamentally changing how the work gets done. Operational innovation, by contrast, means “coming up with entirely new ways of filling orders, developing products, providing customer service, or doing any other activity that an enterprise performs.”
Hammer claims that operational innovation (or “OI” as we will often refer to it from here on), is responsible for much of the success of companies such as Dell, Toyota, and Wal-Mart. He grants that other factors were crucial, such as culture, strategy, and human resource policies in the case of Wal-Mart, but positions OI as the foundation of the company’s success. Operational innovation can bring major strategic, marketplace, and operational benefits, but getting OI right requires overcoming organizational barriers.
Michael Hammer set out his thoughts on the subject most directly in two articles: “Deep Change: How Operational Innovation Can Transform Your Company,” in the April 2004 issue of Harvard Business Review, and “Six Steps to Operational Innovation,” in the August 1, 2005 issue of HBS Working Knowledge.
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