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Six steps to operational innovation

Michael Hammer

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Operational innovation is notoriously difficult. The power of creating and deploying new ways of performing fundamental business processes is indisputable; it has been the springboard to success for leading companies in virtually every industry. But many firms have failed at their efforts to make operational innovation work. What is the secret to success? The experiences of Schneider National, a transportation and logistics firm based in Green Bay, Wisconsin, provide an object lesson in how to get operational innovation right.

Founded in 1935, this privately held company has a long history of growth; by the late 1990s, it had become the largest full-load trucking firm in the country, serving customers such as Lowe's, Wal-Mart, and Georgia-Pacific. The company had nearly $3 billion in annual revenue and more than 20,000 employees, and its orange tractors and trailers were fixtures on U.S. interstates.

But in 2000, Schneider's growth slowed to a snail's pace, productivity dipped, and return on capital dropped. The company's managers had the insight to realize that more of the same would not get them out of the hole they were in -- indeed, more of the same is what had gotten them into it. They determined that in a highly competitive industry such as theirs, which was suffering from enormous overcapacity, serving customers better than the competition was the key to success. Stretch goals were set for customer satisfaction, and a project was begun to tackle and improve one aspect of the company's interactions with customers, namely how it prepared and delivered responses to customer requests for proposals (RFPs). A team of highly capable individuals was convened to create a new way of developing these proposals. They came up with a lot of very good ideas, and there was considerable excitement about the opportunity. Yet the net result of this effort was absolutely zero: No changes were made, and life continued as before.

That's the bad news. The good news is that Schneider's leaders did not give up, but restarted the effort in a different way. This time around the company was astoundingly successful. The time to respond to a customer's RFP, which had been in the range of 30 - 45 days, plummeted to 1 - 2 days. These results started to appear within nine months of the project getting underway and were fully realized in less than two years. By getting back to customers so much faster than its competitors, Schneider was able to shape the terms of competition. The result was a rise of some 70 percent in the percentage of bids that Schneider won, which translated into sales increases of hundreds of millions of dollars annually. Ironically, many of the ideas that had been developed in the original project resurfaced in the new system for responding to RFPs.

So what changed between the first and second efforts that made the difference between failure and success? There were six key factors:

Process focus

When the effort restarted, it began with the creation of an enterprise process model, which describes a business's operations in terms of a small number of value-creating end-to-end processes. Schneider's model included Develop Transportation Solutions, Acquire New Business (ANB), Acquire Transportation Order, Move Freight, and Provide Ability to Move Freight. These few processes encompassed virtually all work performed by Schneider's thousands of employees. By defining the Acquire New Business (ANB) process, setting its boundaries, determining its metrics, and targeting it for improvement, Schneider appropriately defined the problem to be solved.

Most companies set too narrow a scope for their innovation efforts and thus can make only incremental improvements. The first time around, Schneider conceptualized the effort purely in terms of proposal preparation, thereby excluding numerous groups and activities relevant to the larger goal of acquiring new business. By focusing the second time around on the entire ANB process, comprising as it did eight different departments and a host of different activities, the Schneider team could address the full range of issues responsible for slow customer response.

Process owners

Major results demand change to many parts of an organization; but since each part of the organization -- and its manager -- has its own agenda, goals, and metrics, efforts to make major changes typically run aground on the shoals of turf, inertia, and resistance. A process owner is a senior executive empowered to make the changes needed to the process across the enterprise as a whole. Schneider appointed process owners for each of its processes; the process owner for ANB was the driving force behind the creation and successful implementation of a new way of winning sales opportunities.

Full-time design team

The first time, the people involved in developing new ways of working were themselves working on only a part-time basis, typically less than eight hours per week; the second time, this project was their sole responsibility. Part-time assignment to a process redesign team is an exercise in frustration: Scheduling is a nightmare, emergencies in team members' day jobs inevitably arise, and the organization is inclined to doubt leadership's commitment if it can spare only limited resources. Schneider treated process redesign as the serious undertaking it is, investing in education for the team members, providing them with a formal methodology, and backing them up with a program office. Most team members stayed with the effort between fifteen months and two years—that is, until the design was largely in place and delivering results.

Managerial engagement

The finest idea will not get implemented unless there is an organizational framework for shepherding it from concept to reality. Schneider put in place several groups to ensure that the design team's innovations did not languish in the limbo of reports and studies.

First, seniormost leadership was actively engaged in this effort, meeting monthly to review progress and solve problems that needed their involvement. Second, a process council was formed, consisting of the process owners and a handful of other operating managers. This group was responsible for boosting Schneider's operating performance by linking improvement initiatives to strategy and by leading change in the business. Third, senior leaders from each department involved in the ANB process were brought together as a team to lead the implementation of the new process design. This was a particularly important and difficult role, requiring departmental managers to let go of their focus on narrow departmental concerns and focus instead on the larger goals of the end-to-end process.

Building buy-in

The rubber of operational innovation hits the road at the front lines, where people will have to change what they do on a daily basis and how they do it. For many, this is a difficult and even wrenching experience, and one that they will find all kinds of excuses to avoid. Dropping such changes on them out of the blue will guarantee failure, and preaching to them about enterprise financial goals will not help them adjust. Schneider wisely got the front lines engaged throughout the redesign effort. A thousand people were exposed to the new process as it was being developed, making them feel like participants rather than victims and helping them see both the flaws in the old ways of doing things and the power of the new. Many of these individuals were turned from resisters into advocates of change. They were also provided with training and education, reinforcement and support, and results-based incentives, all to help them adapt to the new ways of operating.

Bias for action

Voltaire's observation that perfection is the enemy of the good is especially germane to operational innovation. Companies that strive to design the ultimate new way of doing things usually do nothing at all; they lose momentum while tinkering and revising, and the resulting solution is too grandiose to be implemented. Wisely avoiding this trap, Schneider adopted a principle of "70 percent and go": Develop a solution that provides most but not all desired capabilities, get into the field quickly, and then enhance it over time. This approach allows concepts to be tested, builds momentum and credibility, and delivers early benefits that silence critics and sway doubters.

The revised ANB process differs from the old one in numerous ways: Sales reps, who had been specialized by offering, now represent all Schneider's services, so no time is lost handing off an opportunity from rep to rep; proposals no longer bounce across multiple departments but are handled by integrated customer response and development teams; and pricing has been simplified, standardized, and supported with a new computer system.

This new process is far from the end of the story, however. Enterprises are tightly integrated systems; change one part, and many other parts must adapt. Schneider quickly discovered that its existing ways of handling orders and shipments could not accommodate the increased volume generated by the new ANB process, so it began redesign efforts for these processes, which are now delivering significant business value. Nor was the new ANB process enshrined behind glass. A new project has just kicked off to come up with a revised design that will exploit advances in technology to support customers even more effectively.

Reprinted by permission from "Making Operational Innovation Work," Harvard Management Update, Vol. 10, No. 4, April 2005.

See the current issue of Harvard Management Update.

Michael Hammer is president of Hammer and Company, a management education and research form, and the author of four books, including Reengineering the Corporation: A Manifesto for Business, with James Champy. He can be reached at MUOpinion@hbsp.harvard.edu

To read more articles like this one, visit HBS Working Knowledge, an online source for business analysis, information and research.

© 2005 President and Fellows of Harvard College


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