mba 8220: innovating business processes · © ceprin (2007) mba 8220 #2 innovating processes the...

© Richard Welke 2002

MBA 8220:Innovating Business Processes

Mike Gallivan Lars Mathiassen

Richard WelkeDuane Truex

© CEPRIN (2007) MBA 8220 #2 Innovating Processes 2

AgendaInnovationProcess innovationCase discussionProject

© CEPRIN (2007) MBA 8220 #2 Innovating Processes

The Information Systems Strategy Triangle

Manager in the

coordinating role

Business Strategy

OrganizationalDesign Information

Strategy


Topic one


What is innovation?Dictionary-style …

The act or process of inventing or introducing something newSomething newly invented or a new way of doing thingsThe process of adopting a new thing, idea, or behavior patterninto a cultureThe act of starting something for the first time; introducingsomething new

Authors on innovation …Leifer, et.al. (Radical Innovation, HBP, 2000)

Producing an outcome with:An entirely new set of performance featuresImprovements in known performance of 5x or greaterA significant (30 reduction) in cycle-time and/or cost

James MarchExploration vs. Exploitation

Yours? …


Who is innovating?

“Midlevel managers play a crucial role in everycompany’s innovation process, as theyshepherd partially formed ideas into fullyfledged business plans in an effort to winfunding from senior management.

It is the midlevel managers that decide whichideas … they support and carry to seniormanagement”

From C. Christensen: The Innovator’s Solution, HBP, 2004


What types of innovation?

Sustaining innovation (exploitation):Successful companies are good at responding to

evolutionary changes in their marketsMakes a product or service perform better in waysthat mainstream customers already valueTypically developed and introduced by industryleaders

Disruptive innovation (exploration):Where they run into trouble is in handling

revolutionary changes in their marketsCreates entirely new market by introducing a newproduct or service that mainstream customers initiallysees as worseNo company has a routine for handling themMore difficult for large, mature companies, easier forsmaller, immature companies

Creating changeCreating changecapabilitycapability

Creating newCreating newcapabilities capabilities internallyinternallyCreating capabilitiesCreating capabilitiesvia a via a spinoutspinoutorganizationorganizationCreating capabilitiesCreating capabilitiesby by acquisitionacquisition

Adapted from Christensen & Overdorf (2000)


Types of Sustaining Innovation

Application InnovationTake existing products / services to new markets

E.g., On-star to autos; tandem fault-tolerant computers to banking as ATMsProduct Innovation

Established products to the next level; price reduction; usability improvementsProcess Innovation

E.g., streamline supply chain; move to on-line tradingExperiential Innovation

Improve the customer’s experience“Delighters” - “You’ve got mail!”“Satisfiers”- rapid line management through airport security“Reassurers” - FedEx package tracking

Marketing InnovationImprove customer touch, on line notification, c.f., e-bay, Amazon…

Business Model InnovationReframing an established value proposition

Razor blades to shaving systems; from computing (Apple) to consumer lifestyleproducts


Capitalize on Disruptive Innovation

Structural InnovationTo restructure industry relationships

Bank deregulation allowed Fidelity and CitiCorp tooffer consolidated services (brokerage, consumerbanking, insurance, etc.) under one umbrella


Which capability to change?

Which formsWhich formsof change areof change are

youryourorganizationorganizationcapable ofcapable ofhandling?handling?

•• Formal and informalFormal and informal•• Processes are not meant to changeProcesses are not meant to change•• Disabilities to change in less visibleDisabilities to change in less visible

processesprocesses

Processes

Values

•• Basis for judgment at all levelsBasis for judgment at all levels•• Clear/consistent values facilitate changeClear/consistent values facilitate change•• Two key values influence changeTwo key values influence change

capability capability …… How: How:1.1.Acceptable gross margins judgedAcceptable gross margins judged2.2.Interesting opportunities judgedInteresting opportunities judged

Resources

•• Tangible and intangibleTangible and intangible•• High quality resources facilitates changeHigh quality resources facilitates change


Capabilities evolve over timeThe factors defining an organization’s

change capabilities evolve over time:Begin with resources (primarily people)

Departure/addition of just a few people can have dramaticeffectsSome fail to ever develop processes

Consistency, quality, and productivity suffersMove to visible, articulated processes and values

Founders impact initial processes and valuesSuccess becomes independent of individualsRepeatability

Migrate to shared and invisible cultureEnables people to act autonomously and consistentlyCan both enable or inhibit change

Change easier

Change more difficult


Fitting tactics to needs

Poor

Good

Use Use heavyweight teamheavyweight team::within existing organizationwithin existing organization

Use heavyweight team:in a separate spinout

organization

Use lightweight or functionalteam:within existing organization

Use heavyweight team for in-house development;

but commercialization requiresa spinout

Good Poor(sustaining) (disruptive)

InnovationInnovationfitfit

with with valuesvaluesWhatWhat’’s a s a ““heavyweightheavyweight”” team? team?

Innovation fitInnovation fitwith with processesprocesses


When & how to innovate? (1)

From: From: ““Darwin and the DemonDarwin and the Demon”” (HBR, Geoffrey Moore, Jul-Aug 2004) (HBR, Geoffrey Moore, Jul-Aug 2004)


Riding the life Cycle• Early Market

• Early adopters, visionaries, the Press

• The Chasm• Lost novelty, not yet caught on, pragmatists wait; current customers have to help it

catch on

• The Bowling alley• Gains acceptance amongst pragmatists in niche markets, building loyalty

• Tornado• Passed the test of usefulness; growing at double and triple-digit rates;

competition fierce; imitators try to join in

• Main Street• (Early) hyper growth subsided; 1st wave consolidation; market-share pecking order

established; incremental improvements• (Mature) growth has flattened, commoditization increased; 2nd wave consolidation thins

out the bottom; growth through merger and acquisition; no new observable technologieson the horizon

• (Declining) product ossification; market dominators unresponsive to customer needs;customers look for relief and alternatives; market rife for disruption

• Fault line and End of Life• Technology obsolescence strikes;apparent fault line between customer and products company

sells; new product ‘tornado’ wreaks havoc; only alternative is how much customers will spend onlegacy technology


When & how to innovate (2)

Main Street - new efficiencies

Existing technologyto new markets

Established offers inexisting markets tonext level

Surface modificationsto improve customerexperience. Improve customer-

touching processes

Reframe establishedvalue proposition

Restructure industryrelations


Topic two


Process & innovation

• Why are processes created?• How are processes managed?

• What are the defining elements?• How are the elements related?

Process Innovation• Why is innovation needed?

• How is innovation managed?• What are the defining activities?• How are the activities related?

How does business process configurationinfluence and shape innovation?

How is innovation organized to facilitateenhanced process performance?

Business Context

MarketMarket Techno-Techno-logylogy

BusinessBusinesspartnerspartners


Degrees of change

Improvement Innovation

Level of change IncrementalIncremental RadicalRadical

Starting point Process problemsProcess problems EnvironmentalEnvironmentalchangechange

Frequency ofchange ContinuousContinuous DiscreteDiscrete

Participation Bottom-upBottom-up Top-downTop-down

Risk ModerateModerate HighHigh

Primary enabler Statistical controlStatistical control InformationInformationTechnologyTechnology

Adapted from Thomas H. Davenport: Process Innovation: Reengineering WorkThrough Information Technology, Harvard Business School Press, 1992.


Outcome and Process Focus

Poor

Good

Use Use heavyweight teamheavyweight team::within existing organizationwithin existing organization

INNOVATIONINNOVATION

Use heavyweight team:in spinout organization

INNOVATION

Use lightweight orfunctional team:

within existing organization

IMPROVEMENT

Use heavyweight team in-house; commercializationrequires a spinout

IMPROVEMENT

Good Poor(sustaining) (disruptive)

Innovation fitInnovation fitwithwith

processesprocesses

InnovationInnovationfitfit

with valueswith values

Radical versus IncrementalRadical versus IncrementalRelates to both outcomes and Relates to both outcomes and Process and can be combined Process and can be combined


Managing the BPI project portfolio

BPI project

BPI project

BPI project

BPI project

Prioritize, coordinate, and monitor portfolio ofBPI projects

Focused BPI projects

BPI management


Building innovation capabilityTYPESTYPES1. Leadership-drivencapacity:

Individuals see opportunityIndividuals see opportunityand run with itand run with it

2. Structural-driven capacity:Mechanisms are put in placeMechanisms are put in placeto enable changeto enable change

3. Organic capacity:Employees see innovationEmployees see innovationas an integral part of theiras an integral part of theirjobjob

INGREDIENTSINGREDIENTS1. The ability of people within

the organization to innovate2. The desire of people to act in

an innovative manner3. An environment that enables

and empowers innovation

Innovation is like jazz -- not random; requires improvisation

Creativity is just having enough dots to connect

Is Is youryourorganizationorganizationInnovative?Innovative?

Adapted from Shapiro: Innovate your organization.The 24/7 Innovation www.24-7innovation.com.


Innovation and improvement

•Improvement •Innovation

•• Process definedProcess defined•• Process measures definedProcess measures defined•• Process diagnosisProcess diagnosis•• Improvements identifiedImprovements identified•• Improvements prioritizedImprovements prioritized•• Process design and testProcess design and test•• Implement improvementsImplement improvements

•• Success indicators definedSuccess indicators defined•• Current strength-weakness analysisCurrent strength-weakness analysis•• Future opportunities-threat analysisFuture opportunities-threat analysis•• Innovations identifiedInnovations identified•• Innovations prioritizedInnovations prioritized•• Process design and testProcess design and test•• Implement innovationImplement innovation

Adapted from Beechner & Hamilton: “Infinity: A Model for Organizational Excellence”(www.paragonstar.com)


IDEAL improvement model

McFeeley, B. (1996). “IDEAL: A User's Guidefor Software Process Improvement”, CMU/SEI-96-HB-001. www.sei.cmu.edu

Stimulus forimprovement

Set context &establishsponsorship Establish

infrastructure

Appraise &characterizecurrent process

Develop recommendations& document results

Set strategy & priorities

Establish processaction teams &action plans

Define processes & measuresPlan & Execute pilot plan

Execute, & Track installation

Document & analyzelessons

Reviseorganizationalapproach

INITIATING

DIAGNOSING

ESTABLISHMENT

ACTINGLEARNING

See also:See also:CMMCMMCMMICMMI


Critiquing the as-is process

• Rethink• Reconfigure• Resequence• Relocate• Reduce• Reassign• Retool

Adapted from Stephen ShapiroThe 24/7 Innovationwww.24-7innovation.com

Question Apply when…..How canactivityfrequency bereduced orincreased?

An activity is non-value added butnecessaryThere is low variation in the processor productThere is high variability and low setupcosts and times

How wouldmoreinformationenable greatereffectiveness?

Higher accuracy is neededGreater segmentation would yieldgreater marketing effectiveness

How would lessinformation orfewer controlsimproveefficiency?

A high proportion of costs goes todata collection and controlsThe value received from informationor controls is minimalAbsolute accuracy is not necessary

How can criticalresources beused moreeffectively?

Utilization of key resources is lowCritical resources are performing non-value-added or waste work

7R’s of processinnovation


Reviewing the BPI triangle

InfrastructureInfrastructure

CustomersCustomers

Products & ServicesProducts & Services Strategies

StrategiesEnvir

onmen

t

Envir

onmen

t

Work Practices

InformationParticipants Technology

Steven Alter (2002). Substitute:

- Work system Business process

- Business process Work practices1. Create a snapshot of the business

process

2. Find problems and opportunitiesfor improvement

3. Explore effects of proposedprocess changes

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