How do companies win these days? By changing the rules!!

Thu, Aug 5, 2010

Featured, Process and Innovation

You may have heard about Toyota’s ‘production system for operations’, P&G’s ‘connect & develop outsourcing model for innovation’ and GE’s ‘design for six sigma’. Why are these so well-known? What makes them particularly noteworthy? They are the companies’ process innovation systems, keys to these two organizations’ excellent efficiency and effectiveness.

What is Process Innovation

‘Process innovation’ should not be confused with ‘process improvement.” Process improvement is about achieving better performance ‘“ by reducing errors, costs, delays, defects, etc. Whereas process innovation involves finding new ways of doing things that bring competitive value to the firm. This might include processes for filling orders, handling material, customer service, etc. The end result of process innovation, says Ashis Dutta of CCE Software, should answer the following two questions regarding process effectiveness and efficiency:

1. Are we doing the right thing?
2. Are we doing it in the right way?

Walmart: Improving the Distribution Process

Process innovation is a powerful weapon for making a company more competitive. It is often an underutilized innovation tool. Take, for example, the enormous success of Wal-Mart. Wal-Mart pioneered a great number of innovations in how it purchased and distributed goods. One of the best known of these is “cross-docking,” in which goods trucked to a distribution center from suppliers are immediately transferred to trucks bound for stores ‘“ without ever being placed for storage. Cross-docking led to lower inventory levels and lower operating costs, which Wal-Mart translated into lower prices.

Shell Lubricants: Improving Performance

Other companies have made similar performance gains through process innovations. In 2002, Shell Lubricants reinvented its order fulfillment process by replacing a group of its workers who handled different parts of an order with one individual who now does it all. As a result, Shell has cut the cycle time of turning an order into cash by 75%, reduced operating expenses by 45%, and boosted customer satisfaction by 105% – all by introducing a new way of handling orders.

Progressive Insurance: Improving the Claims Process

Progressive Insurance focused on high-risk drivers, a market that it served profitably through extremely precise pricing. But in the 1990s, the insurer believed that much larger companies were about to enter this niche and emulate its approach to pricing. So Progressive decided to win the game by changing the rules. The company introduced what it calls Immediate Response claims handling: A claimant can reach a Progressive representative by phone 24 hours a day, and the representative then schedules a time when an adjuster will inspect the vehicle. Adjusters no longer work out of offices from nine to five but out of mobile claim vans. Instead of taking between seven and ten days for an adjuster to see the vehicle, Progressive’s target is just nine hours. The adjuster not only examines the vehicle but also prepares an on-site estimate of the damage and, if possible, writes a check on the spot! This approach has many benefits:

  • Claimants get faster service with less hassle, which means they are less likely to abandon Progressive because of unsatisfactory claims experience.
  • And the shortened cycle time reduced Progressive’s costs dramatically.
  • Other benefits for Progressive are an improved ability to detect fraud, lower operating costs, and a reduction in claims payouts (because claimants often accept less money if it’s given sooner and with less travail).

Process Innovation may appear unglamorous or unfamiliar to many executives, but it can provide new opportunities for competing, as well as superior business performance.

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